Synchrony Financial Q4 2024 Earnings Report

Synchrony Financial EPS Results

• Actual EPS: $1.91
• Consensus EPS: $1.89
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Synchrony Financial Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $3.83 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Synchrony Financial Announcement Details

• Quarter: Q4 2024
• Date: 1/28/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, January 28, 2025
• Conference Call Time: 8:00AM ET

Synchrony Financial (NYSE:SYF), together with its subsidiaries, operates as a consumer financial services company in the United States. It provides credit products, such as credit cards, commercial credit products, and consumer installment loans. The company also offers private label credit cards, dual co-brand and general purpose credit cards, short- and long-term installment loans, and consumer banking products; and deposit products, including certificates of deposit, individual retirement accounts, money market accounts, and savings accounts, and sweep and affinity deposits, as well as accepts deposits through third-party securities brokerage firms. In addition, it provides debt cancellation products to its credit card customers through online, mobile, and direct mail; and healthcare payments and financing solutions under the CareCredit and Walgreens brands; payments and financing solutions in the apparel, specialty retail, outdoor, music, and luxury industries, such as American Eagle, Dick's Sporting Goods, Guitar Center, Kawasaki, Pandora, Polaris, Suzuki, and Sweetwater. The company offers its credit products through programs established with a group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations, and healthcare service providers; and deposit products through various channels, such as digital and print. It serves digital, health and wellness, retail, home, auto, telecommunications, jewelry, pets, and other industries. The company was founded in 1932 and is headquartered in Stamford, Connecticut.

Synchrony Financial Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to the Synchrony Financial Fourth Quarter and Full Year twenty twenty four 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. Questions following the conclusion of management's prepared remarks. I will now turn the call over to Catherine Miller, Senior Vice President of Investor Relations.

[Operator]

Thank you. You may begin.

[Kathryn Harmon Miller, Senior Vice President and Director 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.

[Kathryn Harmon Miller, Senior Vice President and Director of Investor Relations at Synchrony Financial]

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 can 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 Harmon Miller, Senior Vice President and Director 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, Catherine, and good morning, everyone. I'd like to first take a moment to acknowledge all those who have been affected by the devastation of the California wildfires. Synchrony has colleagues, customers, partners and providers that were impacted. And while we do not expect a meaningful financial impact on our business, we are monitoring the situation closely and offering support in a number of ways to all those affected. Moving to Synchrony's fourth quarter performance.

[Brian Doubles, President and CEO at Synchrony Financial]

We added 5000000 new accounts, generated $48,000,000,000 of purchase volume and grew ending loan receivables by 2%. In addition, we continue to see improvement in our portfolio's year over year delinquency trends. Our RSA continued to align the interests of both Synchrony and our partners, and we maintained our cost discipline to deliver net earnings of $7.74,000,000 dollars or $1,.91 per diluted share, a return on average assets of 2.6% and a return on tangible common equity of 23%. These results enabled a strong close to 2024, during which Synchrony acquired almost 20,000,000 new accounts and financed more than $182,000,000,000 of purchase volume. This year marked our second highest level of purchase volume and serves as an important testament to the lasting appeal of our diverse and flexible financing solutions and compelling value propositions that we offer.

[Brian Doubles, President and CEO at Synchrony Financial]

Synchrony deeply understands the needs of our many stakeholders. And so even as customers became more discerning in their spending choices and the impacts of persistent inflation in our credit actions took hold as the year progressed, Synchrony leveraged our scale, our data analytics and deep lending expertise and our advanced digital capabilities to remain nimble and responsive in a rapidly changing environment. As a result, Synchrony generated full year 2024 net earnings of $350,000,000,0.0 or $8,.55 per diluted share, a return on average assets of 2.9% and a return on tangible common equity of 27.5%. The financial performance included both the positive and adverse impacts of several non recurring events in our business, ranging from the sale of 1 business and the acquisition of another to the undertaking of an unprecedented multi phase plan to prepare for a potential regulatory change with far reaching implications for the consumer lending industry. And yet through all the complexities of these opportunities and amidst an ever evolving landscape, Synchrony executed at a high level across all our key strategic priorities to optimize our business and position us for sustainable growth at strong risk adjusted returns for the long term.

[Brian Doubles, President and CEO at Synchrony Financial]

During 2024, we added more than 45 new partners, including iconic brands like Virgin, Gibson and VRP, as well as technology oriented relationships like Addit practice management software and ServiceTitan. Each of these additions further diversified the industry's products and services for which Synchrony can provide flexible financing solutions, while also extending our customer reach. Synchrony also grew and expanded existing partnerships during the year with the renewal of more than 45 programs, including Verizon and Generac, and more recently, 2 of our top 5 partners, Sam's Club and J. C. Penney.

[Brian Doubles, President and CEO at Synchrony Financial]

We're excited to announce that in Jan. 0, we renewed and extended our more than thirty year relationship with Sam's Club, which builds upon our strong focus of delivering member centric digital experiences and value. Synchrony's partnership with J. C. Penney has also evolved over nearly twenty five years through both collaboration and innovation as our customers' needs have changed.

[Brian Doubles, President and CEO at Synchrony Financial]

Our long term program extension and expansion will now include the introduction of Synchrony Pay Later, our buy now pay later financing solution with six, twelve or twenty four month installment payments. Customers can scan a QR code in store to complete an application on their own device and if approved select their preferred financing option and make their purchase immediately. And just as Synchrony is evolving and expanding the ways in which we deliver value through partner programs we offer, we are also focused on diversifying the programs and markets we serve and the breadth and utility of the products we offer. In 2024, we completed the acquisition of the Ally Lending business and are in the process of transitioning merchants to Synchrony Pay Later. We're excited to continue further developing our multi product capabilities and continue the expanded integration of this vertical in 2025.

[Brian Doubles, President and CEO at Synchrony Financial]

We also finalized the sale of Pets Best to Independence Pet Holdings. And in addition to a significant financial gain, we extended our reach in the rapidly growing pet industry through an equity interest in IPH. We're excited about the recent launch of Better Together with CareCredit and Pets Best, a patent pending, simple and seamless innovation that connects the 2 solutions by directly reimbursing insurance claims to the CareCredit health and wellness card. We believe this streamlined payment process will deliver a unified experience for pet parents and support our growth in the pet care financing industry. And we launched CareCredit into wellness markets to finance fertility, nutrition and dietitian products and services, which supported almost 15% growth in wellness related purchase volume during 2024.

[Brian Doubles, President and CEO at Synchrony Financial]

In addition, Synchrony enhanced the utility of a number of our private label credit cards by broadening their acceptance and expanding their distribution channels, an evolution made possible by the delivery of our financial ecosystem through more of our merchant acquirer partners. For example, the Amazon store card can now be used at all Whole Foods locations via mobile QR code and for One Medical memberships. The results have exceeded expectations and build upon our strong foundation of acceptance, including Amazon.com, Amazon Pay and Audible. In addition, CareCredit can now be used to pay for select health and wellness products and services across a growing list of approximately 18000 retail acceptance locations, including Albertsons Companies, Sam's Club, Walgreens and Walmart. And in keeping with our strategy of broadening product utility, we continue to roll out our CareCredit dual card over the past year, which grew open accounts by 16.

