Q1 2022 Synchrony Financial Earnings Call

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Good morning, and welcome to the Synchrony financial first quarter 2022 earnings Conference call. My name is Brandon and I'll be your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please <unk>.

Zero on your Touchtone phone. Please note is no longer star what it is zero one.

Please note this conference is being recorded.

I will now turn the call over to Kathryn Miller Senior Vice President of Investor Relations you may begin.

Thank you and good morning, everyone welcome to our quarterly earnings Conference call. In addition to today's press release, we've provided a presentation that covers the topics we plan to address during our call.

Yes release detailed financial schedules and presentation are available on our website synchrony financial Dot com.

This information can be accessed by going to the Investor Relations section of the website.

Before we get started I wanted to remind you that our comments today will include forward looking statements. These statements are subject to risks and uncertainty and actual results could differ materially we list the factors that might cause actual results to differ materially in our SEC filings, which are available on our website.

During the call we will refer to non-GAAP financial measures in discussing the company's performance.

You can find a reconciliation of these measures to GAAP financial measures in our materials for today's call.

Finally, synchrony financial is not responsible for and does not edit nor 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, President and Chief Executive Officer, and Brian Wenzel Executive Vice President and Chief Financial Officer, I'll now turn the call over to Brian doubles.

Thanks, Kathryn and good morning, everyone.

Synchrony delivered strong financial results for the first quarter of 2022, including net earnings of $932 million or $1 77 per diluted share.

Our return on average assets of 4% and a return on tangible common equity of 34, 9%.

This financial performance was driven by the core strengths of our business and the continued execution of our key strategic priorities to drive greater value for our partners providers and customers, we continue to expand and diversify our portfolio. During the first quarter with the addition of renewal of more than 15 partners. We also continue to extend our.

<unk> and engage more customers. Thanks to the powerful combination of our seamless experiences attractive value propositions and broad suite of flexible financing options.

New accounts grew 10% during the first quarter, reaching $5 5 million and.

And average active accounts increased 6%.

Turning to customer spend we continue to experience broad based demand across many industries we serve.

Purchase volume increased 17% versus last year, driven by double digit growth in our diversified value.

Digital health and wellness and home and auto platforms.

We also continue to see higher engagement across our portfolio as purchase volume per account grew 10% compared to last year.

Customer spend reflected strong cross generational growth.

Plenty of them and Gen Z spend increased 23% year over year and Gen X and baby Boomer spend increased 15%.

The combination of strong purchase volume and a slight moderation in payment rate drove loan receivables growth of 8% on a core basis.

Dual and co branded cards accounted for 42% of the purchase volume in the first quarter and increased 29% from the prior year.

Loan receivables basis, including the loan receivables held for sale dual and co branded cards accounted for 25% of the portfolio and increased 16% from the prior year.

In short Synchrony has continued to see strong engagement across our customer base and momentum across our product suite.

As to our ability to deliver flexible financing options that specifically address whatever our customers transactions may look like on any given day.

Whether they are looking to cover a health care need purchase supplies for a home repair or they're simply convenience or value shopping our customers can access financing solutions that specifically address their needs while optimizing the value they seek.

Of course in an ever changing consumer landscape, the financing needs and expectations of customers evolve as do the strategic priorities of our partners.

Two an increasingly greater degree it's no longer simply about reward points. Our cashback. It's also about delivering an end to end experience, where the kinds of perks that attract the customer to the product are designed to anticipate and optimize value.

The more dynamic and data driven those experiencing the value propositions are the deeper the customer relationship and the stronger their lifetime value over time.

In order to deliver consistent and compelling outcomes for both our customers and partners, we consistently invest in our digital capabilities, our product suite and our value propositions. So that we can continue to meet our customers, where when and however, they want to be met.

These investments take shape in a number of different ways.

Whether it's through loyalty technology or marketing spend our partners' interests are aligned with ours. So we structure. The majority of our economic arrangements such that the investment and upside opportunity are shared.

Synchroneyes innovative digital capabilities allow us to deeply integrate with our partners and providers to deliver seamless and engaging omnichannel experiences, while also leveraging our data and insights to optimize customer outcomes.

In particular, we're often able to develop highly tailored value propositions to attract customers for whom we can predict transaction behavior and financing needs, which ultimately leads to more engaged and satisfied customers higher spend and better outcomes for all.

We are always looking for ways to enhance our program performance value proposition refreshes are a particularly attractive and effective way to drive deeper engagement with existing customers and attract new customers, resulting in higher lifetime value of each account.

We have far more data and insights to leverage based on our experience with an existing portfolio and since our partners interests are aligned with ours. The investment costs are generally shared.

Simple program enhancements like deeper integrations, more relevant and universal value propositions, and greater product flexibility enable us to deliver greater and more utility and value to our customers and stronger results for our partners.

Our customers receive greater financial flexibility to address a broad range of needs and make smarter purchases, while also maximizing the rewards they care about.

And our partners attract new customers and drive greater customer loyalty larger ticket sizes and more frequent transactions.

Our partnership with Paypal is a great example of how together, we continue to evolve and enhance our offerings to drive still greater outcomes for all.

Earlier this month, we announced the launch of our new and refreshed co branded Paypal cash back credit card.

The consumer value proposition as a best in class cashback, offering where the consumer will earn unlimited, 3% cash back when paying with Paypal at checkout and 2% everywhere else Mastercard is accepted.

<unk> has no annual fee.

Category restrictions can be added to the digital wallet for easy fast and secure checkout.

We're excited about this opportunity as it delivers exceptional consumer value, while leveraging the innovative digital experiences from previously launched partner programs to deliver a truly seamless and elegant customer experience.

In particular, the Paypal card experience will be fully integrated with the Paypal app empowered by native Apis.

Customers will be able to apply for the card and service their accounts all within the App as well as receive personalized notifications and alerts to manage their credit account.

Thanks to our integration within the Paypal app customers will be able to redeem their rewards into their paypal balance to use for future purchases or transfer into their Paypal savings account powered by Synchrony Bank.

The rollout of the new product enhanced experience and value proposition began earlier this month and we expect it to be fully deployed this quarter.

Given the level of integration and functionality, we are launching with those card as well as the best in class value proposition, we're delivering we expect to see meaningful growth in new accounts and spend on the card.

We're truly excited to continue to raise the bar by consistently investing in and delivering innovative financing experiences for our partners and customers.

And with that I'll turn the call over to Brian to discuss the first quarter financial performance in greater detail.

Thanks, Brian and good morning, everyone Synchroneyes first quarter performance reflected continued strength across our diversified sales platforms and in particular, the powerful combination of our digitally powered product suite seamless customer experiences and compelling value propositions, which resonate deeply with the needs of our customers and partners.

We generated over $40 billion of purchase volume in the first quarter 2022, reflecting a 17% increase compared to last year.

From a platform perspective, our home and auto diversified value digital and health and wellness platforms. Each continued to experience double digit year over year growth in purchase volume, reflecting strong demand for both our products and attractive partner and provider networks.

At the platform level home and auto purchase volume was 10% higher due to the continued strength in home and improvement in auto as more consumers return to the road.

In diversified and value purchase volume increased 25% driven by strong retail performance and higher customer engagement.

The 20% year over year increase in digital purchase volume generally reflected the growth across the platform, we experienced greater customer engagement, including higher active accounts and higher spend per active among our more established programs and continued momentum in our new program launches.

The 17% increase in health and wellness purchase volume was driven by broad based strength led by dental given the benefit of increases in patient volume compared to the prior year.

Lifestyle platform generate purchase volume growth of 4%, reflecting strong retailer sales and growth in music and specialty.

Partially offset by the ongoing impact of inventory shortages in power and particularly strong growth in the prior year period.

Loans grew 8% year over year to $83 billion, including loan receivables of $78 9 billion and held for sale receivables of $4 billion at the platform level year over year loan growth rates accelerated from the fourth quarter as strong purchase volume and some easing in payment rates contributed to balance growth.

Net interest income increased 10% to $3 8 billion, primarily reflecting a 7% increase in interest and fees due to higher average loan receivables on.

On a sequential basis first quarter payment rate was down approximately 25 basis points to 18, 1%, but were still approximately 45 basis points higher than last year, and approximately 225 basis points higher than our five year historical average.

As we progressed through the first quarter payout rate declined to 17, 2% in February but increased in March reflecting normal seasonality associated with the tax refund season.

That said March was the first months, where payment rate was lower versus the prior year since the pandemic began in 2020.

Net interest margin was 15, 8% in the first quarter, our year over year increase of 182 basis points.

The primary driver of this NIM expansion was a six 5% increase in the mix of loan receivables relative to total interest earning assets due to the growth in average receivables and lower liquidity.

This accounted for 126 basis points of the year over year increase in our net interest margin.

In addition, the first quarter's 32 basis points improvement in loan yields and 33 basis point reduction in interest bearing liabilities cost each contributed 26 basis points of NIM improvement.

RSA is were $1 $1 billion in the first quarter and 541% of average receivables.

$150 million year over year increase was primarily driven by the continued strong performance of our partner programs.

Provision for credit losses was $521 million, an increase of 56% versus last year due to lower reserve release that was partially offset by lower net charge offs in the first quarter 2022.

Included in this quarter's provision was a reserve release of $37 million inclusive of the reserve reductions from our held for sale portfolio of $29 million.

Excluding the impact of our held for sale portfolios, the $8 million reserve release, reflecting an improvement in our loss forecast and credit normalization trends.

Our continued strong performance, partially offset by an uncertain macroeconomic environment.

Other income decreased $23 million.

Primarily reflecting higher loyalty cost you'd purchase volume growth.

The year over year comparison was also adversely impacted by lower investment gains from our venture portfolio.

Other expenses increased 11% to $1 billion due to the impact of higher employee marketing and business development and technology costs.

Other expense also include the impact of $10 million related to certain employee and legal matters.

Our efficiency ratio for the first quarter was 37, 2% compared to 36, 1% last year.

In total synchrony generated net earnings of $932 million.

A $1 77 per diluted share during the first quarter.

We also generated a return on average assets of 4% and return on tangible common equity of 34, 9%. These.

These strong net earnings and returns demonstrate the power and efficiency of our digitally enabled model combined with the compelling value of the financial products and services, we offer through our financial ecosystem.

