Q4 2023 Synchrony Financial Earnings Call

Kathryn Miller: I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin. Thank you and good morning everyone.

Kathryn Miller: Welcome to our quarterly earnings conference call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address during our call. The press release detailed financial schedules and presentation are available on our website, SynchronyFinancial.com. This information can be accessed by going to the Investor Relations section of the website. Before we get started, I wanted to remind you that our comments today will include forward-looking statements.

Kathryn Miller: These statements are subject to risks and uncertainty, and actual results can differ materially. We list the factors that might cause actual results to differ materially in our SEC filings, which are available on our website. During the call, we will refer to non-gap financial measures in discussing the company's performance. You can find a reconciliation of these measures to gap financial measures and our materials for today's call. Finally, Synchrony Financial is not responsible for and does not edit or guarantee the accuracy of our earnings telecomference transcripts provided by third parties. The only authorized webcasts are located on our website.

Kathryn Miller: On the call this morning are Brian Doubles, Synchrony's President and Chief Executive Officer and Brian Wensel, Executive Vice President and Chief Financial Officer.

Brian Doubles: I will now turn the call over to Brian Doubles. Thanks, Catherine. Good morning, everyone.

Brian Doubles: Today, Synchrony reported strong fourth quarter results, including net earnings of $440 million or $1.3 per diluted share, or return on average assets of 1.5% and return on tangible common equity of 14.7%. These fourth quarter results contributed to a full-year 2023 net earnings of $2.2 billion or $5.19 per diluted share, a return on average assets of 2% and a return on tangible common equity of 19.8%. This strong financial performance was supported by continued consumer resilience and powered by our multi-product strategy and diversified sales platforms.

Brian Doubles: We achieved another year of record purchase volume, totaling 185 billion for the full year, and up 3% for last year. Our compelling products and value propositions helped drive the origination of almost 23 million new accounts in 2023 and also helped grow our average active accounts by 2.5%. The broad utility and value of our product offerings continue to resonate deeply with our customer base, leading to another year of record purchase volume. This combined with a continued moderation and payment rates to drive loan receivables growth of 11.4%. Credit continued to normalize as fourth quarter net chargers reached pre-pandemic levels in line with our expectations and contributing to a full year net charge operator 4.87%. Still below our target underwriting range of 5.5 to 6%.

Brian Doubles: We also drove continued progress toward our target operating efficiency ratio, demonstrating cost discipline, while maintaining investments to ensure the long-term success of our franchise. Through strong execution and prudent capital management over time, we continue our long history of capital returns, including 1.5 billion return to shareholders this year. Since 2016, we have paid $3.6 billion in dividends and reduced our outstanding shares by 50%.

Brian Doubles: Synchrony's ability to consistently generate and return capital to our shareholders is enabled by our differentiated business model, which prioritizes the sustained delivery of attractive risk adjusted returns through changing market conditions and economic cycles. Our focus execution across key strategic priorities enables Synchrony's resilient returns by reinforcing our core strengths and facilitating our ongoing evolution to meet changing preferences and needs. With that in mind, Synchrony continued to grow and win new partners over the past year, with the addition of more than 25 partners in over 30 renew relationships.

Brian Doubles: Among our new partnerships, we were excited to announce that J Crew selected Synchrony to launch its first co-branded credit card, which will be a digital first program with mobile wallet provisioning, robust pre-approval capabilities, scanned to apply, and directed advice credit applications.

Brian Doubles: This competitive win is a testament to our culture of innovation, consistent investment in our digital ecosystem, and a strategic focus to empower our customers and partners to connect seamlessly through besting class on each channel experiences. We also continue to diversify our program's products and markets during 2023, providing the utility of our offerings and extending our reach. Synchrony believes in the power of choice, choice for our customers and partners, providers, and merchants, as they engage in person and digitally across a full suite of everyday financing options.

Brian Doubles: This year, we launched multi-product pre-qualification and began presenting customers with side-by-side offers of both revolving and installment solutions to bring choice to the forefront. These enhancements empower customers to weigh the benefits of various options in real time and make the decisions that best suit their financing needs in that moment. We continue to scale our pay-later solution, which is now offered at over 200 provider locations in our health and wellness platform and at 18 retail partners.

Brian Doubles: For our partners and providers, pay-later seamlessly integrates into the broader partner relationship and product offering, and provides another tool for deepening engagement with customers. And the response has been strong since we launched partners who have offered these solutions have seen a 20% lift in new accounts with 95% of pay-later sales coming from net new customers. Synchrony's continued diversification and expansion of our offerings over the last year benefited from opportunities to extend our reach.

Brian Doubles: In the fourth quarter, we announced a sale of our pet-spec insurance business, and through a minority interest from that sale, the opportunity to build a strategic partnership with Independence Pet Holdings or IPH, one of the leading pet-focused companies in North America. As acquiring the pet-spec business in 2019, we've grown pets and forests by over 45% per year on average, more than double the industry's growth rate to become a leading pet insurance provider in the US.

Brian Doubles: We're very proud of what we've been able to achieve with such a great business in team, which enabled us to gain considerable insight into the pet industry more broadly over the last four years. We are confident that IPH will be able to use its pet insurance expertise to unlock new opportunities for pet-spec and offer still greater value for pet-spec costs. Summers. And through the strategic relationship for between IPH and ourselves, Synchrony is positioned to gain still greater exposure and insights into the rapidly growing pet industry, as we seek to expand access to flexible pet care financing across the country.

Brian Doubles: More recently, Synchrony announced still another opportunity to expand our business and accelerate our growth with the acquisition of ally lending's point of sale financing business. This 2.2 billion loan portfolio consists of partnerships with nearly 2,500 merchant locations, and supports more than 450,000 active borrowers in the home improvement services and healthcare industries. Through this acquisition, Synchrony will create a differentiated solution in the industry, simultaneously offering both revolving credit and installment loans at the point of sale in the home improvement vertical. This multi product presentation furthers our product diversification strategy, delivering consumer choice while maximizing conversions and sales for our partners.

Brian Doubles: This opportunity also enables Synchrony to expand our home specialty financing in roofing, windows, and electrical services. We are excited about the natural synergies we see between ally lending and Synchrony's home and auto and health and wellness platforms. We look forward to leveraging our industry expertise and scale to drive operating efficiency and accelerate growth across platforms with attractive market opportunities and return profiles over time. And of course Synchrony's ability to successfully deliver a breadth of financing solutions across an expansive distribution network is reliant on delivering dusting class experiences with each customer interaction.

Brian Doubles: This year we continue to elevate the presence and utility of our offerings across in-person and digital transactions by adding digital wallet provision and capabilities for eight partners, including paypal and demo, Verizon, TJX and Belk. And our digital sales continue to grow at an outsized pace, climbing 9% to nearly 39% of our total 2023 sales.

Brian Doubles: Over the last year Synchrony launched the first phase of our marketplace on Synchrony.com and within our native app, which offers hundreds of offers showcasing our partner brands paired with Synchrony's tailored multi product financing solutions. In fact, Synchrony leveraged our analytics and marketing capabilities to develop compelling, cross-shopping opportunities in this initial launch. Marketplace attracted over 220 million visits by shoppers for our partners, providers and merchants, as we more than double the number of partners participating.

Brian Doubles: In summary, Synchrony is increasingly anywhere our customers looking to make a purchase or a payment, larger small in-person or digitally and across an ever-expanding range of markets and industries. We can meet them whenever and however they want to be met with a variety of flexible financing solutions to meet their needs in any given moment. Our ability to deliver the versatility of our financial ecosystem seamlessly across channels, industries, partners and providers alike is what Physician Synchrony so well to sustainably grow and deliver attractive risk adjusted returns, particularly as customer needs and market conditions evolve.

Brian Doubles: With that, I'll turn the call over to Brian to discuss our financial performance in greater detail.

Brian Wenzel: Hill. Thanks, Brian, and good morning, everyone. Synchrony's fourth quarter results demonstrated the power of our differentiated business and financial mile performing as designed. Our diversified sales platform and spend categories enabled record-purchase buying growth as our discipline, underwriting and credit management kept credit performance in line with our expectations. Our retail share range ensured alignment of economic interest between Synchrony and our partners, as credit normalized towards historical, pre-pandemic levels and funding costs increased from higher benchmark rates.

Brian Wenzel: Our RSA payments were lower, providing a partial buffer to the economic environment, enabling Synchrony delivery of consistent, attractive, risk-adjusted returns. And our strong balance sheet provided the flexibility to return capital as shareholders, while investing in opportunities to achieve our longer-term strategic goals, all while delivering for our customers and partners and our evolving needs today. Overall, our prudent business management and differentiated financial model have positioned Synchrony to deliver sustainable outcomes for our customers, partners, and shareholders through an uncertain macroeconomic backdrop this past year, and as we move forward in 2024.

Brian Wenzel: Now let's turn to our fourth quarter results. Purchase buying increased 3% versus last year, and reflected the breadth and depth of ourselves platforms and the compelling value our products offer to bind with the resilient consumer. In Elton Wellness, Purchase buying increased 10% reflecting broad-based growth in active accounts led by dental, pet, and cosmetic verticals. Visual Purchase buying increased 5% with growth in the average active accounts and strong customer engagement. Diversified value purchasing increased 4% reflecting a higher end and added partner spend.

Brian Wenzel: Lifestyle Purchase buying increased 3% with stronger average transaction values in outdoor and luxury. In our home and auto, Purchase buying decreased 4% as lower customer traffic, fewer large ticket purchases, and lower gas prices, more than off-stack growth in home specialty, auto network, and commercial. Purchase buying across Synchrony, dual and co-branded cards, grew 9%, and represented 43% of total Purchase buying for the quarter, reflecting the broad utility and value that these products deliver for our customers.

Brian Wenzel: As we've discussed in the past, our added partner spend is split roughly evenly between discretionary and non- discretionary categories, and this trend held steady throughout the year. In the fourth quarter, we saw some shifting categories. As consumers shifted from travel spend to clothing for instance, and from gasoline and automobiles towards a spend at grocery and discount stores, we've not seen any meaningful changes in the overall composition between discretionary and non- discretionary spend.

Brian Wenzel: The combination of broad-based purchase buying growth in the approximately 110 basis point decrease in payment rates drove ending loan receivables growth of 11.4%. Our fourth quarter payment rate of 15.9%, still remains approximately 115 basis points higher than our five-year pre-pandemic historic leverage. Cash, an interest income increased 9% to 4.5 billion during by 16% growth in interest in the fees. The increase in interest in fees reflected the combined impact of higher loan receibles and benchmark rates, as well as a lower payment rate.

Brian Wenzel: Our interest margin of 15.10% declined 48 basis points compared to the prior year. The decrease largely reflected higher interest bearing liability costs, which increased 169 basis points to 4.55% and reduced net interest margin by 138 basis points. This impact was partially offset by 66 basis points of growth in loan receibles yields, which contributed 55 basis points to net interest margin. Higher liquidity portfolio yield added 29 basis points to net interest margin.

Brian Wenzel: And our loan receibles growth improved the mix of interest earning assets, contributing 6 basis points to net interest margin. RAC is a $878 million in the fourth quarter, where 3.49% of average loan receibles, a reduction of $165 million versus the prior year, reflecting higher net charge loss, partially offset by higher net interest income. Revision for credit losses increased to $1.8 billion, reflecting higher net charge loss and a $402 million reserve bill, which largely reflected the growth in loan receibles.

Brian Wenzel: Other expenses grew 14% to $1.3 billion. You need to primarily reflect the growth related items as we continue to see strong growth in volumes, as well as a return of operational losses to pre-pandemic average levels as a percent of our purchase volume. Expensive in the quarter also included several notable items, including 43 million dollars in employee costs related to a voluntary early retirement program. $9 million in real estate related restructuring charges, as we continue to adjust our physical footprint in favor of a hybrid working environment.

Brian Wenzel: $9 million for the FBIC's special assessment, $7 million of preparatory expenses in anticipation of a potential Lathe rule change, and $5 million of transaction related expenses related to the sale of pet's best. Our efficiency ratio for the fourth quarter approved by approximately 120 basis points compared last year to 36%. Excluding the impact of the notable items in the quarter, our efficiency ratio would have been approximately 200 basis points lower in the fourth quarter. All in, synchronic generating of $449 or $1.3 per diluted share, the return on average assets of 1.5% and the return on tangible common equity of 14.7%.

Brian Wenzel: Next, I'll cover our key predictions on slide 10. Overall, we see the consumer remaining resilient as we manage your inflation in higher interest rates. The external deposit data we monitor also supports this year, as it shows average savings account balances return closer to pre-pandemic levels during 2023, and remain relatively steady through the third and fourth quarter. Awards.

Brian Wenzel: At year end, average industry savings balances remained approximately 9% above levels from 2020. Our discipline through cycle underwriting and active credit management has positioned as well as we entered 2024. Our delinquency ratios finished the years slightly above average levels from 2017 to 2019 prior to the pandemic. At year end, our 30 plus delinquency rate was 4.74%, compared to 3.65% in the prior year and 12 basis points above our average for the fourth quarters of 2017 to 2019.

Brian Wenzel: Our 90 plus delinquency rate was 2.28%, versus 1.69% last year and 4 basis points above our average for the fourth quarters of 2017 to 2019. And consistent with our expectations, Synchrony's net charge rate reached 5.58% in the fourth quarter, compared to 3.48% in the prior year and average of 5.49% in the fourth quarters of 2017, 2018 and 2019. We continue to monitor our portfolio and implement actions as necessary to proactively position our business for 2024 and beyond.

Brian Wenzel: Movie to reserves are allows for credit losses as a percent of loan receables with 10.26% down 14 basis points from 10.40% in the third quarter. The reserve bill of $422 million in the quarter was largely driven by receables growth.

Brian Wenzel: Turning to slide 12, Synchrony's delinquency continues to be a source of flexibility and strength. Our consumer bank offerings continue to resonate with customers in the fourth quarter, driving over $3 billion of growth in total deposits in the quarter, or 13% compared to the prior year. At quarter end, deposits represented 84% of our total funding, while secure ties that comprise 7%, and that's secured funding 9%. Total liquid assets and undrawn credit facilities were $19.8 billion of $2.6 billion from last year, and a quarter end represented 16.8% of total assets of 42 basis points from last year.

Brian Wenzel: Moving on to our capital ratios. As a reminder, we elected to take the benefit of the seasonal transition rules issued by the Joint Federal Banking of the Agencies. Synchrony will continue to make its annual transitional adjustments to our regulatory capital metrics of approximately 50 basis points each January until 2025. The impact of seasonal has already been recognized in our income statement and balance sheet. Additionally, in the fourth quarter, Synchrony made a change to its balance sheet presentation of contractual amounts related to our retailer partner agreements.

Brian Wenzel: At year end, assets of approximately $500 million, which were previously classified as intangible assets, were reclassified to other assets, and prior periods were reclassified to perform to this presentation. This change in presentation had a corresponding impact to each of our regulatory capital metrics. It resulted in an increase of approximately 50 basis points were capital ratios in both the current and prior year. Sanders.

Brian Wenzel: Under the Cecil transition rules, and including this balancey change, we ended the fourth quote over the CET-1 ratio of 12.2%, 110 basis points lower than last year's 13.3%. The Tier-1 capital ratio was 12.9% compared to 14.1% last year. The total capital ratio decreased 60 basis points to 14.9%. The Tier-1 capital plus reserve ratio on a fully-themed basis decreased to 22.1% compared to 22.8% last year.

Brian Wenzel: During the fourth quarter, we returned $353 million to shareholders, consisting of $250 million to share repurchases, and $103 million to common stock dividends. At the end of the quarter, we had $600 million remaining in a share repurchase authorization. We were in well-positioned to return capital shareholders, as guided by our business performance, market conditions, regulatory restrictions, and subject to our capital plan. We will also continue to seek opportunities to complete the development of our capital structure to the issuance of additional preferred stock as conditions allow.

Brian Wenzel: The three remains committed to our capital allocation framework, which prioritized investment in organic growth and payment of our regular dividends, followed by share repurchases and investments in the inorganic growth opportunities where the rates of return meet or exceed that of our other potential uses of capital.

Brian Wenzel: To that end, as Brian mentioned, simply announced the acquisition of the Allied lending point of sale financing business, which we view as a great opportunity to expand our leadership position in the home improvement in health and wellness verticals, while leveraging our industry expertise and scale to unlock the greater value. We've agreed to purchase approximately $2.2 billion of loan receibles at a discount. Upon closing the transaction and subject to completion of purchase accounting, we expect our CQ-1 ratio to be reduced by approximately 50 basis points, inclusive of provision for credit losses of approximately $200 million relating to initial reserve bills.

Brian Wenzel: Fickering expects this acquisition to be creative to full year 2024 earnings per share, including the impact initial reserve bill for credit losses. On integration of our business, conversion to our prism underwriting model and execution of our strategy, we expect to achieve attractive internal rate of return with approximately a three-and-a-half year tangible book value earned back. Additionally, the sale of our pet's best business will result in our approximately $750 million dollar gain, net attacks in 2024, which will contribute to an approximately 80 basis point increase to our CQ-1 ratio, inclusive of the capital required to be held on a minority interest in IPH.

Brian Wenzel: Excluding the gain on sale, we expect the transaction to be neutral earnings. We're excited about the opportunities we have identified to continue to drive consistent growth at appropriate risk-adjusted returns, and have established a long track record of execution across both strategic and financial objectives.

Brian Wenzel: Services. During 2023, we drove strong growth in purchase volume, which combined with the team of re-moderation to deliver solid growth and loan receivables. We were opportunistic in funding that growth and continued to expand our positive franchise and turn delivery attractive, net interest income, pre-normalized in line with our expectations, and our RSA company functioned as designed. And finally, we filled our commitment to deliver positive operating leverage.

Brian Wenzel: Turning to slide 14, let's review our outlook for 2024. Our baseline assumptions for this discussion include, a stable macroeconomic environment, full year fed funds rate of 4.75 percent, with cuts beginning in the second half of 2024. This outlook also assumes the closing or a pet's best in ally lending transactions in the first quarter of 2024, and given the uncertainty of timing and implementation of a potential final rule regarding lathees, we've not assumed any related impact to our 2024 financial outlook. In the event that the final lathees rule is published, we will provide an update with the associated impact to our financial guidance.

Brian Wenzel: Starting with loan receivables, we expect our compelling value propositions, and the broad utility of our products will continue to drive purchasing growth. We also expect payment rates to continue to moderate, although we anticipate they will remain above pre-pandemic levels through 2024. Together, these dynamics should deliver ending loan receivables growth of 6 percent to 8 percent. We expect full year net interest income of $17.5 billion, $18.5 billion.

Brian Wenzel: Net interest income should follow typical seasonal trends through the year, adjusted for several impacts. One, higher interest bearing liabilities expense, as our fixed rate debt reprises with higher benchmark rates. Two, the impact of the competition for retail deposits and pace of deposit reprising once rate cuts begin. Our expectation is for betas to trend year 30 percent as rates begin to decline later in the year, thereby reducing impact to interest expense during 2024.

Brian Wenzel: And three, interest and fee yield growth partially offset by higher income reversals. We expect net charge loss of 5.75 percent to 6 percent, within our target underwriting range of 5.5 to 6 percent. Losses are expected to take in the first half before we return to pre-pandemic seasonal trends following the normalization of glenquancy metrics in 2023. We expect RSAs of 3.5 percent to 3.75 percent of average loan receivables for the full year.

