Synchrony Financial Q2 2024 Earnings Report

Synchrony Financial EPS Results

• Actual EPS: $1.55
• Consensus EPS: $1.35
• Beat/Miss: Beat by +$0.20
• One Year Ago EPS: $1.32

Synchrony Financial Revenue Results

• Actual Revenue: $5.58 billion
• Expected Revenue: $4.44 billion
• Beat/Miss: Beat by +$1.14 billion
• YoY Revenue Growth: N/A

Synchrony Financial Announcement Details

• Quarter: Q2 2024
• Date: 7/17/2024
• Time: Before Market Opens
• Conference Call Date: Wednesday, July 17, 2024
• Conference Call Time: 8:00AM ET

Synchrony Financial (NYSE:SYF) (NYSE: SYF) is a consumer financial services company that specializes in providing point-of-sale financing and private-label, co-branded and branded credit card programs. The company serves as a payments and lending partner to retailers, digital merchants and service providers, offering consumer financing solutions designed to drive customer engagement and sales. Synchrony also operates a direct bank that offers deposit products, including savings accounts and certificates of deposit, which support its funding and customer-facing product suite.

Its core product set includes private-label and co-branded credit cards, general-purpose credit cards, installment loan programs and promotional financing options that are integrated into merchants’ checkout experiences. Synchrony provides account servicing, marketing, fraud prevention and analytics capabilities to partners, and it has invested in digital and mobile technologies to enable online and in-store payment experiences. The company’s banking arm supports consumer deposit products and underwriting services that complement its lending activities.

Synchrony traces its roots to the retail finance business of a large industrial conglomerate and completed its separation and public listing in 2014; it is headquartered in Stamford, Connecticut. The firm primarily serves customers and retail partners in the United States, working with national and regional merchants across sectors such as retail, healthcare, home improvement, telecommunications and automotive. Its business model emphasizes long-term partnerships with merchants and the use of data-driven credit and marketing solutions to enhance consumer purchasing.

As a regulated financial institution with an FDIC-insured bank subsidiary, Synchrony operates within the oversight frameworks applicable to consumer lenders and depository institutions. Its strategic priorities have included expanding digital capabilities, broadening partnership relationships, and diversifying product offerings to capture consumer demand for flexible payment options and merchant financing solutions.

Synchrony Financial Q2 2024 Earnings Call Transcript

Key Takeaways

• Synchrony reported net earnings of $643 million in Q2 2024, or $1.55 per diluted share, delivering a 2.2% return on average assets and a 20.2% return on tangible common equity.
• Customer engagement remained strong with 5.1 million new accounts added, average active accounts up 2%, $47 billion of purchase volume generated and ending receivables growth of 8% YoY.
• Proactive credit actions and disciplined underwriting have begun to improve delinquency trends, and Synchrony expects its net charge-off rate in H2 2024 to be lower than in H1.
• To prepare for the pending late-fee rule, Synchrony implemented pricing and policy changes (PPPCs), incurring $23 million of preparatory costs while maintaining full-year EPS guidance of $7.60–$7.80.
• The firm’s capital and liquidity remain robust with an 84% deposit funding mix, a CET1 ratio of 12.6%, $23 billion of liquid assets and $1 billion of remaining share buyback authorization.

Presentation

[Operator]

Good morning, and welcome to the Synchrony Financial Second Quarter 2024 Earnings Conference Call. Please refer to the company's Investor Relations website for access to their earnings materials. Please be advised that today's conference call is being recorded. Currently, all callers have been placed in listen-only mode. The call will be opened up for your questions following the conclusion of management's prepared remarks. If at any time you should require operator assistance, please press star zero. If you wish to ask a question following the prepared remarks, please press star one. I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin.

[Kathryn Miller, SVP of Investor Relations at Synchrony Financial]

Thank you, and good morning, everyone. Welcome to our quarterly earnings conference call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address during our call. The press release, detailed financial schedules, and presentation are available on our website, synchronyfinancial.com. This information can be accessed by going to the Investor Relations section of the website. Before we get started, I wanted to remind you that our comments today will include forward-looking statements. These statements are subject to risks and uncertainty, and actual results could differ materially. We list the factors that might cause actual results to differ materially in our SEC filings, which are available on our website. During the call, we will refer to non-GAAP financial measures in discussing the company's performance. You can find a reconciliation of these measures to GAAP financial measures in our materials for today's call.

[Kathryn Miller, SVP of Investor Relations at Synchrony Financial]

Finally, Synchrony Financial is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. On the call this morning are Brian Doubles, Synchrony's President and Chief Executive Officer, and Brian Wenzel, Executive Vice President and Chief Financial Officer. I will now turn the call over to Brian Doubles.

[Brian Doubles, President and CEO at Synchrony Financial]

Thanks, Kathryn, and good morning, everyone. Today, Synchrony reported strong second quarter results, including net earnings of $643 million, or $1.55 per diluted share, a return on average assets of 2.2%, and a return on tangible common equity of 20.2%. This performance is a testament to our differentiated business model. We continue to leverage our diversified portfolio of products and sales platforms, disciplined approach to credit underwriting and management, and innovative digital capabilities to further progress on our strategic objectives and to deliver sustainable risk-adjusted growth and returns over the long term.

[Brian Doubles, President and CEO at Synchrony Financial]

Customer demand for Synchrony's product and value propositions remained strong during the second quarter, as Synchrony added 5.1 million new accounts, grew average active accounts by 2%, generated $47 billion of purchase volume, and delivered ending receivables growth of 8% compared to last year. Synchrony's proprietary data and analytics, in combination with our flexible financing solutions and dynamic technology platform, have been core drivers of our performance through evolving market conditions, particularly as we seek to responsibly address the needs of our customers and partners. While our credit trends relative to pre-pandemic levels have outperformed most of the industry to date, we have leveraged these strengths to take action in our portfolio where we have seen indications of higher probability of default.