Not only were we able to support our strong customer demand with a diverse range of products, but we're able to do so while maintaining cost discipline and strong risk adjusted returns.

Next I'll cover our key credit trends on slide nine.

Elevated payment rates continue to drive year over year improvement in our delinquency metrics are 30, plus delinquency rate was 278% compared to $2, 83% last year, and our 90, plus delinquency rate was one 3% compared to 152% last year.

When removing the impact of the held for sale portfolios on our delinquency measures for the quarters of this year and last year. The 30, plus delinquency metrics would have been down about 15 basis points versus five and the 90 plus metric would be down about 30 basis points instead of 'twenty two.

Our portfolio is strong delinquency trends have continued to drive year over year improvements in our net charge off rate, which was 273% compared to 362% last year and 89 basis point improvement year over year, primarily reflecting a very healthy consumer and a 45 basis points higher payment rate.

The 36 basis points sequential increase from our fourth quarter net charge off rate of 237% primarily reflected the impact of approximately 25 basis point sequential decline and the payment rate as some consumers continued to revert back towards pre pandemic payment behaviors.

Our allowance for credit losses, as a percent of loan receivables was 10, 96% up 20 basis points from the 10, 76% in the fourth quarter.

Let's focus on some key trends that have supported our strong performance and the confidence we have in our business.

First as.

As we just discussed the underlying trends within our portfolio are performing better than our expectations heading into the year.

Our portfolio of payment trends continue to show gradual normalization across the credit spectrum, reflecting the strength of the consumer more broadly.

In addition, the population of customers within our portfolio that are now in post exploration forbearance programs from other lenders has performed better than our expectations. This suggests to us that with the benefit of excess savings due to stimulus modified spending behaviors and widespread forbearance. These borrowers manage their personal balance sheet well.

Through the pandemic and therefore have a lower probability of default.

According to data from churn is two thirds of consumers have either only spent a portion of their stimulus or have the entire amount of steam as they receive still saved the remaining third of consumers have spent the entirety of the cash them as they received during the last two years.

When tracking consumer balance trends by tiers zero to 2500, 2500 to 5000 and balances greater than 5000, the Cumulus data indicates that while all balance tiers of seamless receiving customers have seen balance declines between 200 to $300 from peak levels observed last fall the <unk>.

To higher tiers, continuing to show growth in their savings balances since the third stimulus checks.

The lower tier with balances of $2500 or less has generally remained flat aside from the stimulus checks over the last two years.

Meanwhile, labor markets continue to be robust as unemployment levels decline and wage growth continues.

Through mid April consumer spending continues to be strong, reflecting broad based spanning across our platforms and products.

Finally, our portfolio is well positioned to navigate changing market conditions give its inherent diversification across spend categories financing options and channels and customer demographics.

Synchrony sales platforms encompass a broader range of discretionary and non discretionary industry through a wide network of distribution channels.

With a quarter of our purchase volume in 2022 came from each of our diversified value home and auto and digital platforms and another 8% of purchase volume came from health and wellness.

And almost half of our world spend in 2022 was comprised of bill pay discount store drugstore healthcare grocery and non grocery food and auto and gas spend.

In addition, our disciplined approach to driving consistent growth at attractive risk adjusted returns means that our portfolio of credit mix remains balanced and favorably positioned compared to the mix in the first quarter of 2020.

At the end of the first quarter of 2022, approximately 40% of our balances represented Super Prime customers. Another 35% came from prime and the remaining 25% came from non prime.

And in terms of average credit line by credit segment, our portfolio of Super Prime Prime and non prime lines are still lower by an average of 8% compared to two years ago.

Moving on to another synchrony strength, our funding capital and liquidity.

Possibly the end of the first quarter were $63 6 billion.

An increase of $814 million compared to last year.

Our securitized and unsecured funding sources declined by $1 8 billion.

This resulted in deposits being 83% of our funding compared to 81% last year with securitized funding comprising 8% of our funding sources and unsecured funding comprising 9% at quarter end.

Total liquidity, including Undrawn credit facilities was $17 8 billion.

Which equated to 18, 7% of our total assets down from 29, 2% last year.

As a reminder, before I provide the details of our capital position. It should be noted we elected to take the benefit of the seasonal transition rules issued by the joint federal banking agencies. The impact of seasonal has already been recognized in our income statement and balance sheet.

This transitional adjustment pertain strictly to our regulatory capital metrics.

To that end that first year phasing of the impact of seasonal on a regulatory capital resulted in a reduction of our CET one ratio of approximately 60 basis points in the first quarter.

We ended the quarter at 15, 8% CET one under the seasonal transition rules 240 basis points below last year's level of 17, 4%.

They are tier one capital ratio was 15, 9% under the seasonal transition rules compared to 18, 3% last year.

The total capital ratio decreased 250 basis points to 17, 2%.

In a tier one capital plus reserve ratio on a fully phased in basis decreased to 24, 5% compared to 28, 7% last year.

We continue our track record of robust capital returns to shareholders in the first quarter, we returned $1 1 billion to shareholders through $967 million of share repurchases and $114 million of common stock dividends.

Even when factoring in the roughly 180 basis points of remaining seasonal transition impacts on our capital ratios over the next three years synchrony still has considerable excess capital on our balance sheet to deploy in order to get to where 11% CET one target ratio.

This coupled with the meaningful earnings and capital generation of our business. Thanks to our disciplined approach to growth at appropriate risk adjusted returns means that synchrony is particularly well positioned to execute our capital plan as guided by our business performance market conditions and subject to our capital plan and regulatory restrictions.

As part of our capital plan. The board has approved a 5% increase in our common dividend, bringing it to <unk> 23 per share beginning in the third quarter 2022.

In addition, our board has approved an incremental share repurchase authorization of $2 8 billion.

For the period ending June 2023.

Inclusive of the remaining $251 million authorization, we had at March 31. This brings our total share repurchase authorization to $3 1 billion.

Finally, let's turn to our updated outlook for the full year, which is summarized on slide 12 of our presentation.

We've assumed that the pandemic remains well controlled than any rising cases will not have a material impact on the economy or our customers.

Our macroeconomic scenarios include a minimum of five interest rate increases during 2022.

Quantitative tightening measures starting in the second quarter, a slowing economy, resulting from these actions and continued higher inflationary conditions.

While the macroeconomic environment is uncertain given the dynamics of the portfolio as we see them today, we do not anticipate a material impact on our full year 2022 outlets for loan receivables and credit performance.

We expect consumer demand to remain robust supporting broad based purchase volume growth across the various industries and markets we serve.

As consumer savings begin to decline and payment rate moderates, while on a lag we would expect purchase volume growth to moderate as the year progresses.

Given the strong purchase volume and loan receivables growth. We've achieved we expect ending loan receivables growth of approximately 10% versus the prior year.

To the extent that payment rate moderates further we would anticipate purchase volume to moderate and loan growth to accelerate.

We expect our net interest margin to be between 15, 25% and 15, 5% for the full year.

As we move through the year NIM will be impacted by the fluctuation in the percentage average loan receivables to average earning assets due to the impact of seasonal growth portfolio convinces and the timing of funding.

As mentioned earlier, our NIM outlook also reflects the anticipated impact of rising benchmark rates as well as rising interest in fees, which were partially offset by higher reversal as credit normalizes.

In terms of credit performance, we expect a rise in delinquency and loss from current levels for.

For the full year 2022, we expect net charge offs to be less than three 5% based.

Based on the performance we've seen across the portfolio, we do not expect the portfolio to reach our mean annual loss rate of five 5% until 2024 and less significant changes in the macroeconomic environment develop.

Of course as credit normalization continues to take shape, we expect interest and fee yields to increase as charge offs peak this growth in interest and fees will be partially offset by peak reversals.

We expect reserve builds in 2022 to be generally asset driven.

RSA expense will continue to reflect the strength of our program performance and purchase volume growth, but should begin to moderate as net charge off price for.

For the full year, we expect the RSA as a percentage of average loan receivables to be between five 5% and five 5%.

As a reminder, we anticipate the gap of BP portfolio conveniences to occur in the second quarter, producing a nonrecurring gain on the sale of approximately $130 million.

We expect to completely offset this gain through increased investments or incurring certain discrete items and thus be EPS neutral for the full year.

Included in this quarter was $10 million of certain employee and legal matters, leaving approximately $120 million of the incremental costs remaining for the full year.

In terms of other expense, we continue to expect the quarter levels be approximately $1 5 billion.

This outlook excludes the impact of the $130 million gain on sale, we are reinvesting or occurring in our business.

We remain committed to delivering positive operating leverage to the extent that receivables and revenue growth is not tracking ahead of expense growth for the full year, we will moderate our spending where appropriate while still prioritizing the best long term prospects for our business.

An example of such an opportunity might be through fewer workforce additions or reducing other discretionary spend.

So to conclude synchrony is operating from position of strength as we progress through 2022.

We're confident our business ability to deliver sustainable attractive risk adjusted growth, even if the market conditions change.

Our innovative customer experiences compelling value propositions and flexible product offerings are resonating across the diverse industries partners and customer demographics, we serve.

Our sophisticated cycle tested underwriting as well as our deep domain experience of lending and servicing at scale means that the predictive power of our credit Decisioning and account management capabilities. We will continue to support the stability of synchrony as target loss range.

Finally, our RSA functions as an economic buffer.

As interest and fees rise with credit normalization and receivables growth you RSA absorbs the impact of both rising net charge offs and a large proportion of any increases in growth oriented costs.

These factors enabled synchrony to deliver consistent results with peer leading range of risk adjusted returns over time.

I'll now turn the call back over to Brian for his closing thoughts.

Thanks, Brian .

Deeply understand the needs and expectations of our customers and partners, which enables us to deliver financing solutions and experiences that strongly resonate.

Building long lasting relationships and greater value over time.

Synchrony has differentiated business model consistently positions us as the partner of choice.

We're powering financing experiences for local merchants healthcare providers are national brands, we're able to meet our customers, where when and however, they want to be met.

The scalability of our technology platform, the breadth of our product suite and the depth of our lending insights across many industries enables us to consistently deliver sustainable and attractive outcomes for all of our stakeholders.

And with that I'll turn the call back to Catherine to open the Q&A.