Brian Wenzel: This reflects the impact of continued credit normalization, higher interest expense, and the mix of our loan receivables growth partially offset by purchasing growth. The reduction in RSA demonstrates the functional design of the RSA and the continued alignment of our interest with partners. Records. And finally, we expect to reach an operating efficiency ratio of 32.5 to 33.5 percent for the year, through primarily by the optimization of our loan yields as prior normalization occurs. This outlook excludes the impact of the PESPES gain on sale which we recognize in other income.

Brian Wenzel: We remain committed to delivering operating leverage for the full year and continue to invest in a long-term success in our business. As demonstrated in this past year, Synchrony's purpose-built business and financial model is performing as designed. Through an evolving backdrop, our diversified portfolio products and platforms continue to drive growth, our leading credit management ensures attractive risk adjusted returns, our RSA provides a buffer against changes in economic performance, and our stable balance creates opportunity. Taking together, our business continues to deliver value for each of our stakeholders in 2023 and positioned well for 2024.

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

Brian Doubles: Synchrony delivered another strong performance in 2023. We executed on key strategic priorities that expand the breadth and gaps of our customer acquisition and engagement further diversified the product services and value we provide and enhance the quality of the experiences we power for our customers, partners, providers, and merchants. This focus on deepening our course clients while continuing to evolve with the ever-changing world of commerce has enabled Synchrony to deliver strong financial results and returns to our shareholders while also preparing our business for the future.

Brian Doubles: We are confident in our ability to continue to sustainably grow and deliver resilient risk adjusted returns over time, and are excited about both the near and longer-term opportunities we see ahead to deliver still greater value for our many stakeholders.

Kathryn Miller: 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 so that we can accommodate as many of you as possible. I'd like to ask the participants to please limit yourself to one primary and one follow-up question. If you have additional questions, the investor relations team will be available after the call.

Operator: Operator, please start the Q&A session. At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two.

Operator: As a reminder, please limit yourself to one primary question and one follow-up question.

Terry Mah: We'll take our first question from Terry Mah with Barclays. Please go ahead.

Brian Wenzel: Thanks, good morning. Can you maybe just talk about the cadence we should expect for the one-clinces in 2024? Should the fourth quarter or first quarter be kind of peak the one-clinces, and then as we look forward to 2025, can you maybe just talk about your confidence level that you'll stay within this large off range of 5.756 percent? Sure, thanks, Terry.

Brian Wenzel: When we look at our delinquency formation in the fourth quarter, first I think you have to recognize we normalize slower than all of our peers, which is partially attributable to the fact that we didn't really adjust the credit box during the pandemic. Our vans under rain tool prison, which we invested heavily in since 2017, and the data elements we bring in. So that really helped the formation as we exit out of Exit out of 2023.

Brian Wenzel: It's important to note that when you look at both the 30 plus and the 90 plus the frequency rate that is in the fourth quarter, there are only 12 basis points and four basis points, respectively over the three-year average from 2017 to 2019. So, and then when I look at the mix of credit that that sits in the frequency today, it's substantially similar to that of the 2019 credit mix. So, when I look at that, I then look a little bit at the trending Terry and performance of frequency.

Brian Wenzel: When you look at it, you know, the consistency of the growth month-on-month, year-over-year, the 30 plus and 90 plus is not showing deterioration. It's been very consistent and arranged between 109 basis points and 116 basis points each month. 90 plus has been between 55 and 63. So, it's been very consistent. Related to seasonality, it's been generally aligned.

Terry Mah: So, so I look at those factors as we can enter, entry rate continues to be better than 2018. So, now that rolled out forward, what we expect from a charge-off perspective, that your first half charge-offs are going to be, you know, higher in the first half, lower in the second half and shouldn't give you a range of 5.75 to 6.5 per year. So, inside of our underwriting target, again, we call it, we did take actions in the second quarter, a third quarter, which we outlined.

Terry Mah: Those are beginning to see, then you should see the effects of those beginning to affect the length of these here in the first half of 2024. So, with that, you know, we feel good about where credit is. You know, we'll continue to monitor the trend in credit, what's rolling in, but the positive entry rate, which has a slightly negative effect on the float to the loss, but that positive entry rate is really encouraging for us as we enter the year. Thank you. And then my follow-up phone just been in an NII guide.

Brian Wenzel: Looks like you assumed about two rate cuts. Can you maybe just talk about what we should expect if we get more than kind of two rate cuts for the year? Yeah, thanks for that question, Terry. If I look at what we're projecting, we actually have three rate cuts, really beginning in September of, you know, 2024 going through the end of the year, which, you know, at the point on beta, it's 30 percent.

Brian Wenzel: So, if you think about having rate cuts that late in the year, digital banks generally lag about 30 to, you know, 30 to 90 days with regard to when they start to move rates. And then you also have to take a consideration the fact that it's in the fourth quarter when you want to maintain, you know, higher level of financing to the fund season of growth. So, that's why the beta is a little bit lower. If you were to yet rate increases either more than that early in the year, you would get a theory of some benefit onto the manages margin and lower interest on, but interest very liabilities.

Terry Mah: Got it. Thank you. Thanks, Terry.

Rick Shane: Our next question comes from Rick Shane with JP Morgan. Please go ahead.

Rick Shane: Thanks everybody for taking my questions this morning. Really just want to talk a little bit about the relationship between NCOs and RSAs when we look at the 24 guidance. 24 guidance from an NCO perspective basically puts you at the higher end but within the range of NCO targets. RSA looks a little bit lower than what we would have seen on a pre pandemic basis. And I'm assuming that's really not a function of credit but more function of interest rates.

Rick Shane: And as we look forward, if we assume net charge offs wind up in that five and a half to six percent target range but interest rates start to come down will the RSA trend back up. I just want to sort of get a sense of what we should be looking at in a normal environment for that RSA ratio. Sure, thank you Rick.

Brian Wenzel: You know the first thing I'm going to continue to point you to page four of our materials this morning which shows you know the risk of just a return really the relationship between NCOs and RSA was generally trended in line with each other. You are right as you think about 2024. You do see some lift continuing on that hard offline which pulls back through the RSA.

Brian Wenzel: You continue to get headwinds as the interest rate liabilities will reset. You know we have 92% of our CDs will reset in 2024. 74% of our debt will reset in 2024. So you're going to have a full year effect of the rate increases that we've seen in 2022 and 2023 flow through the book. And again we're expecting I think the guys we said was in payment rate does not get back to pre-pandemic levels.

Brian Wenzel: So you're not getting the full interest in fee yields coming back through you have higher interest rate liabilities which will in theory benefit of the company to a low RSA to the extent that that interest rate liabilities comes down faster through other research you would see an increase to the RSA.

Rick Shane: That's it for me. Thank you guys. Thanks Rick. Have a good day.

Ryan Nash: Our next question comes from Ryan Nash with the Goldman Sachs. Please go ahead.

Ryan Nash: Ryan, maybe as a follow-up to the first question I just wanted to flesh out the NNI and MIM guy a little bit more. You maybe just talk about one what gets us to the bottom end of the range to the top of the range obviously it's a pretty wide range and maybe just explaining a little bit further what is the 30% betas at a point to point is at a downside I try to make sure we fully understand that. Lastly, just given that your liabilities sensitive on the way up do you still see a path to a 16% NIM and over what time frame. Thanks.

Brian Wenzel: Thanks for the question, Ryan. Let me deal with the beta comment first. So when you think about beta this is really the beta in-year for really effectively the end of the year. I think if you think about beta is over a longer period of time so think about what you would see in a rate decline cycle here. I would not expect a beta one we didn't get one on the way up so we wouldn't get one on the way down.

Brian Wenzel: You know when you look at our book of our portfolio of liabilities we were approximately 80% beta on savings 90% beta on CD. I would expect that over that cycle coming down so over time you're going to see it kind of probably mirror the way it went up. It will mirror on the way down so that's how I would think about beta is over the over the longer term.

Ryan Nash: When you think about the net interest income you know the question here becomes you know what is the assumption that if you go we have three rate cuts in the market has six. You know somehow this early is March so most certainly if interest bearing liabilities starts earlier and there's greater rate declines that could push your NII dollars up. Conversely if rates don't get cut off it could push you a little bit lower.

Ryan Nash: And the big other factor is going to come through here is going to be what this payment rate continues to do. We have been conservative I think on payments saying it doesn't get back to pre-pandemic levels. I think it's been slower than our anticipated declining in 2023 so those are generally the moving pieces as I think how you would slide between the range of 17 and a half days. David.

Brian Wenzel: And maybe as a follow-up on credit, you talked about starting to see delinquencies follow more normal patterns and also charge us peaking by the second quarter. You know, Brian, if your outlook proves to be correct, when do we start to see the allowance coming down? When does it peak and come down? And maybe just help us understand the potential magnitude that it could come down over the course of the year? Thank you.

Brian Wenzel: Yeah, so, you know, we're entering the year at 1026 on a covered grade basis. I would expect, you know, in the first quarter, you're going to see a rise, and normally seasonally rises, your receivables go down number one. Number two is just under 200 million dollars, or around 200 million dollars for the alley lending portfolio that we bring over.

Brian Wenzel: There will be some on the purchase of the value marked that will increase that cover very little bit as well, it doesn't go through the P&L. So you're going to see a rise really in the first quarter, you know, called seasonally. We anticipate that it will be lower than the 1026 as we exit out at 1024. So you're primarily going to see growth builds as we move throughout the year, but you will see rate declines, you know, some of the QAs burn off or get realized.

Brian Wenzel: And again, it credit performs as we think it would be you be exiting down towards the day one. We won't be at day one, most certainly in 2024, but the training downwards as we move through the year. Thanks for the call, Brian. Thanks, Brian.

Moshe Orenbuch: Our next question comes from Mosha Ornbuck with TD Callett. Great. Thanks.

Brian Wenzel: I know that your guidance doesn't contemplate the late key ruling yet because it hasn't been issued, but maybe could you could you could mention that you spent $7 billion kind of in preparation? Could you talk about the things that you are doing in preparation and, you know, kind of any updated thoughts you have on the fact that we're sitting here, kind of in the towards the end of January and haven't heard anything yet from the CFB? Yes, very much. I'll start on this.

Brian Wenzel: You know, we're obviously still waiting for the final rule to be issued, but you know, with that said, well, there's still some unknowns in terms of the implementation period and other things that we'll see in the final rule. You know, we've been working on this for almost a full year now at this point. It's very complicated. Our teams have done a lot of work in preparation for this. We spent a lot of time with our partners.

Brian Wenzel: We've agreed on pricing actions and offsets that we would deploy when we see the final rule. So it's really all the work that has been going on over the past year. I mean, it's systems work.

Brian Wenzel: You got to issue a lot of CITs, change in terms, and so it's really that kind of that kind of stuff. I will say that, you know, the conversations with our partners have been very constructive. You know, they fully recognize that without these offsets, that a meaningful portion of their customers, that we approve today and that we underwrite and give credit to, would no longer have access to credit. And that's something clearly we do not want. They do not want.

Brian Wenzel: So really no change will be said in the past. Our goal is to protect our partners fully off that the impact of a final rule when it does come. And we want to continue to provide credit to the customers that we do today. Great. Thanks.

Brian Doubles: And just as kind of as a second thought, when you look at the different kind of verticals, obviously, you had strong growth in 2023. You know, in a couple of them in home and auto had been somewhat weaker, particularly as you get closer to year end. As you look into 2024, any changes in mixed in terms of the growth, anything that you're seeing for, you know, launches and, and, you know, product refractions that are going to drive, you know, in those various lines.

Brian Doubles: Yeah, I think what generally we would continue to expect outside growth and health and wellness. You know, that's that's a platform where we've accelerated investment in the past year or two. We're seeing really good growth from our acquisition of a leg grow credit. It's a big market. We've got a leading position.

Brian Doubles: You know, this is this is dental that cosmetic, great engagement, the partner network. And so that's that's a platform we'll continue to invest in and we would expect to see growth there on the higher side relative to the other platforms. The other one I would mention is digital. You know, that's where we've got Venmo, Verizon, PayPal, Amazon.

Brian Wenzel: And so I think you'd continue to see some outside growth there. And then maybe a little bit softer and lifestyle and home and auto. I don't know, Brian, if you got anything about.

Brian Wenzel: No, you'll see how the world is in digital above average. The upside value will be around company average, maybe a hair below and then you'll see lifestyle and listen to home and auto trend. You know, particularly in the home, what we're seeing there is is lower foot traffic in the store. And we see frequency not necessarily terribly down, but what is more transaction values are people are, are, you know, they're buying a mattress, but not buying high in mattress. They're buying a little bit lower.

Moshe Orenbuch: So we would expect that friend to continue into the start of 2024. Thanks so much. Thanks, motion.

John Hecht: Thanks. Our next question comes from John Hecht with Jeffries. Please go ahead.

John Hecht: Good morning and thanks for taking my questions guys. Most of my questions have been asked and answered, but I guess one of the questions I have is, you know, I think we've had depleted recoveries on the on the charge off side. Part of that equation over the past couple years. I'm wondering, Brian, to what degree does maybe your recovery and recoveries impact the NCO guide? Yeah, you know, thanks for the question, John. Good morning.

Brian Wenzel: You know, when we look at recoveries, we've done a couple of things really to the pandemic number one. We made a strategic shift to ensure our recovery operations are where we used to have a lot of it externally managed. We brought it now, so it's effectively drove rate increases on the ultimate recovery ability of dollars written off. So that that was a positive as you move through. You are right.

Brian Wenzel: When you look at it, you know, particularly when you're doing some level for flow on a rate basis that's downing and you're told charge officer down. But I think the swing that we had of being more efficient by in sourcing has helped offset that. So I think I wrote to percentage.

Brian Wenzel: It's been. It's been flat. Most certainly it should rise. As we step out of 2020, 23 per couple reasons. I'm one you're right.

Brian Wenzel: We'll get more volume just on the net chart off basis. And then if you do see an evening of of rates that cost the capital associated with people who purchase written off papers should go down. You'll get better pricing in the market. So there's a number of different dynamics for us that that it hasn't been much of an issue on on that charge. And you're probably exiting out of 24 maybe provides a tailwind beyond. David.

Brian Wenzel: Okay, and maybe kind of a higher level question. I think Brian, I think you mentioned you still, you have nondiscretionary versus discretionary purchase activity was consistent. I'm wondering, I mean, you know, given inflation is stabilizing, we've got student loan repayment turned back on. Are you seeing anything on the margin that, you know, that would reflect changing consumer behavior or, you know, is it just sort of been steady as she goes, given those changes in the macro? Yeah, you know, as we have it, John, what we're seeing is a little bit of rotation out of some of, you know, travel into some of the other items.

Brian Wenzel: Again, that was a trend more in the fourth quarter. We would expect travel to ease as you move into 2024. So that's that's bigger.

Brian Wenzel: So we do not see the shift between discretionary nondiscretionary. We do not see a shift where the consumer is trying to really stretch dollars. We do see our transaction values down and frequency up a little bit, which means that as the consumer is making purchases, they are trying to be efficient with the dollars, but not really really pulling back. So as I look at that, I don't see big overwhelming trends. I would tell you for the first 20 days, and I always put that as a frame of reference, sales have been a little bit softer than expectations as we entered into 2024.

Brian Wenzel: But that's only 20 days of data. And if I talk to some of our retail friends, they would tell you what it did play a factor as you had several states that that had been cold and significant storms. But there's been lower foot traffic, you know, generally across the board as we started 2024.

John Hecht: Great, I appreciate the color. Thanks, John. Have a good day.

Mihir Bhatia: Our next question comes from me here, Batia, with Bank of America. Please go ahead.

Mihir Bhatia: Good morning, and thank you for taking my questions. Maybe to start with, I wanted to ask about portfolio renewals and just portfolio movements. And I apologize, the two-part question. But first, can you just remind us of your renewal cadence? Are there any large programs coming up for renewal? You're in the next 24 months. And then second part is just, you know, we've gone through a period of credit normalization. You still have the rate-late fee rule outstanding.

Mihir Bhatia: So I was wondering what the environment is like for renewals and RFPs currently, as you talk to retailers, are retailers waiting for a little bit more certainty? Or I mean, I know you announced Jay Crew this morning.

Brian Wenzel: You also, you know, buying the Ally portfolio. But like, what about the other big retail programs that you said? Like, can you put your pipeline in context? Maybe like what it looks like and just put that in the context for us relative to last year or a few years ago or a normal environment? Thanks.

Brian Wenzel: Yeah, yeah. So I would say, you know, first, I'll take the second part first, which is late fees and how that's impacting the pipeline. I do think it does make pricing new business, even renewals to some extent, a little more challenging. But we've been able to kind of work through that. You mentioned Jay Crew.

Brian Wenzel: We're excited to announce that new program. But you've got to spend time that's part of the negotiation, right? And there's speculation there and there's some uncertainty. And so you kind of got to try and cover yourself for those possible outcomes, which we believe we've done.

Brian Wenzel: So it does make, I think, pricing new business or renewals a little more challenging. You know, I do think there'll be some clarity here in the next month or two and that'll, that'll clear that out and make things a little bit easier from that perspective. But it has influenced, I think, not only us, but other market participants. You know, it's a big part of the conversation when she get through.

Brian Wenzel: You know, the way I think about the kind of the BD or the sales process. It's a lot about capabilities, technology, data analytics, data share, all those things. But then when you get to the financials, this is a big part of the discussion that's crept in there over the last 12 months, just given the uncertainty. The other thing, just in terms of our pipeline for renewals, the vast majority of our programs are out there, 2026 and beyond.

Brian Wenzel: You know, with that said, if we have an opportunity, as always, if we have an opportunity to renew early, if there's something the partner wants to change in the deal or something we want to change, we'll get together and see if we can kick the term out a few years. So that's something we're always actively trying to work on with our partners. You have here doing the only answer is, or just that, but you'll see in February again, we'll continue to update the revenue that's under contract and you can't 26 and beyond, so expect that if that weren't. Thank you.

Brian Wenzel: And then just switching gears, in terms of the health of the consumer, it sounds like, you know, people still feel pretty good about it. So I was wondering about your underwriting posture here, you know, clearly soft landing is becoming more of a concern for you. I know you aren't prone to big gyrations there, but how are you feeling about that underwriting posture?

Brian Wenzel: Maybe just talk about like what your standards look like today versus maybe one year ago or even 2019. Is this like 2024 like more of a normal year? Is it still a little on the tight side and the opportunity to loosen and drive growth? Any comments there?

Brian Wenzel: Yeah, you know, here again, it's gotten a lot of issues and troubles. They tried to underrate growth in the 2021 and 22 vintage is which people are paying a price for now. Some refer to growth mass, some refer to it as loosens the standards and lower returns. So we're not going to use credit as a mere growth lever for us. We are more proven than we were a year ago. Again, we talked about we do it using credit actions on partners and channels. You know, I don't want to say every day, but most certainly we watch it every day.

Brian Wenzel: We took broader based actions, both in 2Q and 3Q given the shared consumer and what other people have done from an underwriting basis. We were slightly encouraged in the 4th quarter as we see that the bureaus that other issues have begun to take credit actions, which will benefit the industry in a latter part of 2024. But I think we're going to be cautious as we move throughout the year when we continue to watch the trends of the consumer.

