Q1 2024 Synchrony Financial Earnings Call

Operator: 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.

By going to the Investor Relations section of the website.

Speaker Change: 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 web site.

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

Speaker Change: 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.

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

Operator: The only authorized webcasts are located on our website. On the call this morning are Brian Doubles, Synchrony's President and Chief Executive Officer, and Brian Wenzel, Executive Vice President and Chief Financial Officer. I will now turn the call over to Brian Doubles.

Speaker Change: The only authorized webcasts are located on our website.

Speaker Change: 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, Thanks, Catherine and good morning, everyone.

Brian D. Doubles: Thanks, Kathryn. Good morning, everyone. Today, Synchrony reported strong first-quarter results, including the successful completion of two previously announced transactions. The sale of our Pets Best Insurance business, which generated an $802 million after-tax gain in the quarter and will extend our reach in the rapidly growing pet industry through a minority interest in international pet holdings we received as part of that sale, and the acquisition of Ally Lending's $2.2 billion point-of-sale financing business, which will augment the existing offerings in our home and auto and health and wellness sales platforms.

Brian D. Doubles: Today's synchrony reported strong first quarter results, including the successful completion of two previously announced transactions the sale of our pets best insurance business, which generated an $802 million after tax gain in the quarter and we will extend our reach in the rapidly growing pet industry through a minority interest in international Pet Holdings, we received as part of that sale.

Brian Doubles: And the.

Brian Doubles: <unk> of ally lending $2 2 billion point of sale financing business, which will augment the existing offerings in our home and auto and health and wellness sales platforms.

Brian D. Doubles: Together, these transactions expand Synchrony's differentiated offerings in the market and strengthen our position as the partner of choice as we drive long-term value for our many stakeholders. Excluding the impact of the PetsBest gain on sale, Synchrony delivered adjusted first-quarter net earnings of $491 million, or $1.18 per diluted share, a return on average assets of 1.7%, and a return on tangible common equity of 16.8%. This performance highlights the resiliency of Synchrony's earnings power over time, as we deliver results while positioning the business for strong risk-adjusted growth ahead.

Brian Doubles: Together these transactions expand synchrony as differentiated offerings in the market and strengthen our position as the partner of choice as we drive long term value for our many stakeholders.

Brian Doubles: Excluding the impact of the pets best gain on sale Synchrony delivered adjusted first quarter net earnings of $491 million or $1 18 per diluted share a return on average assets of one 7% and our return on tangible common equity of 16, 8%.

Brian Doubles: This performance highlights the resiliency of synchrony as earnings power over time, as we deliver results while positioning the business for strong risk adjusted growth ahead.

Brian D. Doubles: Our differentiated model enables us to assess and react quickly through cycles and environments as our broad product suite, compelling value proposition, and Innovative Technology continue to resonate with both our consumers and partners. We opened 4.8 million new accounts in the first quarter and grew average active accounts by 3%.

Brian Doubles: Our differentiated model enables us to assess and react quickly through cycles and environments as our broad product suite compelling value propositions and innovative technology continue to resonate with both our consumers and partners.

Brian Doubles: We opened $4 8 million new accounts in the first quarter and grew average active accounts by 3%.

Brian D. Doubles: Our products and value propositions drove $42 billion in first quarter purchase volume, 2% above the prior year and our highest ever first quarter performance. Health and Wellness Purchase Volume increased 8%, led by Pet, Dental, and Cosmetic, and reflecting broad-based growth in active accounts. In terms of diversifying value, purchase volume increased 4%, driven by spend both at our partners and outside of our partners. Digital purchase volume increased 3%, reflecting continued consumer engagement through growth in average active accounts.

Brian Doubles: Our products and value propositions drove $42 billion in first quarter purchase volume, 2% above the prior year and our highest ever first quarter performance.

Brian Doubles: Health and wellness purchase volume increased 8% led by Pat dental and cosmetic and reflecting broad based growth in active accounts.