[Brian Doubles, President and CEO at Synchrony Financial]

Thanks to its strong value proposition in Utility, about 60% of this product's out of partner spend in 2024 was outside of traditional health and wellness categories. Today, Synchrony delivers a wide variety of innovative financing products and services that are designed to responsibly address each customer's needs whenever and however they are looking to make a purchase, an opportunity that is increasingly occurring digitally, whether that's on a mobile device or at the physical point of sale through wallet apps and digital payments. So throughout the past year, Synchrony has been on a journey to bring our customer experience to life through more engaging and cohesive content across our digital footprint. From our native apps to our marketplace and website, we are expanding and deepening the role that Synchrony plays with our customers and partner relationships. In fact, through our efforts to expand Synchrony's digital presence, we've enhanced our cross marketing capabilities and strengthened partner and product awareness for our customers.

[Brian Doubles, President and CEO at Synchrony Financial]

We're also seeing customers engage with Synchrony more extensively, visiting our sites more often. And while they're engaging longer on our properties, this engagement has contributed to incremental new accounts and sales as well as lower acquisition costs. In the case of Synchrony Bank, we've more than doubled the number of new Synchrony Bank accounts acquired through our synchrony.com website with almost no associated acquisition costs. And thanks to the combination of our dynamic technology platform, our advanced analytics and our scale with more than 140000000 reported trade lines and trillions of customer and spend data points, we can leverage proprietary insights throughout our digital financial ecosystem and across the customer journey to deliver highly personalized and engaging experiences. Synchrony's marketplace is a growing part of that financial ecosystem and drives greater connectedness between our customers and partners.

[Brian Doubles, President and CEO at Synchrony Financial]

Over the last year, we've launched curated campaigns and differentiated offers to our marketplace that contributed to more than 600000000 impressions and 1000000 referrals across participating partners. In addition, marketplace hosted almost two twenty eight million customer visits and drove more than 17% growth in newly submitted applications within marketplace. Synchrony's digital wallet strategy also made great strides in 2024, driving stronger engagement, utility and purchasing power for our customers. In fact, Synchrony's unique active wallet users grew 85% compared to twenty twenty three and contributed to more than double the digital wallet sales in 2024. This growth also supported a more than 200 basis point improvement in our dual and co brand cards wallet penetration rate, which should enhance the stickiness of these products and provide natural tailwinds to Synchrony's mobile wallet share as we continue to invest in this strategy.

[Brian Doubles, President and CEO at Synchrony Financial]

We're also excited by the opportunities we see to drive our digital penetration further in 2025. This includes our recent announcement that eligible Synchrony Master Card holders can now choose to pay with the standard terms of their credit card or use a promotional offer that includes fixed monthly payments when checking out with Apple Pay online and in app on an iPhone or an iPad. This enhances the way users pay and provides them with more choice and flexibility. And we plan to expand on this Apple Pay integration even further later this year by bringing users the ability to view and redeem rewards from eligible Synchrony also plans to work with our Apple Pay enabled partners to expand this capability across our portfolio. And as Synchrony continues to innovate and drive still greater financing experience and value for all those we serve, we're maintaining our discipline and leveraging our core strengths to sustainably grow and deepen our leadership position.

[Brian Doubles, President and CEO at Synchrony Financial]

Our sophisticated approach to customer lifetime value is driving incremental and deeper connections between approximately 70000000 customers and hundreds of thousands of partners, providers and small and mid sized businesses that we serve. Our diversified portfolio of products, programs and spend categories is empowering our customers with financing flexibility in whatever moment of life they're in. Our expansive distribution channels and omni channel capabilities are increasingly delivering our financial ecosystem anywhere a purchase can be made. And our differentiated approach to underwriting and credit management is driving the stability of our portfolio's post pandemic credit performance compared to most other lenders in the industry. All of this has been made possible with an incredible team of people and culture that earned Synchrony the honor of being ranked fifth among best companies to work for in The U.

[Brian Doubles, President and CEO at Synchrony Financial]

S. By Fortune Magazine and Great Places to Work in 2024. So as we look to 2025 and beyond, Synchrony is operating from a position of strength. We're executing across our key strategic priorities, empowering strong outcomes for the many stakeholders we serve. We're deepening our role within the heart of American commerce and priming our business for profitable growth for years to come.

[Brian Doubles, President and CEO at Synchrony Financial]

And we're driving considerable long term value for our shareholders. With that, I'll turn the call over to Brian to discuss our financial performance in greater detail.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Thanks, Brian,

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

and good morning, everyone. Synchrony's fourth quarter performance reflected the inherent resilience that comes from our diversified portfolio of products and spend categories, our balanced approach to underwriting and credit management and our sophisticated technology platform. This differentiated combination of strengths enable our business swiftly adapt to the evolving landscape. During the customers continue to seek out our flexible financing solutions as the strong value propositions and broad utility of our product offerings generate lasting value against a persistently inflationary environment. As a result, we added 5000000 new accounts, maintained approximately 70000000 active accounts and generated $48,000,000 of purchase volume despite the continued impact of the credit actions we took between and receivables grew 2% to $105,000,000,000 as payment rates continue to moderate down approximately 10 basis points compared to last year.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Purchase volume and receivables at the platform level reflected a continuation of the trends we discussed over the course of the year as customers remain selective in their spending behavior and generally prioritize non discretionary and seasonal holiday items. Platform purchase volume growth ranged between down 1% and down 6% year over year, generally reflecting lower spend per account as customers moderated both bigger ticket and discretionary spend, particularly in categories like furniture, electronics, cosmetic and outdoor, as well as the impact of Synchrony's credit actions. Receivables growth across the platforms range from flat to 6% higher year over year, primarily due to slower purchase volume growth and payment rate moderation. Dual and co branded cards accounted for 44% of total purchase volume for the quarter and increased 1%, reflecting the benefit of these products' broad based utility, offset by the combined impacts of selective customer spend and Synchrony's credit actions. Net revenue grew 4% to $380,000,000,0.0 resulting from higher interest and fees and higher other income, partially offset by higher RSA and interest expense.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Net interest income increased 3% to $460,000,000,0.0 as interest and fees grew 3%, primarily reflecting higher interest and fees on loans, partially offset by an increase in interest expense from higher interest bearing liabilities. Our loan receivables yield grew 8 basis points, primarily driven by our pricing actions, including the impact of our product, pricing and policy changes or PPPCs, as well as lower payment rate, partially offset by higher reversals and a lower late fee incidence. Total interest bearing liabilities cost was 4.58%, an increase of 3 basis points versus last year. RSAs of $9.19,000,000 dollars were 3.57% of average loan receivables in the and and increased $41,000,000 versus the prior year, primarily reflecting program performance, which includes the impact of our PPPCs. Other income increased $128,000,000 primarily related to the impact of our PPPC related fees, which were partially offset by the impact of our Pets Best disposition.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Provision for credit losses decreased to $160,000,000,0.0 primarily reflecting $100,000,000 reserve lease in the compared to a reserve build of $4.00 $2,000,000 in the prior year, partially offset by higher net charge offs. Other expenses decreased 4% to $130,000,000,0.0 primarily driven by the prior year restructuring costs and other notable expenses as outlined on Slide 17 of our earnings presentation and lower operational losses in the current year. These decreases were partially offset by costs related to the Allied Lending acquisition and technology investments. The efficiency ratio was 33.3% for the an improvement of approximately two seventy basis points versus last year, reflecting a combination of Synchrony's cost discipline and revenue growth. Taken together, Synchrony generated net earnings of $7.74,000,000 dollars or $1,.91 per diluted share and delivered a return on average assets of 2.6%, a return on tangible common equity of 23% and a 23% increase in tangible book value per share.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Next, I'll cover our key credit trends on Slide 11. At quarter end, our 30 plus delinquency rate was 4.7%, a decline of 4 basis points from 4.74% in the prior year and 8 basis points above our historical average from the to 2019. Our 90 plus delinquency rate was 2.4%, an increase of 12 basis points from 2.28% in the prior year and 16 basis points above our historical average from the to 2019. And our net charge off rate was 6.45% in the an increase of 87 basis points from 5.58 in the prior year and 96 basis points above our historical average from the to 2019. Our allowance for credit losses as a percent of loan receivables was 10.44%, which decreased approximately 35 basis points from the 10.79% in the As shown on Slide 12, the credit actions we've taken from through are improving our delinquency formation as the rate of year over year growth in both 30 plus and 90 plus delinquency rates continue to decelerate.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