Brian Wenzel: Again, we haven't seen the consumer stretch. When we look at payment rates, the payment rate movements by credit rate have been relatively consistent. And probably the biggest mover has been in the 660-720 range that you'd see in a non-prime person. So again, we look at it and say, okay, I don't see the consumer stretching from a spending standpoint in struggling. We don't see the payment rate changing. We're going to continue to watch the flow into the liquidity.

Brian Wenzel: Again, entry rate continues to be better than 2019, which again, the flow to watch gets worse whenever entry rate goes down. But we generally, we're generally cautiously optimistic on credit, which is reflected in the guide of 575 to 6.

Brian Wenzel: Thank you. Thanks for having me back. Thank you.

Sanjay Sakhrani: Our next question comes from Sanjay Stackroni with KBW, please go ahead. Thanks. Good morning.

Brian Doubles: Brian Doubles, you were pretty active on the transactions front with the sale of the pedanturance business and part of the business and then the acquisition of the ally lending business. Could you just maybe a little bit more on what drove those decisions and then what the pipeline for other deals look like? I mean, I think there's one big fish at least out there in terms of a portfolio. So you just talk about what the positioning is there.

Brian Doubles: Yeah, let me, well, when I start with allies, it's the more, the more recent of the two transactions. I mean, look, I think we're super excited about this acquisition. I think it's actually great for both companies. These are conversations that JB and I started back in the first half of 23.

Brian Doubles: I think, you know, this wasn't a scale business for ally, but on our side, this is absolutely a scale business. You know, this is exactly the type of acquisition that we look for. These are businesses and industries that we know really well.

Brian Doubles: We obviously have a presence already in home improvement and health and wellness. In fact, as we got into this, we realized that we served some of the same partners. So, you know, as I think about ally, it really just compliments and accelerates our current strategy. I also think that, you know, and Brian covered this, got a very attractive financial profile at VPF's accretive. It's got a nice RLA that'll be in line or maybe a little bit better than the company average.

Brian Doubles: We get 2,500 new merchants. We get 500,000 new customers. So, there's really a lot to like here. I mean, this is a nice bolt on acquisition for us and we'll be a nice ad for both home and auto, but also health and wellness. And then, you know, touch best was really more opportunistic.

Brian Doubles: You know, we weren't looking to sell the pet insurance business. It's been a great business for us. We're obviously creating a lot of value in a relatively short period of time. We did a great job growing the business, you know, from 2019. We grew the pets in force over five X.

Brian Doubles: You know, we took the business to find this number seven or number eight to the number four pet insurance provider in the US. And when IPH approached us, it was a great offer to touch to touch to turn it down. It's over 10 X, our original investment. We'll record a nice after tax gain, but I think more importantly than that, it allows us to stay invested in the pet space and do it with someone a great partner like IPH that has the scale that has the expertise.

Brian Doubles: And so, we think there's not only a nice financial gain, but a long-term strategic play here that will benefit us. So, the nice way to close out the year with two, I think, really great transactions. Other deals? What else is out there? I'm sorry, I signed it one more.

Brian Wenzel: Say that again? Yeah, you were saying, I asked for what else might be out there. Oh, one big portfolio out there, I know. Yeah. Yeah, look, we got a lot on our plate.

Brian Wenzel: I'd start with that. You know, we got to get both of these transactions closed, which we hope you do in the first quarter. We got a lot going on in 2024, for sure.

Brian Wenzel: With that said, you know, we typically get invited into most RFPs in the space, and you know, the things that are important to us haven't changed. We look for a good risk and just a return. We look for a really good alignment with the partner. I think that's probably the most important thing, particularly when you're looking at large deals. You got to make sure that, you know, both partners like the deal in good times and bad times that our interests are aligned around marketing and credit and underwriting and really all aspects of the program.

Brian J. Wenzel: So we'll always be in the market for opportunities at the dev screen. I guess Brian Wenzel, like in your reserve coverage, what are for the year, what are you assuming for the unemployment rate specifically? The unemployment rate as we exit out of 2024 is 4% Got it. All right, great. Thank you. Thanks, Sanjay.

Jeffrey Adelson: Our next question comes from Jeff Adelson with Morgan Stanley. Please go ahead. Hey, good morning.

Jeffrey Adelson: Thanks for taking my questions. Last year you ended up seeing your loan growth kind of initial expectations of that, you know, that kind of initial 8% to 10%. I guess I'm wondering if you think there's maybe some potential upside or similar setup this year. And then more specifically, could you talk a little bit more about the specific drivers that you see getting you to the low end versus the high end of the range there on that 6 to 8.

Brian Wenzel: You know, in terms of payment rate, consumer spend, new account growth, and maybe even how out of you think that this installment opportunity could be your growth. It seems like, you know, you're maybe leaning in a little bit more here with the acquisition and the free qualification launch this year. Yeah, you know, when I look at the growth rate, Jeff, you know, we'll get you to the lower end of the range is a couple of things potentially, right? A softer consumer, right?

Brian Wenzel: The macro economic environment softens up number one, number two. Payment rate remains more elevated than we anticipate. You'll be at the low, you could be at the lower end of that range.

Brian Wenzel: If we, if the credit actions we've taken, deliver more of a sales impact and we expect it's not material in the whole back to put you lower the range. Conversely, as you think about the high end of the range, it pay rates decline faster than we think number one. If you see the economy, maybe be a little bit more robust than what we're seeing on, you know, we gave you a GDP growth rate there, but the kinds of a little more robust and we see spending elevate. You can see somewhere there with regard to, to certainly the home specialty, you know, that's been a vertical inside a home and auto that has grown nicely for us will continue to grow nicely for it.

Brian Wenzel: It's really not going to move the company average. So what's a nice acquisition, the acquisition itself is not necessarily trailing any material enough to move a lot of the underlying metrics. You get the top day one will certainly grow as we, as we create the synergies between our home specialty platform and what's a very attractive ally lending point of sell when the self platform. So the combination will grow a little bit faster, but it shouldn't be overall needle company. Got it.

Brian Wenzel: And just to follow up on the newer expense ratio, guys, I know in the past, you've given more of a quarterly dollar amount. It seems like you might be implying a pretty very low single digit type expense growth next year. Is that right? And, you know, where do you think you're kind of gaining some efficiencies from here is marketing, lower comp, et cetera. [inaudible] and Brian Wenzel.

Brian Wenzel: Brian, why don't you talk a little bit about the APRs? I mean, please. Yeah, so, you know, obviously, John, you know, we have a set of pricing strategy changes that will come through some of which come through with a faster cadence in 24, which will be fee-oriented as well as a policy orientation. And then there will be APR increases. So, we'll be back, you know, if the rule does get issued, we'll come back and probably provide a little bit more color with regard to how to think about that in the context of 2024.

Brian Wenzel: Some of these will have a bigger short-term impact. Some of them will have a bigger long-term impact. And so, you know, we'll be in a position to provide a little more clarity when we have a final rule and we start to roll out some of these actions. Got it.

John Hecht: Okay, great. Thank you. And then secondly, just around your purchase volume, I appreciate the color you gave in terms of the drivers between the different verticals.

John Hecht: Overall, as you look at that 2024, what's your expectation for total card purchase volume or overall purchase volume? You mentioned, look at the four-year versus 2023 and the same for overall account growth. Thanks. Yeah, you know, so I'd say we're not specifically guiding John on purchase volume. You know, obviously you've seen the rate of asset growth decline from 23 to 24. There was some impact last year, really, around that asset growth of, you know, stemming from payment rates decline, which again, we don't think it will have as big an impact in 2024. So I think you're going to see something generally consistent with probably last year. I mean, a good benchmark is sit back and say we do see GDP at 1.7.

Brian Wenzel: We grow multiple of that. So again, probably generally consistent with the last year to, you know, you got to remember to our purchase volume at $185 billion for 2023 was a record high for this company. So we are facing a difficult comp as we move into 24.

John Hecht: But again, we're proud of the sales platforms and differentiation and diversification that's inside of those platforms. Okay. Great. Thank you. Thanks, John. Good day.

Mark Devries: Our last question will come from Mark DeVries with Don't You Bank? Please go ahead.

Mark Devries: Yes, thanks. I wanted to ask about your thoughts around preferred equity issuance for this year. Brian, does that need to be added to total capital levels? Or do that for you up to replace some of that with a return some common talk a little bit about potential timing.

Brian Wenzel: What you kind of need to see more market perspective and also how much you might look at issue. Yeah, you know, thanks for the question market. You know, as we look at the capital stack, you know, we fully developed our tier two. We have about 75 basis points, give or take a capacity in tier one. Which puts the max amount you probably can do just to reach the target level for tier one of about 750, you know, 700 to 750 million dollars, ultimately that you'd want to do.

Brian Wenzel: We don't necessarily think of that relative to common equity is more as we want to develop most certainly the most cost effective capital structure that we want. You know, the time in which is going to depend upon, you know, market conditions, you know, rates, you know, throughout 2023 were incredibly high wasn't necessarily the best time to kind of show. We'll look at, you know, how the market developed in 2024 and whether or not there's desired investor demand for the products and also look at the structure of whether or not that's a more lethal oriented the first pack or not. So there's a number of different factors are going to just really go into how do I fully develop all the levels of the capital stack from a regulatory standpoint. Okay, great.

Brian Wenzel: And we're just to follow up on kind of your updated thoughts on plans for how to deploy the capital created by the Pets Desk. Yeah, I don't think our priorities change any. We generate some capital in 23 by making some adjustments. We'll spend about 50 basis points of capital on the Allied Transaction. We'll generate about 80 basis points on the Pets Desk, you know, Sal, and you know, net of the investment that we're taking back in IPH. So I think that kind of goes on the pilot.

Brian Wenzel: We will look to the priorities of organic growth number one, maintaining the dividend two. And then three, we'll look either at share or purchase, or if there's other inorganic opportunities. Again, I think we're very focused when it comes to inorganic opportunities. It has to be the right thing. It has to be priced incredibly well, which, you know, we feel we've got with Allied lending. And so we'll be putting what it comes to the point of that capital. But again, we're not changing the strategy or the cadence because of the Pets Desk Transaction.

Brian Wenzel: Thank you. Thanks, Mark. Thank you for your participation. You may disconnect your line at this time and have a wonderful

The star is zero. I will now turn the call over to Catherine Miller, Senior Vice President of Investor Relations. Thank you. You may begin. Thank you and good morning, everyone.

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

Kathryn Miller: 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.

Catherine Miller: Welcome to our quarterly earnings conference call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address during our call. The press release, detailed financial schedules, and presentation are available on our website, synchronyfinancial.com. This information can be accessed by going to the investor relations section of the website. 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.

Kathryn Miller: Access by going to the Investor Relations section of the website.

Kathryn Miller: 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.

Catherine Miller: 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 or guarantee, the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website.

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

Kathryn Miller: Finally, synchrony financial is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties.

Kathryn Miller: The only authorized webcasts are located on our website.

Kathryn Miller: On the call. This morning are Brian doubles, synchrony, as 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.

Catherine Miller: 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, Catherine. Good morning, everyone.

Brian D. Doubles: Thanks, Kathryn and good morning, everyone.

Brian D. Doubles: Today's synchrony reported strong fourth quarter results, including net earnings of $440 million or $1 three per diluted share.

Brian D. Doubles: Today Synchrony reported strong fourth-quarter results, including net earnings of $440 million, or $1.03 per diluted share, a return on average assets of 1.5%, and a return on tangible common equity of 14.7%. These fourth-quarter results contributed to full-year 2023 net earnings of $2.2 billion, or $5.19 per diluted share. A return on average assets of 2% and a return on tangible common equity of 19.8%. This strong financial performance was supported by continued consumer resilience. Empowered by our multi-product strategy and diversified sales platform, we achieved another year of record purchase volume totaling $185 billion for the full year, up 3% from last year.

Brian D. Doubles: Return on average assets of one 5% and return on tangible common equity of 14, 7%.

Brian D. Doubles: These fourth quarter results contributed to full year 2023, net earnings of $2 2 billion or $5 19 per diluted share.

Brian D. Doubles: Our return on average assets of 2% and a return on tangible common equity of 19, 8%.

Brian D. Doubles: This strong financial performance was supported by continued consumer resilience.

Brian D. Doubles: And powered by our multi product strategy and diversified sales platforms.

We achieved another year of record purchase volume totaling 185 billion for the full year and up 3% from last year.

Brian D. Doubles: Our compelling products and value propositions helped drive the origination of almost 23 million new accounts in 2023, and also help grow our average active accounts by two 5%.

Brian D. Doubles: Our compelling products and value propositions helped drive the origination of almost 23 million new accounts in 2023 and also helped grow our average active accounts by two and a half percent. The broad utility and value of our product offerings continue to resonate deeply with our customer base, leading to another year of record purchases. This combined with the continued moderation in payment rates to drive loan receivables growth of 11.4 percent. Credit continued to normalize as fourth-quarter net charge-offs reached pre-pandemic levels in line with our expectations and contributed to a full-year net charge-off rate of 4.87%. Still below our target underwriting range of five and a half to six percent.

The broad utility and value of our product offerings continue to resonate deeply with our customer base, leading to another year of record purchase volume.

Brian D. Doubles: This combined with a continued moderation in payment rates to drive loan receivables growth of 11, 4%.

Brian D. Doubles: Credit continued to normalize this fourth quarter net charge offs reached pre pandemic levels in line with our expectations and contributing to a full year net charge off rate of 487%.

Brian D. Doubles: Still below our target underwriting range of five 5% to 6%.

Brian D. Doubles: We also drove continued progress toward our target operating efficiency ratio derma.

Brian D. Doubles: We also drove continued progress toward our target operating efficiency ratio, demonstrating cost discipline while maintaining investments to ensure the long-term success of our franchise. And through strong execution and prudent capital management over time, Synchrony continued its long history of capital returns, including $1.5 billion in return to shareholders this year. Since 2016, we have paid $3.6 billion in dividends and reduced our outstanding shares by 50%.

Brian D. Doubles: Demonstrating cost discipline, while maintaining investments to ensure the long term success of our franchise.

Brian D. Doubles: And through strong execution and prudent capital management overtime Synchrony continued our long history of capital returns, including $1 5 billion returned to shareholders. This year.

Brian D. Doubles: Since 2016, we have paid $3 6 billion in dividends and reduced our outstanding shares by 50%.

Brian D. Doubles: Synchrony and <unk> ability to consistently generate and returning capital to our shareholders is enabled by our differentiated business model, which prioritizes the sustained delivery of attractive risk adjusted returns through changing market conditions and economic cycles.

Brian D. Doubles: Sincrony's ability to consistently generate and return capital to our shareholders is enabled by our differentiated business model, which prioritizes the sustained delivery of attractive risk-adjusted returns through changing market conditions and economic cycles. Our focused execution across key strategic priorities enables Synchron-E's resilient returns by reinforcing our core strengths and facilitating our ongoing evolution to meet changing preferences and needs. With that in mind, Synchrony continued to grow and win new partners over the past year, with the addition of more than 25 partners and over 30 renewed relationships. Among our new partnerships, we are excited to announce that J.Crew selected Synchrony to launch its first co-branded credit card.

Brian D. Doubles: Our focused execution across key strategic priorities enabled synchroneyes resilient returns by reinforcing our core strengths and facilitating our ongoing evolution to meet changing preferences and needs.

Brian D. Doubles: With that in mind synchrony continued to grow and win new partners over the past year with the addition of more than 25 partners in over 30 renewed relationships.

Brian D. Doubles: Among our new partnerships, we were excited to announce that J crew selected synchrony to launch its first co branded credit card, which.

Brian D. Doubles: This will be a digital first program with mobile wallet provisioning, robust pre-approval capabilities, scan to apply, and direct-to-device credit application. This competitive win is a testament to our culture of innovation. Consistent investment in our digital ecosystem and a strategic focus to empower our customers and partners to connect seamlessly through best-in-class omnichannel experiences. We will also continue to diversify our programs, products, and markets during 2023. Broadening the utility of our offerings and extending our reach, Synchrony believes in the power of choice.

Brian D. Doubles: Which will be a digital first program with mobile wallet provisioning robust preapproval capabilities scan to apply and directed device credit applications.

Brian D. Doubles: This competitive win is a testament to our culture of innovation.

Consistent investment in our digital ecosystem and our strategic.

Brian D. Doubles: <unk> focus to empower our customers and partners to connect seamlessly through best in class Omnichannel experiences.

Brian D. Doubles: We also continued to diversify our programs products and markets during 2023.

Brian D. Doubles: Broadening the utility of our offerings and extending our reach.

Brian D. Doubles: Synchrony believes in the power of choice choice for our customers and partners providers and merchants as they engage in person and digitally across a full suite of everyday financing options.

Speaker Change: Thank you for joining us as they engage in person and digitally across a full suite of everyday financing options. This year, we launched multi-product pre-qualification and began presenting customers with side-by-side offers of both revolving and installment solutions to bring choice to the forefront. These enhancements empower customers to weigh the benefits of various options in real time and make the decisions that best suit their financing needs at that moment. We continue to scale our pay later solution, which is now offered at over 200 provider locations in our health and wellness platform and at 18 retail partners.

Brian D. Doubles: This year, we launched multi product prequalification and began presenting customers with side by side offers of both revolving and installment solutions to bring choice to the forefront.

Brian D. Doubles: These enhancements empower customers to weigh the benefits of various options in real time and make the decisions that best suit their financing needs in that moment.

Brian D. Doubles: We continue to scale our pay later solution, which is now offered at over 200 provider locations in our health and wellness platform and at 18 retail partners.

For our partners and providers pay later seamlessly integrates into the broader partner relationship and product offering.

Speaker Change: For our partners and providers, PayLater seamlessly integrates into the broader partner relationship and product offering and provides another tool for deepening engagement with customers, and the response has been strong. Since we launched, partners who have offered these solutions have seen a 20% lift in new accounts, with 95% of pay later sales coming from net new customers. Synchrony's continued diversification and expansion of our offerings over the last year benefited from opportunities to extend our reach. In the fourth quarter, we announced the sale of our PetsBets insurance business and, through a minority interest from that sale, the opportunity to build a strategic partnership with Independence Pet Holdings, or IPH, one of the leading pet-focused companies in North America.

Brian D. Doubles: And provides another tool for deepening engagement with customers.

Brian D. Doubles: And the response has been strong.

Brian D. Doubles: We launched partners, who have offered these solutions have seen a 20% lift in new accounts with 95% of pay later sales coming from net new customers.

Brian D. Doubles: Synchrony has continued diversification and expansion of our offerings over the last year benefited from opportunities to extend our reach.

Brian D. Doubles: In the fourth quarter, we announced the sale of our pets best insurance business and through a minority interest from that sale the opportunity to build a strategic partnership with independents, Pat Holdings, our IP H one of the leading pet focused companies in North America.

Brian D. Doubles: Since acquiring the <unk> business in 2019, we've grown pad some forced by over 45% per year on average more than double the industry growth rate to become a leading pet insurance provider in the U S.

Speaker Change: Since acquiring the PetsBest business in 2019, we've grown Pets Enforced by over 45% per year on average, more than double the industry's growth rate. We've become the leading pet insurance provider in the U.S. We're very proud of what we've been able to achieve with such a great business and team, which has enabled us to gain considerable insight into the pet industry more broadly over the last four years. We are confident that IPH will be able to use its pet insurance expertise to unlock new opportunities for Pets Best and offer still greater value for Pets Best customers.