Brian Doubles: In diversified value purchase volume increased 4% driven by spend both at our partners and outside of our partners.

Brian Doubles: Digital purchase volume increased 3%, reflecting continued consumer engagement through growth in average active accounts in home and auto purchase volume decreased 3% as the strong growth in home specialty in auto network and the impact of the ally lending acquisition was offset by a combination of lower customer traffic fewer <unk>.

Brian D. Doubles: In home and auto, purchase volume decreased 3% as the strong growth in home specialty and auto networks and the impact of the Ally Lending acquisition was offset by a combination of lower customer traffic, fewer large ticket purchases, and lower gas prices. And in lifestyle, purchase volume decreased 4%, reflecting the impact of lower transaction values.

Brian Doubles: Large ticket purchases and lower gas prices and in lifestyle purchase volume decreased 4%, reflecting the impact of lower transaction values dual and co branded cards accounted for 42% of total purchase volume for the quarter and increased 6% as our value propositions continue to drive increased engagement and growth.

Brian D. Doubles: Dual and co-branded cards accounted for 42% of total purchase volume for the quarter and increased 6% as our value propositions continue to drive increased engagement and growth. Synchrony's out-of-partner spend reflects a comprehensive range of categories, industries, and products, and offers a deeper view into consumer behavior throughout the quarter. Spending in January was impacted by challenging weather conditions, as average transaction frequencies declined 4% versus the prior year.

Brian Doubles: Synchrony has other partners spend reflects a comprehensive range of categories industries and products.

Brian Doubles: And offers a deeper view into consumer behavior throughout the quarter.

Brian Doubles: Spending in January was impacted by challenging weather conditions as average transaction frequency has declined 4% versus the prior year.

Brian D. Doubles: In February and March, however, we saw a rebound, particularly in non-discretionary categories. Overall, consumers focused on more non-discretionary spend in the quarter and shifted out of certain discretionary categories like home furnishings, travel, and entertainment. Despite the change in mix, however, we continue to see broad-based growth in many discretionary and non-discretionary categories. Across the business, Synchrony continues to see indications that non-prime borrower spend has slowed, and our portfolio's purchase volume growth continues to be driven by higher credit-rate consumers.

In February and March However, we saw a rebound, particularly in non discretionary categories overall consumers focused on more non discretionary spend in the quarter and shifted out of certain discretionary categories like home furnishing traveling entertainment. Despite the change in mix. However, we continued to see broad based growth in many discretionary and non discretionary.

Brian Doubles: <unk>.

Brian Doubles: Across the business Synchrony continues to see indications that non prime borrower spend has slowed and our portfolio is purchase volume growth continues to be driven by higher credit grade consumers.

Brian D. Doubles: Average transaction values among superprime borrowers continue to increase, and similarly, we see average transaction frequency growth from our prime and superprime segments. These relative adjustments in consumer spend behavior generally reflect a financially healthy consumer who is continuing to become more selective in their purchases and align their cash flows, a trend which has also continued to take shape in Synchrony's credit performance. Portfolio payment rates continue to moderate and reach 15.8% for the first quarter, about 90 basis points lower than last year and about 60 basis points higher than the average payment rate level across our first quarters from 2015 to 2019.

Brian Doubles: Average transaction values among Super Prime borrowers continue to increase and similarly, we see average transaction frequency growth from our prime and Super Prime segments.

Brian Doubles: These relative adjustments in consumer spend behavior generally reflect a financially healthy consumer who is continuing to become more selective in their purchases and align their cash flows a trend which has also continued to take shape and synchrony is credit performance.

Brian Doubles: Portfolio payment rates continue to moderate and reached 15, 8% for the first quarter about 90 basis points lower than last year, and about 60 basis points higher than the average payment rate level across our first quarters from 2015 to 2019.