These trends give us confidence in our ability to return to our long term net charge off target. Turning to Slide 13. Synchrony's funding, capital and liquidity continue to provide a strong foundation for our business. During the grew our direct deposits by approximately $7.16,000,000 dollars and reduced our broker deposits by $9.38,000,000 dollars At quarter end, deposits represented 84% of our total funding with secured and unsecured debt each representing 8% of total funding respectively. Total liquid assets and undrawn credit facilities were 19800000000.0 essentially flat versus last year and represented 16.6% of total assets, a 26 basis point decrease from last year.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Focusing on our capital ratios, 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 transition adjustment to our regulatory capital metrics of approximately 50 basis points in January 2025, which will reflect the fully phased in effects of CECL. The impact of CECL has already been recognized in our income statement and balance sheet. Under the CECL transition rules, we ended the with a CET1 ratio of 13.3%, one hundred and ten basis points higher than last year's 12.2%. Our Tier 1 capital ratio was 14.5%, one hundred and sixty basis points above last year.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Our total capital ratio increased 160 basis points to 16.5%. In our Tier 1 capital plus reserves ratio on a fully phased in basis increased to 24.3% compared to 22.1% last year. Synchrony returned 197000000 to shareholders during the consisting of $100,000,000 in share repurchases and $97,000,000 in common stock dividends, totaling $140,000,000,0.0 of capital returned during the full year 2024. At year end, we had $600,000,000 remaining in our share repurchase authorization for the period ending June 30, 2025. Remains well positioned to return capital to shareholders as guided by our business performance, market conditions, regulatory restrictions and subject to our capital plan.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Turning to our outlook for 2025 on Slide 14. Our baseline assumptions include a stable macroeconomic environment, full year GDP growth of 2.2%, a year end employment rate of 4.1%, a year end Fed funds rate of 4.25%, full year deposit days of approximately 60%. In addition, given the uncertainty with regard to litigation process and the political landscape surrounding the late fee rule, our outlook assumes no impact in the potential late fee rule change, but does include the impact of our PPPCs. If the late fee rule were to go into effect, this outlook would no longer be applicable. Starting with ending loan receivables, we expect purchase volume and new account growth to continue to reflect the impacts of our credit actions and selective customer spend behavior.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

We also expect payment rate in 2025 to generally remain flat with 2024 levels as a result of our past credit actions, which have stabilized the mix of customer payment behaviors. As a result, we expect low single digit growth in ending loan receivables for the full year 2025. We expect net revenue for the full year to be between $1,520,000,000,0.0 and $1,570,000,000,0.0 and to follow seasonal trends. We expect year over year growth in both interest income and other income as the impact of our PPPCs build, partially offset by the flow through of lower average prime rate on our variable rate receivables, lower late fees as delinquency performance improves, lower yielding investment portfolio due to lower benchmark rates and finance charge and late fee reversals associated with the seasonality of our credit performance. Lower average benchmark rates should also contribute to lower funding costs as our CD maturities reprice, although this will be influenced by competitive deposit beta trends in response to any additional rate cuts that may occur.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

In addition, we generally expect to maintain higher levels of liquidity of approximately 17% for the next few quarters given our desire to prioritize our deposit customer relationships and pre fund future growth. Finally, RSA as a percentage of average loan receivables should be between 3.63.85%, driven by improving program performance as net charge offs decline and the impact of our PPPCs increase. We expect our portfolio net charge off rate for the full year to be between 5.86.1%, primarily reflecting the benefit of our prior credit actions and our differentiated approach to underwriting and credit management. And we expect our efficiency ratio to be between thirty one point five percent and thirty two point five percent as Synchrony remains focused on driving operating leverage in our business. Before I turn the call over to Q and A, I'd like to leave you with 3 key takeaways from today's discussion.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

First, Synchrony is well positioned to reaccelerate our growth. Our investments we've made and credit actions we've taken were designed to prioritize sustainable profitable growth through evolving market conditions. Our performance since exiting the pandemic in 2021 demonstrates our discipline with average ending loan receivables growth of approximately 9%, while delivering an average return on assets of approximately 3% and average return on tangible common equity of approximately 25%. Second, the outperformance of our portfolio's credit trends relative to the industry has enabled this track record and a recent delinquency formation trends give us confidence in both our credit outlook and our ability to reaccelerate profitable growth. We are watching for continued stability in the macro environment, more confident consumer spend behavior and continued improvement in our delinquency performance to support the gradual reversal of our credit restrictions.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

And third, Synchrony's robust capital position is a clear strength. It will enable our growth while also supporting greater capital returns to our shareholders in the years ahead. In summary, Synchrony's high level execution in 2024 has positioned us well for 2025 and beyond as we drive progress towards our long term financial targets. With that, I'll turn the call back to Catherine to open the Q and A.

[Kathryn Harmon Miller, Senior Vice President and Director of Investor Relations at Synchrony Financial]

That concludes our prepared remarks. We will now begin the Q and 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 1 primary and 1 follow-up question. If you have additional questions, the Investor Relations team will be available after the call. Operator, please start the Q and A session.

[Operator]

And we will take our first question from Ryan Nash with Goldman Sachs. Please go ahead.

[Ryan Nash, Managing Director - Regional Banks & Consumer Finance at Goldman Sachs]

Hey, good morning, everyone. So maybe to start off on the net revenue guide. Brian, you talked about growth in both fees and NII. Can we maybe just dig in on some of the moving pieces on net interest income? And I guess, first, how do we think about the impact from rates?

[Ryan Nash, Managing Director - Regional Banks & Consumer Finance at Goldman Sachs]

I know you're targeting 4.25 in terms of Fed funds. The balance sheet should benefit as rates come down. And then second, how is the impact of the PPPCs coming through on your guide? How much of the full benefit are you anticipating is already incorporated into the run rate for this year? And then I have a follow-up.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes, great. Let me try to unpack a little bit of that, Ryan. So I think when you think about net revenue guidance and then I'll bridge you a little bit to NII. When you think about the net revenue guide, you're going to get a significant increase related to the PPPCs running through net revenue. You'll also get a lift coming from growth and revolve rate coming through here.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

But there are fairly 2 fairly large offsets that are coming back. 1 is RSAs, which has the effect not only from a lower net charge off rate in 2025, but also has the effect of the PPPCs that are flowing through there. And you have a fairly significant drop in late fee revenue that comes through there as well as your charge offs decline. So those are the general moving pieces. You will see a more pronounced NII growth because obviously that strips out the RSA impact, but the same late fee dynamic, the revolve rate, all those kind of flow through.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

On net funding, it's slightly negative for the full year. It's more a timing of when we have the rate cut kind of coming through. You have prime rate already starting to drop this in the beginning part of this year. So it's more a timing, to be honest with you, when you think about prime rate decline, the investment portfolio, which resets fairly quickly and then the funding piece, again, depending upon when the CD maturities restack. So again, more pronounced NII growth.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

And the PPBCs, I'll get ahead of the question, are performing generally in line with financially our expectations. We have said there's a little bit of mix. We're getting stronger retention, stronger yield on the interest side and a little bit lighter on the paper statement fees, mainly due to people adopting EBITDA. So that's how I kind of think about the framework for both net revenue and NII.