[Brian Doubles, President and CEO at Synchrony Financial]

These credit actions, along with a more selectively spending consumer, have contributed to lower new account and purchase volume growth in the second quarter, but have also improved our recent delinquency trends and should strengthen our portfolio's credit trajectory in 2024 and beyond. At the platform level, purchase volume and receivables trends were generally consistent in the second quarter. Purchase volume growth ranged from up 2% to down 3% year-over-year, broadly reflecting lower consumer spend on bigger ticket items, particularly in categories like furniture, jewelry, and vision, as well as the impact of the credit actions. Meanwhile, receivables growth across the platforms ranged from 6%-15% higher versus last year, driven primarily by payment rate moderation. Dual and co-branded cards accounted for 42% of total purchase volume for the quarter and increased 2%.

[Brian Doubles, President and CEO at Synchrony Financial]

Synchrony's out-of-partner spend gives us deeper insight into recent customer trends, as the broad utility of our offerings and compelling value propositions attract purchases across a range of categories, industries, and products. Our customers continue to be discerning in their discretionary purchases, particularly in larger ticket categories such as home furnishings, travel, and entertainment. They have been spending more at restaurants, though, and continue to spend at the pharmacy and on health and wellness needs, and contributing to non-discretionary spend growth more broadly. That said, our customers are spending slightly less per transaction across most categories and credit grades, as average transaction values declined about 2% versus last year. Only our top credit segment saw growth in average ticket values during the second quarter. Customers across credit grades are transacting more frequently, however, which has generally offset most of the impact of lower transaction values.

[Brian Doubles, President and CEO at Synchrony Financial]

Altogether, we view these spend behaviors as appropriate and consistent with the payment rate normalization that began in our portfolio in 2023 and has continued since. Over the first 6 months of 2024, however, the pace of this payment rate moderation has decelerated across credit grades. According to the external deposit data we monitor, there continues to be relative stability in savings balances compared to the rapid tapering that occurred through the middle of last year. When taken together, we believe these spend, payment, and savings trends support our view that consumers are making healthy decisions to actively manage their cash flows.

[Brian Doubles, President and CEO at Synchrony Financial]

These trends, coupled with the impact of our credit actions, give us confidence that Synchrony's net charge-off rate should be lower in the second half of this year than in the first half. As we continue to monitor the health of the consumer, our portfolio credit performance, and that of the broader industry, Synchrony is also utilizing our proprietary insights and lending expertise to position our business for sustainable risk-adjusted growth for many years to come. During the second quarter, we added or renewed more than 15 partners, including a program expansion and extension with Verizon and the addition of Virgin Red. We are excited about our continued partnership with Verizon and the opportunity we see to deliver maximum customer value on purchases made at Verizon.

[Brian Doubles, President and CEO at Synchrony Financial]

We are also proud to be the exclusive issuer of Virgin Red's multi-category travel card, the first-ever Virgin Red Rewards World Elite Mastercard, which will connect members across the Virgin family, from flights to cruises, hotels, and experiences, with points that never expire. Cardholders will earn Virgin points on all their Virgin Red Rewards card spend, which can be used for a range of gifts and rewards, all while enjoying a first-rate digital experience from application to servicing. And as Synchrony continues to extend our reach and further optimize outcomes for both our customers and partners, we are incorporating strategic and technology-oriented partnerships to power more seamless digital experiences. Synchrony selectively works with second-look financing solutions to enhance the customer experience and our partner relationships.

[Brian Doubles, President and CEO at Synchrony Financial]

We recently announced an expanded relationship that will utilize a fully integrated solution spanning the full customer apply and buy experience across all points of sale. Synchrony will own the point-of-sale platform and connect to the second-source provider in a way that's seamless to both the partner and the customer that's applying. This collaboration will utilize our innovative technology and data to responsibly expand access to credit to more consumers, while also driving stronger loyalty and sales for the many small businesses, healthcare providers, and retail partners we serve. Meanwhile, Synchrony launched our partnership with Installation Made Easy, a leading enterprise software and services company that supports retail-based home improvement programs. This partnership will enable Floor & Decor cardholders to use their Synchrony-issued credit card to finance both the materials and the installation service required for their home improvement projects through one streamlined process.

[Brian Doubles, President and CEO at Synchrony Financial]

We're excited about the opportunity we see to strengthen our position in the home improvement market and plan to scale this capability to additional retailers over time. So whether it's through the continued expansion of our distribution networks, the addition and renewal of programs that span most consumer spend categories, or the enhanced functionality at point of sale, Synchrony is leveraging our proprietary data and analytics, our diverse product suite, and our innovative technology to drive greater access, flexibility, and utility for both our customers and partners. With that, I'll turn the call over to Brian to discuss our financial performance in greater detail.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Thanks, Brian, and good morning, everyone. Synchrony's second quarter results continue to demonstrate the resilience of our differentiated business model through an evolving environment. While consumers are managing their cash flows and consumption and the impact of our credit actions are beginning to season, we remain focused on driving sustainable risk-adjusted growth. Turning to our financial performance, ending loan receivables grew 7.9% to $102 billion in the second quarter, benefiting from an approximately 80 basis point decrease in the payment rate and reflecting growth across each of our sales platforms. Net revenue increased 13% to $3.7 billion, reflecting higher interest and fees, lower RSA, and an increase in other income. Net interest income increased 7% to $4.4 billion, as interest and fees grew 10%, primarily reflecting growth in average loan receivables.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Our loan receivable yield grew 14 basis points, benefiting from product repricing actions and lower payment rate, partially offset by the higher reversals as our net charge-offs increased. RSAs of $810 million in the second quarter were 3.21% of average loan receivables, down $77 million versus the prior year, driven by higher net charge-offs, partially offset by higher net interest income. An increase in other income primarily reflected a $51 million gain related to the exchange of our Visa Class B-1 shares, as well as initial fee-related impact of our product pricing and policy changes, or PPPCs. These benefits were partially offset by the impact of the Pets Best disposition. Provision for credit losses increased to $1.7 billion, reflecting higher net charge-offs and a $70 million reserve build.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Other expenses grew 1% to $1.2 billion, which was driven by technology investments, preparatory expenses related to the late fee rule change, and servicing costs related to newly acquired businesses, partially offset by the operational losses and cost discipline resulting from lower employee and marketing costs. The preparatory expenses related to the late fee rule changes reflected $23 million of incremental costs related to both the execution of our PPPCs and the implementation of the rule itself should it become effective. Even with these incremental costs, Synchrony's efficiency ratio was 31.7% for the second quarter, an improvement of approximately 380 basis points versus last year. In sum, Synchrony generated net earnings of $643 million or $1.55 per diluted share.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