Brian D. Doubles: The relative pace of payment rate moderation has continued to slow from both a generational and credit grade perspective, which when combined with the spending trends we've observed reinforces our view that borrowers are generally reverting to spending and payment behaviors that are more consistent with pre-pandemic norms.

Brian Doubles: The relative pace of payment rate moderation has continued to slow from both a generational and credit grade perspective, which when combined with the spending trends. We've observed reinforces our view that borrowers are generally reverting to spending and payment behaviors that are more consistent with pre pandemic norms. These trends are also supported by a number of our other consume.

Brian D. Doubles: These trends are also supported by a number of our other consumer financial health indicators, including a strong labor market and external deposit data that has shown relative stability across industry savings account balances. Taken together, these dynamics are contributing to Synchrony's recent delinquency performance, highlighted on slide 11, where the year-over-year rate of change has slowed as our portfolio has reached pre-pandemic levels. The normalization and recent stabilization of our delinquency performance has occurred at a more gradual pace than the majority of our industry peers.

Brian Doubles: <unk> financial health indicators, including a strong labor market and external deposit data that is shown relative stability across industry savings account balances.

Brian Doubles: Taken together these dynamics are contributing to synchrony as recent delinquency performance highlighted on slide 11.

Brian Doubles: The year over year rate of change has slowed as our portfolio has reached pre pandemic ranges.

Brian Doubles: The normalization in recent stabilization of our delinquency performance has occurred at a more gradual pace and the majority of our industry peers underscoring the powerful combination of our disciplined underwriting advanced analytics and sophisticated credit management tools.

Brian D. Doubles: This underlines the powerful combination of our disciplined underwriting, advanced analytics, and sophisticated credit management tools. We're encouraged by these trends and continue to expect our portfolios' net charge-off to peak in the first half of this year. We continually monitor indicators across our portfolio, along with the broader industry's credit performance, and continue to take credit actions to optimize our portfolio's positioning for 2024 and beyond. Synchrony utilizes a broad range of proprietary and external data, including payment behavior characteristics, billions of transactions, and credit bureau alerts, to deliver actionable insights and inform our underwriting, product, and credit management strategies across the account, channel, and portfolio levels.

Brian Doubles: We're encouraged by these trends and continue to expect our portfolio's net charge offs to peak in the first half of this year.

Brian Doubles: We continually monitor indicators across our portfolio along with the broader industry as credit performance and continue to take credit actions to optimize our portfolio's positioning for 2024 and beyond synchrony utilizes a broad range of proprietary and external data, including payment behavior characteristics billions of transactions and credit Bureau.

Brian Doubles: To deliver actionable insights that inform our underwriting product and credit management strategies across the account channel and portfolio levels.

Brian D. Doubles: Our ability to leverage these insights and deliver optimized financing solutions and experiences for our customers and partners, even as needs evolve and market conditions shift, is what enables Synchrony to consistently deliver the outcomes that matter most for our many stakeholders and increasingly positions us as the partner of choice. To that end, Synchrony added or renewed more than 25 partners in the first quarter, including BRP, and added two new technology partnerships with Addit, Practice Management Software, and Service Titan.

Brian Doubles: Our ability to leverage these insights and deliver optimized financing solutions and experiences for our customers and partners, even as it needs evolve and market conditions shift is what enables synchrony to consistently deliver the outcomes that matter most for our many stakeholders and increasingly positions us as the partner of choice.

To that end synchrony added or renewed more than 25 partners in the first quarter, including DRP and added two new technology partnerships with added practice management software and service tightened. We are excited about our new partnership with DRP, a global leader in power sports and marine products, which will enable their U S dealers to offer secured install.

Brian D. Doubles: We are excited about our new partnership with BRP, a global leader in power sports and marine products, which will enable their U.S. dealers to offer secured installment loan products for their well-known line of power sports products, including the Ski-Do, Sea-Do, and Can-Am on and off-road vehicles.

