For a time after the COVID-19 pandemic, the credit card issuer Synchrony Financial was describing U.S. consumers as "resilient." Now the word du jour is "managing."
The latest middling description of consumers' health is why Synchrony isn't loosening its standards for qualifying for its credit cards. With inflation still rising — albeit more slowly than it was earlier this year — Synchrony is sticking with its more conservative underwriting until it sees more signs the coast is clear.
"The consumer is managing today," said Brian Wenzel, the Stamford, Connecticut-based company's chief financial officer. "As we start to see relief kind of come for them, I think we'll reevaluate it."
Synchrony's more cautious approach of working with less-risky borrowers has
Some bigger banks have seen more of their customers get into trouble, but Synchrony, which specializes in store-branded credit cards, reported Wednesday that borrowers who were at least 30 days late on their payments fell to 4.47% of its loans last quarter, down from 4.74% three months earlier.
The delinquency figures outperformed analysts' expectations, showing "the strength of credit stability" at Synchrony, Moshe Orenbuch, an analyst at TD Securities, wrote in a note to clients.
Net charge-offs rose slightly to 6.42% of loans, up from 6.31% in the first quarter, as Synchrony wrote off some past-due loans.
The company's stock price rose a meager 0.9% on Wednesday, though analysts noted that the share price has already risen 37% this year as investors gain confidence that the company's write-offs are peaking.
The flip side of being more cautious in underwriting is that Synchrony's loan portfolio isn't growing much, limiting the pool of credit card balances it can collect interest on. Total loans were at $91.3 billion at the end of the second quarter, up less than 1% from three months earlier.
Synchrony only added 5.1 million accounts during the quarter, compared with 5.9 million one year before. That's partly due to lower foot traffic in the stores that offer Synchrony cards, as well as less traffic online, Wenzel said.
With loan growth staying basically flat, Synchrony's second-quarter net interest income was unchanged from a quarter before at $4.4 billion. Net interest income grew at a far heftier pace of 6.9% compared with the same quarter a year earlier.
The strong job market is helping keep consumers in "pretty good shape," Synchrony CEO Brian Doubles told analysts. But he flagged the continued divergence between higher-income customers and lower earners, who have struggled a bit more as prices keep rising.
"It's clear that they're feeling the effects of inflation, and they're managing to a budget," Doubles said, pointing to customers spending less on luxury goods and discretionary items.
The belt-tightening is "positive from a credit perspective," he added.
"People are being disciplined," Doubles said. "That's a good thing. We don't see people overextending."
In its quarterly guidance, Synchrony said investors should expect loan growth to continue moderating and for charge-offs to drop in the second half of the year. Despite the fewer accounts Synchrony opened last quarter, the company's loans could benefit from money Synchrony has spent on keeping customers active beyond their initial purchase, Doubles said.
"We've been 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," Doubles said.
The number of active accounts at Synchrony rose to 71 million during the quarter, up from 69.5 million a year earlier.
Synchrony isn't seeing much impact on customer behavior from recent changes it made to compensate for the revenue hit it's taken by slashing its late fee to $8, according to Doubles. Unlike other card issuers that have
Synchrony is seeking to offset the revenue hit by taking steps like increasing cardholders' interest rates and adding small monthly fees for paper statements. Wenzel said Synchrony has a "detailed monitoring dashboard" that tracks purchase rates, voluntary account closures, complaint volumes and other metrics to monitor customers' reactions to the moves.
So far, all of the metrics are "in line with our expectations," he said.