Brian D. Doubles: We're very proud of what we've been able to achieve with such a great business and team.

Brian D. Doubles: Which enabled us to gain considerable insight into the pet industry more broadly over the last four years and we are confident that <unk> will be able to use its pet insurance expertise to unlock new opportunities for pets, best and offer still greater value for pets best customers.

Brian D. Doubles: And through the strategic relationship for us between <unk> and ourselves synchrony is positioned to gain still greater exposure and insights into the rapidly growing pet industry as we seek to expand access to flexible pet care financing across the country.

Speaker Change: And through the strategic relationship forged between IPH and ourselves, Synchrony is positioned to gain still greater exposure and insights into the rapidly growing pet industry as we seek to expand access to flexible pet care financing across the country. More recently, Synchrony announced another opportunity to expand its business and accelerate its growth with the acquisition of Ally Lending's point-of-sale financing business. This $2.2 billion loan portfolio consists of partnerships with nearly 2,500 merchant locations. It supports more than 450,000 active borrowers in the home improvement services and health care industries.

More recently synchrony announced still another opportunity to expand our business and accelerate our growth with the acquisition of ally lending point of sale financing business.

Brian D. Doubles: This $2 2 billion loan portfolio consists of partnerships with nearly 2500 merchant locations and supports more than 450000 active borrowers in the home improvement services and health care industries.

Brian D. Doubles: Through this acquisition synchrony will create a differentiated solution in the industry.

Speaker Change: Through this acquisition, Synchrony will create a differentiated solution in the industry, offering both revolving credit and installment loans at the point of sale in the home improvement vertical. This multiproduct presentation furthers our product diversification strategy.

Brian D. Doubles: Simultaneously offering both revolving credit and installment loans at the point of sale and the home improvement vertical.

Brian D. Doubles: This multi product presentation furthers, our product diversification strategy delivering.

Brian D. Doubles: Consumer choice, while maximizing conversions and sales for our partners.

Speaker Change: Delivering consumer choice while maximizing conversions and sales for our partners. This opportunity also enables Synchrony to expand its home specialty financing in roofing, windows, and electrical services. We are excited about the natural synergies we see between Ally Lending and Synchrony's home and auto and health and wellness platform.

This opportunity also enables synchrony to expand our home specialty financing and roofing windows and electrical services.

We are excited about the natural synergies, we see between ally lending and synchrony home and auto and health and wellness platforms. We look forward to leveraging our industry expertise and scale to drive operating efficiency and accelerate growth across platforms with attractive market opportunities and return profiles over time.

Speaker Change: We look forward to leveraging our industry expertise and scale to drive operating efficiency and accelerate growth across platforms with attractive market opportunities and return profiles over time. And, of course, Synchrony's ability to successfully deliver a breadth of financing solutions across an expansive distribution network is reliant on delivering best-in-class experiences with each customer interaction. This year, we continue to elevate the presence and utility of our offerings across in-person and digital transactions by adding digital wallet provisioning capabilities for eight partners, including PayPal and Venmo, Verizon, TJX, and Bell. And our digital sales continue to grow at an outsized pace, climbing 9% to nearly 39% of our total 2023 sales. Over the last year, Synchrony launched the first phase of our marketplace on synchrony.com and within our native app, where shoppers can find hundreds of offers showcasing our partner brands, paired with Synchrony's tailored multi-product financing solution.

And of course, synchrony <unk> ability to successfully deliver a breadth of financing solutions across an expansive distribution network is reliant on delivering best in class experiences with each customer interaction.

Brian D. Doubles: This year, we continue to elevate the presence and utility of our offerings across in person and digital transactions by adding digital wallet provisioning capabilities for <unk> partners.

Brian D. Doubles: Including Paypal and Venmo, Verizon T J Maxx and Belk.

Brian D. Doubles: And our digital sales continue to grow at an outsized pace climbing 9% to nearly 39% of our total 2023 sales.

Brian D. Doubles: Over the last year Synchrony and launched the first phase of our marketplace on synchrony dot com and within our native App, where shoppers can find hundreds of offer showcasing our partner brands paired with synchrony tailored multi product financing solutions and.

Speaker Change: In fact, Synchrony leveraged our analytics and marketing capabilities to develop compelling cross-shopping opportunities in this initial launch. Marketplace attracted over 220 million visits by shoppers for our partners, providers, and merchants, as we more than doubled the number of partners participating. In summary, Synchrony is increasingly anywhere our customers are looking to make a purchase or a payment, large or small, in person or digitally, and across an ever-expanding range of markets and industries. We can meet them whenever and however they want to be met, with a variety of flexible financing solutions to meet their needs at any given moment. With that, I'll turn the call over to Brian to discuss our financial performance in greater detail. Thanks, Brian. And good morning, everyone.

In fact, our synchrony leverage our analytics and marketing capabilities to develop compelling cross shopping opportunities in this initial launch.

Brian D. Doubles: Marketplace attracted over 220 million visits by shoppers for our partners providers and merchants as we more than doubled the number of partners participating.

Brian D. Doubles: In summary, synchrony is increasingly anywhere our customers looking to make a purchase or a payment larger small in person are digitally and across an ever expanding range of markets and industries.

Brian D. Doubles: We can meet them whenever and however, they want to be met with a variety of flexible financing solutions to meet their needs in any given moment.

Brian D. Doubles: Our ability to deliver the versatility of our financial ecosystem seamlessly across channels industry as partners and providers alike is what physicians synchrony, so well to sustainably grow and deliver attractive risk adjusted returns, particularly as customer needs and market conditions evolve.

Brian D. Doubles: With that I'll turn the call over to Brian to discuss our financial performance in greater detail.

Brian D. Doubles: Thanks, Brian and good morning, everyone Synchroneyes fourth quarter results demonstrated the power of our differentiated business and financial model performing as designed.

Brian: Sakhrani's fourth-quarter results demonstrate the power of our differentiated business and financial model performing as designed. Our diversified sales platform and spend categories enabled record purchase volume growth as our discipline, underwriting, and credit management kept credit performance in line with our expectations. Our retail share arrangement ensured alignment of economic interests between Synchrony and our partners.

Brian D. Doubles: Our diversified sales platform in spend categories enabled record purchase volume growth as our disciplined underwriting and credit management kept credit performance in line with our expectations.

Brian D. Doubles: Our retail share arrangements ensured an alignment of economic interest between synchrony and our partners as credit normalized towards historical pre pandemic levels and funding cost increase from higher benchmark rates, our RSA payments were lower providing a partial buffer to the economic environment and enabling synchrony delivery of consist.

Brian: As credit normalized towards historical pre-pandemic levels and funding costs increased from higher benchmark rates, our RSA payments were lower, providing a partial buffer to the economic environment and enabling synchronized delivery of consistent, attractive risk-adjusted returns. Our strong balance sheet provides the flexibility to return capital to shareholders while investing in opportunities to achieve our longer-term strategic goals. All while delivering for our customers and partners and their evolving needs today.

<unk> attractive risk adjusted returns.

Brian D. Doubles: And our strong balance sheet provides the flexibility to return capital to shareholders, while investing in opportunities to achieve our longer term strategic goals, all while delivering for our customers and partners and their evolving needs today.

Overall, our prudent business management and differentiated financial model have positioned synchrony to deliver sustainable outcomes for our customers partners and shareholders through an uncertain macroeconomic backdrop this past year and as we move forward in 2024.

Brian: Overall, our prudent business management and differentiated financial model have positioned Synchrony to deliver sustainable outcomes for our customers, partners, and shareholders through an uncertain macroeconomic backdrop this past year and as we move forward in 2024. Now, let's turn to our fourth-quarter results. Purchase volume increased 3% versus last year and reflected the breadth and depth of our sales platforms and the compelling value our products offer to buy with a resilient consumer. In health and wellness, purchase volume increased 10%, reflecting broad-based growth in active accounts led by dental, pet, and cosmetic verticals. Digital purchase volume increased 5% with growth in average active accounts and strong customer engagement.

Brian D. Doubles: Now, let's turn to our fourth quarter results.

Purchase volume increased 3% versus last year and reflected the breadth and depth of our sales platforms and compelling value our products offer to bind with a resilient consumer.

Brian D. Doubles: In health and wellness purchase volume increased 10%, reflecting broad based growth in active accounts led by dental pad and cosmetic verticals.

Brian D. Doubles: Digital purchase volume increased 5% with growth in average active accounts and strong customer engagement.

Brian D. Doubles: Diversified value purchase volume increased 4%, reflecting a higher in and add a partner spend.

Brian: Diversified Value Purchase Volume increased 4%, reflecting higher in and at a partner spend. Lifestyle Purchase Line increased 3% with stronger average transaction values in Altawar and Luxembourg. In our home and auto, purchase volume decreased 4% as lower customer traffic, fewer large ticket purchases, and lower gas prices more than offset growth in home specialty, auto network, and commercial.

Brian D. Doubles: Lifestyle purchase volume increased 3% with stronger average transaction values and outerwear and luxury.

Brian D. Doubles: And our home and auto purchase volume decreased 4% as lower customer traffic fewer large ticket purchases and lower gas prices more than offset growth in home specialty auto networks and commercial.

Brian: Purchase volume across Synchrony dual and co-branded cards grew 9% and represented 43% of total purchase volume for the quarter, reflecting the broad utility and value that these products deliver for our customers. As we've discussed in the past, our add-a-parter spend is split roughly evenly between discretionary and non-discretionary categories, and this trend held steady throughout the year. In the fourth quarter, we saw some shifting categories, as consumers shifted from travel spend to clothing, for instance, and from gasoline and automobiles to spend at grocery and discount stores. However, we have not seen any meaningful changes in the overall composition between discretionary and non-discretionary spend.

Purchase volume across synchrony dual and co branded cards grew 9% and represented 43% of total purchase volume for the quarter, reflecting the broad utility and value that these products deliver for our customers.

Brian D. Doubles: As we've discussed in the past are at a partner spend is split roughly evenly between discretionary and non discretionary categories and this trend held steady throughout the year.

Brian D. Doubles: In the fourth quarter, we saw some shifts in categories as consumers shifted from travel spend to clothing for instance, and from gasoline and automobiles towards spin at grocery and discount stores.

Brian D. Doubles: Not seeing any meaningful changes in the overall composition between discretionary and non discretionary spend to.

Brian D. Doubles: The combination of broad based purchase volume growth and approximately 110 basis point decrease in payment rates drove ending loan receivables growth of 11, 4%.

Brian: The combination of broad-based purchase volume growth and approximately 110 basis points of payment rate decrease drove ending loan receivables growth of 11.4%. However, our fourth quarter payment rate of 15.9% still remains approximately 115 basis points higher than our five-year pre-pandemic historical average. Net interest income increased 9% to $4.5 billion, driven by 16% growth in interest and fees. The increase in interest and fees reflected the combined impact of higher loan receivables and benchmark rates, as well as a lower payment rate.

Brian D. Doubles: Our fourth quarter payment rate of 15, 9% still remains approximately 115 basis points higher than our five year pre pandemic historical average.

Brian D. Doubles: Net interest income increased 9% to $4 5 billion, driven by 16% growth in interest and fees.

Brian D. Doubles: The increase in interest and fees reflected the combined impact of higher loan receivables and benchmark rates as well as the lower payment rate.

Brian D. Doubles: Our net interest margin of 15, 1% declined 48 basis points compared to the prior year.

Brian: Our net interest margin of 15.10% declined 48 basis points compared to the prior year. The decrease largely reflected higher interest-bearing liability costs, which increased 169 basis points to 4.55% and reduced net interest margin by 138 basis points. This impact was partially offset by 66 basis points of growth in loan receivables yields, which contributed 55 basis points to the initial margin. Higher liquidity portfolio yield added 29 basis points to net interest margin, and our loan receivables growth improved the mix of interest earning assets, contributing six basis points to net interest margin. RCEs of $878 million in the fourth quarter were 3.49% of average loan receivables, a reduction of $165 million versus the prior year, reflecting higher net charge-offs, partially offset by higher net interest income.

The decrease largely reflected higher interest bearing liability costs, which increased 169 basis points to 455% and reduced net interest margin by 138 basis points.

This impact was partially offset by 66 basis points of growth in loan receivables yields, which contributed 55 basis points to net interest margin.

Brian D. Doubles: Higher liquidity portfolio yield added 29 basis points to net interest margin.

Brian D. Doubles: And our loan receivables growth improved the mix of interest, earning assets contributing six basis points to net interest margin.

Brian D. Doubles: <unk> of $878 million in the fourth quarter were 349% of average loan receivables a reduction of $165 million versus the prior year, reflecting higher net charge offs, partially offset by higher net interest income.

Brian D. Doubles: Provision for credit losses increased to $1 8 billion, reflecting higher net charge offs and a $402 million reserve builds which largely reflected the growth in loan receivables.

Brian: Provision for credit losses increased to $1.8 billion, reflecting higher net charge-offs and a $402 million reserve bill, which largely reflected the growth in loan receivables. Other expenses grew 14% to $1.3 billion. The increase primarily reflected growth-related items, as we continue to see strong growth in volumes, as well as a return of operational losses to pre-pandemic average levels as a percent of our purchase volume. Expenses in the quarter also included several notable items, including $43 million in employee costs related to a voluntary early retirement program.

Brian D. Doubles: Other expenses grew 14% to $1 $3 billion.

Brian D. Doubles: The decrease primarily reflected growth related items as we continue to see strong growth in volumes as well as a return of operational losses to pre pandemic average levels as a percent of our purchase volume.

Expenses in the quarter also included several notable items, including $43 million and employee costs related to our voluntary early retirement program.

Brian D. Doubles: $9 million in real estate related restructuring charges as we continue to adjust our physical footprint in favor of a hybrid working environment.

Brian: $9 million in real estate-related restructuring charges as we continue to adjust our physical footprint in favor of a hybrid working environment, and $9 million for the FBIC's special assessment. $7 million of preparation expenses in anticipation of a potential late fee rule change and $5 million of transaction-related expenses related to the sale of Pets Best. Our efficiency ratio for the fourth quarter improved by approximately 120 basis points compared to last year to 36 percent. Excluding the impact of the notable items in the quarter, our efficiency ratio would have been approximately 200 basis points lower in the fourth quarter. All in, Synchrony generated earnings of $449, or $1.03 per diluted share.

Brian D. Doubles: $9 million for the FDIC special assessment seven.

Brian D. Doubles: $7 million of preparatory expenses in anticipation of a potential leafy rule change and $5 million of transaction related expenses related to the sale of pets best.

Brian D. Doubles: Our efficiency ratio for the fourth quarter improved by approximately 120 basis points compared to last year to 36% excluding the impact of the notable items in the quarter, our efficiency ratio would've been approximately 200 basis points lower than the fourth quarter.

Brian D. Doubles: All in synchrony generated net earnings of $440 million or $1 <unk> per diluted share.

Brian: A return on average assets of 1.5% and a return on tangible common equity of 14.7%. Next, I'll cover key credit trends on slide 10. Overall, we see consumers remaining resilient as they manage through inflation and higher interest rates. The external deposit data we monitor also supports this view, as it shows average savings account balances return closer to pre-pandemic levels during 2023 and remain relatively steady through the third and fourth quarters. At year end, average industry savings balances remain approximately 9% above levels from 2020. Our discipline through cycle underwriting and active credit management has positioned us well as we enter 2024. Our delinquency ratios finished the year slightly above average levels from 2017 to 2019 prior to the pandemic. At year end, our 30 plus delinquency rate was 4.74% compared to 3.65% in the prior year and 12 basis points above our average for the fourth quarters of 2017 to 2019.

Brian D. Doubles: Return on average assets of one 5% and return on tangible common equity of 14, 7%.

Brian D. Doubles: Next I'll cover our key credit trends on slide 10.

Brian D. Doubles: Overall, we see the consumer remaining resilient as we manage through inflation and higher interest rates.

Brian D. Doubles: The external deposit data. We monitor also supports this view as it shows average savings account balances return closer to pre pandemic levels during 2023 and remain relatively steady through the third and fourth quarters.

Brian D. Doubles: At year end average industry savings balances remained approximately 9% above levels from 2020.

Brian D. Doubles: Our disciplined through cycle underwriting and active credit management has positioned us well as we entered 2024.

Our delinquency ratios finished the year slightly above average levels from 2017 to 2019 prior to the pandemic.

Brian D. Doubles: At year end, our 30, plus delinquency rate was 474% compared to 365% in the prior year and 12 basis points above our average for the fourth quarters of 2017 to 2019.

Brian D. Doubles: Our 90, plus delinquency rate was $2, two 8% versus 169% last year and four basis points above our average for the fourth quarters of 2017 to 2019.

Brian: Our 90 plus delinquency rate was 2.28 percent versus 1.69 percent last year and four basis points above our average for the fourth quarters of 2017 to 2019. And consistent with our expectations, Cincinnati's net charge-offs reached 5.58% in the fourth quarter, compared to 3.48% in the prior year and an average of 5.49% in the fourth quarters of 2017, 2018, and 2019.

Brian D. Doubles: And consistent with our expectations synchrony as net charge offs reached 558% in the fourth quarter compared to 348% in the prior year and an average of 549% in the fourth quarters of 2017 2018 in 2019.

Brian D. Doubles: We continue to monitor our portfolio and indolent actions as necessary to proactively position our business for 2024 and beyond.

Brian: We continue to monitor our portfolio and implement actions as necessary to proactively position our business for 2024 and beyond. Movie Theorizers allows for credit losses as a percent of loan receivables with 10.26%, down 14 basis points from 10.40% in the third quarter. The reserve bill of $402 million in the quarter was largely driven by receivables.

Brian D. Doubles: Moving to reserves our.

Brian D. Doubles: Our allowance for credit losses, as a percent of loan receivables was 10, 6% down 14 basis points from 10, 4% in the third quarter.

Brian D. Doubles: The reserve build of $402 million in the quarter was largely driven by receivables growth.

Brian: Turning to slide 12, Synchrony's data sheet continues to be a source of flexibility and strength. Our consumer bank offerings continued to resonate with customers in the fourth quarter, driving over $3 billion of growth in total deposits in the quarter, or 13% compared to the prior year. At quarter end, deposits represented 84% of our total funding, while Securitized Act funding comprised 7% and unsecured funding 9%. Total liquid assets and undrawn credit facilities were $19.8 billion, up $2.6 billion from last year, and a quarter end represented 16.8 percent of total assets, up 42 basis points from last year.

Brian D. Doubles: Turning to slide 12, simply as balance sheet continues to be a source of flexibility and strength, our consumer bank offerings continue to resonate with customers in the fourth quarter driving over $3 billion of growth in total deposits in the quarter or 13% compared to the prior year.

Brian D. Doubles: At quarter end deposits represented 84% of our total funding was securitized debt comprised 7% in unsecured funding 9%.

Brian D. Doubles: Total liquid assets and Undrawn credit facilities were $19 $8 billion of.

Brian D. Doubles: $2 $6 million from last year and at quarter end represented 16, 8% of total assets up 42 basis points from last year.

Brian D. Doubles: Moving onto our capital ratios.