Brian Doubles: <unk> loan products for their well known line of power sports products, including the Skidoo Sea Doo and can am on and off road vehicles.

Brian D. Doubles: Synchrony will deliver financing offers with flexible terms through its online or in-dealership application process, highlighting our ability to address the diverse needs and preferences of our customers, and Synchrony Strategic Technology Partnerships with Addit Practice Management Software and ServiceTitan each represent opportunities to drive seamless customer experiences while also expanding access to our diversified suite of financial solutions and services. Synchrony's partnership with Addit, an industry-leading dental practice management software provider, will expand care credit access to dental practices nationwide and includes integration with AdditPay for patients, enabling a seamless and easy-to-use experience for both patients and practitioners.

I think we're able to deliver our financing offers with flexible terms through their online or in dealership application process, highlighting our ability to address the diverse needs and preferences of our customers and synchrony strategic technology partnerships with added practice management software and service title each represent opportunities to drive seamless.

Brian Doubles: <unk> experiences, while also expanding access to our diversified suite of financial solutions and services.

Brian Doubles: I think when these partnership with Abbott and industry, leading dental practice management software provider will expand care credit access to dental practices nationwide and includes integration with added pay for patients, enabling a seamless and easy to use experience for both patients and practitioners.

Brian D. Doubles: Connecting patients to payment solutions at their dentist's office is an essential part of ensuring their care journey is as smooth as possible, and dental practices benefit from more timely and effective revenue cycle management. Similarly, Synchrony will integrate with Service Titans, a leading software platform built to power trades businesses, enabling contractors to offer their home improvement financing through a direct-to-device application process.

Brian Doubles: Connecting patients to payment solutions at their dentist office isn't a central part of ensuring their care journey is as smooth as possible and dental practices benefit from more timely and effective revenue cycle management.

Brian Doubles: Similarly, synchrony will integrate with service tightened a leading software platform built to power trades businesses, enabling contractors to offer their home improvement financing through a directed device application process.

Brian Doubles: By providing access to flexible financing at their fingertips customers are empowered to make a choice that gets them closer to their goal while their contractors benefit from our frictionless sales experience.

Brian D. Doubles: By providing access to flexible financing at their fingertips, customers are empowered to make a choice that gets them closer to their goal while their contractors benefit from a frictionless sales experience. Whether we are building new relationships or supporting and enhancing existing ones, Synchrony deeply understands what our customers need and expect and what our partners, merchants, and providers are seeking to achieve. Our ability to deliver for these stakeholders and consistently achieve strong outcomes through varying conditions demonstrates the strength of Synchrony's business model and the commitment of our incredible team.

Brian Doubles: So whether we are building new relationships are supporting and enhancing existing ones.

Brian Doubles: When he deeply understands where our customers need and expect and what our partners merchants and providers are seeking to achieve our ability to deliver for these stakeholders and consistently achieved strong outcomes through varying conditions demonstrates the strength of synchrony business model and commitment of our incredible team.

Brian Doubles: And speaking of our team in today's world. It has never been more important for us to attract and retain the best talent, which we do through our unwavering commitment to our employees and our culture.

Brian Doubles: So I'm proud to share that we've been named among the top best companies to work for in the U S. By Fortune magazine in Great places to work.

Brian D. Doubles: And speaking of our team, in today's world, it has never been more important for us to attract and retain the best talent, which we do through our unwavering commitment to our employees and our culture. So I'm proud to share that we've been named among the top best companies to work for in the U.S. by Fortune Magazine and Great Places to Work. Synchrony moved up 15 positions to number five in the 2024 rankings, reflecting our unique and special culture and our relentless focus on putting people first as we continuously strive to achieve best-in-class experiences for our many stakeholders. With that, I'll turn the call over to Brian to discuss our financial performance in greater detail. Thanks, Brian. And good morning, everyone.

Brian Doubles: When you moved up 15 positions to number five in the 2024 rankings, reflecting our unique and special culture and our relentless focus on putting people first as we continuously strive to achieve best in class experiences for our many stakeholders.