[Ryan Nash, Managing Director - Regional Banks & Consumer Finance at Goldman Sachs]

Got it. And maybe as a follow-up on capital. So you're sitting over 200 bps above the target, especially in a seasonally low quarter. And I think you brought back billion dollars of stock. Can you maybe just talk about the plan for capital return, particularly why it was a little bit depressed in the quarter?

[Ryan Nash, Managing Director - Regional Banks & Consumer Finance at Goldman Sachs]

And maybe just toggle between are you seeing more opportunities to deploy it inorganically? Or I know you mentioned twice in your last remarks, Brian, about the reacceleration of growth. Are you holding back a little bit in terms of anticipating the return of loan growth? Just trying to understand the thought process on the lower near term buyback and what it means for deploying capital over the next few quarters?

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. Thanks for that question, Ryan. I know a lot of people are going to try to make a read through into what we did in the cadence for the quarter. I just want to be clear, the cadence for the quarter being lower than than some of the prior quarters was more our kind of view on the market and what was going to be potentially a more volatile market given the presidential election and the aftermath of whichever administration kind of came came through and the flow through effect. So we kind of predetermined that that wasn't a quarter that we were going to be heavily leaning in from a buyback perspective.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

I would not read through that. The $600,000,000 that we have remaining on the internal authorization, our intention is to complete that. And right now, we're in the process of completing our 2025 capital plan, running our loss stress test. For there, again, we understand that capital is a strength for us. It does provide us the opportunity to do things integratically.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

But I want to be clear, we didn't build capital or the lower repurchases, but not due to waiting for additional growth, AV and organic. It was just more our kind of view of the markets maybe being a little bit more disrupted or disjointed in the And we remain committed to bring capital back down closer to our target.

[Ryan Nash, Managing Director - Regional Banks & Consumer Finance at Goldman Sachs]

Thanks for the color.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Thanks, Ryan. Have a good day.

[Operator]

Thank you. And we will take our next question from Sanjay Sakhrani with KBW. Please go ahead.

[Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Thank you. Good morning. Brian Wenzel, maybe just to drill into that PPPC impact a little bit more. Is it fair to assume that by the end of this year, you'd still sort of have that full run rate of what you anticipated putting in as mitigation in the numbers? And I guess like, how should we think about if late fee regulation doesn't happen, how it impacts the ROA?

[Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)]

I'm just trying to think about sort of normalize your long term ROA and when you anticipate getting there and I would have thought that mitigation takes that higher and sort of when we might get there? Thank you.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. Thanks for the question, Sanjay. Good morning. As I think about how you exit out of 2025 on the PPPCs, if I look at a couple of different components, they're still not going to be fully there on the financial charges. If you recall, we said you're roughly half one year out, you're about 75% two years out.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

So there's going to be incremental run rate to go on the interest line as you exit out of and get closer into That's number 1. Paper statements should reach, I'd say, a steadier statement level, but then we'll be then we'll grow relative to our average active accounts and how that grows depending upon mix and whether not all the accounts have that paper statement. Potentially there could be a little bit of headwind if more people choose eBill and then you're going to get the benefit down on the expense line versus the other income line. And the last thing I'd say is on the promotional fees, that should build throughout 2025 because that's something that went into effect a little bit later in 2024 as promotional volume picks up. It's been a little bit below our historical amounts, right?

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Just on a buying perspective, that should pick up and amortize in over time. So I think as you exit out of there still is room to grow both on the interest line from promo fees and interest income, interest from the interest charges and a little bit on the paper statement fees.

[Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. And then as far as like ROAs,

[Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)]

any thoughts there?

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

We're obviously not guiding to an ROA, but if you look at the construct of the outlook, in theory, coming from a place where you need to strip out this year, it's really important to strip out the Pets Best gain and the Visa B gain. In theory, the PPPCs without a late fee offset to or lower late fees, you generally should have something that would drive the ROA incrementally higher.

[Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. Just 1 follow-up for Brian Doubles. Maybe you could just talk about the deal environment. I know there's a couple of RFPs out there. There's a lot of chatter around those.

[Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Maybe you just talk about how it's looking for you? And then the loan growth still remains weak, the purchase volume remains weak. I mean, anything that can help drive that? Are you guys being conservative there? Thanks.

[Brian Doubles, President and CEO at Synchrony Financial]

Yes, sir. Look, I would say generally, we like the operating environment right now. I'll start with your second question, which is just around growth. I think, look, the consumer is in pretty good shape. We like the environment right now.

[Brian Doubles, President and CEO at Synchrony Financial]

We did take some credit actions. You're seeing those work exactly as designed. So you saw 30 plus turn the corner. The setup for next year is really good. So we feel great about the environment.

[Brian Doubles, President and CEO at Synchrony Financial]

I'll tell you on the competitive side, there's still pretty good discipline in the market. We're looking at a lot of new opportunities as we always do. We have a robust pipeline. And at this point, there's still pretty good discipline. I think some of that is coming out of last year was a little bit uncertain in terms of the economy, the effects of inflation, the election.

[Brian Doubles, President and CEO at Synchrony Financial]

And I think when you're in periods like that, you tend to see pretty good discipline around pricing new opportunities and we're seeing that. So as you know, we're a disciplined bidder. We're always focused on a good risk adjusted return. We look for programs where we have really strong alignment between us and partner like those things are critical. Those are absolutely non negotiables for us and we continue to win new business.

[Brian Doubles, President and CEO at Synchrony Financial]

So I feel again, I feel good about the environment. I feel really good about how we're competing for new business. And you actually saw that with a couple of big renewals that we did this past quarter with Sam's and JCPenney.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes, Sanjay, if I could just add 1 of

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

clarity for what Brian said. When you look at the purchase line growth in the I know people are focused on that, a significant portion of that was credit action driven. That was us really trying to focus to get credit into the position in 2025 where we're getting back into our longer term target range. And that's really important. And I know we'll get the credit at some point, but it's also helping us get back on a trajectory faster than our peers.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

But the purchase volume is by design. The new accounts were by design to kind of set us up really on the credit side.

[Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Thank you.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Thanks, John. Have a good day.

[Operator]

Thank you. And we will take our next question from Maher Bhatia with Bank of America. Please go ahead.

[Mihir Bhatia, Equity Research Analyst at Bank of America Merrill Lynch]

Thank you for taking my questions. I actually wanted to go back to the question around just the net revenue and some of the components there. Maybe just talk about some of the assumptions embedded in there in terms of just how much of your portfolio is resized heading into 2025, what do you expect heading out of 2025? Does that imply like even more upside on net revenue in 2026? Thank you.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. Again, we haven't really changed or provided any incremental color in the year other than we talked about how much of the book should reprice in the first twelve months and in the next twelve months. I'd say we're slightly ahead of that schedule as we stand now. Obviously, we're also going into a period where prime rates are going to have a little bit of an influence here in the given the changes that happened in the latter part of 2024. So again, there's no change to the guidance that we had with regard to how much of the book is going to be on the new APRs.