Brian: Moving on to our capital ratio. As a reminder, we elected to take the benefit of the Cecil Transition Rules issued by the Joint Federal Banking Agency. Symphony will continue to make annual transitional adjustments to our regulatory capital metrics of approximately 50 basis points each January until 2025. The impact of CECL has already been recognized in our income statement and balance sheet.

Brian D. Doubles: As a reminder, we elected to take the benefit of the seasonal transition rules issued by the joint Federal banking agencies Symphony will continue to make its annual transitional adjustments to our regulatory capital metrics of approximately 50 basis points each January until 2025.

The impact of seasonal has already been recognized in our income statement and balance sheet.

Brian D. Doubles: Additionally, in the fourth quarter simply made a change to its balance sheet presentation of contractual amounts related to our retailer partner agreements at.

Brian: Additionally, in the fourth quarter, SIPRI made a change to its balance sheet presentation of contractual amounts related to our retailer-partner agreement. At year end, assets of approximately $500 million, which were previously classified as intangible assets, were reclassified to other assets, and prior periods were reclassified to conform to this presentation. This change in presentation had a corresponding impact on each of our regulatory capital metrics and resulted in an increase of approximately 50 basis points to our capital ratios in both the current and prior years. Under the Cecil transition rules, and including this balance sheet change, we ended the fourth quarter with a CET1 ratio of 12.2%, 110 basis points lower than last year's 13.3%. The tier one capital ratio was 12.9%, compared to 14.1% last year.

At year end assets of approximately $500 million.

Brian D. Doubles: Which were previously classified as intangible assets were reclassified to other assets in prior periods were reclassified to conform to this presentation.

Brian D. Doubles: This change in presentation had a corresponding impact each of our regulatory capital metrics. Our resulted in an increase of approximately 50 basis points, where capital ratios in both the current and prior years.

Brian D. Doubles: Under the seasonal transition rules and including this balance sheet change we ended the fourth quarter with a CET one ratio of 12, 2% 110 basis points lower than last year's 13, 3%.

Brian D. Doubles: The tier one capital ratio was 12, 9% compared to 14, 1% last year.

Brian D. Doubles: The total capital ratio decreased 60 basis points to 14, 9%.

Brian D. Doubles: And a tier one capital plus reserve ratio on a fully phased in basis decreased to 22, 1% compared to 22, 8% last year.

Brian: The total capital ratio decreased 60 basis points to 14.9%, and a tier one capital plus reserve ratio on a fully phased in basis decreased to 22.1% compared to 22.8% last year. During the fourth quarter, we returned $353 million to shareholders, consisting of $250 million of shareholder purchases and $103 million of common stock dividends. At the end of the quarter, we had $600 million remaining in our share of purchase authorization.

Brian D. Doubles: During the fourth quarter, we returned $353 million to shareholders.

Brian D. Doubles: This is a $250 million of share repurchases and $103 million of common stock dividends.

Brian D. Doubles: At the end of the quarter, we had $600 million remaining in our share repurchase authorization.

Brian D. Doubles: We remain well positioned to return capital to shareholders is guided by our business performance market conditions regulatory restrictions and subject to our capital plan.

We will also continue to seek opportunities to complete the development of our capital structure through the issuance of additional preferred stock as conditions allow.

Brian: We're in a good position to return capital to shareholders as guided by our business performance, market conditions, regulatory restrictions, and subject to our capital. We will also continue to seek opportunities to complete the development of our capital structure through the issuance of additional preferred stock as conditions allow. Humphrey remains committed to our capital allocation framework, which prioritizes investment in organic growth and payment of our regular dividends, followed by share of purchases and investments in inorganic growth opportunities where the rates of return meet or exceed that of our other potential uses of capital. To that end, as Brian mentioned, Synchrony announced the acquisition of the Ally Lending point of sale financing business, which we view as a great opportunity to expand our leadership position in the home improvement and health and wellness verticals while leveraging our industry expertise and scale to unlock and build greater value.

Brian D. Doubles: Thank you for your remains committed to our capital allocation framework, which prioritizes investment in organic growth and payment of our regular dividends.

Brian D. Doubles: Followed by share repurchases and investments in inorganic growth opportunities, where the rates of returns meet or exceed that of our other potential uses of capital.

And as Brian mentioned Symphony announced the acquisition of the ally lending point of sale financing business, which we view as a great opportunity to expand our leadership position in the home improvement and health and wellness verticals, while leveraging our industry expertise and scale to unlock greater value.

Brian D. Doubles: We've agreed to purchase approximately $2 $2 billion of loan receivables at a discount.

Brian D. Doubles: Upon closing the transaction and subject to the completion of purchase accounting, we expect our CET one ratio to be reduced by approximately 50 basis points inclusive of our vision for credit losses of approximately $200 million.

Brian: We've agreed to purchase approximately $2.2 billion of loan receivables at a discount. Upon closing of the transaction and subject to completion of purchase accounting, we expect our CQ1 ratio to be reduced by approximately 50 basis points, inclusive of a provision for credit losses of approximately $200 million relating to the initial reserve bill. Sakhrani expects this acquisition to be accretive to full-year 2024 earnings per share, excluding the impact of the initial reserve bill for credit loss. Upon integration of our business, conversion to our PRISM underwriting model, and execution of our strategy, we expect to achieve an attractive internal rate of return with approximately a three-and-a-half-year tangible book value earnback. Additionally, the sale of our Pets Best business will result in approximately $750 million gain net of tax in 2024, which will contribute to an approximately 80 basis point increase to our CT1 ratio inclusive of the capital required to be held on a minority interest in IPH. Excluding the gain on sale, we expect the transaction to be neutral to earnings.

Brian D. Doubles: Relating to initial reserve builds.

Brian D. Doubles: Synchrony expect this acquisition to be accretive to full year 2024 earnings per share excluding the impact of the initial reserve build for credit losses.

Brian D. Doubles: The integration of our business conversion to our prism underwriting model and execution of our strategy, we expect to achieve attractive internal rate of return with approximately three and a half year tangible book value earn back.

Brian D. Doubles: Additionally, the sale of our pets best business will result in approximately $750 million gain net of tax in 2024.

Brian D. Doubles: Which will contribute to an approximately 80 basis point increase to our CET one ratio inclusive of the capital required to be held on the minority interest in IP H.

Brian D. Doubles: Excluding the gain on sale, we expect the transaction to be neutral to earnings.

Brian D. Doubles: We're excited about the opportunities we have identified to continue to drive consistent growth and appropriate risk adjusted returns.

Brian D. Doubles: And have established a long track record of execution across both strategic and financial objectives.

Brian D. Doubles: During 2023, we drove strong growth in purchase volume, which combined with the payment re moderation to deliver solid growth in loan receivables.

Brian: We're excited about the opportunities we identified to continue to drive consistent growth and appropriate risk-adjusted return and have established a long track record of execution across both strategic and financial objectives. During 2023, we drove strong growth in purchase volume, which combined with payment rate moderation to deliver solid growth in loan receipts. We are opportunistic in funding that growth and continue to expand our deposit franchise and, in turn, deliver attractive and interesting products. Crater normalized in line with our expectations, and our RSA functioned as designed. And finally, we fulfilled our commitment to deliver positive operating leverage.

Brian D. Doubles: We were opportunistic in funding that growth and continue to expand our deposit franchise and in turn delivered attractive net interest income.

Brian D. Doubles: Normalized in line with our expectations and our RSA functioned as designed.

Brian D. Doubles: Finally, we fulfilled our commitment to deliver positive operating leverage.

Brian D. Doubles: Turning to slide 14, let's review our outlook for 2024.

Our baseline assumptions for this discussion include a stable macroeconomic environment full year GDP growth of approximately one 7%.

Brian D. Doubles: Our year end 2020 for unemployment rate of four 8%.

Brian D. Doubles: And an ending fed funds rate of 475% with cuts beginning in the second half of 2024.

Brian: Turning to slide 14, let's review our outlook for 2024. Our baseline assumptions for this discussion include a stable macroeconomic environment, full-year GDP growth of approximately 1.7 percent, a year-end 2024 unemployment rate of 4.0%, and an ending fed funds rate of 4.75% with cuts beginning in the second half of 2024.

Brian D. Doubles: This outlook also assumes the closing of our pets best and ally lending transactions in the first quarter of 2024, and given the uncertainty of timing and implementation of a potential final rule regarding late fees, we've not assumed any related impact to our 2024 financial outlook in the event that the final <unk> rule is.

Brian: This outlook also assumes the closing of our PetsBest and Ally Lending transactions in the first quarter of 2024, and given the uncertainty of timing and implementation of a potential final rule regarding late fees, we have not assumed any related impact on our 2024 financial outlook. In the event that a final late fee rule is published, we will provide an update with the associated impact on our financial guidance, starting with loan receivables. We expect our compelling value propositions and the broad utility of our products will continue to drive purchasing. We also expect payment rates to continue to moderate, although we anticipate they will remain above pre-pandemic levels through 2024. Together, these dynamics should deliver ending loan receivables growth of 6% to 8%. We expect full-year net interest income of $17.5 billion to $18.5 billion.

Brian D. Doubles: We will provide an update with the associated impact to our financial guidance.

Brian D. Doubles: Starting with loan receivables, we expect our compelling value propositions and the broad utility of our products will continue to drive purchase volume growth.

Brian D. Doubles: We also expect payment rates to continue to moderate although we anticipate they will remain above pre pandemic levels through 2024.

Brian D. Doubles: Together these dynamics should deliver ending loan receivables growth of 6% to 8%.

Brian D. Doubles: We expect full year net interest income of $17 5 billion to 18 of ethane.

Brian D. Doubles: Net interest income should follow typical seasonal trends through the year.

Brian D. Doubles: Rested for several impacts.

Brian D. Doubles: One higher interest bearing liabilities expense as our fixed rate debt re prices with higher benchmark rates.

Brian D. Doubles: Two the impact of competition for retail deposits and pace of deposit repricing once rate cuts begin.

Brian D. Doubles: Our expectation is for betas to trend near 30% as rates begin to decline later in the year, thereby reducing impact to interest expense during 2024.

Brian: Net interest income should follow typical seasonal trends through the year, adjusted for several impacts. One, higher interest-bearing liabilities expense as our fixed rate debt reprices with higher benchmark rates. Two, the impact of competition for retail deposits and the pace of deposit repricing once rate cuts begin. Our expectation is for beta to trend near 30% as rates begin to decline later in the year, thereby reducing the impact on interest expense during 2024. And three, interest and fee yield growth, partially offset by higher income reversal. We expect net charge-offs of 5.75% to 6% within our targeted underwriting range of 5.5% to 6%. Losses are expected to peak in the first half before returning to pre-pandemic seasonal trends following the normalization of delinquency metrics in 2023. We expect RSAs of 3.5% to 3.75% of average loan receivables for the full year.

Brian D. Doubles: And three interest and fee yield growth, partially offset by higher income reversals.

Brian D. Doubles: We expect net charge offs of 575% to 6% within our targeted underwriting range of five 5% to 6%.

Brian D. Doubles: Losses are expected to peak in the first half before returning to pre pandemic seasonal trends following the normalization of delinquency metrics in 2023.

Brian D. Doubles: We expect Rfps, a three 5% to 375% of average loan receivables for the full year.

Brian D. Doubles: This reflects the impact of continued credit normalization.

Higher interest expense and the mix of our loan receivables growth.

Brian D. Doubles: Partially offset by purchase volume growth.

Brian D. Doubles: The reduction in RSA demonstrates a functional design of the RSA and the continued alignment of our interest with partners.

Brian D. Doubles: And finally, we expect to reach an operating efficiency ratio of $32 five to 33, 5% for the year driven primarily by the optimization of our loan yields as credit normalization occurs.

Brian: This reflects the impact of continued credit normalization, higher interest expense, and the mix of our loan receivables growth, partially offset by purchase buying. The reduction in RSA demonstrates the functional design of the RSA and the continued alignment of our interests with partners. And finally, we expect to reach an operating efficiency ratio of 32.5% to 33.5% for the year, driven primarily by the optimization of our loan yields as credit normalization occurs. This outlook excludes the impact of the PetsBest gain on sale, which we recognize in other income.

Brian D. Doubles: This outlook excludes the impact of the <unk> gain on sale, which we recognized in other income.

Brian D. Doubles: We remain committed to delivering operating leverage for the full year and continuing to invest in our long term success of our business.

As demonstrated again this past year Synchroneyes purpose built business and financial model is performing as designed.

Brian D. Doubles: Through an evolving backdrop, our diversified portfolio of products and platforms continue to drive growth, our leading credit management ensures attractive risk adjusted returns. Our RSA provides a buffer against changes in economic performance in our stable balance sheet creates opportunity.

Brian D. Doubles: Taken together, our business continued to deliver value for each of our stakeholders in 2023 and positioned well for 2024.

Brian: We remain committed to delivering operating leverage for the full year and continue to invest in the long-term success of our business, as demonstrated again this past year. Sakhari's purpose-built business and financial model is performing as designed. Through an evolving backdrop, our diversified portfolio of products and platforms continues to drive growth. Our leading credit management ensures attractive risk-adjusted returns, our RSA provides a buffer against changes in economic performance, and our stable balance sheet creates opportunity. Taken together, our business continued to deliver value for each of our stakeholders in 2023 and is positioned well for 2024. I'll now turn the call back over to Brian for his closing thoughts. Thanks, Brian.

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

Brian: Thanks, Brian Synchrony.

Brian: Synchrony delivered another strong performance in 2023, we executed on key strategic priorities that expand the breadth and depth of our customer acquisition and engagement.

Brian: Further diversify the products services and value we provide.

Brian: And enhance the quality of the experiences with power for our customers partners providers and merchants.

Brian: This focus on deepening our core strengths, while continuing to evolve with the ever changing world of Commerce has enabled synchrony to deliver strong financial results and returns to our shareholders. While also preparing our business for the future.

Brian: We are confident in our ability to continue to sustainably grow and deliver a resilient risk adjusted returns over time.

Brian: Synchrony delivered another strong performance in 2023. We executed on key strategic priorities that expanded the breadth and depth of our customer acquisition and engagement, further diversify the product services and value we provide, and enhance the quality of the experiences we power for our customers, partners, providers, and merchants. This focus on deepening our core strengths while continuing to evolve with the ever-changing world of commerce has enabled Synchrony to deliver strong financial results and returns to our shareholders while also preparing our business for the future. We are confident in our ability to continue to sustainably grow and deliver resilient risk-adjusted returns over time and are excited about both the near and longer-term opportunities we see ahead to deliver still greater value for our many stakeholders. With that, I'll turn the call back to Catherine to open the Q&A.

Brian: And are excited about both the near and longer term opportunities. We see ahead to deliver still greater value for our many stakeholders.

Brian: With that I'll turn the call back to Catherine to open the Q&A.

Catherine: That concludes our prepared remarks, we will now begin the Q&A session. So that we can accommodate as many of you as possible I'd like to ask the participants to please limit yourself to one primary and one follow up question.

Catherine: If you have additional questions the investor relations team will be available after the call.

Catherine: Operator, please start the Q&A session.

Catherine: At this time, if you would like to ask a question. Please press star one on your telephone keypad.

Catherine: You may remove yourself from the queue by pressing star two.

Catherine: As a reminder, please limit yourself to one primary question and one.

Catherine: Follow up question.

Speaker Change: We'll take our first question from Terry MA with Barclays. Please go ahead.

Terry MA: Thanks. Good morning can you maybe just talk about the cadence we should expect for delinquencies in 2024.

Catherine Miller: That concludes our prepared remarks. We will now begin the Q&A session. So that we can accommodate as many of you as possible, I'd like to ask the participants to please limit themselves to one primary and one follow-up question. If you have additional questions, the Investor Relations team will be available after the call. Operator, please start the Q&A session. At this time, if you would like to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star 2.

Terry MA: The fourth quarter first quarter, we try to peak delinquencies and then as we look forward to 2025 can you maybe just talk about your confidence level that you will stay within this net charge off range of $5, 75% to 6%.

Speaker Change: Sure. Thanks Terry.

Speaker Change: When we look at our delinquency formation and really in the fourth quarter.

Speaker Change: First I think you have to recognize we normalize slower than all of our peers, which is partially attributable to the fact that we didn't really adjust the credit box during the pandemic.

Catherine Miller: As a reminder, please limit yourself to one primary question and one follow-up question. We'll take our first question from Terry Ma with Barclays. Please go ahead. Thanks. Good morning.

Speaker Change: Our advanced underwriting to prism, which we invested heavily in since 2017 and the data elements. We bring in so that really helped the formation as we exit out of.

Terry MA: Can you maybe just talk about the cadence we should expect for delinquencies in 2024? Should the fourth quarter or first quarter be kind of peak delinquencies? And then, you know, as we look forward to 2025, can you maybe just talk about your confidence level that you'll stay within this net charge-off range of 5.75 to 6%? Sure, thanks, Terry.

Speaker Change: Exit out of 2023. It is important to note that when you look at both the 30 plus in the 90 plus delinquency rate.

Speaker Change: That is in the fourth quarter, there are only 12 basis points and four basis points, respectively over the three year average.

Speaker Change: From 2017 to 2019, so and then when I look at the mix of credit that sit in delinquency today.

Speaker Change: You know, when we look at our delinquency formation, and really in the fourth quarter, you know, first, I think you have to recognize that we normalize slower than all of our peers, which is partially attributable to the fact that we didn't really adjust the credit box during the pandemic. Our advanced underwriting tool, Prism, which we invested heavily in since 2017, and the data elements we bring in. So that really helped the formation as we exit out of. It's important to note that when you look at both the 30-plus and the 90-plus delinquency rate that is in the fourth quarter, there are only 12 basis points and four basis points, respectively, over the three-year average from 2017 to 2019. And then when I look at the mix of credit that sits in delinquency today, it's substantially similar to that of the 2019 credit

Speaker Change: It's substantially similar to that of the 2019 credit mix. So when I look at that and then look a little bit at the trending Terry.

Speaker Change: In performance delinquency when you look at it.

Speaker Change: <unk> of the growth.

Month on month year over year, and 30, plus 90, plus has not shown deterioration has been very consistent in a range between 190 basis points and 116 basis points. Each month 90, plus has been between 55 and 63, so it's been very consistent.

Speaker Change: Relative to the seasonality has been generally in line so as I look at those factors.

Speaker Change: As we can't address entry rate continues to be better than 2018, So now as I roll that forward, what we expect from a charge off perspective that your first half charge offs.

Speaker Change: So when I look at that, I then look a little bit at the trending, Terry, and performance of delinquency. When you look at it, you know, the consistency of the growth month-on-month, year-over-year in 30-plus and 90-plus has not shown any deterioration. It's been very consistent, a range between 109 basis points and 116 basis points each month. 90-plus has been between 55 and 63.

We are going to be higher in the first half lower in the second half and Shouldnt give U a E.

Speaker Change: A range of $5 75 to six for the year. So inside of our underwriting target again recall that we did take a.

Speaker Change: Actions in the second quarter, the third quarter, which we outlined those are beginning to see that and you should see the effects of those beginning into.

Speaker Change: Delinquencies here in the first half of.

Speaker Change: 2024, so with that we feel good about where credit is.