This produced a return on average assets of 2.2% and a return on tangible common equity of 20.2%. Next, I'll cover our key credit trends on slide nine. At quarter end, our 30-plus delinquency rate was 4.47% versus 3.84% in the prior year, and 19 basis points above our historical average from the second quarters of 2017 to 2019. Our 90-plus delinquency rate was 2.19% versus 1.77% last year, and 18 basis points above our historical average from the second quarters of 2017 to 2019.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Our net charge-off rate was 6.42% in the second quarter, compared to 4.75% in the prior year, and 62 basis points above our historical average from the second quarters of 2017 to 2019. Our allowance for credit losses as a percent of loan receivables was 10.74%, up 2 basis points from 10.72% in the first quarter. The reserve build in the quarter primarily reflected loan receivable growth. As shown on slide 10, the credit actions we've taken thus far are improving our delinquency trajectory as the rate of year-over-year growth continues to decelerate. We'll continue to closely monitor our portfolio performance and the credit trends for the broader industry, given our shared consumer, and we will take additional credit actions as necessary.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

While these actions are reducing new account and purchase volume growth in the short term, we expect they will strengthen our portfolio's positioning as we exit 2024, and support our ability to deliver our targeted risk-adjusted returns over the long term. Turning to slide 11, Synchrony's funding, capital, and liquidity remain a source of strength. We grew our direct deposits in the quarter as consumers responded to our strong offerings while reducing our brokered deposits. Deposits represented 84% of our total funding at quarter end, and our secured and unsecured debt each represented 8% of total funding. Total liquid assets and undrawn credit facilities were $23 billion, up $3.6 billion from last year, and represented 19.1% of total assets, up 124 basis points from last year. Moving on to our capital ratios.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

As a reminder, we elected to take the benefit of the CECL transition rules issued by the joint federal banking agencies. Synchrony will make a final transitional adjustment to our regulatory capital metrics of approximately 50 basis points in January 2025. The impact of CECL has already been recognized in our income statement and balance sheet. Under CECL transition rules, we ended the second quarter with a CET1 ratio of 12.6%, 20 basis points lower than last year's 12.8%. Our Tier One capital ratio was 13.8%, 20 basis points above last year. Our total capital ratio increased 10 basis points to 15.8%. Our Tier One capital plus reserves ratio on a fully phased-in basis increased to 23.9%, compared to 22.8% last year.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

During the second quarter, we returned $400 million to shareholders, consisting of $300 million to share repurchases and $100 million of common stock dividends. As of quarter end, we had $1 billion remaining over our share repurchase authorization for the period ending June 30th, 2025. Synchrony remains well positioned to return capital to shareholders, as guided by our business performance, market conditions, regulatory restrictions, and subject to our capital plan. Combining those results, Synchrony delivered a second quarter performance largely within our expectations. We remain focused on taking appropriate actions to prepare our business for years to come, including our ability to deliver our long-term targeted loss rate between 5.5% and 6%, and average return on assets of at least 2.5% on average over time.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

We've been closely monitoring our performance and taking prudent credit actions in support of these objectives. In preparation for the pending new rule on late fees and our desire to offset the impact on our business as soon as possible, Synchrony has completed the first phase of our PPPCs. Most of these actions will begin to go into effect in the second half of 2024, and we'll continue to track their financial and operational impact on our customers, partners, and portfolio to determine, alongside our partners, whether any refinements to our strategies are warranted to achieve our shared objective.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

As a reminder, specifically related to the framework around the pending late fee rules and our PPPCs, there continues to be uncertainty regarding the timing and outcome of late fee-related litigation that was filed in March, the potential changes in consumer behavior that could occur as a result of the late fee rule changes, and any potential changes in consumer behavior in response to the PPPCs we implement as a result of the new rule. Outcomes and actual performance related to these uncertainties could impact our outlook. With that framework, let's turn to the outlook for the second half of 2024. We expect the consumer to continue to manage their cash flows and consumption, which, when combined with our credit actions, should result in a flat to low single-digit decline in purchase volume.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

We continue to expect payment rates to moderate, which, when combined with our purchase volume expectations, should contribute to more moderate loan receivable growth in the second half. Excluding the impact of late fee rule implementation, we expect net interest income and other income to progressively grow in the third and fourth quarters as our PPPCs take effect. From a credit perspective, delinquency should continue to trend in line with or better than seasonality. We expect our net charge-off rate to be lower in the second half of this year than the first half. Our reserve coverage ratio at the end of 2024 is expected to be generally in line with our year-end 2023 reserve rate. RSA will continue to align with program and company performance. And finally, we expect other expenses to trend in line with the first half average on a dollar basis.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

When you combine these factors and include the impact of the fee rule, assuming an implementation date of October 1st, 2024, along with the various offsets from the implementation of our PPPCs and a $1.96 per share gain on the sale of our Pets Best business in 1Q 2024, Synchrony expects to deliver fully diluted earnings per share between $7.60 and $7.80 for the full year. This consolidated and updated EPS range is in the upper end of our prior guidance and reflects Synchrony's dedication to delivering optimized outcomes for our many stakeholders, including strong risk-adjusted returns for our shareholders. I will now turn the call back over to Brian for his closing thoughts.

[Brian Doubles, President and CEO at Synchrony Financial]

Thanks, Brian. Synchrony continues to execute at a high level in an evolving environment. We are leveraging our scale, our data analytics and credit management tools, our advanced digital capabilities, and our deep lending expertise to remain nimble and responsive while powering still better experiences and greater value to the customers, partners, providers, and small businesses we serve. We are consistently driving compelling results for our many stakeholders, and that momentum is increasingly attracting new and deepening existing opportunities for continued risk-adjusted growth, further embedding Synchrony at the heart of American commerce. With that, I'll turn the call back to Kathryn to open the Q&A.

[Kathryn Miller, SVP of Investor Relations at Synchrony Financial]

That concludes our prepared remarks. We will now begin the Q&A session. So that we can accommodate as many of you as possible, I'd like to ask the participants to please limit yourself to one primary and one follow-up question. If you have additional questions, the Investor Relations team will be available after the call. Operator, please start the Q&A session.