[Mihir Bhatia, Equity Research Analyst at Bank of America Merrill Lynch]

Got it. Thank you. And then maybe just like you mentioned credit, so let's turn to that. Your outlook does suggest meaningful improvement and we see that in the delinquencies. But I was curious about how you would carry but your purchase volumes are still pressured.

[Mihir Bhatia, Equity Research Analyst at Bank of America Merrill Lynch]

I understand some of it is driven by your own actions and pulling back on tightening underwriting. So I guess a couple of questions there is just, are you done with tightening underwriting for now? How do you feel about the environment currently? What are you seeing from the consumer? Some others have mentioned an increase in people paying minimum balances, some type some commentary around how many people are at full at their full credit limits.

[Mihir Bhatia, Equity Research Analyst at Bank of America Merrill Lynch]

What are you seeing in your book? How do you feel about the consumer? And where are you from a underwriting posture standpoint? Thank you.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. Let me try to unpack that 1 on the here. The first thing, I want people to focus on the fact that we were later in a credit normalization than others. We reached what I if you could say a peak or a trend where our 30 plus has now turned positive, whether you think about it sequentially to the or year over year in the where a lot of other people are doing it. So we didn't go with high and ours was much more compressed largely due to the credit actions that we've taken and we're pleased with how they're performing.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

The broad based actions that we took really, I'd say, ceased back in the So the actions that we continue to take are the standard idiosyncratic type refinements that we look at partners channels as we look at the risk return of those channels and products. As we enter into 2025, I think when you look at that credit trajectory and we've outperformed seasonality now for five months on a to 'nineteen basis, I think we feel optimistic where we are going with credit and the

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

performance of those actions, which gives

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

us a guide down again to that 5.8% to to 6.1 range. Some of that's going to be more dependent upon the denominator. When you go underneath the hood and you start thinking about the consumer for a second, overall line utilization has not really changed. So we don't see consumers at max in line. So that's not an issue that we see in our portfolio or severance our portfolio.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

When we look at payment behavioral patterns, when we see movements, we are seeing movements generally across all credit grades. So it's not centered around non prime. We see it probably a little bit more in the upper prime category than the low prime, which means they're kind of coming back from some place where they had excess liquidity, but we don't see anything that's really different. If you look at our payment composition, right, relative to 2019, people who are making the minimum payment is up significantly from 2019 across all credit grades. And so you look at the seven eighty plus, they're up probably a little over 400 basis points every other credit grade, whether it's the prime, the non prime are up high 3s.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

It's not materially different. Part of that is structural, right, as we put more installment lending in and promotional financing, all those payments go into exact and in pay. So that's kind of structural. So we don't see cracks in the consumer, as Brian talked about, in the payment behavior patterns, line utilization patterns. We continue to believe that a lot of loss pressure across the industry was too much credit being put out for certain cohorts and their ability to really handle that credit.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

So we don't see things that are troubling to us. And I think as we step through the first half of the year, I think we'll take an assessment back on whether or not at what point do we want to potentially lift some of the credit restrictions that are in place. There could be a scenario where you do some of that in the back half of this year. There's a scenario where we reverse everything. But there could be a reason for us to sit back and say the actions have largely felt what they needed to do in order to get the book in the right place.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

So that's kind of how I think about credit and some

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

of the performance of the book today in here.

[Mihir Bhatia, Equity Research Analyst at Bank of America Merrill Lynch]

Thank you.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Thank you. Have a good day.

[Operator]

Thank you. And we will take our next question from Terry Ma with Barclays. Please go ahead.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Hey, thank you. Good morning. Maybe as a follow-up to credit, your delinquency rate was down 4 basis points year over year. Do you have any sense for how much additional room there could be for improvement on a year over year basis as we progress through the rest of the year?

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. Thank you and good morning, Terry. So we don't forecast 30 plus and 90 plus externally. What I'd sit back and give you maybe color on is some of the trends that we do see in credit, which obviously informs not only the charge off rate, but where we go from a reserving standpoint. We continue to see entry rate favorability that again accelerated a little bit more in the for some actions we've taken pre collections.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

We've seen good performance, right, relative in our 2 flows to charge off and really our late stage collections have improved. So I think as you look at that, that gives us a really high confidence level as we think about getting the net charge off rate down year over year back into our target underwriting zone. I think if you think about the short term nature here, obviously, there's generally a seasonal lift that you see particularly in the and go on from there. We will not see as much of a seasonal lift. Traditionally, it's been around 50 basis points.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

We will not experience that in the or I believe, mainly for 2 things. 1 is that performance I talked about, particularly late stage improvement across some of those later delinquency stages, number one, and two, the timing of certain recovery actions we have, why recoveries are going to be on par with that you think about 2024, just the timing of that plays through. So a little bit better seasonally in the or the excuse me. So we feel good based on that delinquency formation of flow.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Got it. That's helpful. And then maybe as a follow-up on the allowance ratio, if you put all that together, what does that mean for the allowance ratio as we kind of progress through the rest of this year? I think this quarter ended up a little bit higher than what you had kind of guided to earlier in the year. So maybe any color on the delta between the guide versus the realized and then how we should think about the allowance ratio?

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. Thanks for that question. So let me try to address a little bit of the ending point in 2024. And I think there's really 2 factors that kind of have gone into that ending point being maybe higher than other people expected or generally we said it would be fairly in line with our exit point in 2023. Number 1, the denominator clearly had some influence, 2 being slightly higher on a rate basis.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

So that's part of it. The second piece of it probably is a little bit of what I would say, conservatism, how we think about the credit actions inside the quantitative part of the model as we enter 2025. I think if you take a step back while we're not providing guidance on the reserve, but think about the components here, if you continue to believe or believe that the net charge off rate comes back down closer to that or inside of the net charge off long term guide, right, that part of the model, which is the quantitative part of the model, you should be able to get a rate benefit coming off of that. The second piece of it is your qualitative overlays and whether or not you get clarity on the macroeconomic environment, right, which today continues to be ebbs and flows on how inflation is trending and how interest rates are flowing. But those 2 are the pieces that we're going to have to watch.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Inherently, I think if you think about charge off rates are declining and you think of macroeconomic environment that improves and you have greater clarity, there will be a downward bias as you move into 2025 and exit out of 2025 on the reserve rate. Again, you'll be subject to a little bit of the seasonality throughout the year, but there should be a downward bias under that type of scenario or framework.

[Operator]

Thank you. And we will take our next question from Moshe Orembock with TD Cowen. Please go ahead.

[Moshe Orenbuch, Managing Director at TD Cowen]

Great. Thanks. Brian Doubles, you mentioned that part of the JCPenney renewal was the addition of the Synchrony Pay Later. Could you talk about the other any other sort of new aspects to the renewals for those 2 large programs and just talk a little bit about how we should think about the economics of those renewals? Thank you.

[Brian Doubles, President and CEO at Synchrony Financial]

Yes, sure Moshe. So look, I would say, first, we're thrilled to have renewed JCPenney and Sam's Club. We've been with both partners for decades now at this point. So we're extremely happy to have them renewed. We're excited to launch Pay Later with JCPenney.

[Brian Doubles, President and CEO at Synchrony Financial]

I think it's a real testament to the multi product ecosystem that we've built, starting with Lowe's, now J. C. Penney, it's really resonating with our partners, both frankly, both on the renewal side, but also as we go out and compete with new compete for new business. And I think it's different than it was probably two or three years ago where you had partners that were leveraging fintechs, looking for buy now pay later solutions. They were basically doing anything they could to generate and drive sales.