Speaker Change: So it's been very consistent. Relative to seasonality, it's been generally in line. So I look at those factors as we kind of enter. The entry rate continues to be better than in 2019. So now as I roll that forward, what we expect from a charge-off perspective is that your first-half charge-offs are going to be higher in the first half, lower in the second half, and should give you a range of 5.75 to 6% for the year, so inside of our underwriting target. Again, recall that we did take actions in the second quarter and third quarter, which we outlined. These are beginning to see, and you should see the effects of those beginning to affect delinquencies here in the first half of. So, with that, you know, we feel good about where credit is. We'll continue to monitor the trends in credit, what's rolling in, but the positive entry rate, which has a fairly negative effect on the float to loss, but that positive entry rate is really encouraging for us as we enter the year. Thank you

Speaker Change: We will continue to monitor the trends in credit what's rolling in but the positive entry rate, which has a slightly negative effect on the float to loss, but but that positive initial rate is really encouraging for us as we enter the year.

Got it. Thank you and then my follow ups on just the NIM and NII guide it looks like you assumed about two rate cuts can you maybe just talk about.

Speaker Change: And what we should expect if we get more than kind of two rate cuts for the year.

Speaker Change: Yes. Thanks for that question, if I look at what we're projecting we actually had three rate cuts really beginning in September of.

Speaker Change: 2020 for going through the end of the year, which.

I'll hit the point on betas, it's 30%. So if you think about having.

Speaker Change: Having rate cuts that late in the year digital banks generally lag about 30 to 30 to 90 days with regard to when they start to move rates.

Speaker Change: And then you also have to take into consideration. The fact that it's in the fourth quarter when you want to maintain.

Speaker Change: And then my follow-up on just the NIM and NII guide, looks like you assumed about two rate cuts. Can you maybe just talk about what we should expect if we get more than two rate cuts for the year? Yeah, thanks for that question, Terry. If I look at what we're projecting, we actually have three rate cuts, really beginning in September of, you know, 2024, going through the end of the year, which, you know, I hit the point on beta is it's 30%. So if you think about having rate cuts that late in the year, digital banks generally lag about 30 to, you know, 30 to 90 days with regard to when they start to move rates. And then you also have to take into consideration the fact that in the fourth quarter, when you want to maintain a higher level of financing to fund seasonal growth. So that's why the beta is a little bit lower. If you were to get rate increases, or either more than that early in the year, you would, in theory, get some benefit to the manager's margin and lower interest on interest-bearing liabilities. I got it.

Speaker Change: The higher level of financing.

Speaker Change: To fund seasonal growth. So that's why the data is a little bit lower if you were to yet.

Speaker Change: Rate increases are either more than that early in the year you would you would get in theory.

Speaker Change: Benefit onto onto the manager's margin and lower interest on but.

Speaker Change: Interest bearing liabilities.

Speaker Change: Got it thank you.

Speaker Change: Thanks, Doug.

Speaker Change: Our next question comes from Rick Shane with Jpmorgan. Please go ahead.

Richard B. Shane: Thanks, everybody for taking my questions. This morning.

Richard B. Shane: Really just wanted to talk a little bit about the relationship between <unk> and RSA.

Richard B. Shane: When we look at the 24 guidance.

Richard B. Shane: 24 guidance from an NGL perspective, basically puts you at the higher end, but within the range of NCO targets.

Richard B. Shane: RSA looks a little bit lower than what we would've seen on a pre pandemic basis and I'm, assuming that's really not a function of credit, but more a function of interest rates and as we look forward.

Speaker Change: Thank you. Thanks, Terry. Our next question comes from Rick Shane with J.P. Morgan. Please go ahead.

If we assume net charge offs wind up in that five 5% to 6% target range, but interest rates start to come down we'll be RSA trend back up I, just wanted to sort of get a sense of what we should be looking at in a normal environment for that RFA ratio.

Richard B. Shane: Thank you everybody for taking my questions this morning. I really just want to talk a little bit about the relationship between NCOs and RSA when we look at the 24 guidance. 24 guidance from an NCO perspective basically puts you at the higher end but within the range of NCO targets. RSA looks a little bit lower than what we would have seen on a pre-pandemic basis, and I'm assuming that's really not a function of credit but more a function of interest rates. And as we look forward, if we assume net charge-offs wind up in that five and a half to six percent target I just want to sort of get a sense of what we should be looking at in a normal environment for that RSA ratio.

Speaker Change: Sure. Thank you Rick you know the first thing I'm going again continue to point you to page.

Speaker Change: Four of our materials this morning, which shows.

Speaker Change: The risk adjusted return and really the relationship between Ncos in RSA will generally trend in line with each other EUR right as you think about 2024.

You see some lift continuing on and its hard to offline, which pulls Baxter. The RSA you continue to get headwinds as the interest bearing liabilities will reset we have 92% of our Cds will reset in 2024, 74% of our debt will be.

Speaker Change: Sure. Thank you, Rick. You know, the first thing I'm going to continue to point you to page four of our materials this morning, which shows, you know, the risk-adjusted return and really the relationship between NCOs and RSA, which generally trend in line with each other. You are right. As you think about 2024, you do see some lift continuing on the net charge-off line, which pulls back through the RSA. However, you continue to get headwinds as the interest-bearing liabilities will reset. You know, 92% of our, you know, CDs will reset in 2024. 74% of our debt will reset in 2024.

Speaker Change: Set in 2024, so youre going to have a full year effect of the rate increases that we've seen in 2022 and 2023 flow through the book and again, we're expecting I think in the guidance, we said listen payment rate does not get back to pre pandemic levels. So you're not getting the full interest and fee yield going back through yet.

Speaker Change: Interest bearing liabilities, which will in theory benefit the company through a low RSA to the extent that that.

Speaker Change: Interest bearing liabilities comes down faster through other research you would see in.

Speaker Change: So you're going to have a full-year effect of the rate increases that we've seen in 2022 and 2023 flowing through the book. And again, we're expecting, I think in the guides, we said, listen, payment rates do not get back to pre-pandemic levels. So you're not getting the interest and fee yields going back through.

Speaker Change: An increase to the RSA.

Speaker Change: Great. That's it for me Thank you guys.

Speaker Change: Thanks, Rick Thanks, Rick.

Our next question comes from Ryan <unk> with Goldman Sachs. Please go ahead.

Good morning, guys.

Ryan: Good morning, Ron.

Ryan: And maybe as a follow up to the first question I just wanted to flesh out the NII and NIM guide a little bit more can you maybe just talk about one what gets us to the bottom end of the range to the top of the range I would say, it's a pretty wide range and maybe just explain a little bit further what is the 30% beta is at a point to point is that the downside I tried to make sure we fully understand that.

Speaker Change: You have higher interest-bearing liabilities, which will, in theory, benefit the company through a low RSA. To the extent that interest-bearing liabilities come down faster through other resets, you would see an increase in the RSA. Great. That's it for me.

Speaker Change: Thank you guys. Thanks, Rick. Thanks, Rick. Have a good day. Our next question comes from Ryan Nash with Goldman Sachs. Please go ahead.

Ryan: And lastly, just given that you were liability sensitive on the way up do you still see a path to a 16% NIM and over what timeframe. Thanks.

Ryan M. Nash: All right, guys. Ryan, maybe as a follow-up to the first question, I just wanted to flesh out the NII and NIM guide a little bit more. Can you maybe just talk about, one, what gets us to the bottom end of the range, to the top of the range? Obviously, it's a pretty wide range, and maybe just explain a little bit further what the 30% beta is. Is that a point-

Speaker Change: Yes. Thanks, Thanks for the question, Brian So let me, let me deal with the beta comment first so when you think about <unk>. This is really the beta in year for really effectively the end of the year.

Speaker Change: I think as you think about betas over a longer period of time, So think about what you would see any rate declined cycle here.

Speaker Change: I would not expect a beta one we didn't get one on the way up so we didn't get one on the way down when you look at our our book of a portfolio of liabilities we were 80.

Ryan M. Nash: Is that a downside? I just want to make sure we fully understand that. And lastly, just given that you were liability-sensitive on the way up, do you still see a path to a 16% NIM, and over what time frame? Yeah, thanks for the question, Brian. So let me deal with the beta comment first.

Speaker Change: Approximately 80%.

Speaker Change: Beta on savings, 90% beta on on Cds, I would expect that over that cycle coming down so over time youre going to see it kind of probably mirror the way it went up.

Speaker Change: It will mirror on the way down so thats, how I would think about.

Speaker Change: So when you think about beta, this is really the beta in the year for really effectively the end of the year. I think if you think about betas over a longer period of time, think about what you would see in a rate decline cycle here. I would not expect a beta of one; we didn't get one on the way up, so we wouldn't get one on the way down. You know, when you look at our book on our portfolio of liabilities, we were 80, approximately 80% beta on savings, and 90% beta on CDs. I would expect that over that cycle coming down. So over time, you're going to see it kind of probably mirror the way it went up. It will mirror itself on the way down.

Speaker Change: Betas over the over the longer term.

Speaker Change: When you think about the net interest income.

Speaker Change: Question here becomes what is the assumption that if you go we have three rate cuts in the.

Speaker Change: The market has six somehow as early as March so most certainly of interest bearing liabilities.

Speaker Change: Starts earlier in this greater rate declines that could push you.

Speaker Change: Dollars up.

Speaker Change: Conversely, if rates don't get cut off it could push you a little bit lower and the big other factor is going to come through here is going to be with his team and they continue to do we have been.

Speaker Change: Conservative I think on pain, right, saying it doesn't get back to pre pandemic levels I think it's been slower than our anticipated decline. During 2023. So those are generally the moving pieces as I think how you decide between the range of 17 five to $18 five.

Speaker Change: So that's how I would think about betas over the longer term. When you think about the net interest income, you know, the question here becomes, you know, what assumptions are there? If you go, we have three rate cuts in, the market has six, you know, some have as early as March. So most certainly, if interest-bearing liabilities start earlier and there's greater rate declines, that could push your NII dollars up. Conversely, if rates don't get cut off, it could push you a little bit lower. And the big other factor that's going to come through here is going to be what this payment rate continues to do. We have been conservative, I think, on payment rates saying it doesn't get back to pre-pandemic levels. I think it's been slower than our anticipated decline here in 2023.

Got it.

Speaker Change: Maybe as a as a follow up on credit you talked about starting to see delinquencies follow a more normal pattern than <unk>.

Also charge offs, peaking by the second quarter, Brian if your outlook prove.

Speaker Change: To be correct.

Speaker Change: When do we start to see the allowance coming down when does it peak can come down and maybe just help us understand the potential magnitude that it could come down over the course of the year. Thank you.

Speaker Change: Yes, so we're entering the year at $10 26 on a coverage rate basis.

Speaker Change: I would expect in the first quarter Youre going to see a rise in normally seasonally rise as your receivables go down number one number.

Speaker Change: <unk> of just under $200 million of around $200 million for.

Speaker Change: So those are generally the moving pieces that I think you would slide between the range of 17.5 to 18.5. Got it, and maybe as a follow-up on credit, you talked about starting to see delinquencies follow more normal patterns and also charges peaking by the second quarter. You know, Brian, if your outlook proves to be correct, when do we start to see the allowance coming down? When does it peak and come down, and maybe just help us I would expect, you know, in the first quarter, you're going to see a rise, a normally seasonal rise as your receivables go down, number one. Is it just under $200 million or around $200 million for the LA lending portfolio that we bring over? There will be some on the purchase of the county market that will increase that coverage a little bit as well. It doesn't go through the P&L.

Speaker Change: Ally lending portfolio that we bring over.

Speaker Change: There will be some on the purchase accounting Mark that will increase that covers a little bit as well it doesn't go through the P&L.

Speaker Change: So youre going to see a rise really in the first quarter Claude seasonally we anticipate that it will be lower than the $10 26, as we exit out of $2 24, So you're primarily going to see growth builds as we move throughout the year, but you will see rate declines.

Speaker Change: Some of the <unk> burn off.

Speaker Change: Or get realized.

Speaker Change: And again, if credit performs as we think it would be you'd be exiting down.

Speaker Change: Towards the bid day, one we won't be at day, one most certainly in 2024, but trending downwards as we move through the.

Speaker Change: Of the year.

Speaker Change: Thanks for the color Brian.

Speaker Change: Thanks, Brian.

Speaker Change: Our next question comes from Moshe Orenbuch with TD Cowen. Please go ahead.

Moshe Ari Orenbuch: Great. Thanks, I know that.

Moshe Ari Orenbuch: Your guidance doesn't.

Moshe Ari Orenbuch: Contemplate the late fee ruling yet because it hasn't been issued but maybe could you mention that you spent $7 million kind of a preparation could you talk about the things that you are doing.

Speaker Change: So you're going to see a rise really in the first quarter, called seasonalally. But we anticipate that it will be lower than 1026 as we exit out of 1024. So you're primarily going to see growth build as we move throughout the year, but you will see rate declines, you know, some of the QAs burn off or get realized. And again, if credit performs as we think it would be exiting down towards day one, we won't be at day one, most certainly in 2024, but trending downwards as we move through the year. Thanks for the call, Brian.

Moshe Orenbuch: In preparation and.

Moshe Orenbuch: Any updated thoughts you have on the fact that we're sitting here kind of in the.

Towards the end of January and haven't heard anything yet from HCA.

Speaker Change: Yeah sure Moshe I'll start on US were obviously still waiting for the final rule to be issued but.

Speaker Change: With that said, while there is still some unknowns in terms of the implementation period and other things that we will see in the final rule. We've been working on this for almost a full year now at this point.

Speaker Change: It's very complicated our teams have done a lot of work in preparation for this.

Speaker Change: We spent a lot of time with our partners.

Speaker Change: We've agreed on pricing actions and offsets that we would deploy.

Speaker Change: When we see the final rule. So it's really all the work that has been going on over the past year. I mean, it systems were you got have to issue a lot of Cit's change in terms and so it's really that kind of that kind of stuff I will say that.

Speaker Change: Thanks, Ryan. Our next question comes from Moshe Orenbuch with TD Callen. Please go ahead.

Moshe Ari Orenbuch: Great, thanks. I know that your guidance doesn't contemplate the late fee ruling yet because it hasn't been issued, but maybe, could you? You did mention that you spent $7 million kind of in preparation. Could you talk about the things that you are doing in preparation and, you know, kind of any updated thoughts you have on the fact that we're sitting here kind of towards the end of January and haven't heard anything yet from the CFPB? Yeah, sure, Moshe.

Speaker Change: The conversations with our partners have been very constructive they fully recognize that without these offsets that a meaningful portion of their customers that.

Speaker Change: We approved today and that we underwrite and give credit to.

I would no longer have access to credit and that's something clearly we do not want they do not want.

Speaker Change: So really no change to what we said in the past our goal is to protect our partners fully offset the impact of a final rule when it does come and we want to continue to provide credit to the customers that we do today.

Speaker Change: I'll start on this. You know, we're obviously still waiting for the final rule to be issued. But, you know, with that said, while there's still some unknown in terms of the implementation period and other things that we'll see in the final rule, you know, we've been working on this for almost a full year now at this point. It's very complicated. Our teams have done a lot of work in preparation for this, and we've spent a lot of time with our partners. We've agreed on pricing actions and offsets that we would deploy. Negre swordsman, Melissa Arcani, and I mean it systems work you got if the issue a lot of CIT is changing terms, and so it's really that kind of that kind of stuff. You know, the conversations with our partners have been very constructive. You know, they fully recognize that without these offsets, a meaningful portion of their customers that we approve today and that we underwrite and give credit to would no longer have access to credit. And that's something clearly we do not want; they do not want.

Speaker Change: Great. Thanks, and then just as kind of as a second thought.

When you look at the different kind of verticals, obviously, you had strong growth.

Speaker Change: And in 2023.

Speaker Change: Couple of them at home and auto had been somewhat weaker, particularly as you get closer to year end as you look into 2020 for any changes in mix in terms of the growth anything that youre seeing or.

Speaker Change: Launches.

Product refreshes that are going to drive.

Speaker Change: And those various large.

Speaker Change: Yes, I think look generally we would continue to expect outsized growth in health and wellness.

Speaker Change: That's a platform, where we have accelerated investment in the past year or two.

Speaker Change: Seeing really good growth from our acquisition of Allegro credit.

It's a big market, we've got a leading position. This is this is dental that cosmetic great engagement partner network and so that's that's the platform will continue to invest in and we would expect to see.

Speaker Change: So really, there is no change to what we said in the past. Our goal is to protect our partners, and fully offset the impact of the final rule when it does come. And we want to continue to provide credit to the customers that we do today. Great, thanks.

Speaker Change: Growth there on the higher side relative to the other platforms.

Speaker Change: The other one I would mention is digital that's where we've got venmo, Verizon Paypal Amazon and so I think you'd continue to see some outsized growth there.

Speaker Change: And just as a kind of a second thought, when you look at the different, you know, kind of verticals, obviously, you had, you know, strong growth in 2023, you know, and a couple of them in home and auto were somewhat weaker, particularly as you get closer to year end. As you look into 2024, any changes in mix in terms of growth, anything that you're or, you know, launches and, and, you know, product refreshes that are going to drive, you know, in those various long-term, Yeah, I think I think, generally, we would continue to expect outsized growth in health and wellness. You know, that's a platform where we've accelerated investment in the past year or two. We're seeing really good growth from our acquisition of Allegro credit. It's a big market. We've got a leading position.

And then maybe a little bit softer in lifestyle in home and auto.

Speaker Change: Great I don't know, Brian if you'd add anything of that.

Brian: You'll see <unk> and digital will be above average diverse side value will be around company average, maybe a hair below and then youll see lifestyle and within the home and auto trend.

Brian: Particularly in the home with what we're seeing there is as lower foot traffic in the store and we see frequency not necessarily terribly now, but it's more transaction values our people are.

Brian: And they are buying a mattress to not buy in high end managers are buying a little bit lower so we would expect that trend to continue into the start of 2024.

Speaker Change: Great. Thanks very much.

Speaker Change: Thanks Moshe.

Speaker Change: Our next question comes from John Hecht with Jefferies. Please go ahead.

John Hecht: Good morning, and thanks for taking my questions guys.

John Hecht: Most of my questions have been asked and answered, but I guess one other question I have is I think we've had depleted recoveries.

Speaker Change: You know, this is dental, vet, cosmetic, great engagement, a partner network. And so that's, that's a platform we'll continue to invest in. And we would expect to see growth there on the higher side relative to the other platforms. The other one I would mention is digital. You know, that's where we've got Venmo, Verizon, PayPal, and Amazon, and so I think you'd continue to see some outsized growth there. And then maybe a little bit softer in lifestyle and home and auto. I don't know, Brian, if you've got anything to add. No, you'll see, as well as in digital, we're above average. Diverse side value will be around company average, maybe a hair below. And then you'll see my lifestyle.

Charge offs side part of that equation over the past couple of years I'm wondering Brian to what degree does.

John Hecht: Maybe a recovery and recoveries.

John Hecht: Impact the NCO guide.

John Hecht: Yes.

Speaker Change: Thanks for the question John and good morning, when we look at recoveries.

Speaker Change: We've done a couple of things really through the pandemic number one we made a strategic shift to in source our recovery operation. So we used to have a lot of it.

Speaker Change: Externally managed we brought an announced which effectively drove rate increases on the ultimate recoverability.

Speaker Change: <unk> written off so that was a positive as we move through you are right. When you look at it, particularly when youre doing some level of forward flow on a rate basis, that's down in your total charge offs were down but I think the swing that we had of being more efficient by in sourcing has helped to offset that so I think.