Brian Doubles: That I will turn the call over to Brian to discuss our financial performance in greater detail.

Brian Doubles: Thanks, Brian and good morning, everyone <unk> first quarter results reflected the combination of our differentiated business model and a resilient consumer evolving macroeconomic environment. We generated $1 3 billion net earnings were $3 14 per diluted share on a reported basis.

Brian: Excluding the $802 million after tax gain from the sale of our pets best business, we generated $491 million in earnings or $1 18 per diluted share any loan receivables grew 12% to $102 billion. This.

Brian J. Wenzel: Synchrony's first quarter results reflected the combination of our differentiated business model and a resilient consumer in an evolving macroeconomic environment. We generated $1.3 billion in net earnings, or $3.14 per diluted share on a reported basis. Excluding the $802 million after-tax gain from the sale of our Pets Best business, we generated $491 million in net earnings, or $1.18 per diluted share. Ending loan receivables grew 12% to $102 billion.

This growth reflected the impacts of the continued purchase volume growth and an approximate 90 basis point decrease in payment rate and the completion of our Halle lending acquisition.

Brian: <unk> increased $1 6 billion or 50% driven by the pets best gain on sale of approximately $1 1 billion, which.

Brian: Which was reported through other income.

Brian: Excluding the <unk> gain on sale net revenue increased $530 million or 17% net interest income increased 9% to $4 4 billion driven.

Brian: Driven by 50% higher interest and fees this growth in interest in fees reflected the combined impacts of higher loan receivables are lower <unk> and higher benchmark rates and was partially offset by higher interest expense from benchmark rates or fees of $764 million in the quarter were three 4% of average loan receivable.

Brian J. Wenzel: This growth reflected the impacts of the continued purchase volume growth, an approximate 90 basis point decrease in payment rate, and the completion of our Alley Lending Acquisition. Net revenue increased $1.6 billion, or 50%, driven by the pet's best gain on sale of approximately $1.1 billion, which was reported through other inquiries. Excluding the PetsBest gain on sale, net revenue increased $530 million, or $17.

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A reduction of a $153 million versus the prior year driven by higher net charge offs, partially offset by higher net interest income.

Brian J. Wenzel: The interest income increased 9% to $4.4 billion, driven by 50% higher interest and fees. This growth in interest and fees reflected the combined impacts of higher loan receivables, a lower payment rate, and higher benchmark rates, and was partially offset by higher interest expense from higher benchmark rates. RSAs of $764 million in the quarter were 3.04% of average loan receivables, a reduction of $153 million versus the prior year, driven by higher net charge-offs, partially offset by higher net interest income.

Brian: A vision for credit losses increased to $1 $9 million.

Brian: To reflect the higher net charge offs and a $299 million reserve bills, which included a $190 million build related to the acquisition of ally lending.

Brian: Other expenses grew 8% to $1 2 billion.

Brian: Similarly, driven by higher employee costs.

Brian: <unk> growth and our continued investment in technology, our efficiency ratio for the quarter, excluding the impact of the gain on sale was 32, 3% an improvement of approximately 270 basis points versus last year.

Brian J. Wenzel: Provision for credit losses increased to $1.9 billion, reflecting higher net charge-offs and a $299 million reserve bill, which included a $190 million bill related to the acquisition of Ally Lending. Other expenses grew 8% to $1.2 billion, primarily driven by higher employee costs in support of growth and our continued investment in technology.

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

Brian: At quarter end, our 30, plus delinquency rate was 474% compared to $3 eight 1% in the prior year and 18 basis points above our average for the first quarters of 2017 to 2019.

Brian: Our 90, plus delinquency rate was 242% versus 187% last year and 14 basis points above our average for the first quarter of 2017 to 2019, and our net charge off rate was 631% in the first quarter compared to $4, 49% in the prior year and an average of five eight.