[Operator]

At this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Again, please limit yourself to one question and one follow-up question. We'll take our first question from Mihir Bhatia with Bank of America. Please go ahead.

[Mihir Bhatia, Director and Senior Equity Research Analyst at Bank of America]

Good morning. Thank you for taking my question. I wanted to start with just, you know, the health of the consumer. It sounds like the consumer is coming in a little weaker than you had maybe anticipated, between purchase volume being lower, reserve rate a little higher. First, I guess, is that a fair statement? And if so, can you just comment on what other changes that is driving? Is this signaling that you need to tighten underwriting? Are you continuing to tighten underwriting? Is that broad-based? Is it about tweaking around the edges? Just how are you thinking of the consumer heading into, like, back-to-school season here, and just trying to understand your view on the consumer health?

[Brian Doubles, President and CEO at Synchrony Financial]

Yeah. Yeah, no, thanks for the question. I think, well, generally, I think in the aggregate, the consumer is still in pretty good shape. I think the trends that we're seeing are pretty similar across the industry. Obviously, labor market is strong. That's definitely helping. I think most of the indicators so far are largely in line with what we expected to see. With that said, as you kind of dig into the portfolio, there are clearly some differences as well, as you look at different customer cohorts. The more affluent, higher income segments are still spending. You know, they're not really as impacted by inflation. On the other end of the spectrum, you are starting to see the lower income consumer pull back a bit. They're rotating into non-discretionary categories.

[Brian Doubles, President and CEO at Synchrony Financial]

So it's clear that, you know, they're feeling the effects of inflation, and they're managing to a budget. And so while you're seeing that impact, you know, purchase volume a bit, new accounts, we think that's actually a positive from a credit perspective. You know, people are being disciplined. That's a good thing. We don't see, you know, we don't see people overextending, you know, so they're managing their spend and their cash flows, which again, I think is a positive from a credit perspective.

[Mihir Bhatia, Director and Senior Equity Research Analyst at Bank of America]

Now, maybe just staying on credit then, just on the reserve rate guidance, you know, it's changed to be I think now you're saying year-end 2024 in line with 2023. I think earlier it was a little bit better than 2023. That said, you did call out and we see the data, right? The delinquency rate is trending to in line to better than seasonality. Were you expecting more improvements than you got? I'm just trying to understand the factors driving the higher guide on reserve rate, and if that implies 2025, net charge-offs will be similar to 2024.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah, thanks for the question, Mihir. You know, when we entered the year, I think everyone had a perspective with regard to how the economy is going to develop, how inflation potentially could bend, and interest rates could move down, right? As Brian mentioned, the consumer is managing, and the longer they stay in a period of higher costs, particularly those that are lower income to medium income, you know, that poses different risks. I think as we sit here in the middle part of the year, we would have hoped for, probably greater, progression against the inflation target, even though we understood it was sticky, and we'd hoped for even though we only had three rate increases or rate-- I'm sorry, rate decreases for the back half of the year, we're down to one.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

So I think things have shifted out a little bit. So I think we're just being a little bit more cautious with regard to how we think about the macro going forward, until we see signs that inflation really is breaking through some of the stickiness, and you see some help to those consumers. So I don't think it's a tremendously different posture. It's just a little bit more conservative in how you think about your quantitative reserves versus your qualitative reserves.

[Mihir Bhatia, Director and Senior Equity Research Analyst at Bank of America]

Okay. Thank you for taking my question.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Thanks, Mihir.

[Operator]

Thank you. Our next question comes from Terry Ma with Barclays. Please go ahead.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Hi, thanks. Good morning. So, I guess based on the rollout of your PPPCs, is the $650 million-$700 million range still kind of the right range to think about for the second half? And then, secondly, is there a way you can kind of quantify how that range changes if the late fee cap were to not be implemented this year?

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah, thanks for the question, Terry. You know, I'll start where you ended. You know, as we sit here today, you know, there continues to be activity in the Texas courts, and as Brian indicated, and I indicated in our remarks, that is uncertain. So the best guess we have now is an October first implementation date. And until we get some more definitive view with regard to whether or not that rule becomes effective on that date or a different date, we don't really have an update with regard to the impact and its effect if it doesn't go into play. So again, when we have some greater certainty with regard to that implementation date, we'll most certainly come back.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

With regard to the impact of the PPPCs, you know, we provided updated guidance today. Again, if you take the midpoint of both the core as well as the late fee, assuming October first implementation date and add the Pets Best, you know, you're at the midpoint to high end of the range from an EPS, which should give you a perspective on how we feel about both the core business as well as the actions we're taking with regard to the potential change in late fees.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Got it. Okay, that's helpful. And then in terms of the RSA, how should we think about that? How that would trend in the second half as you were kind of yet again start rolling in?

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah, you know, a framework to think about it, Terry, is to think about the pieces that are going to flow through here. Obviously, you know, we indicated that the second half loss rate will be lower than the first half loss rate, so obviously that's an upward bias on the RSA percent. Most certainly, I think in the third quarter, you're going to see as some of the PPPC actions roll through, that's going to create an upward bias in the RSA. And then as that turns around in the fourth quarter, you know, again, assuming an October first implementation date of late fees, that comes into place. And then I think it's just going to track with NII growth, which will be a little bit beneficial with slightly lower purchase volume.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

There'll be some puts and takes, some of which will create headwinds, some of which will create tailwinds.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Yep. Got it. Thank you.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Thanks, Terry.

[Operator]

Thank you. Our next question will come from Mark DeVries with Deutsche Bank. Please go ahead.

[Mark DeVries, Director at Deutsche Bank]

Yeah, thanks. Look, I appreciate there's a lot of moving pieces on the NIM for the second half of the year, just given the implementation of some of the PPPCs and the potential rollout of the late fee impact. But could you just, you know, Brian, maybe just give us a sense of kind of what the moving pieces are and what kind of your expectations are for NIM in the back half of the year?