That concludes our prepared remarks, we will now begin the Q&A session in order to accommodate as many of you as possible I'd like to ask the participants to please limit yourselves to one question. If you have additional questions. Please re queue and we will do our best to address as many questions as time allows otherwise the investor relations team.

I'll be available after the call for any follow up.

Operator, please start the Q&A session.

We will now begin the question and answer session. If you have a question. Please dial zero one on your Touchtone phone.

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And from credit Suisse, we have Moshe Orenbuch. Please go ahead.

Great. Thanks.

Brian I wanted to just follow up on the.

Net interest margin guidance.

Obviously on a year over year basis, Theres, a big change in the mix are there any assets and you've kind of alluded to the fact that that might be normalizing. So is there a way to relate.

10 ish percent growth in loans to growth in net interest income in dollars.

The words, how much of that expected decline from current levels of margin.

Next introduce about.

Factors. Thanks.

Thanks, and good morning, Moshe, Yes, so I would expect and I think the way, Brian and I and the leadership team are managing the business is that we would like to see asset growth.

Come through in NII right. So the biggest wildcard then afterwards would be the interest expense piece. So we would expect that from a dollar basis. It would track at least in the topline revenue.

And then again I highlighted a little bit of the timing relative to.

Some of the funding cost changes that will have in place.

One of them one of the bigger Wildcards will be ALR as a percentage of average, earning assets, which was a little bit higher mark than we usually run at 85% during the first quarter use runs a point or two lower than that so but again it should track on a dollar basis at least on the revenue side back to asset growth.

Thank you Victor we have Ryan <unk>. Please go ahead.

Hey, good morning, Brian Good morning, Brian .

Hey, Ryan.

So.

Brian the credit outlook, both near and intermediate term teams more upbeat and I was wondering if you can maybe just talk about what youre seeing in the underlying portfolio that led to the better credit outlook.

What's the outlook from unemployment to remain pretty strong here just maybe outside of a recession can you just talk about what you see as the drivers of normalization and are you seeing any impact from inflation on your customer spending habits.

Yes. Thank you. Thanks, Brian So first when you think about credit.

The biggest thing for us as we entered the year was the large portion of our book.

Customers, who had received forbearance at other institutions.

And how that how those customers would play out off forbearance again, we look back to the performance we had for folks that were on forbearance with us.

Obviously understood who did not have forbearance with US and then you look at this population of people as we looked over the last four months.

Performance of that was <unk>.

Simply better than our expectation. So we watch that develop we also watch how are vintage.

Post the refinements, we made beginning of last year developed and we became more confident that we would not see what I would call a faster credit normalization, which reflected in a slower glide back to our mean loss rate out in out in 2024. So that's really how how credits developed again as we sit here the first couple.

The weeks in April we haven't seen anything that would with most certainly changed that view.

I'll go to your last point about inflation and the customer.

The customers really starting at a point of strength.

They obviously have excess liquidity and we demonstrated that or at least indicated that with.

Higher savings rates are.

Our credit delinquency and how it sits today average balances all are in great shape when they have it and you have low unemployment. So we look at the customer today. When you look at purchase behavior pattern, we see small evidence of inflation inside of our book, but not really significant. So if you looked at a category like gasoline or average transaction.

On gasoline is up 22% year over year. So you clearly see the effect of inflation there, but in some respects we don't see other parts of inflation. So look at grocery grocery for us average transaction values flat year over year flat sequentially every month during the quarter what frequency is up a little bit. So that tells you the consumers being able to <unk>.

Manage.

Their spend within that inside of that category, we see a little bit in apparel, but the rest we have not seen any dramatic impacts from inflation as we move forward and to address your middle point on unemployment again, we look at unemployment, it's obviously stronger than we had anticipated entering the year. It continues to remain strong there's more jobs that are out.

The ending I think most certainly with continued.

Strength in the unemployment market, we obviously believe that the credit forecast, we put out both for this year and for next year will remain intact.

Thanks, Brian .

We have Betsy <unk>. Please go ahead.

Hi, good morning.

Hey, Betsy.

Could you unpack a little bit the loan growth acceleration that you got in digital.

Help us understand how much of that is coming from.

New cards, you have out there Paypal Verizon et cetera.

The new offerings are refreshed offerings on Paypal and other drivers of that and contrasting with the home and auto which may be decelerated a bit.

Yes, sure about your I'll start on that I'd say generally.

Digital is a platform that we clearly expect to outpace the rest of the business in terms of growth rate. We are definitely seeing that a big chunk of that is obviously attributed to venmo and Verizon both of those programs.

<unk> continued to perform really well.

I still believe those will be top 10 programs for us in the future, we're getting great both qualitative as well as quantitative feedback on both in terms of the experience the Val prop etc.

Really.

Theres really nothing inside the digital numbers this quarter for the Paypal launch that just happened.

But we're really excited about that as well I think that's going to be terrific offering.

It's really really two parts first the Val prop. We think is best in class, it's going to be a top of wallet card for folks.

And then I would say the other thing that we did as we were.

We really launched probably our most sophisticated technology stack in terms of how we're integrating inside of the Paypal app. So the experience is really is really fantastic.

Again, I think digital will continue.

To outpace the rest of the the rest of the business.

Yes, I think just to add on Betsy for the home and auto piece. When you look at that that platform orders clearly improving it came off of a low last year. So that's obviously a positive trend with regard to inside home, there's a little bit of continued softness in the furniture portion of home, which again is a little bit more of the.

The inventory backlogs clearing out again, we bill when furniture delivered so we expect that to continue to.

Be a headwind here for the next quarter or two hopefully as the inventory and supply chain is clear up I think this is also the benefit of having a really diversified business, where we're seeing really strong growth in digital really strong growth in health and wellness and thats a little bit.

Immune in terms of impact from supply chain and other things. If you think about health and wellness in the backlog that those providers are working through so again I think it speaks to the benefit of having a very diversified portfolio.

Thanks, Pat do you have a good day.

Okay.

We had stock based equity. Please go ahead.

Thanks, Good morning.

Yes, EBIT drumbeat on macro weakness is increasing since we last spoke and I know, Brian Wenzel you talked about.

All of the statistics that make you comfortable on the state of the consumer I'm just thinking about.

Reserve posture, you guys are pretty well above sort of where you were seasonal day, one maybe you could just talk about.

How are you.

Accounted for the macro environment at the time of Stifel Day, one was.

And then where we are today because at some point, we're going to migrate back down to seasonal day, one if losses remain well below those levels correct.

Yes, and good morning Sanjay.

I would think about our reserve position today versus seasonal adoption.

Our mean loss rate has not changed from that five 5% target. So so at the end of the day, it's really the loss forecast that gets you in that reasonable supportable period, and then potentially any overlays. So I think when you look at it today for us.

If you were solely to look at the macroeconomic condition Sanjay It would tell you that your coverage ratio would be down versus day one right.

One of the things that we still have as qualitative overlays both for some off us relief that we talked about as well as we have some macroeconomic uncertainty as it relates to Ukraine, and the higher inflationary environment that kind of is keeping the reserve slightly higher than the day, one again, I think where we sit today is.

We will ultimately migrate back to that day, one we'll certainly as I think the inflationary pressures.

The global and geopolitical uncertainty clears.

And that reserve builds here in the coming months will really be more growth oriented. So so again absent mix. We still view is we're going to migrate back to that day, one seasonal right.

But again, we're trying to account for some of the uncertainties that exist in the marketplace.

Thank you Sanjay have a good day.

Okay.

Okay.

Brendan we're ready for our next call Brandon.

Yes, John Hecht. Please go ahead.

Yes, thanks, guys very much hey, John .

How are you guys.

Good morning, Jim I guess I guess, one question is excuse me.

Any any discussions with the partner pipeline or any major partnership renewals as we go through this year.

Yes look I would say, we've got a very strong pipeline across all five of the platforms.

If I look at it today, it tends to skew a little bit more towards startup programs and opportunities like that as well as.

I would say distribution partnerships and opportunities as well for our products there isn't as much out there with the exception of maybe one or two that are large existing programs, but we'll obviously get to look at those as well as they come up in the next year or two.

And then I think for us we.

We're actively renewing our programs, we don't have anything significant upsides coming up in the next few years, but we're always in discussions with our partners about.

What kind of changes can we make to drive even better performance can we do that in the context of a renewal. So our teams are actively working those opportunities where they exist, but generally I feel like we've got a pretty good pipeline and we're well positioned we're also getting a lot of good.

Getting a lot of good traction on the product suite and I think the benefits of having an integrated product suite. So as we're out there competing I think that's a real differentiator for us too.

Thanks, John I have a good day thanks, Sean.

Cargo, we have Don <unk>. Please go ahead.

On the Paypal Cashback card refresh I guess my question is.

Do you expect the same amount of revolve to drop or do you expect that to be a little more transact in.

I guess.

Brian do you feel like the integration here was pretty deep does that make the relationship stickier in terms of.

Renewal type risk longer term.

Yes, so look I.

I'd start by saying, we're really excited about the launch of the new value proposition and the new experience inside of the App I think it's going to be a game changer.

Paypal is excited about it so are we I would tell you that.

These opportunities that we have to relaunch of Val prop it does drive.

A lot a lot of traffic a lot of new accounts, a lot of spend and I think with the Val prop like this it will definitely be a top of wallet card. We had a good value prop before but this is this is incremental so we're really excited about it and I would tell you on your integration question, Don absolutely I think that.

Our goal is for our integration to be absolutely seamless to the customer and.

And we started doing this years ago with Sy Pi now, we're leveraging our API stacks and.

I can tell you when you're inside the Paypal App Venmo App you don't know what was something that was developed by Paypal or something that was developed by think Arnie. It's just completely seamless you never know you never you never have to step outside of the App you never get kicked to a website.

100% integrated and completely seamless so that's our goal.

We don't necessarily focus on.

How does that impact our renewal down the road. It we're really focused on just how do we deliver the absolute best experience, we can for a paypal customer of venmo customer et cetera. So we're very excited to have this launched and look forward to seeing how it does.

Thanks, Don and have a good day.

Okay.

Year Buckingham. Please go ahead.

Good morning.

Ryan I guess looked upon and Katherine and thank you for taking my question.

I wanted to just go back to the payment rates for a second you spoke pretty big moderation in March maybe you could just talk a little bit about that I guess, what made the payment rates go from up 140 basis points year over year to down 50 basis points and the reason I guess I have got margins. That's when we started seeing a lot more.