[Brian Doubles, President and CEO at Synchrony Financial]

Now they've kind of taken a step back and they said, hey, we want a product that can be a starter product, a way to bring in new customers and then over time graduate them to a revolving product, a co brand card. And when you look at the economic model associated with that, it's really compelling. It's great for us, it's great for the partners because some of the starter products and buy now pay later don't exactly meet our return threshold, but when you look at the lifetime value of that customer, it absolutely does. And like I said, it benefits us and the partner. In terms of the 2 renewals on economics, we don't get into that.

[Brian Doubles, President and CEO at Synchrony Financial]

I would just tell you that we're extremely happy with both the economics and the terms of both agreements. We've got great alignment on both. I talk about that a lot because it's absolutely critical to have a successful program. These are long term agreements and we want to make sure that the interest between us and the partner is perfectly aligned and in both cases, I think they are.

[Moshe Orenbuch, Managing Director at TD Cowen]

Got it. Thanks. And maybe just as a follow-up, Amit, you talked a little bit about the potential for some degree of reversal of some of the tightenings perhaps by the second half of the year. Just talk a little bit more granularly about whether there are certain types of maybe not names of partners, but types of partners that you'd likely see that first or any other kind of signs that we should be looking forward to see that that's going on?

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. So great question, Moshe. I think what you're going to start to see is in a couple of areas, right? We will see an acceleration potentially of dual card, right? So that we have dual cards as you potentially would think about where we may be downselling a little bit more into private label today, we would go through and do more upgrades from the private label product into the dual card products.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

That's 1. I think in 2, an area you will see is where we have probably been more restrictive on credit line increases and potentially credit line decreases. You'll see probably a little bit more credit line increase activity and decrease activity. And that generally will happen in some of the larger balance type platforms that we have. So I think initially what you'll start to see is really some expansion into growth areas, some improvement on our approval rate in new accounts that then begins to flow through on the purchase buying activity.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Again, I think centered in a little bit of the larger type balance platforms. I think another big component here is going to be when the consumer has enough confidence, we watch consumer confidence quite closely, but has enough confidence where they're wanting to make more discretionary purchases, because that's what we're seeing across the board was in health and wellness. You think about some of the cosmetic or LASIK potentially when you think about in home and auto, some of the mattresses and furniture deferrals, those should create nice tailwinds when the consumer gets some confidence as we step through their non credit oriented, but we will be there to help them. So I do think it's a little bit broader on some of the actions that we would take or begin to unwind under that potential scenario.

[Moshe Orenbuch, Managing Director at TD Cowen]

Great. Thanks very much.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Thanks, Moshe. Have a good day.

[Operator]

Thank you. And we will take our next question from Jeff Adelson with Morgan Stanley. Please go ahead.

[Jeff Adelson, Analyst at Morgan Stanley]

Hey, good morning. Thanks for taking my questions.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Hey, Jeff.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Good morning, Jeff.

[Jeff Adelson, Analyst at Morgan Stanley]

Just given the broader slowing growth of purchase volumes and account growth you've seen for a few years now and the credit actions you've taken, can you maybe share some of the feedback and conversations you're having with your key retail partners around that? I understand that Synchrony controls the underwriting, but are you hearing more of a desire from some of these partners to maybe lean back in a little bit here? And how is that talking point of slower growth narrative maybe feeding into the competitive dynamic as you look to really renew and win new partnerships from here?

[Brian Doubles, President and CEO at Synchrony Financial]

Yes, definitely. I think it comes back to what I said earlier, which is all of our programs, we have really good alignment with the partners. So when we saw what the industry did in 02/00, a little bit in and the massive amount of credit that was extended to consumers, we started very proactively making some of these tightening actions and modifications. And we did that completely transparently with all of our partners, just like we do on everything related to the program. We look at the data, we look at the results, we show them exactly what it's going to do to the performance of the program, both on the growth side, but also on the RSA piece.

[Brian Doubles, President and CEO at Synchrony Financial]

And we make those decisions jointly. We control credit. There's no confusion about that, but we do it very transparently with our partners. And our interests are aligned through the RSA. And you're seeing that now.

[Brian Doubles, President and CEO at Synchrony Financial]

I mean, as Brian said, the RSA will come up a little bit because of the PPPCs and the better net charge off profile for 2025. That's exactly how they're supposed to work. And so both the credit actions and the RSA are working as designed. And so in a partnership like this, as long as you've got a good contract where it's very clear that we both win together and don't be confused, we both want to grow. We want to approve more customers, we want to help our partners drive sales, but we want to do it in a prudent way where we're managing to the long term credit target and I think we're doing that.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes, the only thing I'd just add on to that, Jeff, I mean, just taking a little step back here, we did put up the second highest purchase volume ever as a company, coming off a record purchase volume the year before. And we had significant asset growth the year before. So this is in, I'd say, some long term trend. This is by design with taking credit actions. That's why I think, if you look at the pace in which losses start to accelerate and push through your long term historical averages, we were probably the slowest to do that and 1 of the fastest coming back out and we didn't have a steep an increase.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

That was because of credit actions and our desire to do that. So again, I don't want to lose sight of the fact that from a purchase line perspective, this is a significant year for our partners and for our company.

[Jeff Adelson, Analyst at Morgan Stanley]

Okay, great. And as my follow-up, just maybe circle back on Sanjay's question. If the late deregulation doesn't come out and let's just say the CFPB rescinds the rule, can you just talk about the plans from there? And have any of your retail partners talked about maybe a desire to pull back on some of the PPPCs you put through?

[Brian Doubles, President and CEO at Synchrony Financial]

Yes. Look, so I'll start on this. I think clearly there's been some positive developments on the litigation front. The injunction will stay in place. I think Judge Pittman made some positive comments about the merits of the case for the industry.

[Brian Doubles, President and CEO at Synchrony Financial]

With all that said, nothing is final. We don't have certainty at this point. So we're not planning on making any changes to the pricing actions at this point. We got to see how the litigation progresses. We need some level of certainty.

[Brian Doubles, President and CEO at Synchrony Financial]

And like I said earlier, I think we'll do exactly what we did when the late proposal came out. We'll go out, we'll talk to our partners, we'll do that very transparently. We'll look at a number of different factors, including any behavioral changes that we may have seen up until this point. We'll look at where other merchants and providers are pricing their programs. We look at the competition.

[Brian Doubles, President and CEO at Synchrony Financial]

We look at the industry. And we'll go through the financial impact to our partners in terms of how it would impact the RSA. So again, it will be very collaborative. We'll make the decision together just like we've done on credit and when the first late fee proposal came out.

[Operator]

And we will move next to John Hecht with Jefferies. Please go ahead.

[John Hecht, Managing Director at Jefferies Financial Group]

Good morning guys. Thanks for taking my questions. First one I guess is just another I guess aspect of credit Brian Wetzel. I know '24 is early, but are there any kind of early reads from some of the aspects of the '24 vintage that leads you to believe that it might that vintage itself might be performing within the long term goals?

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. First of all, thanks for the question, John, and good morning. As we look at the vintages in 2023 and 2024, we talked about some of the early performance, you call it very early, particularly for I'd say that they continue to develop and I'd say as we look at those relative to the industry, they are performing better than the industry's experience on both and in our estimation. Those vintages, when I compare them back to 2018, moved slightly worse than 2018, but nothing that's really significant or gives us pause as they develop. So I think as we look at it, we're very happy with those 2 vintages, but going to 24 vintages that have the 4 credit actions embedded in them.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

And we feel optimistic is just another reason why we're back hopefully inside our long term target range of $5.5 to $6 but in the guide of $5.8 to $6.1 for next year.