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Sure. Thanks for the question, Mark. So, so here's a framework of how I think about some of the moving pieces you got to take into consideration, right? Number one, as we talked about, net charge-offs being lower in the second half versus the first half, you'll get a benefit to the net interest margin, right? Relative to lower reversals. So that, that's a positive to the net interest margin. I think when you look at the net funding cost, so the interest expense and the investment income, that's probably going to be flattish to the back half of the year. You will pick up, and there'll be a benefit into the net interest margin relative to the mix between average loan receivables and average interest-earning assets. So that will be a positive to NIM.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

You will pick up, you know, and you should see it in the third quarter, some of the PPPC actions that are yield related. So again, some of the things that were strictly APR related, some of the practice related, how interest was assessed, and a little bit related to some promotional fees that roll into place. And you should see, you know, again, hopefully a little bit of benefit on the interest and fee line. So generally, this should be a positive trend up from where we move here into the back half of the year.

[Mark DeVries, Director at Deutsche Bank]

Okay, that's helpful. And are there any contemplated PPPC measures that you've yet to put in place and are waiting for either, you know, to see how the consumer behaves or for actual implementation of the changes to the late fee rules?

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah, what our team has gone through, you know, the first wave that we've executed against that are ones that we have fully vetted internally with ourselves and then with our partners, so they are, they're fully executed. There are other things down the road that are probably a little bit longer tailored. We're still continuing to evaluate some around product configuration and other types of products for different segments inside the portfolio. So that's not necessarily part of the initial solve, but that may be a reaction that we come back with over time, but wasn't necessarily critical to us trying to achieve the goal of being ROA neutral with the same level of sales.

[Mark DeVries, Director at Deutsche Bank]

Got it. Thank you.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Thanks, Mark. Have a good day.

[Mark DeVries, Director at Deutsche Bank]

Thanks.

[Operator]

Thank you. Our next comes from Moshe Orenbuch with TD Cowen. Please go ahead.

[Moshe Orenbuch, Managing Director and Senior Analyst at TD Cowen]

Great, thanks. Just continuing on that idea of, you know, of the pricing changes. I know it's early, but, you know, have there been, you know, kind of impacts on the consumer side that you, you know, that you can kind of see or talk about? You know, positive or negative, from the pricing changes that you've put in place?

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yes. Thank you, Moshe, for the question. You know, we have a detailed monitoring dashboard that's in place that looks at a lot of different measures, Moshe. It starts with purchase active rate, sales per account. As you can imagine, it includes, you know, closure rates, voluntary closure rates. It includes call volume, complaint volume, all sorts of different measures that we would look at relative to this. I think it's important to understand why the first wave is complete now, you know, for we only have the CITs that we nailed in December, having a full quarter. When we look at that dashboard in its entirety, it's generally in line with our expectations.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

As we step into the third quarter, I think we're going to get a greater view with regard to consumers' adoption with regard to it. I think we've seen some positive things around e-bill adoption, et cetera. So we closely monitor. It gets produced, and distributed to a wide variety of people inside the organization as we closely, you know, look at that and share that with our partners.

[Moshe Orenbuch, Managing Director and Senior Analyst at TD Cowen]

Got it. Thanks. And you know, Brian, you talked a little bit about the delinquency and loss rates, you know, relative to the 2017, 2020, 2017 to 2019 averages. I. You know, given that you've kind of said and you know and reaffirmed that they will continue to improve and be lower in the second half and possibly better than seasonals, I guess, how do you see that? You know, assuming you know employment levels are stable here, how would you see that kind of trending towards those, that, those averages? You know, how close could they get, and what you know what is it that it you know would then kind of get you to the point where you could think about you know neutralizing or reversing some of those tightening efforts?

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah. So I think it's important, Moshe, to really take a step back. First of all, we've lagged the industry with regard to normalization. I think when you look at the amount that we are above our 2017 to 2019 range, I think outside of maybe one or two issuers, we actually are performing pretty well, being our 30-plus is 19 basis points higher than a historical average, and our 90-plus being 18 basis points higher than a historical average. And then again, you know, you're right, when you look at the second quarter on a 30-plus basis, you know, we're a couple basis points favorable to seasonality. And 90-plus, I think we were, you know, from a range of one to two basis points less than, so generally in line to slightly better than seasonality.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

So I think we look at that. I think we're going to look at the, you know, how the macro environment develops. And again, the consumer's managing today, as we start to see relief kind of come to them, I think we'll reevaluate. I would not, you know, have an expectation that we're going to adjust those refinements in the near term here until we get greater clarity on the environment.

[Moshe Orenbuch, Managing Director and Senior Analyst at TD Cowen]

Okay. Thank you.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Thanks, Moshe. Have a good day.

[Operator]

Thank you. Our next question comes from Ryan Nash with Goldman Sachs. Please go ahead.

[Ryan Nash, Managing Director at Goldman Sachs]

Hey, good morning, everyone.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Good morning. Morning, Ryan.

[Ryan Nash, Managing Director at Goldman Sachs]

Maybe stick with the late fee topic. You know, given the range of things that have been added, APRs, paper statements, trailing interest and the like, you know, obviously, markets have become hopeful that, you know, the rule could get delayed or, you know, may rule in favor of the industry. I'm just curious, in a scenario, in a positive outcome for the industry, when you think about the range of changes you've made, what changes do you foresee sticking versus others that there's the potential you may pare back over time?

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah. First of all, good morning, Ryan. You know, the first thing I think we have to have certainty, right, relative to whether or not the late fee rule... You know, if it is delayed or ultimately overturned by the courts, whether or not the CFPB would continue down the path of pursuing some type of limitation on late fees. So I think you have to have some level of certainty beyond that. I think as you think about the pricing changes, you know, first and foremost, we're going to look at consumer behavior and whether or not consumer behavior changes here and whether or not changes would be warranted. I think when you step beyond that, you know, there's probably two buckets, Ryan.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

The first bucket is one that involves our partners and RSAs, and there we would go and share the data with our partners and have a discussion with regard to pricing and make some decisions, you know, with their input. And then bucket B is things that are inside our brand and control. So you think about our Synchrony Mastercard, our home and auto cards, things like that, that we would control, but obviously, we do that. It's fair to say not everything would ever get rolled back, but to be honest with you, Ryan, we have not spent a lot of time as a team going through this scenario right now.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

We're really focused on implementing the PPPCs and following the developments in the court and being prepared, I think, for the outcome that the late fee rule goes into effect.