Compensation on inflation higher gas prices starting to have an impact so was that consumer thing with it as you expected is there something else about the yoga, where youll recall that we should be keeping in mind.

Anything there.

Yes first of all thank you here for the question. So so again, there is a little bit of timing related to tax refunds that plays out.

So clearly there was some some faster refunds that were paid out in February versus March if you look at the overall tax refund season right. Your average refund is ahead of last year, I want to say, 13% and $1 or $5 14 billion.

That had a probably a little bit a disproportional effect in February . We also think as we watch large consumer behavior patterns. We've indicated to you we have seen portions of the portfolios and cohorts that have decelerated a payer.

Rates beginning in the latter part of 2021 and that has continued.

Into 2022, when we look at it I know, we get a lot of questions with regard to credit grades.

Inside of that are you seeing any one particular place inside the portfolio. If I look at March alone. So just March alone the deceleration in the payment rate happen across all credit grades. So it was not at the lower end it actually the largest percentage of deceleration happened in the Prime segment. So it's not a subprime issue where relative to inflation and I think when you.

We also look at the again, we also talk quite a bit about the <unk>.

People are payments statement balances their minimum payments, where the middle we've obviously seen the folks in the middle decline, but as equally up into the full pace is down into the minimum base. So again. It really says is across the board and we don't necessarily think it's inflation driven but part of I think the migration that we anticipated back.

On payment rate back to the mean that we anticipate.

The exact timing of which we're not 100% sure, but but again, we're starting to see that turn.

Thank you mayor.

Okay, we have Rick Shane Please go ahead.

Thanks, Good morning.

When we look at the operating expenses and talk about the.

Incremental reinvestments in 2022.

I'm curious should we see that as a run rate or should we see the $120 million that you have remaining.

Through the rest of the year sort of one time or incremental.

As we think about going forward numbers going forward.

Great great. Thanks for the question it will be one time expenses, we had the $10 million in the first quarter. They are related to some employee related reductions.

As you step into the second quarter again will detail. This out you will see some further reductions in some of our physical footprint and structural cost inside the business you will see some incremental dollars that are that are put into marketing to really.

Accelerate growth and that will be onetime in nature, So I would not anticipate it.

To be an ongoing expense again, what we're trying to do is take the one time gain really reinvest it back into the business either to reduce structural costs to accelerate growth. So it should be a net zero for this year in comp into next year, but hopefully help the growth.

Thank you.

Yes, Sir we have David Barker. Please go ahead.

Thank you for taking my questions and good morning.

I would like to go back to your comments about NIM and your expectations for deposit costs.

Deposit costs.

And your.

Our higher.

And the previous rate cycles versus today.

But your balance sheet is much more deposit funded than it was previously.

So it seems like structurally you should have a slightly better liability structure in this rate cycle.

I'm, hoping that maybe you can just digging a little deeper on your expectations for deposit betas in this cycle versus the previous cycle.

And your expectations for overall funding cost just given the uncertainty.

Round rates and inflation.

Yeah, Great question. So when we look back to the kind of previous cycle in previous rate increases again, we were really growing our deposit book, which we started back in the.

The early 2010 to 2015 range. So we are accelerating growth in the bank and given the fact that we were newly separated company. There was some higher costs that were embedded in there I think you are right we have shifted from probably a mid seventies.

Percent deposit composition of the funding stack to.

At least low <unk> now mid eighties, potentially I think we're 83% this quarter. So that is going to provide a benefit there's going to be some rotation I think as you see interest rates rise here a lot of folks have gone into savings versus Cds.

In the short run that could have some negative impact over the long run getting people walk into Cds. In this environment is a is a better alternative for us.

So we again, we look at that as being over long term a good thing if I can get people into.

Into term related savings savings products I think when you think about betas. If you look where we are so far to date with the first 25 basis point movement less than half of that if you call. It that is already manifested itself in our high yield savings rates.

Depending upon the tenor.

Essentially it's been 100%, but we've really been trying to raise deposits because our growth rate.

Being targeted at that approximately 10% we want to get ahead of some of the funding related matters. So it's going to be a little bit around what competition does in the marketplace, but but again it could be slightly higher than previous cycles, but again people have been slower to react so far into the environment and again I think the higher deposit mix.

We will be very very beneficial for us as we think about NIM moving forward.

Thank you.

Joe. Please go ahead.

Hi, Thanks for taking my question. So I guess on Slide 12, you guys mentioned the annual loss rate won't hit the <unk> until 2024, unless significant macro changes can you sort of quantify what comprises some of these changes I just sort of wanted to get a sense on how youre thinking about downside scenarios. Thank you.

Yes, when you think about our loss rate the biggest variable that drives losses in a recession or any other environment is unemployment.

And what's going to be different I think as people think about the macroeconomic backdrop is that you are coming from incredibly low unemployment and you really have built up savings in the prime and Super Prime segment. So when you traditionally think about a credit normalization or an increasing your loss expectations is driven off of unemployment.

Number one and two and that's in that Prime segment. It really goes into people that struggle that have higher exposure at the fall. So I think as we look at it going forward because you have such low unemployment you have more jobs than you have today up until now, albeit not not necessarily offsetting inflation, a rising hourly wage that buffer some of the.

<unk> unemployment pressure that you would see in the loss rate and the excess savings that you have with buffer some of the loss content that you would see in the Prime segment. That's what gives us probably greater comfort that there is more of a glide even in a slightly difficult scenario.

This scenario, where macroeconomic changes as you do have a rapid rise in unemployment and you have a very fast depletion in savings rates in the prime customers could dictate a higher loss rate over that horizon.

Thank you Mike.

Okay.

Please go ahead.

Good morning.

On the payment rate expectation I know you flagged the one that you saw in March which is encouraging can you maybe talk about your confidence in.

Sustainable decline there on the payment rate front and then on the flip side I. Appreciate the color you gave on the delinquencies.

Some of the progression on credit on.

By customer segmentation are you seeing any stress at all in the lower income bands that are noteworthy here because we're hearing about some payment issues at the lower income at other payment providers out there.

Yeah, Let me deal with your latter question with regard to the.

The lower credit we are not seeing.

As you refer to a pressure, we see normalization thats happened on payment rate as an entry rate delinquency flows, but not pressure. So I know there are other subprime issuers out there that have pressure may have been more aggressive really going out during the <unk>.

I call it the middle part of the pandemic to open the origination of credit box.

Box for them, we obviously didnt do that so we are not seeing incremental pressure, we're seeing more what I would say normalization back to a pre pandemic level related to to the.

Related to that lower credit credit quality with regard to payment rate and this is something we monitor closely we monitor in lots of different ways credit grade is one we look at different aspects inside of it we look at who is paying.

Yeah.

Call It statement balances men pays between that.

Again, we're following a trend it appears to be.

Moving in the right direction the exact slope here, we have to get through the tax return season.

Here, which will be April and then we'll begin to see.

The consumer how the consumer continues to react again, they are spending very healthily across the credit spec across the the.

The industry rate relative to credit card. So so purchase volume trends will most certainly helped bring the payment right back in line with mean averages. So theres nothing that we see that stress. There is nothing that we see that there is indicative of a change in direction relative to the slope of the performance.

Thank you.

Okay next question Brandon.

Yes.

Eric.

Please go ahead.

Thanks.

<unk> growth guide is a bit above your kind of long term expectation gains talking a little bit about that more payment rate is it more kind of acceleration in terms of customer activity or is it still a bit of a catch up from some of the pandemic related maybe on the healthcare side.

Yes look I would say, maybe just to take a step back I'd say generally we feel pretty good about the operating environment as we look at it here for the balance of the year. We were we were talking about high single digits.

Earlier this year I think we feel better that's going to be in that kind of 10% plus range. We're not we're not really.

We're not relying on an enormous amount of payment rate moderation in that it really is more topline purchase volume driven.

We just had our highest first quarter ever in terms of sales on our products. So we're seeing really good growth.

Across the portfolio.

We had growth rates on receivables and the <unk> platforms anywhere from 6% to 12%. So it's broad based it's not one platform that's really driving that it really is across the business. So we feel like at least for the balance of the year. The consumer is strong.

As Brian said, two thirds of them saved at least a portion of if not all of the stimulus. So we're seeing that come through in purchase volume you're seeing it in our credit metrics. So like I said, we feel pretty good about the environment right now and it really it really is driving what we're seeing on the growth side and it's not necessarily a reversion to the mean on payment rate.

Thank you.

And for one final question, what's the good we have time for one final question from Autonomous research, we have Brian for it. Please go ahead.

Hi, Thanks.

I guess as you think about the outlook for the consumer and how do you feed that through managing the business. It's tricky right because you've been very clear everything youre seeing recently is better than budget as consumers are in great shape.

One of the narratives in the market as the fed got it Jack rates, 3%, plus and Scott to get unemployment up to tame inflation.

And it's kind of like all going to play out over the next six months or so, but we really won't know the impact until next year.

So I guess the spirit of the question is like as you think through your underwriting and your marketing this year I know, you're always making changes and always trying to be thoughtful proactive.

Is there any scenario, where like you are tightening underwriting even though your books doing great because of that forward fed risk or think about.

Meeting that.

Unusual interest rate risk.

Through the book and through your marketing plans as we move through the year.

Yes look generally I would say Brian .

We're going through a period of extraordinarily strong performance as it pertains to credit I mean, we've never seen delinquencies and loss rates, where they are.

We don't underwrite to these levels. They are about half of what we would consider a target NCL rate and.

So what I would tell you we're not tightening in expectation of what's going to happen in 'twenty, three and 'twenty four.

Because we didn't we didn't take this opportunity to go a lot deeper right, we're not underwriting to today's environment, whether it's how we're underwriting the consumer how we're underwriting new programs. We're looking at this at kind of an over time mean loss rate and that's what we're underwriting too so.

One of the things that we've talked about in the past, it's really important in our businesses.

When times are extraordinarily good we don't necessarily go a lot deeper we try and maintain our discipline and.

And we look at the value of whether it's a customer or a program agreement. We look at that over a number of years and assume that over that time period youre going to have some reversion to the mean and thats really the discipline that we have around our underwriting model again, whether youre looking at consumers or new programs in our pricing knows.