Brian: And listen, the home and auto trend, you know, particularly in the home, what we're seeing there is lower foot traffic in the store. And we see frequency not necessarily terribly down, but it's more transaction values. Our people are, you know, they're buying a mattress; they're not buying high-end mattresses; they're buying a little bit lower. So we would expect that trend to continue into the start of 2024. Thanks so much.

Speaker Change: On a relative percentage, it's been it's been flat most certainly it should rise.

Speaker Change: As we step out of 2023 for a couple of reasons number one you're right. We will get more volume just on the net charge off basis, and then if you do see an easing of of rates the cost of capital associated with people who purchase.

Brian: Thanks Moshe. Thanks Moshe. Our next question comes from John Hecht with Jeffries. Please go ahead.

Speaker Change: Written off paper should go down and Youll get better pricing in the market. So there's a number of different dynamics for us that it hasnt been much of an issue on our net charge offs and you'll probably exiting out of 24 may be provides a tailwind beyond.

John Hecht: Good morning, and thanks for taking my questions, guys. Most of my questions have been asked and answered, but I guess one of the questions I have is, you know, I think we've had depleted recoveries on the charge-off side, part of that equation, over the past couple years. I'm wondering, Brian, to what degree does maybe a recovery in recoveries impact the NCO guy? Yeah, you know, thanks for the question, John, and good morning. You know, when we look at recoveries, we've done a couple of things really well through the pandemic. Number one, we made a strategic shift to insource our recovery operations.

Speaker Change: Okay, and maybe kind of a higher level question.

Speaker Change: I think Brian I think you mentioned you still have non discretionary purchase versus discretionary purchase activity was consistent I'm wondering I mean, given inflation is stabilizing we've got student loan repayments turned back on are you seeing anything on the margin.

Brian: So we used to have a lot of it externally managed. We brought it in-house, which effectively drove rate increases on the ultimate recoverability of dollars written off. So that was a positive as we moved through. You are right, when you look at it, you know, particularly when you're doing some level of forward flow, on a rate basis, that's down, and your total charge-offs are down. But I think the swing that we had of being more efficient by insourcing has helped offset that. So I think on a relative percentage, it's been flat.

It would reflect changing consumer behavior or is it just sort of been steady as she goes given those changes in the macro.

Speaker Change: Yes.

Speaker Change: As we highlighted John what we're seeing is a little bit of a rotation out of some of travel into some of the other other items again that was a trend more in the fourth quarter, we would expect travel to ease.

Speaker Change: As you move into 'twenty.

Speaker Change: <unk> 2024, so that's the bigger said, we do not see the shift between discretionary and non discretionary we do not see a shift where the consumer is trying to really stretch dollars, we do see our transaction values down.

Brian: Most certainly, it should rise as we step out of 2023 for a couple of reasons. Number one, you're right, we'll get more volume just on a net charge-off basis. And then, if you do see an easing of rates, the cost of capital associated with people who purchase written-off paper should go down, and you'll get better pricing in the market.

And frequency up a little bit, which means that as the consumers making purchases.

Speaker Change: We're trying to be.

Speaker Change: Be efficient with the dollars, but not really really pulling back.

Brian: So there's a number of different dynamics for us that haven't been much of an issue on net charge-offs. And you're probably exiting out of 2024, maybe providing a tailwind beyond. Okay, and maybe kind of a higher level question.

Speaker Change: So as I look at it that I don't see big overwhelming trend I would tell you for the first 20 days in I always.

Speaker Change: Put that as a frame of reference sales have been a little bit softer.

Speaker Change: I think, Brian, I think you mentioned that non-discretionary versus discretionary purchase activity was consistent. I'm, I'm wondering, given inflation is stabilizing, we've got student loan repayment turned back on, are you seeing anything on the margin that would reflect changing consumer behavior, or has it just sort of been steady as she goes given those changes in the macro? Yeah, you know, as we highlighted, John, what we're seeing is a little bit of rotation out of some of the travel into some of the other items. Again, that was a trend more in the fourth quarter.

Speaker Change: <unk> had been expectations as we entered into 2024, but that's only 20 days of data.

Speaker Change: If I talk to some of our retail friends. They would tell you weather did play a factor as you had several states that have been cold and significant storms.

Speaker Change: But theres been lower foot traffic.

Generally across the board as we started 2024.

Speaker Change: Yes.

Speaker Change: Great I appreciate the color.

Speaker Change: Thanks, John Thanks, John.

Speaker Change: Our next question comes from Mihir Bhatia with Bank of America. Please go ahead.

Mihir Bhatia: Good morning, and thank you for taking my questions.

Mihir Bhatia: Maybe to start with I wanted to ask about portfolio renewals and just portfolio movements.

Mihir Bhatia: And I apologize the two part question, but firstly can you just remind us of your renewal cadence are there any large programs coming up for renewal in the next 24 months.

Brian: We would expect travel to ease as you move into 2024. So that's a bigger shift. But we do not see the shift between discretionary and non-discretionary spending.

Mihir Bhatia: And then second part is just we've gone through a period of credit normalization you still have the rig late fee rule outstanding. So I was wondering what the environment is like for renewals at Rfps. Currently as you talk to retailers retailers waiting for a little bit more sudden b R. J.

Brian: We do not see a shift where the consumer is trying to really stretch dollars. We do see our transaction values down and frequency up a little bit, which means that as the consumer is making purchases, they are trying to be efficient with the dollars, but not really pulling back. So as I look at that, I don't see big, overwhelming trends. I would tell you that for the first 20 days, and I always put that as a frame of reference, sales have been a little bit softer than expectations as we entered into 2024, but that's only 20 days of data. And if I talked to some of my retail friends, they would tell you weather did play a factor as you had several states that were cold and significant storms, but there's been lower foot traffic, you know, generally across the board as we started 2024. I appreciate the color.

Mihir Bhatia: J crew. This morning, you also buying the ally portfolio, but like what about the other big retail programs that you said.

Mihir Bhatia: Can you put your pipeline in context, maybe like what it looks like I, just put that into context for us relative to last year or a few years ago, our normal environment. Thanks.

Speaker Change: Yes, yes, so I would say.

Speaker Change: First I'll take the second part first which is late fees and how that's impacting the pipeline I do think it does make pricing new business, even renewals to some extent a little more challenging.

Brian: Thanks, John. Thanks, John. Have a good day. Our next question comes from Mahir Bhatia with Bank of America. Please go ahead. Good morning, and thank you for taking my questions.

Speaker Change: But we've been able to kind of work through that you mentioned J crew, we're excited to announce that new program.

Mahir Bhatia: Maybe to start with, I wanted to ask about portfolio renewals and just portfolio movements. And I apologize, it's a two-part question, but firstly, can you just remind us of your renewal cadence? Are there any large programs coming up for renewal here in the next 24 months? And then, secondly, we've gone through a period of credit normalization. You still have the rate late fee rule outstanding.

Speaker Change: But you've got to spend time, that's part of the negotiation right and Theres speculation there and there is some uncertainty and so you kind of got to try and cover.

Speaker Change: Cover yourself for those possible outcomes, which we believe we have done so it doesn't make I think pricing new business or renewals a little more challenging.

Speaker Change: I do think there'll be some clarity here.

Speaker Change: The next month or two and that will that will clear that up and make things a little bit.

Speaker Change: Earlier from that perspective, but it has influenced I think not only us but other market participants, it's a big part of the conversation once you get through.

Mahir Bhatia: So I was wondering what the environment is like for renewals and RFPs currently as you talk to retailers. Are retailers waiting for a little bit more certainty? Or, I mean, I know you announced J.Crew this morning.

Speaker Change: I think about the kind of the BD or the sales process.

Speaker Change: A lot about capabilities technology data analytics data share all those things, but then when you get to the financials, because it's a big part of the discussion Thats crept in there over the last 12 months just given the uncertainty.

Mahir Bhatia: You're also, you know, buying the Ally portfolio, but what about the other big, you know, retail programs that you sent? Like, can you put your pipeline in context, maybe like what it looks like, and just put that into context for us relative to last year or, you know, a few years ago or the normal environment? Thanks.

Speaker Change: The other thing just in terms of our pipeline for renewals the vast majority of our programs are out there 2026 and beyond.

Speaker Change: With that said, if we have an opportunity.

Speaker Change: Always if we have an opportunity to.

Speaker Change: Renew early and if there is something the partner wants to change in the deal or something we want to change.

Speaker Change: We'll get together and see if we can.

Speaker Change: Yeah, yeah. So I would say, you know, first, I'll take the second part first, which is late fees and how that's impacting the pipeline. I do think it does make pricing new business, even renewals, to some extent, a little more challenging, but we've been able to kind of work through that. You mentioned J.Crew.

Speaker Change: Kick the term out.

Speaker Change: A few years. So that's something we're always actively trying to work on with our partners.

Speaker Change: Yes, the only thing I'll answer it or just add that Youll see in February again, we will continue to update.

Speaker Change: The the revenue that's under contract in 2026 and beyond so expect that in February.

Speaker Change: Excellent. Thank you and then just switching gears in terms of the health of the consumer it sounds like.

Speaker Change: We're excited to announce that new program, but you have to spend time. That's part of the negotiation, right? And there's speculation there, and there's some uncertainty. And so you kind of have to try and cover yourself for those possible outcomes, which we believe we have done.

Speaker Change: Stable still feel pretty good about it so I was wondering about the underwriting Australia.

Speaker Change: Clearly soft landing is becoming more of a consensus view I know you are probably the big gyrations there but.

Speaker Change: But how are you feeling about that underwriting posture, maybe just talk about like what your standards look like today versus maybe one year ago or even 2019 is this like 2020 for like more of a normal year is there is it still a little on the tight side.

Speaker Change: So it does make, I think, pricing new business or renewals a little more challenging. You know, I do think there will be some clarity here in the next month or two, and that'll clear that up and make things a little bit easier from that perspective. But it has influenced, I think, not only us, but other market participants. You know, it's a big part of the conversation once you get through.

Speaker Change: Opportunity to loosen and drive growth.

Speaker Change: Any comments there.

Speaker Change: Yes, we're here.

Speaker Change: Again, it's gotten a lot of issues are in trouble as they try to underwrite growth in the 'twenty, one and 'twenty, two vintages, which people are paying the price for now.

Speaker Change: You know, the way I think about the kind of BD or the sales process, it's a lot about capabilities, technology, data analytics, data sharing, all those things. But then when you get to the financials, this is a big part of the discussion that's crept in there over the last 12 months, just given the uncertainty here at the €$. Kick the term out, you know, a few years.

<unk> growth mass I'll refer to it as losing standards and lower returns. So we're not going to use credit as a mirror growth lever for us.

Speaker Change: We are more prudent than we were a year ago.

Speaker Change: We've talked about we do idiosyncratic actions on partners and channels.

Speaker Change: Yeah.

Speaker Change: And it was every day, but most certainly we watch it every day and we took broader based actions both in <unk>, given the share consumer and what other people have done from an underwriting basis.

Speaker Change: So that's something we're always actively trying to work on with our partners. Yeah, the only thing I'll answer is, or just add, but you'll see in February again, we'll continue to update the revenue that's under contract in 2026 and beyond. So expect that in February.

Speaker Change: We were slightly encouraged in the fourth quarter as we've seen at the bureaus that other issuers have begun to take credit actions, which will benefit.

Speaker Change: Which will benefit the industry in the latter part of 2024, but but I think we're going to be where to be cautious as we move throughout the year, we're going to continue to watch the trends of the consumer again, we haven't seen the consumer stretch when we look at payment rates the payment rate movements.

Speaker Change: And then just switching gears, in terms of the health of the consumer, it sounds like, you know, stable, and still feel pretty good about it. So I was wondering about your underwriting posture here, you know, clearly soft landing is becoming more of a consensus view. I know you aren't prone to big gyrations there.

Speaker Change: By credit greater been relatively consistent and probably the biggest move has been in the $6 60 to $7 20 range.

Speaker Change: Then what you would see in a non prime person. So so again, we look at and say, Okay. I don't see the consumer stretching went from a spending standpoint and struggling we don't see the payment rate changing we're going to continue to watch the flow into delinquency again entry rate continues to be better than 2019, which again, the Florida lost its worst whenever.

Speaker Change: But how are you feeling about that underwriting posture? Maybe just talk about what your standards look like today versus maybe one year ago, or even 2019? Is this like 2024? Like more of a normal year?

Speaker Change: Is it still a little on the tight side and the opportunity to loosen and drive growth? Just any comments there? Here again, what's gotten a lot of issues or trouble is that they try to underwrite growth in the 21 and 22 vintages, which people are paying a price for now. Some refer to it as growth mass; some refer to it as loosened standards and lower returns. So we're not going to use credit as a mere growth lever for us. We are more prudent than we were a year ago. Again, we talked about, we do idiosyncratic actions on partners and channels. I don't want to say every day, but we certainly watch them every day.

Speaker Change: Our entry rate goes down.

Speaker Change: But we generally we're generally cautiously optimistic on credit.

Speaker Change: Which is reflected in the guide of <unk> 75 to six.

Speaker Change: Thank you.

Speaker Change: Thanks for that.

Speaker Change: Our next question comes from Sanjay <unk> with <unk>. Please go ahead.

Speaker Change: Okay.

Sanjay: Thanks, Good morning.

Sanjay: Brian doubles, you were pretty active on the transactions front towards the sale of the pet insurance business.

Brian: Part of the business and then the acquisition of the ally lending business could you just maybe it's a little bit more on sort of what drove those decisions and then what the pipeline for other deals look like I mean, I think there's one big fish at least out there in terms of our portfolio. So when you guys talk about what the positioning is there.

Speaker Change: We took broader-based actions both in 2Q and 3Q, given the shared consumer and what other people have done from an underwriting basis. We were slightly encouraged in the fourth quarter, as we've seen at the bureaus, that other issuers have begun to take credit actions, which will benefit the industry in the latter part of 2024. But I think we're going to be cautious as we move throughout the year. We're going to continue to watch the trends of the consumer. Again, we haven't seen the consumer stretch. When we look at payment rates, the payment rate movements by credit rate have been relatively consistent, and probably the biggest movement has been in the $660 to $720 range, which is higher than what you'd see in a non-prime person. So again, we look at it and say, okay, I don't see the consumer stretching from a spending standpoint and struggling. We don't see the payment rate changing.

Speaker Change: Yes, let me start with ally because thats the more the more recent of the two transactions I mean look I think we're super excited about this acquisition I think it's actually great for both companies and these are conversations that JV and I started back in the first half of 'twenty three.

Speaker Change: I think this wasn't a scale business for allied but on our side. This is absolutely a scale business. This is exactly the type of acquisition that we look for these are businesses and industries that we know really well.

Speaker Change: Obviously, you have a presence already in home improvement and health and wellness.

Speaker Change: In fact, as we got into this we realize that we serve some of the same partner so.

Speaker Change: I think about ally really just compliments and accelerates our current strategy.

Speaker Change: I also think that in.

Brian cover that <unk> got a very attractive financial profile of TPS accretive.

Speaker Change: Got a nice ROA that will be in line or maybe a little bit better than the company average, we get 2500, new merchants to get 500000, new customers. So there's really a lot to like here I mean, this is a nice bolt on acquisition for us.

Speaker Change: We're going to continue to watch the flow into delinquency. Again, entry rate continues to be better than 2019, and again, the flow to loss gets worse whenever entry rate goes down. But we're generally cautiously optimistic on credit, which is reflected in the guide of 575 to 6. Thank you. Thanks for having me back.

Speaker Change: That will be a nice add for both home and auto, but also health and wellness.

Speaker Change: And then pets best was really more opportunistic we werent, we werent looking to sell the pet insurance business, it's been a great business for us.

Speaker Change: We're obviously, creating a lot of value in a relatively short period of time.

Speaker Change: Our next question comes from Sanjay Sakhrani with KBW. Please go ahead. Thanks, good morning. Brian Doubles, you were pretty active on the transactions front with the sale of the pet insurance business and, you know, part of the business, and then the acquisition of the ally lending business. Could you just maybe give a little bit more on sort of what drove those decisions and then what the pipeline for other deals looks like? I mean, I think there's one big fish, at least out there in terms of a portfolio. So you just talk about what the positioning is there.

Speaker Change: We did a great job growing the business from 2019, we grew the person for us over five vacs.

Speaker Change: We took the business to.

Speaker Change: Famous number seven and number eight to the number four pet insurance provider in the U S.

Speaker Change: And when I pitch approached us.

Speaker Change: It is a great offer.

Speaker Change: Tough tough to turn it down it's over 10 <unk> our original investment.

Speaker Change: <unk> recorded a nice after tax gain but I think more importantly than that it allows us to stay invested in the pet space and do it with someone and a great partner like <unk> that has the scale that has the expertise and so we think there's not only a nice financial gain.

Brian: Yeah, let me, well, why don't I start with Ally because it's the more recent of the two transactions. I mean, look, I think we're super excited about this acquisition. I think it's actually great for both companies. These were conversations that J.B. and I started back in the first half of 23.

Speaker Change: But our long term strategic play here that will benefit us.

Speaker Change: So it's a nice way nice way to close out the year with two I think really great transactions.

Speaker Change: Other deals.

Speaker Change: What else is out there.

Brian: I think, you know, this wasn't a big business for Ally. But on our side, this is absolutely a big business. You know, this is exactly the type of acquisition that we look for. These are businesses and industries that we know really well.

Speaker Change: So I started at Walmart.

Speaker Change: Yes.

Saying, I ask or what else might be out there.

Speaker Change: One big portfolio out there right now.

Speaker Change: Yes look we got a lot on our plate I'd start with that we got to get both of these transactions close we failed to do in the first quarter.

Brian: We obviously have a presence already in home improvement and health and wellness. In fact, as we got into this, we realized that we serve some of the same partners. So, you know, as I think about Ally, it really just complements and accelerates our current strategy. I also think that, and Brian covered this, it's got a very attractive financial profile. It's EPS accretive, it's got a nice ROA that'll be in line or maybe a little bit better than the company average. We get 2,500 new merchants, we get 500,000 new customers, so there's really a lot to like here. I mean, this is a nice bolt-on acquisition for us and will be a nice add for both home and auto, but also health and wellness. And then, you know, Pets Best was really more of an opportunistic acquisition.

Speaker Change: We got a lot going on in 2024 for sure.

Speaker Change: With that said, we typically get invited into most rfps in this space and the.

Speaker Change: Things that are important to us haven't changed we look for good risk adjusted return we look for.

Speaker Change: We look for really good alignment with the partner I think thats, probably the most important thing, particularly when youre looking at large deals you've got to make sure that.

Speaker Change: Both partners like the deal in good times and bad times that our interests are aligned around marketing and credit and underwriting and really all aspects of the program. So.

Speaker Change: We will always be in the market for opportunities that fit that screen.

Speaker Change: Got it and then just one follow up.

Speaker Change: I guess, Brian Wenzel like in your reserve coverage what is <unk>.

Brian: You know, we weren't weren't looking to sell the pet insurance business. It's been a great business for us. We're obviously creating a lot of value in a relatively short period of time. We did a great job growing the business. You know, from 2019, we grew the Pets Enforce over 5x. You know, we took the business to number seven or number eight, to the number four pet insurance provider in the U.S., and when IPH approached us, it was a great offer. Tough to turn it down,

Brian J. Wenzel: For the year, what are you assuming for the unemployment rate specifically.