[Ryan Nash, Managing Director at Goldman Sachs]

Got it. And then, if you look at how new accounts have progressed, obviously they're down a decent amount year-over-year, which makes sense given, you know, the discussion regarding tighter underwriting. But as you look ahead, you know, given the tightness, that it doesn't sound like we're going to be rolled back right now, you also have some payment rate normalization. How do you think about the pace of loan growth over an intermediate timeframe?

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah. So, first, let me just focus for a little bit on new accounts, the 14%. There's probably two big buckets there, Ryan. The first is, we are seeing, and Brian talked about this with discretionary spend and some of the things where the consumer's managing their spend levels. We are seeing lower foot traffic and lower retail traffic, both in a physical footprint as well as in a digital orientation. So the through-the-door population most certainly is limiting some of the opportunities to generate new accounts. And then obviously, you've had a modest impact from credit actions with regard to doing that. That will impact growth more so in 2025 than it does really in 2024, right?

[Brian Wenzel, EVP and CFO at Synchrony Financial]

So, you know, you think about an account build, it probably takes about 12 months or so to kind of get to an average balance per account that's more mature. So, I think you're going to feel a little bit of pressure here. I do think, you know, given our position with most of our partners, you know, you would see probably something above GDP level and will continue to grow. Most certainly, when you look at the platforms, you know, we're excited about the health and wellness growth we continue to experience, even though there's some pullback there in cosmetic and LASIK, for example, but that is a strength for us. We continue to have strength in some of the other platforms, like our own specialty business in home and auto.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

So, you know, again, we're not going to necessarily give guidance, but I think there are some positive things inside of the sales platforms that will hopefully bridge us into a better economic period.

[Brian Doubles, President and CEO at Synchrony Financial]

I think the only thing I would add, Ryan, the active account growth that we're seeing, we actually probably watch that even more than new account growth because we've been, you know, making big investments in life cycle marketing and figuring out across all of our platforms, how do you engage that customer in the second and third, fourth purchase? And so just seeing that positive inflection year over year, I think, is a positive. And then, you know, look, the consumer's still in a good spot, but we are seeing lower store traffic and some pullback there. And then we're obviously proactively making some credit actions that'll improve the trajectory into next year. So overall, we feel pretty good about the trends that we're seeing.

[Ryan Nash, Managing Director at Goldman Sachs]

Awesome. Appreciate the call.

[Brian Doubles, President and CEO at Synchrony Financial]

Yep. Thanks, Ryan.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Thanks, Ryan.

[Operator]

Thank you. Our next question comes from Sanjay Sakhrani with KBW. Please go ahead.

[Sanjay Sakhrani, Managing Director and Senior Analyst at KBW]

Thanks. Good morning. Maybe just to follow up on some of the questions around credit quality. Brian Wenzel, I know I've heard you talk about some of the moves you made to sort of refine the underwriting some time ago. I mean, are the benefits of that in front of us, so that we should see some more stepped-up improvement in that second derivative on delinquency rates? And then, you know, just I'm trying to think through some of the questions that were asked before. Like, shouldn't that really, that coupled with the tighter underwriting and the slower loan growth, should help credit quality, shouldn't it? So, I mean, is that just built-in conservatism in your credit outlook, or what, for this year, in terms of the flat reserve rate? Thanks.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah. First of all, good morning, Sanjay, thanks for the, thanks for the question. I, I think there's a combination where the credit actions... You know, remember we started this in, in the second quarter last year into third, and then really started in again, the latter part of the first quarter into the second quarter of this year. You see it reflecting in the moderation of the year-over-year change in delinquencies, which we showed on page 10 of the earnings presentation here. So some of it is being manifested itself in delinquency trends. Obviously, it takes time to season, so I think you would expect the benefit of those actions to kind of continue to go through.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Now, again, actions that we put in place in the second quarter this year have probably a little bit more reduced effect on this year, more effect as you exit out of 2024 into 2025. So it's really a combination. You know, I, I'd say from a efficacy standpoint, we are not taking or not continuing to take broad-based actions at this point. We stand ready to do that if something deteriorates, but right now we're continuing with our normal refinements, which are more idiosyncratic at the partner portfolio, product and channel level.

[Sanjay Sakhrani, Managing Director and Senior Analyst at KBW]

Okay. I have a question for Brian Doubles, follow-up. Maybe you could just talk about the state of potential partnership opportunities or deals for portfolios. You know, anything change relative to the previous quarter? Thanks.

[Brian Doubles, President and CEO at Synchrony Financial]

Yeah, sure, Sanjay. Look, I would say that we have a pretty healthy pipeline of opportunities. You know, that continues to be true. I think, you know, competitively, we're certainly differentiated in terms of our technology investments, how we partner, how we integrate, and so that continues to resonate with both our existing partners, but also new prospects. So I feel really good about all that. I think, you know, look, in this environment too, whenever you're in an environment that's a little bit uncertain, you tend to see more rational pricing, a little more discipline across the industry, which again, is a good thing. You know, when we were in the headier days of 2021, 2022, you know, things could get a little bit irrational when you're pricing at historically low loss rates.

[Brian Doubles, President and CEO at Synchrony Financial]

You know, we always price through a cycle. We'll continue to do that, but I think, you know, the environment right now across the industry, across the competitive set is pretty rational. So I feel really good about how we're positioned, and we got a good pipeline of opportunities.

[Sanjay Sakhrani, Managing Director and Senior Analyst at KBW]

Great. Thank you.

[Brian Doubles, President and CEO at Synchrony Financial]

Yep. Thanks, Sanjay.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Thanks, Sanjay.

[Operator]

Thank you. Our next question will come from Rick Shane with J.P. Morgan. Please go ahead.

[Rick Shane, Managing Director and Senior Equity Research Analyst at JPMorgan]

Good morning, everybody, and thanks for taking my questions.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Hey, Rick.

[Rick Shane, Managing Director and Senior Equity Research Analyst at JPMorgan]

Look, I'd love to talk a little bit. You've moved guidance to sort of the upper end of your prior range, and I'm curious how much of that is a function of timing, favorable timing with PPPC implementation versus late fee? How much is a function potentially of-... slower loan growth into the second half of the year and a favorable impact on reserves, and whatever other fundamental factors might be driving that?