We try and factor in what we think is going to happen over the next few years and not take advantage of the extraordinarily good period that we're operating in right now.

Thank you.

This concludes.

You may now disconnect.

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Good morning, good welcome to the Synchrony financial first quarter 2022 earnings Conference call. My name is Brandon and I'll be your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please dial zero Lockdown you touched.

Please note. It is no longer Starwood is zero one. Please note. This conference is being recorded and I will now turn the call over to Kathryn Miller Senior Vice President of Investor Relations you may begin.

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 synchrony financial Dot com.

This information can be accessed by going to the Investor Relations section of the website.

Before we get started I wanted to remind you that our comments today will include forward looking statements. These statements are subject to risks and uncertainty and actual results could differ materially we list the factors that might cause actual results to differ materially in our SEC filings, which are available on our website.

During the call we will refer to non-GAAP financial measures in discussing the company's performance you can find a reconciliation of these measures to GAAP financial measures in our materials for today's call.

Finally, synchrony financial is not responsible for and does not edit nor 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, 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.

Thanks, Kathryn and good morning, everyone.

Synchrony delivered strong financial results for the first quarter of 2022, including net earnings of $932 million or $1 77 per diluted share.

Our return on average assets of 4% and return on tangible common equity of 34, 9%.

This financial performance was driven by the core strengths of our business and the continued execution of our key strategic priorities to drive greater value for our partners providers and customers, we continue to expand and diversify our portfolio. During the first quarter with the addition of renewal of more than 15 partners. We also continue to extend our.

Reach and engage more customers thanks to the powerful combination of our seamless experiences.

Attractive value propositions and broad suite of flexible financing options.

New accounts grew 10% during the first quarter, reaching $5 5 million and.

And average active accounts increased 6%.

Turning to customer spend we continue to experience broad based demand across many industries we serve.

Purchase volume increased 17% versus last year, driven by double digit growth in our diversified value.

Digital health and wellness and home and auto platforms.

We also continue to see higher engagement across our portfolio as purchase volume per account grew 10% compared to last year.

Customer spend reflected strong cross generational growth millennial and Gen Z spend increased 23% year over year and Gen X and baby boomers spend increased 15%.

The combination of strong purchase volume and a slight moderation in payment rate drove loan receivables growth of 8% on a core basis.

Dual and co branded cards accounted for 42% of the purchase volume in the first quarter and increased 29% from the prior year.

On a loan receivables basis, including a loan receivables held for sale dual and co branded cards accounted for 25% of the portfolio and increased 16% from the prior year.

In short Synchrony has continued to see strong engagement across our customer base and momentum across our product suite.

Our ability to deliver flexible financing options that specifically address whatever our customers transactions may look like on any given day.

Whether they are looking to cover a health care need to purchase supplies for a home repair or they're simply convenience or value shopping our customers can access financing solutions that specifically address their needs while optimizing the value they seek.

Of course in an ever changing consumer landscape, the financing needs and expectations of customers evolve.

As do the strategic priorities of our partners.

Two an increasingly greater degree it's no longer simply about reward points. Our cashback. It's also about delivering an end to end experience, where the kinds of perks that attract the customer to the product are designed to anticipate and optimize value.

The more dynamic and data driven those experiencing the value propositions are the deeper the customer relationship and the stronger their lifetime value over time.

In order to deliver consistent and compelling outcomes for both our customers and partners, we consistently invest in our digital capabilities, our product suite and our value propositions. So that we can continue to meet our customers, where when and however, they want to be met.

These investments take shape in a number of different ways.

Whether it's through loyalty technology or marketing spend our partners' interests are aligned with ours. So we structure. The majority of our economic arrangements such that the investment and upside opportunity are shared.

Synchroneyes innovative digital capabilities allow us to deeply integrate with our partners and providers to deliver seamless and engaging omnichannel experiences, while also leveraging our data and insights to optimize customer outcomes in.

In particular, we're often able to develop highly tailored value propositions to attract customers for whom we can predict transaction behavior and financing needs, which ultimately leads to more engaged and satisfied customers higher spend and better outcomes for all.

We are always looking for ways to enhance our program performance value proposition refreshes are particularly attractive and effective way to drive deeper engagement with existing customers and attract new customers, resulting in higher lifetime value of each account.

We have far more data and insights to leverage based on our experience with an existing portfolio and since our partners interests are aligned with ours. The investment costs are generally shared.

Simple program enhancements like deeper integrations, more relevant and universal value propositions, and greater product flexibility enable us to deliver greater and more utility and value to our customers and stronger results for our partners.

Our customers receive greater financial flexibility to address their broad range of needs and make smarter purchases, while also maximizing the rewards they care about.

And our partners attract new customers and drive greater customer loyalty larger ticket sizes and more frequent transactions.

Our partnership with Paypal is a great example of how together, we continue to evolve and enhance our offerings to drive still greater outcomes for all.

Earlier this month, we announced the launch of our new and refreshed co branded Paypal cash back credit card.

The consumer value proposition as a best in class cashback, offering where the consumer will earn unlimited, 3% cashback when paying with Paypal checkout and 2% everywhere else Mastercard is accepted.

<unk> has no annual fee.

Category restrictions can be added to the digital wallet for easy fast and secure checkout.

We're excited about this opportunity as it delivers exceptional consumer value, while leveraging the innovative digital experiences from previously launched partner programs to deliver a truly seamless and elegant customer experience.

In particular, the Paypal card experience will be fully integrated with the Paypal app empowered by native Apis.

Customers will be able to apply for the card and service their accounts all within the App as well as receive personalized notifications and alerts to manage their credit account.

Thanks to our integration within the Paypal app customers will be able to redeem their rewards into their paypal balance to use for future purchases or transfer into their Paypal savings account powered by Synchrony Bank.

The rollout of the new product enhanced experience and value proposition began earlier this month and we expect it to be fully deployed this quarter.

Given the level of integration and functionality, we are launching with those card as well as the best in class value proposition, we're delivering we expect to see meaningful growth in new accounts and spend on the card.

We're truly excited to continue to raise the bar by consistently investing in and delivering innovative financing experiences for our partners and customers.

And with that I'll turn the call over to Brian to discuss the first quarter financial performance in greater detail.

Thanks, Brian and good morning, everyone Synchrony as first quarter performance reflected continued strength across our diversified sales platforms and in particular, the powerful combination of our digitally powered product suite seamless customer experiences and compelling value propositions, which resonate deeply with the needs of our customers and partners.

We generated over $40 billion of purchase volume in the first quarter 2022, reflecting a 17% increase compared to last year.

From a platform perspective, our home and auto diversified value digital and health and wellness platforms. Each continued to experience double digit year over year growth in purchase volume, reflecting strong demand for both our products and attractive partner and provider networks.

At the platform level home and auto purchase volume was 10% higher due to the continued strength in home and an improvement in auto as more consumers return to the road.

And diversified and value purchase volume increased 25% driven by strong retail performance and higher customer engagement.

The 20% year over year increase in digital purchase volume generally reflected the growth across the platform, we experienced greater customer engagement, including higher active accounts and higher spend per active among our more established programs and continued momentum in our new program launches.

The 17% increase in health and wellness purchase volume was driven by broad based strength led by dental given the benefit of increases in patient volume compared to the prior year.

Our lifestyle platform generate purchase volume growth of 4%, reflecting strong retailer sales and growth in music and specialty partially offset by the ongoing impact of inventory shortages in power and particularly strong growth in the prior year period.

Loans grew 8% year over year to $83 billion.

Including loan receivables of $78 9 billion and held for sale receivables of $4 billion at the platform level year over year loan growth rates accelerated from the fourth quarter as strong purchase volume and some easing in payment rates contributed to balanced growth.

Net interest income increased 10% to $3 8 billion, primarily reflecting a 7% increase in interest and fees due to higher average loan receivables on.

On a sequential basis first quarter payment rate was down approximately 25 basis points to 18, 1%, but we are still approximately 45 basis points higher than last year, and approximately 225 basis points higher than our five year historical average.

As we progressed through the first quarter payout rate declined to 17, 2% in February but increased in March reflecting normal seasonality associated with the tax refund season.

That said March was the first months, where payment rate was lower versus the prior year since the pandemic began in 2020.

Net interest margin was 15, 8% in the first quarter, our year over year increase of 182 basis points.

The primary driver of this NIM expansion was a six 5% increase in the mix of loan receivables relative to total interest earning assets due to the growth in average receivables and lower liquidity.

This accounted for 126 basis points of the year over year increase in our net interest margin.

In addition, the first quarter was 32 basis points of improvement in loan yield and 33 basis point reduction in interest bearing liabilities cost each.

<unk> 26 basis points of NIM improvement.

RSA is were $1 1 billion in the first quarter and 541% of average receivables.

The $150 million year over year increase was primarily driven by the continued strong performance of our partner programs.

Provision for credit losses was $521 million, an increase of 56% versus last year due to lower reserve release that was partially offset by lower net charge offs in the first quarter 2022.

Included in this quarter's provision was a reserve release of $37 million inclusive of the reserve reductions from our held for sale portfolios of $29 million.

Excluding the impact of our held for sale portfolios, the $8 million reserve release, reflecting an improvement in our loss forecast and credit normalization trends based on continued strong performance, partially offset by an uncertain macroeconomic environment.

Other income decreased $23 million.

Primarily reflecting higher loyalty cost you'd purchase volume growth.

The year over year comparison was also adversely impacted by lower investment gains from our venture portfolio.

Other expenses increased 11% to $1 billion due to the impact of higher employee marketing and business development and technology costs.

Other expense also include the impact of $10 million related to certain employee and legal matters.

Our efficiency ratio for the first quarter was 37, 2% compared to 36, 1% last year.

In total synchrony generated net earnings of $932 million or $1 77 per diluted share during the first quarter.

We also generated a return on average assets of 4% and return on tangible common equity of 34, 9%. These.

These strong net earnings and returns and demonstrate the power and efficiency of our digitally enabled model combined with the compelling value of the financial products and services, we offer through our financial ecosystem.

Not only were we able to support our strong customer demand with a diverse range of products, but we're able to do so while maintaining cost discipline and strong risk adjusted returns.

Next I'll cover our key credit trends on slide nine.

Elevated payment rates continue to drive year over year improvement in our delinquency metrics.