Speaker Change: The unemployment rate as we exited out of.

Speaker Change: 2024, 4%.

Speaker Change: Got it.

Speaker Change: Alright, great. Thank you.

Speaker Change: Thanks Sanjay.

Speaker Change: Our next question comes from Jeff Adelson with Morgan Stanley. Please go ahead.

Jeff Adelson: Hey, good morning, Thanks for taking my questions.

Jeff Adelson: Last year, you ended up seeing your loan growth comment about the initial expectations of that that kind of initial 8% to 10% I guess Im wondering if you think there is maybe some potential upside or similar set up this year.

Brian: It's over 10x our original investment. We'll record a nice after-tax gain, but I think more importantly than that, it allows us to stay invested in the pet space and do it with someone, a great partner like IPH, that has the scale and the expertise. And so we think there's not only a nice financial gain but a long-term strategic play here that will benefit us. So it's a nice way to close out the year with two, I think, really great transactions. Other bills. What else is out there? Sorry, Sanjay, one more? Say that again?

Jeff Adelson: And then more specifically could you talk a little bit more about the specific drivers that you see getting you to the low.

Jeff Adelson: Low end versus the high end of the range there in that six to eight inch.

Jeff Adelson: In terms of payment re consumer span new account growth and maybe even how additive do you think that this installment opportunity could be to your growth. It seems like you were maybe leaning in a little bit more here with the acquisition and the Prequalification loss share.

Sanjay Sakhrani: Yeah, you were saying, I asked, sir, what else might be out there? Oh, one big portfolio out there, I know. Yeah. Yeah, look, we've got a lot on our plate.

Speaker Change: Yes, when I look at the growth rate Jeff.

Sanjay Sakhrani: I'd start with that. You know, we got to get both of these transactions closed, which we hope to do in the first quarter. We've got a lot going on in 2024 for sure.

Speaker Change: What gets you to the lower end of the range is a couple of things potentially rate a softer consumer.

Sanjay Sakhrani: With that said, we typically get invited into most RFPs in this space, and the things that are important to us haven't changed. We look for a good risk-adjusted return. We look for really good alignment with the partner. I think that's probably the most important thing, particularly when you're looking at large deals. You've got to make sure that both partners like the deal in good times and bad times, that our interests are aligned around marketing, credit, underwriting, and really all aspects of the program. We'll always be in the market for opportunities that fit that screen. Got it. And just one follow-up question.

Speaker Change: The macroeconomic environment softens up number one number two.

Speaker Change: The rate remains more elevated than we anticipate youll be at.

Speaker Change: The loan yield could be at the lower end of that range.

If we.

Speaker Change: If the credit actions, we've taken to deliver more of a sales impact we expect again, it's not material in the hole that could put your low end of the range. Conversely, as you think about the high end of the range. It payer rates declined faster than we think number one.

Speaker Change: If you see the economy, maybe be a little bit more robust than what we're seeing and we gave you a GDP growth rate there, but it becomes a little more robust and we see spending elevate U.

Sanjay Sakhrani: I guess, Brian Wenzel, like, in your reserve coverage or for the year, what are you assuming for the unemployment rate, specifically? The unemployment rate as we exit out of 2024 is 4%. Got it. All right, great. Thank you. Thanks, Sanjay. Have a good day. Our next question comes from Jeff Adelson with Morgan Stanley. Please go ahead. Hey, good morning.

Speaker Change: You can see some more there with regard to see certainly the home specialty that's been a vertical inside of home and auto that has grown nicely for us will continue to grow nicely for us, it's really not going to move the company average. So it's a nice acquisition. The acquisition itself is not necessarily generally going to be material enough to move a lot of the.

Speaker Change: The underlying metrics you will get the bump day, one and will certainly it will grow as we as we create the synergies between our <unk>.

Speaker Change: Specialty platform in what's a very attractive ally lending point of sale point of sale platform. So the combination will grow a little bit faster, but it shouldnt move the overall needle of the company.

Jeff Adelson: Thanks for taking my question. Last year you ended up seeing your loan growth come in above the initial expectations of that, you know, that kind of initial 8 to 10 percent. I guess I'm wondering if you think there's maybe some potential upside or similar setup this year.

Speaker Change: Got it and just a follow up on the new expense ratio guide.

Speaker Change: I know in the past you've given more of a quarterly dollar amount.

Jeff Adelson: And then more specifically, could you talk a little bit more about the specific drivers that you see getting you to the low end versus the high end of the range there in that 6 to 8, you know, in terms of payment rate, consumer spend, new account growth, and maybe even how additive you think that this installment opportunity could be to your growth? It seems like, you know, you're maybe leaning in a little bit more here with the acquisition and the pre-qualification launch this year. Yeah, you know, when I look at the growth rate, Jeff, you know, what gets you to the lower end of the range is a couple of things, potentially, right? A softer consumer, right?

Speaker Change: It seems like you might be implying a pretty very low single digit type of expense growth next year is that right and where do you think youre kind of gaining some efficiencies from here as our marketing lower comp et cetera.

Speaker Change: Yes, so so first of all on the switch to really efficiency ratio Jeff.

I recall, a number of years ago, we were actually on efficiency ratio and that's why we guided the long term, we pivoted during the pandemic because of the implications to revenue.

Speaker Change: Because of the pain right dislocation that we saw so we're trying to be more helpful to you.

Jeff Adelson: The macroeconomic environment softens up, number one. Number two, the pay rate remains more elevated than we anticipate you'll be at the low end; you could be at the lower end of that range. If we, if the credit actions we've taken deliver more of a sales impact than we expect, and it's not material overall, that could put you lower in the range. Conversely, if you think about the high end of the range, if payment rates decline faster than we think, number one, if you see the economy maybe be a little bit more robust than what we're seeing on, you know, we gave you a GDP growth And we see spending elevate; you can see some more there. With regard to most certainly the home specialty, you know, that's been a vertical in size, a lot of home and auto that has grown nicely for us, will continue to grow nicely for it. It's really not going to move the company average, so it's a nice acquisition.

Speaker Change: Investors and analysts by go into dollars and now we're just really migrating back to where we should be from an efficiency ratio standpoint, and where the industry generally operates number one with regard to the.

Speaker Change: To the.

Speaker Change: Expense dollars, if I look at controllable dollars, so if I take operational losses.

Speaker Change: Can't control them, but take that out for one second.

Speaker Change: Remove marketing, which is more contractual for us based upon volume we are growing.

Speaker Change: <unk> expenses at a slower rate. So we're getting operating leverage inside the company. We made several investments as you saw in our notable items both on a voluntary early retirement program as well as some.

Speaker Change: Some smaller but again meaningful.

Speaker Change: Impacts to our facilities that will drive a benefit in 2024, so I think from a controllable expense standpoint.

Speaker Change: They're going to be you're going to see operating leverage when it comes to that with regard to operational losses, we've invested in some some incremental tools.

Speaker Change: The acquisition itself is not necessarily, generally going to be material enough to move a lot of the underlying metrics. You'll get the pop they want, and most certainly it will grow as we create the synergies between our home specialty platform and what's a very attractive ally lending point of sale platform. The combination will grow a little bit faster, but it shouldn't move the overall needle of the company.

Speaker Change: There is a new strategy, so we expect that.

That growth rate to really flatten out as you moved 23 to 24.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thanks, Jeff and good day.

Speaker Change: Our next question comes from John <unk> with Evercore ISI.

John Hecht: Good morning.

John Hecht: Just have a couple of follow ups on the late fee.

Speaker Change: And just to follow up on the new expense ratio guide. I know in the past, you've given more of a quarterly dollar amount. It seems like you might be implying a pretty, very low single-digit type expense growth next year. Is that right?

John Hecht: Topic.

John Hecht: So in terms of the offsets could you just remind us what it's likely to be the most material.

John Hecht: <unk> and offsetting the impact of the rate the incremental fees or the underlying interest rates.

Speaker Change: And you know, where do you think you're kind of gaining some some efficiencies from here in marketing, lower comp, etc. Yeah, so, first of all, on the switch to really efficiency ratio, Jeff. If you recall a number of years ago, we were actually on efficiency ratio, and that's what we got in the long term. We pivoted during the pandemic because of the implications on revenue because of the pain rate dislocation that we saw.

Youre dialing in and then.

John Hecht: Secondly, how can you talk about the competition for negotiating the offsets that you indicated that are in place how heavy in terms of the competition are there competitors out there willing to eat the cost and could you, possibly see any relationships move as a result of this.

Speaker Change: Yes, let me let me start with the second one first I think we're all on a level playing field here in terms of the new latex proposal. So as we're as we're in there trying to whether it's a renewal or new business.

Speaker Change: So we were trying to be more helpful to them. We're just really migrating back to where we should be from an efficiency ratio standpoint and where the industry generally operates, number one. With regard to the expense dollars, if I look at controllable dollars, so if I take operational losses out, again, we can control them, but take that out for one second, and you remove marketing, which is more contractual for us based upon volume. We are growing expenses at a slower rate, so we're gaining operating leverage inside the company. We've made several investments, as you saw in our notable items, both in a voluntary early retirement program, as well as some smaller, but again, meaningful investments. Nishib says he is currently budgeting a $2.3 million supply of medical appliance industries. Alas, Bank of America didn't repay his mortgage from last year.

Speaker Change: The impact is the same I think it all comes down to what is what is the issuers required rate of return what are the things that are important to them. So I don't see it changing the competitive dynamic much because it impacts us all equally it really depends on the type of portfolio, what's important to the partner or the sharing the alignment all of the things I talked.

Speaker Change: About.

Speaker Change: So I don't think it will have.

Speaker Change: I don't see it having a big impact there and particularly at the point at which we have some clarity here around the final rule.

And then I think it becomes even clearer in terms of what.

Speaker Change: In terms of what the Bacon.

Speaker Change: And Brian you talked a little bit about the.

Speaker Change: APR is.

Speaker Change: Fees, yes.

Brian: So obviously.

Speaker Change: Great, thank you. Thanks, Jeff. I'll be back.

Brian: John.

Brian: We have a.

Brian: We have a set of.

Speaker Change: Our next question comes from John Pancari with Evercore ISI. Morning, I just have a couple follow-ups on the late fee topic. I guess in terms of the offsets, can you just remind us what is likely to be the most material mechanism in offsetting the impact of the late fees? Is it incremental fees or the underlying interest rates that you're dialing in? And then, secondly, can you talk about the competition for negotiating the offsets that you indicated are in place? How heavy is it in terms of competition?

Brian: Our pricing strategy changes.

Brian: That will come through some of which come through with a faster cadence in 'twenty, four which will be fee oriented.

Brian: As well as some policy orientation, and then there'll be APR.

Brian: APR increases.

Brian: That build with some which you'll see in 2024, if the rule gets issued.

Mourning: Are there competitors out there willing to eat the cost? And could you possibly see any relationships move as a result? Yeah, let me start with the second one first. I think we're all on a level playing field here in terms of the new Lacey proposal. So as we're in there trying to, whether it's a renewal or new business, the impact is the same. I think it all comes down to what is the issuer's required rate of return. What are the things that are important to them?

Brian: And then build into 2025, so we'll be back if the rule does get issued.

Brian: We will come back and probably provide a little bit more color with regard to how to think about that in the context of 2020 for some of these will have a bigger short term impact from we have a bigger long term impact and so we will be in a position to provide a little more clarity when we have a final rule and we start to rollout some of these actions.

Speaker Change: Got it okay, great. Thank you and then secondly, just around your.

Mourning: So I don't see the competitive dynamic changing much because it impacts us all equally. It really depends on the type of portfolio, what's important to the partner, the sharing, the alignment, all the things I talked about. So I don't think it will have I don't see it having a big impact there. And, you know, particularly at the point at which we have some clarity here around a final rule, then I think it becomes even clearer in terms of what to bake in. And Brian, why don't you talk a little bit about the... Berardo?

Speaker Change: Purchase volume I appreciate the color you gave in terms of the drivers between the different verticals overall as you look at that 2024.

Speaker Change: What's your expectation for total card purchase volume or overall purchase volume as you look at the full year versus 2023, and the same for overall account growth.

Speaker Change: Yes.

Speaker Change: So I'd say we.

Speaker Change: We're not specifically guiding John on purchase volume, obviously, you've seen the.

Brian: Thank you very much. Have a good evening! Yeah, so, obviously, John, you know, we have a set of pricing strategy changes that will come through, some of which will come through with a faster cadence in 24, which will be fee-oriented, as well as some policy orientation. And then there'll be APR increases that build, with some of which you'll see in 2024 if the rule gets issued, and then build into 2025. So we'll be back, you know, if a rule does get issued, we'll come back and probably provide a little bit more color with regard to how to think about that in the context of 2024. Some of these will have a bigger short-term impact, some will have a bigger long-term impact, and so, you know, we'll be in a position to provide a little more clarity when we have the final rule and we start to roll out some of these actions.

Speaker Change: The rate of of asset growth decline from.

Speaker Change: From 'twenty three 'twenty four there was some impact last year really around that asset growth of.

<unk>.

Speaker Change: Stemming from payment rates declining, which again, we don't think it will have as big an impact in 2024, So I think youre going to see something generally consistent with probably last year I mean, a good benchmark is sit back and say, we do see GDP of one seven.

Speaker Change: We grow a multiple of that so again, probably generally consistent with the last year or two.

Speaker Change: You got to remember too our purchase volume of $185 billion for 2023 was a record high for this company. So we are facing.

Speaker Change: Comp as we move into 'twenty, four, but but again, we're proud of the sales platforms and the differentiation and diversification that's inside of those platforms.

Speaker Change: Got it. Okay, great. Thank you. And then secondly, just around your purchase volume, I appreciate the color you gave in terms of the drivers between the different verticals. Overall, as you're looking at 2024, what's your expectation for total card purchase volume or overall purchase volume as you look at the full year versus 2023? And the same for overall account growth?

Okay, great. Thank you.

Speaker Change: Thanks, John and good day.

Speaker Change: Our last question will come from Mark Devries with Deutsche Bank. Please go ahead.

Mark C. DeVries: Yes. Thanks.

Mark C. DeVries: Wanted to ask about your thoughts around preferred equity issuance.

Mark C. DeVries: Sure.

Speaker Change: Brian does that need to be additive to total capital levels or does it for you up to replace some of that where are returns from common talk a little bit about potential timing, what you kind of assume a market perspective and also how much you might look to issue.

Speaker Change: Thanks. Yeah, you know, so so I'd say, we're not specifically guiding John on purchase volume. Obviously, you've seen the, The rate of asset growth decline from 23 to 24, there was some impact last year really around that asset growth of of you know stemming from payment rates decline which again we don't think it will have as big an impact in 2024 so I think you're going to see something generally consistent with probably last year I mean a good benchmark is sit back and say we do see GDP at 1.7 we grow multiple that so again probably generally consistent with the last year to you know you got to remember too our purchase volume at 185 billion dollars for 2023 was a record high for this company so we are facing a difficult comp as we move into 24 but again we're proud of the sales platforms and the differentiation and diversification that's inside of those platforms.

Speaker Change: Yes. Thanks.

Brian: Thanks for the question Mark as we look at the capital stack, we fully developed our tier two.

Brian: We have about 75 basis points give or take of capacity in tier one.

Brian: Which puts the Max amount you probably can do.

Brian: Just to reach the target level for tier one of about 757 $700 million to $750 million.

Brian: Ultimately that you'd want to do we don't necessarily think of that relative to common equity is more as we wanted to develop.

Brian: Most certainly the most cost effective capital structure that we want.

Tommy which is going to depend upon market conditions, you know rates.

Speaker Change: Okay, great. Thank you. Thanks, John. Have a good day.

Brian: Throughout 2023 were incredibly high wasn't necessarily the best time to kind of ensure we'll look at.

Speaker Change: Thank you. Thank you. Our last question will come from Mark DeVries of Deutsche Bank. Please go ahead.

Mark C. DeVries: Thanks. I wanted to ask about your thoughts around preferred equity issuance for this year. Brian, does that need to be additive to total capital levels, or does it free you up to replace some of that or return some common? Talk a little bit about potential timing, what you need to see from a market perspective, and also how much you might look to issue. Yeah, you know, thanks for the question, Mark. You know, as we look at the capital stack, we've fully developed our tier two, we have about 75 basis points, give or take, of capacity in tier one, which puts the max amount you probably can do just to reach the target level for tier one of about 750, you know, 700 to $750 million, which is ultimately what you'd want to do.

You know how the markets develop in 2024, and whether or not there is.

Brian: Desired investor demand for the products and we'll also look at the structure of <unk>.

Brian: Whether or not that's a more retail oriented preferred stock or not so there's a number of different factors that go into it just really goes into how do I fully develop all the levels of the capital stack.

Brian: From a regulatory standpoint.

Okay, Great and then just a follow up on kind of your updated thoughts on plans for how to deploy the capital created by the pest us sell.

Speaker Change: Yes, I don't think I don't think our priorities change.

Speaker Change: We generated some capital in 'twenty three by making some adjustments, we'll spend about 50 basis points of capital on the Allied transaction will generate about 80 basis points on the pet's best.

Brian: We don't necessarily think of that relative to common equity, as we want to develop, most certainly the most cost-effective capital structure that we want, you know, the timing, which is going to depend upon, you know, market conditions, you know, rates, you know, throughout 2023 were incredibly high, wasn't necessarily the best time to kind of ensure we'll look at, you know, how the markets develop in 2024, and whether or not there And we'll also look at the structure of whether or not that's more retail oriented, preferring stock or not. So there's a number of different factors that are going to really go into how do I fully develop all the levels of the capital stack from a regulatory standpoint.

Speaker Change: Sell in net of the investment that we're taking back in IP. So I think that kind of goes in the pilot we will look to the priorities of organic growth number one maintain the dividend two and then three will look either share repurchases or if theres other.

Speaker Change: Inorganic opportunities again, I think we're very focused when it comes to inorganic opportunities. It has to be the right thing has to be priced incredibly.

Incredibly well, which we feel we got with ally.

Speaker Change: Lending and so we'll be prudent when it comes to deploying that capital, but again.

Speaker Change: Okay, great. And just to follow up on kind of your updated thoughts on plans for how to deploy the capital created by the Pets Pass sale. Yeah, I don't think our priorities will change. And, you know, we generated some capital in 23 by making some adjustments. We'll spend about 50 basis points of capital on the ally transaction, we'll generate about 80 basis points on the pets best. We will look to the priorities of organic growth number one, maintaining dividends number two, and then three, we'll look either at shareholder purchases or if there are other inorganic opportunities. Again, I think we're very focused when it comes to inorganic opportunities. It has to be the right thing, it has to be priced incredibly well, which we feel we got with Ally Lending, and so we'll be prudent when it comes to deploying that capital.

Speaker Change: We're not changing the strategy or the cadence because of the Pittsburgh transaction.

Speaker Change: Got it thank you.

Speaker Change: Thanks Mark.

Thanks.

Speaker Change: Thank you.

Okay.

Speaker Change: Thank you for your participation you may disconnect your lines at this time and have a wonderful.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: But again, we're not changing the strategy or the cadence because of the BetsBest transaction. Got it. Thank you. Thanks, Mark. Have a good day. Thank you. Thank you for your participation. You may disconnect your line at this time, and have a wonderful day, Smith, and and and and and and and and and and