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah, thanks for the question, Rick. You know, from a timing perspective, I don't believe that there's anything significant in the timing of the execution. I'd say from an execution standpoint, I think we've hit all our deliverables. Given the process you have to go through to do the amount of changes in terms that we've done, we've executed on the time frame in the time frames that we have in place, and they're rolling out according to schedule. So there's nothing really timing related there.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

You know, I, I'd sit back and say, moving to the middle end of the range, to the higher end of the range, just really overall business performance. I think we, you know, while purchase volume might be slightly lower than expectations, it shows the consumer's managing. We don't see them going under stress. So I think as we look through the various elements, you know, our funding costs have stabilized and stabilized and moving into the back half of the year. I think the expenses, which we haven't really talked about, only being up 1%, including the cost of $23 million related to the execution of change in terms, otherwise would've been down, I think is a positive as we move forward. So I think we're continuing to execute the business.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

The business is really focused on what we have to do this year in order to execute both on the core business, the reaction to the PPPC changes that we're rolling out, as well as the integration of Ally Lending, which we're very happy about, and disposition if that's best. So the team is focused on execution. That's what I would say drove us to the higher end of the range.

[Rick Shane, Managing Director and Senior Equity Research Analyst at JPMorgan]

Great, Brian, thank you very much. It's incredibly helpful.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Thanks, Rick.

[Operator]

Thank you. Our next question will come from Bill Carcache with Wolfe Research. Please go ahead.

[Bill Carcache, Senior Equity Research Analyst at Wolfe Research]

Thanks. Good morning, everyone. I wanted to ask about capital. So in contrast to many banks that are still dealing with large AOCI marks, you guys appear to have greater clarity on the level of capital that you're going to need to run with, and therefore, you know, it seem like you may be in a better position to perhaps return the capital in excess of your target a little bit more aggressively relative to those who are still accreting capital to sort of plug that OCI hole. Can you speak to that dynamic and, you know, how we should think about, like, the trajectory of that excess capital position relative to the 11% target you've talked about historically?

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah. Thanks, Bill, for the question. You know, we've been on a journey, and you've heard me talk about this a number of times. When we separated from our former parent, you know, we started out and got to a peak of CET1 of 18%, and then there's been a journey down, you know, where today we're at 12.6%. We have an excess relative to the target. We're continuing on the path, right? You know, but our first priority is always going to be organic RWA growth. Our second is going to be the dividend, and then third will be, you know, what we do with share repurchases or inorganic. And Brian talks about the discipline we have around inorganic growth. So you know, we have the ability to do that.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

I think we're going to be prudent with regard to the way in which we return it back to shareholders. We're not going to just drop it, you know, you know, tomorrow, because obviously, you know, we have many stakeholders here who would not necessarily agree with that, that action. But we are on a trajectory and moving towards our target, which has always been our long-term goal.

[Bill Carcache, Senior Equity Research Analyst at Wolfe Research]

Thanks. Thanks, Brian. That's helpful. And then I guess as a follow-up on your expectation of a stable reserve rate at the end of 2024 versus 2023, it seems like your expectation of a more favorable loss trajectory in your reasonable and supportable forecast period under CECL would be supportive of reserve releases, all else equal. So is the takeaway that your outlook is essentially de-risked and now embeds greater conservatism? Just trying to get a sense for when you'd feel comfortable getting that reserve rate back to the day one level and, you know, whether we should be thinking of that more as a 2025 event.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah. You know, well, certainly it's not going to be a 2024 event, right? As we said, it's flattish to last year. It really goes back to when do we have greater clarity you know across the industry, everyone has greater clarity with regard to the macroeconomic. You know, when are we going to get back to a more normalized interest rate environment, a more normalized inflation environment, which makes the everyday costs for our consumers, a shared consumer across the industry, much more manageable? It's that uncertainty that I think will give people pause in how they run the different scenarios and how their qualitative assessments. That's probably the largest wild card.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Obviously, you're going to have to watch how your portfolio delinquencies develop and mix, but it's really getting clarity on that environment. So again, I think being prudent now is a better course.

[Bill Carcache, Senior Equity Research Analyst at Wolfe Research]

Understood. That makes a lot of sense. Thanks again for taking my questions.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Thanks, Bill. Have a good day.

[Operator]

Thank you. Our next question will come from Dave Rochester with Compass Point. Please go ahead.

[Dave Rochester, Research Analyst at Compass Point]

Hey, good morning, guys.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Good morning.

[Dave Rochester, Research Analyst at Compass Point]

By the time we get to October 1st, will you guys have implemented your PPPC at substantially all of your partners at that point, or is there a segment that opted to wait on those until the rule actually takes effect? And, and how large is that segment, if you have a sense?

[Brian Doubles, President and CEO at Synchrony Financial]

Yeah, look, as Brian said, we've completed the first phase, that covers a substantial part of the business. You know, we do have one or two partners where we've largely agreed on what we would do, but we are waiting for the rule to be effective.. again, that doesn't change our view that we will fully offset this. We will get back to, you know, pre-late fee ROAs, and we'll still, you know, support the customers and underwrite the customers that we do today.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

The only thing I'd add, Dave, is a tail, right? With regard to this, right? Because accounts that we originated in the back half of last year, we wouldn't give them a change in terms six months after we just originated the account or three months after we originated the account. So there will be a tail that goes on here for a long period of time, as well as the number of inactive accounts that become active. Once they become active, they'll get a CIT. So it takes a long time to get to 100% under any scenario, but this will go on, and that's part of normal course. And anytime we do a CIT, that is, you know, kind of regular course of action.

[Dave Rochester, Research Analyst at Compass Point]

Got it. That makes a lot of sense. Appreciate that, and then to follow up on Ryan's question from earlier in the scenario where the late fee rule is shot down regarding the changes that stick. I know you haven't given this a ton of thought yet, and that's understandable. But just based on your early assessment of consumer reaction so far and your dialogue with your partners, and the fact that there's a good amount of expense associated with implementing those changes, is there any reason you've seen so far to indicate you would want to unwind the APR changes, or would those be the, the easiest changes to leave in place? Thanks.