Our 30, plus delinquency rate was 278% compared to $2, 83% last year, and our 90, plus delinquency rate was one 3% compared to $1 five 2% last year.

When removing the impact of the held for sale portfolios on our delinquency measures for the quarters of this year and last year. The 30, plus delinquency metrics would have been down about 15 basis points versus five and the 90 plus metric would be down about 30 basis points instead of 'twenty two.

Our portfolio of strong delinquency trends have continued to drive year over year improvements in our net charge off rate, which was 273% compared to 362% last year and 89 basis point improvement year over year, primarily reflecting a very healthy consumer and a 45 basis point higher payment rate.

The 36 basis points sequential increase from our fourth quarter net charge off rate of 237% primarily reflected the impact of approximately 25 basis point sequential decline and the payment rate as some consumers continued to revert back towards pre pandemic payment behaviors.

Our allowance for credit losses, as a percent of loan receivables was 10, 96% up 20 basis points from the 10, 76% in the fourth quarter.

Let's focus on some key trends that have supported our strong performance and the confidence we have in our business.

First as.

As we just discussed the underlying trends within our portfolio are performing better than our expectations heading into the year.

Our portfolio of payment trends continue to show gradual normalization across the credit spectrum, reflecting the strength of the consumer more broadly.

In addition, the population of customers within our portfolio that are now in post exploration forbearance programs from other lenders has performed better than our expectations. This suggest to us that with the benefit of excess savings due to stimulus modified spending behaviors and widespread forbearance. These borrowers manage their personal balance sheet well.

Through the pandemic and therefore have a lower probability of the flow.

According to data from <unk> two thirds of consumers have you only spent a portion of their stimulus or have the entire amount of steam as they receive still saved the remaining third of consumers have spent the entirety of the cash then was they received during the last two years.

When tracking consumer balance trends by tiers zero to 2500, 2500 to 5000 and balances greater than 5000, the Cumulus data indicates that while all balance tiers of seamless receiving customers have seen balance declines between 200 to $300 from peak levels observed last fall the <unk>.

To higher tiers, continuing to show growth in their savings balances since the third stimulus checks.

The lower tier with balances of $2500 or less has generally remained flat aside from the stimulus checks over the last two years.

Meanwhile, labor markets continue to be robust as unemployment levels decline and wage growth continues through.

Through mid April consumer spending continues to be strong, reflecting broad based spanning across our platforms and products.

Finally, our portfolio is well positioned to navigate changing market conditions give its inherent diversification across spend categories financing options and channels and customer demographics.

Synchrony sales platforms encompass a broader range of discretionary and non discretionary industry through a wide network of distribution channels.

With a quarter of our purchase volume in 2022 came from each of our diversified value home and auto and digital platforms and another 8% of purchase volume came from health and wellness and almost half of our world spend in 2022 was comprised of bill pay discount store drugstore healthcare grocery and non grocery food.

In auto and gas spend.

In addition, our disciplined approach to driving consistent growth at attractive risk adjusted returns means that our portfolio credit mix remains balanced and favorably positioned compared to the mix in the first quarter of 2020.

At the end of the first quarter of 2022, approximately 40% of our balances represented Super Prime customers. Another 35% came from prime and the remaining 25% came from non prime.

And in terms of average credit line by credit segment, our portfolio of Super Prime Prime and non prime lines are still lower by an average of 8% compared to two years ago.

Moving on to another synchrony strengths are funding capital and liquidity.

That's the end of the first quarter were $63 6 billion.

An increase of $814 million compared to last year.

Our securitized and unsecured funding sources declined by $1 8 billion.

This resulted in deposits being 83% of our funding compared to 81% last year with securitized funding comprising 8% of our funding sources and unsecured funding comprising 9% at quarter end.

Total liquidity, including Undrawn credit facilities was $17 8 billion.

Which equated to 18, 7% of our total assets.

From 29, 2% last year.

As a reminder, before I provide the details of our capital position. It should be noted we elected to take the benefit of the seasonal transition rules issued by the joint federal banking agencies. The impact of seasonal has already been recognized in our income statement and balance sheet.

This transitional adjustment pertain strictly to our regulatory capital metrics to that end that first year phasing of the impact of seasonal on a regulatory capital resulted in a reduction of our CET one ratio of approximately 60 basis points in the first quarter.

We ended the quarter at 15, 8% CET, one under the seasonal transition rules.

240 basis points below last year's level of 17, 4%.

They are tier one capital ratio was 15, 9% under the seasonal transition rules compared to 18, 3% last year.

The total capital ratio decreased 250 basis points to 17, 2%.

In a tier one capital plus reserve ratio on a fully phased in basis decreased to 24, 5% compared to 28, 7% last year.

We continue our track record of robust capital returns to shareholders in the first quarter, we returned $1 1 billion to shareholders through $967 million of share repurchases and $114 million of common stock dividends.

Even when factoring in the roughly 180 basis points of remaining seasonal transition impacts on our capital ratios over the next three years synchrony still has considerable excess capital on our balance sheet to deploy in order to get to our 11% CET one target ratio.

This coupled with the meaningful earnings and capital generation of our business. Thanks to our disciplined approach to growth at appropriate risk adjusted returns means that synchrony is particularly well positioned to execute our capital plan as guided by our business performance market conditions and subject to our capital plan and regulatory restrictions.

As part of our capital plan. The board has approved a 5% increase in our common dividend, bringing it to <unk> 23 per share beginning in the third quarter 2022.

In addition, our board has approved an incremental share repurchase authorization of $2 8 billion.

For the period ending June 2023.

Inclusive of the remaining $251 million authorization, we had at March 31. This brings our total share repurchase authorization to $3 1 billion.

Finally, let's turn to our updated outlook for the full year, which is summarized on slide 12 of our presentation.

We've assumed that the pandemic remains well controlled than any rising cases will not have a material impact on the economy or our customers.

Our macroeconomic scenarios include a minimum of five interest rate increases during 2022 qualitative tightening measures starting in the second quarter.

Slowing economy, resulting from these actions and continued higher inflationary conditions.

While the macroeconomic environment is uncertain given the dynamics of the portfolio as we see them today, we do not anticipate a material impact on our full year 2022 outlook for loan receivables and credit performance.

We expect consumer demand to remain robust supporting broad based purchase volume growth across the various industries and markets we serve.

As consumer savings begin to decline and payment rate moderates, while on a lag we would expect purchase volume growth to moderate as the year progresses.

Given the strong purchase volume and loan receivables growth. We've achieved we expect ending loan receivables growth of approximately 10% versus the prior year.

The extent that payment rate moderates further we would anticipate purchase volume to moderate and loan growth to accelerate.

We expect our net interest margin to be between $15, two 5% and 15, 5% for the full year.

As we move through the year NIM will be impacted by the fluctuation in the percentage average loan receivables to average earning assets due to the impacts of seasonal growth portfolio convinces and the timing of funding.

As mentioned earlier, our NIM outlook also reflects the anticipated impact of rising benchmark rates as well as rising interest in fees, which were partially offset by higher reversal as credit normalizes.

In terms of credit performance, we expect a rise in delinquency and loss from current levels.

For the full year 2022, we expect net charge offs to be less than three 5% base.

Based on the performance we've seen across the portfolio, we do not expect the portfolio to reach our mean annual loss rate of five 5% until 2024 and less significant changes in the macroeconomic environment develop of.

Of course as credit normalization continues to take shape, we expect interest and fee yield to increase as charge offs peak this growth in interest and fees will be partially offset by peak reversals.

We expect reserve builds in 2022 to be generally asset driven.

RSA expense will continue to reflect the strength of our program performance and purchase volume growth, but should begin to moderate as net charge off price.

For the full year, we expect the RSA as a percentage of average loan receivables to be between five 5% and five 5%.

As a reminder, we anticipate the gap of BP portfolio conveniences to occur in the second quarter, producing a nonrecurring gain on the sale of approximately $130 million.

We expect to completely offset this gain through increased investments or incurring certain discrete items and thus be EPS neutral for the full year <unk>.

Included in this quarter was $10 million of certain employee and legal matters, leaving approximately $120 million of the incremental costs remaining for the full year.

In terms of other expense, we continue to expect the quarter levels to be approximately $1 5 billion.

This outlook excludes the impact of the $130 million gain on sale, we're reinvesting or occurring in our business.

We remain committed to delivering positive operating leverage to the extent that receivables are revenue growth is not tracking ahead of expense growth for the full year, we will moderate our spending where appropriate while still prioritizing the best long term prospects for our business and.

An example of such an opportunity might be through fewer workforce additions or reducing other discretionary spend.

So to conclude synchrony is operating from position of strength as we progress through 2022, we're confident in our business ability to deliver sustainable attractive risk adjusted growth, even if the market conditions change.

Our innovative customer experiences compelling value propositions and flexible product offerings are resonating across the diverse industries partners and customer demographics, we serve.

Our sophisticated cycle tested underwriting as well as our deep domain experience of lending and servicing at scale means that the predictive power of our credit Decisioning and account management capabilities will continue to support the stability of synchrony as target loss range.

Finally, our RSA functions as an economic buffer.

<unk> interest and fees rise with credit normalization and receivables growth.

RSA absorbs the impact of both rising net charge offs and a large proportion of any increases in growth oriented costs.

These factors enabled synchrony to deliver consistent results with peer leading range of risk adjusted returns over time.

Now I'll turn the call back over to Brian for his closing thoughts.

Thanks, Brian .

We deeply understand the needs and expectations of our customers and partners, which enables us to deliver financing solutions and experiences that strongly resonate building long lasting relationships and greater value over time.

Synchrony has differentiated business model consistently positions us as the partner of choice, whether we're powering financing experiences for local merchants healthcare providers are national brands, we're able to meet our customers, where when and however, they want to be met.

The scalability of our technology platform, the breadth of our product suite and the depth of our lending insights across many industries enables us to consistently deliver sustainable and attractive outcomes for all of our stakeholders.

And with that I'll turn the call back to Catherine to open the Q&A.

That concludes our prepared remarks, we will now begin the Q&A session.

Order to accommodate as many of you as possible I'd like to ask the participants to please limit yourselves to one question. If you have additional questions. Please re queue and we will do our best to address as many questions as time allows otherwise the investor relations team will be available after the call for any follow up.

Operator, please start the Q&A session.

We will now begin the question and answer session.

