Q3 2024 Earnings Summary
- Health and Wellness segment reports 10% loan growth year-over-year, with strong customer satisfaction and Net Promoter Scores, positioning Synchrony well in a $400 billion market.
- Late-stage collections have started to improve in recent months, indicating potential enhancements in credit performance.
- Net Interest Margin (NIM) is expected to trend higher in the future, providing tailwinds to profitability as interest components increase and benefits in interest expense materialize.
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Credit Performance and Reserve Rates
Q: How is credit performance affecting reserve rates and outlook?
A: Management indicated that credit performance is generally tracking expectations, with delinquencies stabilizing and no significant signs of stress among lower-end consumers. They expect the reserve rate at year-end to be generally in line with last year's 10.3% , and losses are expected to move back towards 5.5% to 6% as underwriting adjustments take effect. The decrease in reserve rate is driven by the denominator effect as loan balances stabilize. -
Net Interest Margin Expectations
Q: What are the expectations for net interest margin given rate changes?
A: Management expects net interest margin to have an upward bias over the next several quarters , driven by benefits from payment rates declining and lower interest expense as CDs reset at lower rates. In a declining rate environment, they anticipate tailwinds due to lower funding costs, with retail deposits, particularly CDs, mostly repricing in the first half of next year. They also foresee interest income benefiting from PPPC actions and lower payment rates. -
Impact of CFPB Late Fee Rules
Q: How will CFPB late fee rules impact the company?
A: Management is operating as if the late fee rule will go into effect, preparing to offset the impact of an $8 late fee. Pricing actions have been implemented to mitigate the expected impact, and customer attrition is lower than expected. If the rule does not go into effect, they have not planned for rolling back changes but would discuss with partners if necessary. -
Spending Trends and Loan Growth Outlook
Q: What is the outlook for spending trends and loan growth?
A: There has been a slowdown in spending volume due to consumers trading down and acting rationally amid inflation pressures. Purchase volumes have stabilized at low single-digit declines, and management expects stability heading into the holiday season. Loan growth is expected to remain low single-digit as credit actions continue to impact new accounts but could reverse if macroeconomic conditions improve. -
Collections Performance and Credit Actions
Q: How are late-stage collections performing, and is it harder to collect now?
A: Late-stage collections have shown improvement over the last few months, although still performing worse than pre-pandemic periods. It is harder to collect today due to tougher customer contact, but investments in digital collections and other channels are helping. Underwriting actions are designed to bring losses back to 5.5% to 6%, and delinquency trends are tracking expectations. -
Health and Wellness Segment Performance
Q: How is the health and wellness segment performing?
A: The health and wellness segment continues to be a strong contributor, with loan growth up 10% year-over-year. While there is some pullback in discretionary procedures, areas like pets are up 4% year-over-year. The CareCredit card usage rate has increased to 65%, up 500 basis points from last year, indicating strong customer engagement. -
Competition and Pricing Actions
Q: Are competitors' actions influencing your pricing strategies?
A: Management monitors competitors but feels comfortable with their own actions. They are not an outlier relative to peers and have not seen a need to recalibrate pricing to remain competitive. The focus remains on maintaining value propositions that resonate with customers and partners. -
PPPC Tracking vs. Guidance
Q: How is PPPC performance tracking versus initial guidance?
A: PPPC actions are generally performing in line with expectations. Customer attrition is lower than anticipated, impacting the timing but not the point of neutrality for mitigating the impact of policy changes. The core performance is slightly better than expectations. -
Macroeconomic Outlook
Q: What macro factors are you watching to adjust your strategies?
A: Management is observing the consumer's response to inflation and the labor market. They look for stabilization in credit trends and reduced uncertainty to drive more normal growth and potentially reverse some tightening actions. Affordability issues and the impact of excess credit in the system are also considered.