Synchrony Financial (NYSE:SYF) Q4 2022 Earnings Call Transcript

Operator: We’ll take our final question today from Rick Shane with JPMorgan.

Richard Shane : I just want to talk a little bit more about the reserve rate outlook. End of the quarter, 10.3%, day 1 was 9.9% There was a suggestion that it will sort of trend back towards 10% over time, roughly in line with day 1 levels. I think what that implies to me is that as we’ve gone through the learning process on the CECL models versus day 1, that there has not been a material evolution in terms of sort of loss expectations that the reserve rates will sort of, on an apples-to-apples basis, be consistent with day 1. Is that the right way to think about things? And can we just put that in the context of the normalization over the next 18 months?

Brian Wenzel : Yes. Thanks for the question, Rick. So I think if you looked at the assumptions that went into the day 1 CECL model versus the assumptions that are in the model today, they’re very close to each other. So I do think that you’re in a position where there’s not a significant difference right now. Where there is a difference is the macroeconomic overlays that we have in here that are much more significant than what they were on day 1. So as that macroeconomic environment clears, right, either through the losses or through the fact that we were more conservative or things didn’t play out the way we thought, you’re going to begin to migrate back towards that day 1 level. Now remember, in CECL, at the end of the day, you forecast out for a reasonable and supportable period, right, that you have losses, and then you migrate to your mean.

So at the end of the day, that mean hasn’t changed for us and our expectations. I mean, obviously, I’d like to say we had a normal period during CECL, but unfortunately, over the last two-plus years, we have not. So again, we’ll revisit at some point in the future what the mean loss rate is. But again, that does play into the fact that you will ultimately migrate and they should come back in line absent mix.

Richard Shane : Got it. Okay. That’s very helpful. And I think, like everybody, we’re all exhausted of living through unprecedented times and returning to normal would be nice.

Brian Wenzel : I 100% agree with you, Kevin.

Brian Doubles : Agree with that.

Brian Wenzel : Rick, sorry, Rick.

Operator: This concludes Synchrony’s earnings conference call. You may disconnect your line at this time, and have a wonderful day. Thank you.