[Brian Doubles, President and CEO at Synchrony Financial]

Yeah, look, I think, like Brian said earlier, this will be a discussion with the partners. We'll look at, you know, for the portion of the book that we control, we'll look at consumer behavioral changes. You know, it's still really early. You know, these CITs are now just working their way through the statements, and we're just starting to see the customer behavioral changes, which at this point are very slight. But we need to continue to monitor that. As Brian said, we're all over it, and we'll adjust along the way if we feel like we need to. But we're not preparing for a scenario where the rule doesn't go into effect.

[Brian Doubles, President and CEO at Synchrony Financial]

I think we have to control what we control, and we control, you know, the pricing and policy changes, and that's what, that's what we've done. And, you know, we're obviously, we think we've got a great case in terms of litigating the rule, but it's uncertain, so we've got to... We've got to focus on what we can control.

[Dave Rochester, Research Analyst at Compass Point]

Great. Thanks, guys.

[Brian Doubles, President and CEO at Synchrony Financial]

Yep, thanks.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Thanks, Dave. Have a good day.

[Operator]

Thank you. Our next question will come from John Hecht with Jefferies. Please go ahead.

[John Hecht, Managing Director at Jefferies]

Morning, guys, and thanks for taking my question. Actually, I think all of my questions have been answered or asked and answered, but I guess I have one incremental one: you did renew Verizon in the quarter, and then you added Virgin. I'm wondering, if given the just, I guess, the overhang and uncertainty around the late fee situation, have there been any kind of structural changes in how you negotiate these new contracts with that uncertainty in the background?

[Brian Doubles, President and CEO at Synchrony Financial]

Yeah, so let me start, and I'll ask Brian to comment. You know, look, I first, we're very excited to launch what we think is a very unique, one-of-a-kind program with Virgin Red. You know, it'll span air travel, hotel, cruises. You know, we're tapping into a very strong, loyal customer base, so we could not be more excited to partner with Virgin Red on this new product. Equally as excited to renew Verizon. It's been a strong program for us, a great relationship, and so we're really excited about that as well. You know, certainly the late fee issue has crept its way into negotiations, new business, renewals, unsurprisingly, but there are ways to structure around this.

[Brian Doubles, President and CEO at Synchrony Financial]

We have certainly contemplated an $8 late fee in every program that we've renewed since the rule was published as well as anything that we've extended.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah, the only thing I'd add, John, is in that structuring of pricing, we assume late fees go in at 8. To the extent that there's upside, you know, we're protected to the downside. There may be things that you do on the upside relative to partners. Clearly, even when you look at, you know, the portfolio we acquired in the second quarter from another issuer, we're relatively protected, or are protected relative to the $8 late fee going in place. It just... You know, we're more conservative in pricing. We, you know, we think it's gonna, you know, as much as we like the chances that the industry has against the rule, we're not going to bank on it in pricing a deal that'll last, you know, 7 to 10 years.

[John Hecht, Managing Director at Jefferies]

Great. I appreciate the color, guys. Thanks very much.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Thanks, John.

[Brian Doubles, President and CEO at Synchrony Financial]

Thanks, John. Have a good day.

[Operator]

Thank you. We have time for one last question. It will come from Don Fandetti with Wells Fargo. Please go ahead.

[Don Fandetti, Managign Director at Wells Fargo]

Yes. Can you talk a little bit about the 2023 vintage, just how that's performing? You know, you've got another quarter under your belt relative to your expectations and maybe 2022, and I know you haven't had as much, you know, sort of, volatility versus general purpose.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Yeah, you know, thanks for the thanks for the question, Don. So again, I think, you know, level setting, first of all, I'd like to do it against the industry. I think if you go and look to some of the credit bureaus, and you look at the industry vintage curves, our you know, relative portfolios are performing better than the industry's curves, both from delinquency and a cumulative net charge-off perspective. You know, that being said, we've talked extensively over time that there is a shared consumer.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

We do feel the effects of what other issuers did as they exited the pandemic, adjusting some of their credit criteria or according to the credit box in their worlds, and issued an awful lot of, you know, some of the biggest vintages we've ever seen in the credit card industry, so I use that as a background. I think when you look at delinquencies, and I'll give you some of the details here, Don. When you look at delinquencies, the second half of 2021 through the first half of 2023 are performing, you know, slightly worse than or worse than, you know, 2018 vintage. 2019 gets skewed because you had the year of the pandemic.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

The second half 2023 and what we see, and again, it is very early, but when you look at the early indications off of 2024, because of the credit actions we've taken, they are performing better than, you know, the first half of 2023. And when you think about a charge-off perspective, the second half of 2023 and the first half of 2024 are performing better than 2018. So I do think some of the modifications that we've made in credit actions are supporting the vintages. You know, we have some of the shared consumer in that 2021 into partially into the back half of 2021, into the early part of 2023 that, you know, has given us a little bit of the, you know, trends above our historical delinquency rate. But again, we feel good about how the vintages are developing.

[Don Fandetti, Managign Director at Wells Fargo]

Thanks, Brian.

[Brian Wenzel, EVP and CFO at Synchrony Financial]

Great. Thank you.

[Operator]

This does conclude Synchrony's Earnings Conference Call. You may disconnect your line at this time, and have a wonderful day.

Participants

Executives

• Brian Doubles, President and CEO
• Brian Wenzel, EVP and CFO
• Kathryn Miller, SVP of Investor Relations

Analysts

• Bill Carcache, Senior Equity Research Analyst at Wolfe Research
• Dave Rochester, Research Analyst at Compass Point
• Don Fandetti, Managign Director at Wells Fargo
• John Hecht, Managing Director at Jefferies
• Mark DeVries, Director at Deutsche Bank
• Mihir Bhatia, Director and Senior Equity Research Analyst at Bank of America
• Moshe Orenbuch, Managing Director and Senior Analyst at TD Cowen
• Rick Shane, Managing Director and Senior Equity Research Analyst at JPMorgan
• Ryan Nash, Managing Director at Goldman Sachs
• Sanjay Sakhrani, Managing Director and Senior Analyst at KBW
• Terry Ma, Senior Equity Research Analyst at Barclays