[John Hecht, Managing Director at Jefferies Financial Group]

Okay. And then Brian, Doubles, maybe can you talk about just the mix of digital commerce versus in store commerce? And has that trajectory changed at all over the I guess kind of in the wake of COVID?

[Brian Doubles, President and CEO at Synchrony Financial]

Yes. Not surprisingly, it continues to increase both in terms of the type of partners where we're seeing the most growth at the moment, but also how the consumer is shopping. 1 of the big areas where we're investing is in digital wallets that are becoming more and more prevalent. We had the announcement on Apple Pay, which you saw. So that's an area where we continue to invest.

[Brian Doubles, President and CEO at Synchrony Financial]

I think we compete very well there. We have very sophisticated technology platforms that we embed into our partners' apps and their mobile platforms. And I think that's obviously I'm stating the obvious, that's where the future is going and we've been investing there for eight or nine years really heavily. And so we feel good about that as a competitive advantage. I think we have a more sophisticated platform than many in the industry.

[John Hecht, Managing Director at Jefferies Financial Group]

Great. Thanks for the color guys.

[Brian Doubles, President and CEO at Synchrony Financial]

Thanks, John.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Thanks, John. Have a good day.

[Operator]

And we will move next to John Pancari with Evercore ISI. Please go ahead.

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

Good morning.

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

On the liquidity front, I know you mentioned you're running at a higher levels of liquidity at around 17%, partly the pre fund growth. Could you give maybe a little bit more color around this decision and what could change this view and what's the longer term outlook? What would you say is the appropriate long term liquidity level as you look out?

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes, thanks for the question. As we look at the digital banking deposit market, we continue to think there's a place there with the consumers that we want to attract that there's still an attractive way for us to get new customers. And what we did want to do was really shrink down deposit growth in the short term, only have to reaccelerate it when growth comes in. Today, even 1 on higher liquidity on an EPS basis, it's positive trade for me. If I can bring in dollars at high yield savings rate of $4.1 and collect over that, right, in fed cash, that's a positive economic trade and positive EPS trade.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes, it most certainly hurts net interest margin, but I think the EPS dollars makes more sense. What I don't want to do is pull back and try to be rate sensitive in the short term and then have a higher cost to acquire in the back half of the year or into next year when we grow. So that's really the strategy around. I think we feel really that we're positioned well relative to who we define as our peers in the digital banking space. If you think about that long term rate, it's generally in the, I call it the 15 to 17 depending upon which quarter that you're in.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

So slightly lower than that from here, but we just wanted to call it out because we're not going to alter our deposit funding strategy in the short term when we believe the growth will be accelerated at some point.

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

Got it. All right. Thanks, Brian. And then my follow-up is a quick 1, just back to the late fee rule. I heard you acknowledge the positive comments coming from Judge Pittman.

[John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI]

But what are you actually hearing from your folks in D. C. Post the election in terms of potential CFPB action as there's changes at the administration? I mean, could the rule be allowed to be sorted out in the courts still or actually killed on the vine? Thanks.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes, it's really

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

hard to speculate on that. I mean, there are a number of different scenarios where we spend a lot of time with our legal team. I will tell you just going back to when the litigation started, it has been a lot of ups and downs. And I think the industry feels fairly good about Judge Pitman's ruling, but how it could play out from here. There's still a lot of uncertainty.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

I think the appeal window is still open until the February,. So I don't want to get into speculating. We're staying very close to it. Obviously, We're communicating with our partners, but I don't want to speculate beyond that.

[Operator]

And we will move next to Bill Carcacci with Wolfe Research. Please go ahead.

[Bill Carcache, Equity Research Analyst at Wolfe Research]

Thank you. Good morning and thanks for taking my questions. First, can you discuss the potential for PPPC to drive your normalized return profile of 28% sustainably higher?

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. Thanks and good morning, Bill. We haven't changed our long term outlook. I think to some degree, once the late fee rule settles in, whether it goes in, it doesn't go in, what the ultimate effect of the PPPCs are, we'll come back and potentially revisit those targets at that point, but we haven't changed them yet, though.

[Bill Carcache, Equity Research Analyst at Wolfe Research]

Understood. Maybe following up on your efficiency guidance. Sorry if I missed this, but can you give some color around the factors that would drive your efficiency ratio towards the lower versus the higher end of the range?

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. 1 just goes back into how well you manage and grow your existing account population. To the extent I can grow the existing balance as I get operating leverage on that, I think we have a lot of discipline, right, relative to when and how we add incremental FTEs and how we manage some of the non exempt employees as we go through seasonal periods. So there's a number of different levers that we use and we go back into the net revenue decline we saw as a company through the pandemic, we're very quickly back into being 1 of the more efficient, if not the most efficient credit card company when it comes down to how we operate the business. And that's our commitment is to drive that operating leverage again in 2025.

[Bill Carcache, Equity Research Analyst at Wolfe Research]

Thank you.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Thanks, Bill. Have a good day.

[Operator]

And we will move next to Rob Wildhack with Autonomous Research. Please go ahead.

[Robert Wildhack, Equity Research Analyst - Director at Autonomous Research]

Good morning, guys. A question on the outlook for loan growth. Just wanted to get your thoughts on how that might progress through the year because I think in the past you've talked about a scenario where you could open up a bit in the second half. So is that still the base case and included in the outlook now? And then what are some of the waypoints we should watch to see if that remains on track?

[Robert Wildhack, Equity Research Analyst - Director at Autonomous Research]

Is it just as simple as net charge offs normalizing? Thanks.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. Thanks and good morning, Rob. As you think about loan growth, as you step through the year, you first got to look at against what you're comparing year over year. Obviously, the most difficult comp would be the We were fairly clear in the we saw a deceleration from the consumers that were really somewhat in advance of our credit actions. And then obviously, the continued deceleration that you saw in the back half of the year, mainly from the credit ex themselves as well as the discerning customers.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

So I think as you think about that, your is probably the more challenging 1 when it comes to loan growth and then you should see it kind of accelerate as you step through through the With regard to the scenario that we potentially have talked about a couple of times around lifting some of the credit restrictions that's not part of the base plan, it'd be something that we would look at later in the year. And then you'll begin to see those effects as we take those actions. A good precursor to that is going to be how you see that charge offs develop and whether or not we can deliver on the charge off guidance. And we talked a little bit about the but really getting back inside that range and feel comfortable that the trajectory and what we're originating is at the rate risk adjusted margin. That's really the focal point for the company in which we would then begin to lift some of the restrictions, whether it's the latter part of this year or into next year.

[Robert Wildhack, Equity Research Analyst - Director at Autonomous Research]

Thanks. And then a quick clarification on deposits and betas, 60% beta for this year. I think this time last year you were talking about an 80% or 90% beta on the way up and an expectation for something similar on the way down through the entire cutting cycle. So how do we think about the 60% this year in the context of the eighty, ninety that you experienced

[Robert Wildhack, Equity Research Analyst - Director at Autonomous Research]

on the way up?

