- Key insights: Synchrony Financial recorded its highest purchase volume ever in the second quarter as consumers across all credit buckets spent more on discretionary purchases.
- What's at stake: The Stamford, Connecticut based lender joined the chorus of banks enjoying the boons of the current credit cycle despite ongoing affordability concerns and persistent inflation.
- Forward look: Changes to Synchrony's full year guidance imply that the company's growth in the second half of the year will slow compared to the first half, thanks to a better-than-expected second quarter, according to analysts.
Synchrony Financial is the latest lender to reap the
"We recorded the highest purchase volume for a quarter ever at this company," Synchrony Chief Financial Officer Brian Wenzel told American Banker in an interview ahead of the company's earnings call on Tuesday.
"The consumer is willing to spend, and fears of them losing their job or affordability" are shrinking," Wenzel said. "Yes, they are going to say they don't like it. No one likes to sit there and say I'm paying more either at the pump or for insurance, but they continue to step out in a very measured way."
Purchase volume jumped 8% to $49.8 billion, and
"We saw green shoots across the portfolio when it comes to discretionary," Wenzel said.
Consumers across all credit buckets increased their out-of-partner discretionary spend on their co-brand credit cards. Out-of-partner spend refers to purchases made at merchants outside of the primary co-brand partnership, such as using a Walmart branded-card at a grocery store.
Out-of-partner discretionary spending outpaced non-discretionary spending for both nonprime and prime customers; and discretionary spending accounted for 49% of total spend for super prime customers as of June.
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Synchrony paid out to investors during the quarter through $850 million share repurchase and $100 million in dividends, leaving about $5.7 billion of remaining repurchase capacity of the $6.5 billion repurchase program announced last quarter.
Wenzel pointed to improving consumer credit as a driver for increases in spending. Loans 30 days past due inched down 2 basis points to 4.16%, and 90-day delinquencies fell 5 basis points to 2.01%. Net charge-offs dropped 27 basis points to 5.43%.
"Let's not forget that the increase in charge-offs over the last couple years was more an oversupply of credit than it was a macroeconomic event. There was too much credit pumped in the system between 2021, 2022, and the early part of 2023, which people have generally worked through," Wenzel said.
"It's going to be stable from here out, under the assumption that lenders don't try to grab share or be aggressive and push too much credit back into the system, [and] as long as people are measured," he said.
But changes to the company's full year guidance — which taken alone would largely be positive — imply that the company's growth in the second half of the year will slow compared to the first half thanks to a better-than-expected second quarter, according to analysts.
"The tightened $9.25 to $9.50 [EPS guidance] includes first-half actual [EPS] of $4.41, leaving $4.39 of EPS to go at the low end and $4.64 at the high end," Truist Securities analyst Brian Foran said in a research note. "This compares to first-half actual of $4.86, and second-half consensus of $4.90. So the implied second half is 5% to 10% lower on both fronts."