A question. Please dial zero one on your Touchtone phone, if you'd like to be removed from the queue. Please tell the zero two.

If youre on a speaker phone please pick up your handset first before tightly.

Once again, if you have a question. Please tell zero one on your Touchtone phone.

From credit Suisse, we have Moshe Orenbuch. Please go ahead.

Great. Thanks.

Brian I wanted to just follow up on the.

The net interest margin guidance.

That obviously on a year over year basis, Theres, a big change in the mix into earning assets and you've kind of alluded to the fact that that might be normalizing. So is there a way to relate.

10 ish percent growth in loans to growth in net interest income dollars.

In other words, how much of that expected decline from current levels and the margin is more mixed introduce about other factors. Thanks.

Yes.

Thanks, and good morning, Moshe yet so I would expect and I think the way, Brian and I and the leadership team are managing the business is that we would we would like to see asset growth.

Come through in NII right. So the biggest wildcard then afterwards would be the interest expense piece. So we would expect that from a dollar basis. It would track at least in the topline revenue and then again I highlighted a little bit of timing relative to <unk>.

Some of the funding cost changes that will have in place.

And you're right one of them one of the bigger wildcards will be ALR as a percent of average, earning assets, which was a little bit higher mark than we usually run at 85% during the first quarter use runs a point or two lower than that so but again it should track on a dollar basis at least on the revenue side back to asset growth.

Thank you Vicky we have Ryan <unk>. Please go ahead.

Hey, good morning, Brian Good morning, Brian .

Hey, Ryan.

So.

Brian the credit outlook, both near and intermediate term teams more upbeat and I was wondering if you can maybe just talk about what youre seeing in the underlying portfolio that led to the better credit outlook.

What's the outlook from unemployment to remain pretty strong here just maybe outside of a recession can you just talk about what you see as the drivers of normalization and are you seeing any impact from inflation on your customer spending habits. Thanks.

Yes. Thank you. Thanks, Brian So first when you think about credit.

The biggest thing for us as we entered the year was the large portion of our book.

Customers, who had received forbearance at other institutions and how that how those customers would play out off forbearance again, we look back to the performance we had for folks that were on forbearance with us.

Obviously understood who did not have forbearance with US and then you look to this population of people as we looked over the last four months the performance of that was significantly better than our expectation. So we watch that develop we also watch how our vintage.

Post the refinements, we made beginning of last year developed and we became more confident that we would not see what I would call a faster credit normalization, which reflected in a slower glide back to our mean loss rate.

Adding out in 2024, so that's really how the how credits developed again as we sit here. The first couple of weeks in April we haven't seen anything that would would most certainly changed that view.

I'll go to your last point about inflation and the customer.

The customers really starting at a point of strength.

They obviously have excess liquidity and we demonstrated that or at least indicated that with higher savings rates are.

Our credit delinquency and how it sits today average balances all are in great shape when they have it and you have low unemployment. So we look at the customer today. When you look at purchase behavior pattern, we see small evidence of inflation inside of our book, but not really significant. So if you looked at a category like gasoline or average transaction.

On gasoline is up 22% year over year. So you clearly see the effect of inflation there, but in some respects we don't see other parts of inflation. So look at grocery grocery for us average transaction values flat year over year flat sequentially every month during the quarter what frequency is up a little bit. So that tells you the consumers being able to <unk>.

Manage.

Their spend within that inside of that category, we see a little bit in apparel, but the rest we have not seen any any dramatic impacts from inflation as we move forward and to address your middle point on unemployment again, we look at unemployment, it's obviously stronger than we had anticipated entering the year. It continues to remain strong and theres more jobs that are out.

Ending I think most certainly with continued.

Strength in the unemployment work, we obviously believe that the credit forecast, we put out both for this year and for next year will remain intact.

Thanks, Brian .

<unk>. Please go ahead.

Hi, good morning.

Hey, Betsy.

Could you unpack a little bit the loan growth acceleration that you got in digital.

And help us understand how much of that is coming from.

New cards, you have out there Paypal Verizon et cetera.

And the new offerings are refreshed offerings on Paypal and other drivers of that and contrasting with the home and auto which maybe decelerated a bit.

Yes, sure I'll start on that I'd say generally.

Digital is a platform that we clearly expect to outpace the rest of the business in terms of growth rate, we are definitely seeing that.

A big chunk of that is obviously attributed to venmo and Verizon both of those programs.

Continue to perform really well.

Still believe those will be top 10 programs for us in the future we're getting great.

Qualitative as well as quantitative feedback on both in terms of the experience the Val prop etc.

There's really.

Theres really nothing inside the digital numbers this quarter for the Paypal launch that just happened.

But we're really excited about that as well I think that's going to be terrific offering.

It's really really two parts first the valve prop. We think is best in class, it's going to be a top of wallet card for folks.

And then I would say the other thing that we did as we.

We really launched probably our most sophisticated technology stack in terms of how we are integrating inside of the Paypal app. So the experience is really theres really fantastic. So.

Again, I think digital will continue to.

To outpace the rest of the the rest of the business.

Yes.

Just to add on Betsy for the home and auto piece. When you look at that that platform orders clearly improving it came off of a low last year. So that's obviously a positive trend with regard to inside home, there's a little bit of continued softness in the furniture portion of home, which again is a little bit more of the inventory back.

<unk> clearing out again, we bill when furniture delivered so we expect that to continue to.

Be a headwind here for the next quarter or two hopefully as the inventory and supply chain is clearer I think this is also the benefit of having a really diversified business, where we're seeing really strong growth in digital really strong growth in health and wellness and thats a little bit.

Immune in terms of impact from supply chain and other things. If you think about health and wellness in the backlog that those providers are working through so again I think it speaks to the benefit of having a very diversified portfolio.

Thanks, Pat do you have a good day.

We had stock based equity. Please go ahead.

Sure.

Thanks, Good morning.

Yes, EBIT drumbeat on macro weakness is increasing since we last spoke and I know, Brian Wenzel you talked about.

All of the statistics that make you comfortable on the state of the consumer I'm just thinking about the.

Reserve posture, you guys are pretty well above sort of where you were seasonal day, one maybe you could just talk about.

How you.

Accounted for the macro environment at the time of Stifel Day, one was.

And then where we are today because at some point, we're going to migrate back down to seasonal day, one if losses remain well below those levels correct.

Yes, and good morning, Sanjay So the way I would think about our reserve position today versus seasonal adoption.

Again, our mean loss rate has not changed from that five 5% target. So so at the end of the day, it's really the loss forecast that gets you in that reasonable supportable period, and then potentially any overlays. So I think when you look at it today for us.

If you were solely to look at the macroeconomic condition Sanjay It would tell you that your coverage ratio will be down versus day one right.

One of the things that we still have as qualitative overlays both for some of US relief that we talked about as well as we have some macroeconomic uncertainty as it relates to Ukraine, and the higher inflationary environment that kind of is keeping the reserve slightly higher than the day, one again, I think where we sit today is.

We will ultimately migrate back to that day, one we will certainly as I think the inflationary pressures in the global and geopolitical uncertainty clears.

And that reserve builds here in the coming months will really be more growth oriented. So so again absent mix.

Our view is we're going to migrate back to that day, one seasonal right.

But again, we're trying to account for some of the uncertainties that exist in the marketplace.

Thank you Sanjay have a good day.

Okay.

Okay.

Brendan we're ready for our next call Brandon.

Yes, John Hecht. Please go ahead.

Yes, thanks, guys very much hey, John .

How are you guys.

Good morning, Jim I guess I guess one question is.

Excuse me.

Any any discussions with your partner pipeline or any major partnership renewals as we go through this year.

Yes look I would say, we've got a very strong pipeline across all five of the platforms.

If I look at it today, it tends to skew a little bit more towards startup programs and opportunities like that as well as.

I would say distribution partnerships and opportunities as well for our products.

There isn't as much out there with the exception of maybe one or two that are large existing programs, but we'll obviously get a look at those as well as they come up in the next year or two.

And then I think for US we were actively renewing our programs. We don't have anything significant upsides coming up in the next few years, but we're always in discussions with our partners about.

What kind of changes can we make to drive even better performance can we do that in the context of a renewal. So our teams are actively working those opportunities where they exist, but generally I feel like we've got a pretty good pipeline and we're well positioned we're also getting a lot of good.

We're getting a lot of good traction on the product suite and I think the benefits of having an integrated product suite. So as we're out there competing I think that's a real differentiator for us too.

Thanks, John I have a good day thanks, Sean.

Cargo, we have Don <unk>. Please go ahead.

On the Paypal cash back card refresh I guess my question is.

Do you expect the same amount of revolve to drop or do you expect that to be a little more transact or.

And I guess.

Brian do you feel like the integration here, it's pretty deep does that make the relationship stickier in terms of.

Renewal type risk longer term.

Yes, so look I.

Start by saying, we're really excited about the launch of the new value proposition and the new experience inside of the App I think it is going to be a game changer.

Paypal is excited about it so are we I would tell you that.

These opportunities that we have to relaunch of Val prop it does drive.

A lot of a lot of traffic a lot of new accounts, a lot of spend and I think with the Val prop like this it will definitely be a top of wallet card. We had a good value prop before but this is this is incremental so we're really excited about it and I would tell you on your integration question done absolutely I think that.

Our goal is for our integration to be absolutely seamless to the customer.

And we started doing this years ago with Sy Pi now, we're leveraging our API stacks and.

I can tell you when you're inside the Paypal App. The Venmo App you don't know what was something that was developed by Paypal or something that was developed by think Arnie. It's just completely seamless you never know you never you never have to step outside of the App you never get kicked to a website.

100% integrated and completely seamless so that's our goal.

We don't necessarily focus on.

How does that impact our renewal down the road it really focused on just how do we deliver the absolute best experience, we can for a paypal customer of venmo customer et cetera. So we're very excited to have this launched and look forward to seeing how it does.

Thanks, Don and have a good day.

Okay.

Hear Buckingham. Please go ahead.

Good morning.

Ryan I guess looked upon and Katherine and thank you for taking my question.

I wanted to just go back to payments for a second you spoke pretty big moderation in March maybe you could just talk a little bit about that I guess, what made the payment rates go from up 140 basis points year over year, they're down 50 basis points and the reason I guess outward molecule. That's when we started seeing a lot more.