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. So the way we think about betas, Robin, and definitely I think issuers or banks look at it slightly differently, We look at the start of the rate up cycle to the start of the downward cycle. So when I look at that, both for high yield savings and CDs, that beta is around 75%, one hundred and seventy four %, one hundred and seventy six %. Percent. So that's really the guidepost.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

And ultimately, you're going to our view is you're going to get back to that same type of downward beta when you look at that first rate hike going forward. The 60% is more reflective, I think, of of a little bit of lag that happens with digital banks and really the timing of the rate decreases. You can see from our page, we only have 1 rate decrease and that's more towards the back half of the year. So given that lag, you just don't see as much deposit beta during the current year.

[Robert Wildhack, Equity Research Analyst - Director at Autonomous Research]

Very helpful. Thank you.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Thanks, Rob. Have a good day, guys.

[Operator]

And we will move next to Vernon Crowley with Robert W. Baird. Please go ahead.

[Brennan Crowley, Equity Research Analyst at R.W. Baird]

Hey, good morning guys. Thanks for taking my question. I think most of my stuff's already been answered, but just you guys have mentioned a bit about the dual cards and the CareCredit dual card driving new card growth. I'm just wondering if you guys could provide a little more color on your strategy here and what channels you're expecting to drive meaningful growth from?

[Brian Doubles, President and CEO at Synchrony Financial]

Yes, I'll take that.

[Brian Doubles, President and CEO at Synchrony Financial]

So look, I think the health and wellness business is 1 of our biggest strategic priorities. We've seen really good growth there, huge opportunities in front of us. 1 of the things that we looked at just given the strong customer loyalty in the CareCredit product was offering a dual card. So 1 thing we've seen over the last ten years is that consumers like to compartmentalize their health and wellness spend. And so the idea was, hey, if you love the CareCredit product, use it at pharmacies, use it for health and wellness spend.

[Brian Doubles, President and CEO at Synchrony Financial]

We've collaborated with some of our other partners to be able to accept the CareCredit card. And so it's an exciting growth trajectory for us. We love the product. We'll continue to invest there.

[Brennan Crowley, Equity Research Analyst at R.W. Baird]

Great.

[Brennan Crowley, Equity Research Analyst at R.W. Baird]

Thanks guys.

[Brian Doubles, President and CEO at Synchrony Financial]

Thanks.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Thanks. Have a good day.

[Operator]

And we do have time for 1 last question. Our last question comes from Erika Najarian with UBS. Please go ahead.

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

Yes. Hi. Just 1 last question and just pulling up back to growth. I think the primary conversation that I was having with your investors really around the time you presented at a conference in Dec. 0 was on the growth trajectory.

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

And I just wanted to make sure we were really unpacking all of the messages that you gave us today. So 1 is very clear, a lot of the slowdown in growth was from your from credit actions that you were proactive on. So I think that's pretty clear. You've mentioned that the consumer is in good shape, but the consumer is also not confident. So we kind of wanted to unpack what your cohort is really like in terms of how we're thinking about spending because the data we've gotten across different cohorts so far this earning season has been pretty strong and the forward look has been pretty strong.

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

And the third is, I'm actually going to ask the other question in the PPPCs and that if we don't get late fees, I mean, in a way, does it really matter if it's ROA accretive if it's going to be disincentivizing to growth, right? Like a purchase APR of 32% might be disincentivizing to growth. So those are just 3 things that I think investors are really considering as we think about what are the what does the growth look like for Synchrony specifically in your cohort as we think about a consumer? This probably a little bit healthier than we thought they were going to be in 2025.

[Brian Doubles, President and CEO at Synchrony Financial]

Yes. So let me start on the consumer. I think we look, we do feel good about the consumer. I think no matter what you're looking at, if you're looking at how they're spending, the fact that they're being disciplined, they're managing to a budget, we have seen a pullback in the lower income cohort and I think that's pretty consistent across the industry. That's where they're feeling the effects of inflation on the higher income customer.

[Brian Doubles, President and CEO at Synchrony Financial]

They're pulling back a little bit, but I think still very healthy. And I think that's good for from a credit perspective, people are being disciplined. They're not over getting We're getting credit in line with the long term guidance. And we're willing to sacrifice a little bit of growth here in the short term to

[Brian Doubles, President and CEO at Synchrony Financial]

deliver that.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Yes. Eric, if I can add a couple of other points here. I think when you look at the overall consumer, when we look at that higher end consumer, that higher end consumer for us was flat, right, for the quarter. So yes, it does trail, but it was a net negative where we see more of the negativity is down on the lower non prime segment, which is the segment that attracted more of the credit actions.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

So again, when you unpack the pieces of it, we don't feel really bad about it. When you get to the PPPCs, you bring up the concept around the APR and that. A couple of things I'd just add to that. Number 1, for all the programs in which we executed PPPCs, we have a test versus control. So we actually can see purchase volume per active, we can see realization rate, we can see whether there is attrition, silent attrition or changes in revolve or transactor behaviors.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

And there's not a significant difference between the ones that are in the control group versus the ones that received the terms and conditions. So that gives us some level of comfort that the sales decline are not necessarily PDC oriented number 1. Number 2, there were a couple of holdouts that we had, while we may have agreed to terms having put in place until late fee rule went into place. In those situations, they're seeing some of the same declines that we're seeing across the board. So again, another data point that this isn't necessarily driven off of the PPPCs.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

So as we look at that and then the final point, Nick, like people point to

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

the APR, you have to look at

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

the value proposition that these cards generally have a higher value proposition all in when you're looking at 5 discounts at certain retailers or you're looking at 10% off and things like that. So higher value proposition, which is a bulk of the RSAs, Gap is a great example of why you can have that same kind of price. That's why someone can charge several hundred dollars for an annual fee in a card because someone has believes that the value proposition is strong enough to support it. So I think you got to take a step back and look at all the elements around the pricing of the product and the value proposition before you draw conclusions.

[Brian Doubles, President and CEO at Synchrony Financial]

And that analysis is back to the point I made earlier. That's exactly what we sit down and go through with our partners. So we say, okay, here's the test, here's the control, here's what we think will happen if you move APRs up or down and what the trade offs are. And obviously our partners are very interested in that because they're impacted frankly both on the growth side as well as their interests are aligned through the RSA.

[Erika Najarian, Managing Director & Equity Research Analyst at UBS Group]

Thanks. I think that was really helpful color for investors in terms of the control group anecdote. So I appreciated that. Thanks.

[Brian Wenzel, Executive VP & CFO at Synchrony Financial]

Great. Thank you, Arjun. Have a good day.

[Operator]

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

Participants

Executives

• Kathryn Harmon Miller, Senior Vice President and Director of Investor Relations
• Brian Doubles, President and CEO
• Brian Wenzel, Executive VP & CFO

Analysts

• Ryan Nash, Managing Director - Regional Banks & Consumer Finance at Goldman Sachs
• Sanjay Sakhrani, Managing Director at Keefe, Bruyette & Woods (KBW)
• Mihir Bhatia, Equity Research Analyst at Bank of America Merrill Lynch
• Terry Ma, Senior Equity Research Analyst at Barclays
• Moshe Orenbuch, Managing Director at TD Cowen
• Jeff Adelson, Analyst at Morgan Stanley
• John Hecht, Managing Director at Jefferies Financial Group
• John Pancari, Senior Managing Director & Senior Research Analyst at Evercore ISI
• Bill Carcache, Equity Research Analyst at Wolfe Research
• Robert Wildhack, Equity Research Analyst - Director at Autonomous Research
• Brennan Crowley, Equity Research Analyst at R.W. Baird
• Erika Najarian, Managing Director & Equity Research Analyst at UBS Group