Conversation on inflation higher gas prices starting to have an impact so was that a consumer thing with it as you expected is there something else about the other way Youll call, we should be keeping in mind.

Anything there.

Yes first of all thank you Mihir for the question. So so again, there is a little bit of timing related to tax refunds that plays out.

So clearly there was some some faster refunds that were paid out in February versus March if you look at the overall tax refund season right. Your average refund is ahead of last year, I want to say, 13% and a $1 or $5 $14 billion and so we think that had a probably a.

Little bit of a disproportional effective February we also think as we watch consumer behavior patterns. We've indicated to you we have seen portions of the portfolios and cohorts that have decelerated payout rates beginning in the latter part of 2021 and that has continued.

Into 2022, when we look at it I know, we get a lot of questions with regard to credit grades.

Inside of that are you seeing any one particular place inside the portfolio. If I look at March alone. So just March alone the deceleration in the payment rate happened across all credit grades. So it was not at the lower end it actually the largest percentage of deceleration happened in the Prime segment. So it's not a subprime issue where relative to inflation and I think when you.

Also look at the again, we also talk quite a bit about <unk>.

People are payments statement balances their minimum payments, where the middle we've obviously seen the folks in the middle decline, but as equally up into full pace is down into the minimum base. So again. It really says is across the board and we don't necessarily think it's inflation driven but part of I think the migration that we anticipated back.

On payment rate back to the mean that we anticipate.

The exact timing of which we're not 100% sure, but but again, we're starting to see that turn.

Thank you mayor.

Okay, we have Rick Shane Please go ahead.

Thanks, Good morning.

When we look at the operating expenses and talk about the.

Incremental reinvestments in 2022, I'm curious should we see that as a run rate or should we see the $120 million that you have remaining.

Through the rest of the year sort of one time or incremental.

As we think about going forward numbers going forward.

Great great. Thanks for the question it will be one time expenses, we had the $10 million in the first quarter there related to some employee related reductions.

As you step into the second quarter again will detail. This out youll see some further reductions in some of our physical footprint and structural cost inside the business you will see some incremental dollars that are that are put into marketing to really.

Accelerate growth and that will be onetime in nature, So I would not anticipate it.

To be an ongoing expense again, what we're trying to do is take the onetime gain really reinvested back into the business either to reduce structural costs to accelerate growth. So it should be a net zero for this year and that comp into next year, but hopefully help the growth.

Thank you.

Yes, Sir we have Kevin Barker. Please go ahead.

Thank you for taking my questions and good morning.

I would like to go back to your comments about NIM and the expectations for deposit costs.

Deposit costs.

And your.

Our higher.

And the previous rate cycle versus today.

But your balance sheet is much more deposit funded than it was previously.

So it seems like structurally you should have a slightly better liability structure in this rate cycle.

Hoping to maybe you can just dig a little deeper on your expectations for deposit betas in this cycle versus the previous cycle.

And your expectations for overall funding cost just given the uncertainty.

Around rates and inflation.

Yes, great question. So when we look back to the kind of previous cycle in previous rate increases again, we were really growing our deposit book, which we started back in the.

Called the.

Early 2010, and 2015 range. So we are accelerating growth in the bank and given the fact that we were newly separated company. There was some higher costs that were embedded in there I think you are right we have shifted from probably a mid seventies.

Percent deposit composition of the funding stack to.

Lease low eighty's now mid eighties, potentially with I think we're 83% this quarter. So that is going to provide a benefit there is going to be some rotation I think as you see interest rates rise here a lot of folks have gone into savings versus Cds.

In the short run that could have some negative impact over the long run getting people walk into Cds. In this environment is a is a better alternative for us.

So we again, we look at that as being over long term a good thing if I can get people into.

Into term related savings savings products I think when you think about betas. If you look where we are so far to date with the first 25 basis point movement less than half of that if you call. It that is already manifested itself in our high yield savings rates.

Depending upon the tenor.

Essentially it's been 100%, but we've really been trying to raise deposits because our growth rate.

Being targeted at that approximately 10%, we want to get into some of the funding related matter. So it's going to be a little bit around what competition does in the marketplace, but but again it could be slightly higher than previous cycles, but again people have been slower to react so far into the environment and again I think the higher deposit mix.

We will be very very beneficial for us as we think about NIM moving forward.

Thank you.

Joe. Please go ahead.

Hi, Thanks for taking my question. So I guess on Slide 12, you guys mentioned the annual loss rate won't hit the <unk> until 2024, unless significant macro changes can you sort of quantify what comprises some of these changes I just sort of wanted to get a sense on how youre thinking about downside scenarios. Thank you.

Yes, when you think about our loss rate the biggest variable that drives losses in a recession or any other environment is unemployment.

What's going to be different I think as people think about the macroeconomic backdrop is that youre coming from incredibly low unemployment and you really have built up savings in the prime and Super Prime segment. So when you traditionally think about a credit normalization or an increasing your loss expectations is driven off of unemployment.

Number one and two and that's in that Prime segment. It really goes into people that struggle that have higher exposure at the fall.

I think as we look at it going forward because you have such a low unemployment you have more jobs than you have today up until now, albeit not not necessarily offsetting inflation, a rising hourly wage that buffer some of the unemployment pressure that you would see in the loss rate and the excess savings that you have with buffer some of the loss content that you would see in the <unk>.

<unk> segment, that's what gives us probably greater comfort that there is more of a glide even in a slightly difficult scenario.

The scenario, where macroeconomic changes as you do have a rapid rise in unemployment and you have a very fast depletion in savings rates in the prime customers could dictate a higher loss rate over that horizon.

Thank you Mike.

Okay.

Please go ahead.

Good morning.

On the payment rate expectation I know you flagged the client that you saw in March which is encouraging can you just maybe talk about your confidence in.

A sustainable decline there on the payment rate front and then on the flip side I. Appreciate the color you gave on the delinquencies.

Some of the progression on credit on but by customer segmentation are you seeing any stress at all in the lower income bands that are that's noteworthy here because we are hearing about some payment issues at the lower income at other payment providers out there.

Yeah, Let me deal with your latter question with regard to the.

The lower credit we are not seeing.

As you refer to a pressure we see normalization that's happened on payment rate as an entry rate delinquency flows, but not pressure. So I know there are other subprime issuers out there that have pressure may have been more aggressive really going out during the I call. It the middle part of the pandemic to open the origination of credit box.

To them, we obviously didnt do that so we are not seeing incremental pressure, we're seeing more what I would say normalization back to a pre pandemic level related to to the.

Related to that lower credit quality with regard to payment rate and this is something we monitor closely we monitor in lots of different ways.

Great is one we look at different aspects.

<unk> of it we look at who is paying.

Call it savings balances men pays between that.

Again, we're following a trend it appears to be moving in the right direction. The exact slope here, we have to get through the tax return season.

Here, which will be April and then we'll begin to see how the consumer how the consumer continues to react again, they are spending very healthily across the credit spec across the the.

The industry rate relative to credit card. So so purchase volume trends will most certainly helped bring the payment right back in line with mean averages. So theres nothing that we see that stress theres nothing that we see that there is indicative of a change in direction relative to the slope of the performance.

Thank you.

Okay next question Brandon.

Yes.

Eric.

Please go ahead.

The loan growth guide is a bit above your kind of long term expectation gains talking a little bit about that more payment rate is it more kind of acceleration in terms of the.

Customer activity or is it still a bit of a catch up from some of the pandemic related maybe on the healthcare side.

Yes look I would say, maybe just to take a step back I would say generally we feel pretty good about the operating environment as we look at it here for the balance of the year. We were we were talking about high single digits.

Earlier this year I think we feel better that's going to be in that kind of 10% plus range. We're not we're not really.

We're not relying on an enormous amount of payment rate moderation in that it really is more topline purchase volume driven.

We just had our highest first quarter ever in terms of sales on our products. So we're seeing really good growth.

Across the portfolio, we had growth rates on receivables and the <unk> platforms anywhere from 6% to 12%. So it's broad based it's not one platform that's really driving that it really is across the business. So we feel like at least for the balance of the year. The consumer is strong.

As Brian said, two thirds of them saved at least a portion of if not all of the stimulus. So we're seeing that come through in purchase volume you are seeing it in the credit metrics. So like I said, we feel pretty good about the environment right now and it really it really is driving what we're seeing on the growth side and it's not necessarily a reversion to the mean on payment rate.

Thank you.

And for one final question, what's the good we have time for one final question from Autonomous research, we have Brian <unk>. Please go ahead.

Hi, Thanks.

I guess as you think about the outlook for the consumer and how do you feed that through managing the business. It's tricky right because you've been very clear everything youre seeing recently is better than budget as consumers in great shape.

One of the narratives in the market as the fed got it Jack rates to 3% plus it's got to get unemployment up to tame inflation.

And it's kind of like all going to play out over the next six months or so, but we really won't know the impact of it till next year.

So I guess the spirit of the question is like as you think through your underwriting and your marketing. This year. I know you are always making changes and always trying to be thoughtful and proactive.

Is there any scenario, where like you are tightening underwriting even though your books doing great because of that forward fed risk or.

Meeting that.

Unusual interest rate risk.

Through the book and through your marketing plans as we move through the year.

Yes look generally I would say Brian .

We're going through a period of extraordinarily strong performance as it pertains to credit I mean, we've never seen delinquencies and loss rates, where they are.

We don't underwrite to these levels there about half of what we would consider a target NCL rate and so what I would tell you we're not tightening in expectation of what's going to happen in 'twenty three 'twenty four.

Because we didn't we didn't take this opportunity to go a lot deeper right, we're not underwriting to today's environment, whether it's how we're underwriting the consumer how we're underwriting new programs. We're looking at this at kind of an over time mean loss rate and that's what we're underwriting too so.

One of the things that we've talked about in the past that's really important in our businesses.

When times are extraordinarily good we don't necessarily go a lot deeper we try and maintain our discipline and.

And we look at the value of whether it's a customer or a program agreement. We look at that over a number of years and assume that over that time period youre going to have some reversion to the mean and thats really the discipline that we have around our underwriting model again, whether youre looking at consumers or new programs in our pricing knows.

We try and factor in what we think is going to happen over the next few years and not take advantage of the extraordinarily good period that we're operating in right now.

Thank you.

Okay.

You may now disconnect.