Brian J. Wenzel: Our efficiency ratio for the quarter, excluding the impact of the gain on sale, was 32.3 percent, an improvement of approximately 270 basis points versus last year. Next, I'll cover our key credit trends on slide 10. At quarter end, our 30-plus frequency rate was 4.74%, compared to 3.81% in the prior year, and 18 basis points above our average for the first quarters of 2017 to 2019. Our 90-plus delinquency rate was 2.42%, compared to 1.87% last year, and 14 basis points above our average for the first quarters of 2017 to 2019.

Brian: 84% in the first quarters of 2017 to 2018.

Brian: Our allowance for credit losses, as a percent of loan receivables was 10, 72% of 46 basis points from the $10 two 6% in the fourth quarter, primarily reflecting the impact of seasonal trends.

The reserve build in the quarter largely reflected the addition of the ally lending portfolio.

Brian: As Brian discussed Securities credit performance has been consistent with our expectations.

Brian: Stephen It's synchrony shares the consumer with our broader industry peers, we continue to monitor our portfolio and the broader industry as credit performance as we've done periodically since mid 2023, we've been taking incremental credit actions starting in March across specific segments of our portfolio that should reinforce our portfolio's performance for 2024 and beyond.

Brian J. Wenzel: And our net charge-off rate was 6.31% in the first quarter, compared to 4.49% in the prior year, and an average of 5.84% in the first quarters of 2017 to 2019. Additionally, our analysis for credit losses as a percent of loan receivables was 10.72%, 46 basis points from the 10.26% in the fourth quarter, primarily reflecting the impact of seasonal trends.

And.

Brian: Slide four demonstrates synchrony has built a track record of achieving consistent attractive risk adjusted returns through changing market conditions.

Brian: This performance has been enabled by the combination of our disciplined underwriting which targets a five 5% to 6% loss rate on average <unk>, which aligns program and portfolio performance.

Brian J. Wenzel: The Reserve Building Quarter largely reflected the addition of the Ally Lending Port. As Brian discussed, Synchrony's prior performance has been consistent with our expectations. Given that Synchrony shares the consumer with our broader industry peers, we continue to monitor our portfolio and the broader industry's credit performance. As we've done periodically since mid-2023, we've been taking incremental credit actions starting in March across specific segments of our portfolio that should reinforce our portfolio's performance for 2024 and beyond.

We will continue to leverage our deep consumer lending experience, our diversified product suite sales platforms and verticals and our sophisticated data analytics and technology to further deliver on that priority.

Brian: Turning to slide 12, synchrony as funding capital and liquidity continued to provide a strong foundation for our business our consumer bank offerings continue to resonate with our consumers as we grew deposits to $4 billion in the first quarter.

Brian: Deposits represented 84% of our total funding at quarter end and are complemented by our securitized debt and unsecured funding strategies, which each represent 8% of our total funding.

Brian J. Wenzel: As Slide 4 demonstrates, Synchrony has built a track record of achieving consistent, attractive risk-adjusted returns through changing market conditions. This performance has been enabled by a combination of our disciplined underwriting, which targets a 5.5 to 6% loss rate on average, and our RSA, which aligns program and portfolio performance. We will continue to leverage our deep consumer lending experience, our diversified product suite, sales platforms, and verticals, and our sophisticated data analytics and technology to further deliver on that priority.

Brian: During the quarter, we issued $750 million of secured funding and completed a preferred stock issuance of $500 million.

Brian: Which served to more fully optimize our capital structure.

Total liquid assets and Undrawn credit facilities with $24 9 billion.

Brian: Up $3 2 billion from last year and at quarter end represented 25% of total assets up 38 basis points from last year.

Brian: Moving on to our capital ratios.

Brian: As a reminder, we elected to take the benefit of the seasonal transition rules issued by the joint federal banking agencies.

Brian J. Wenzel: Synchrony's funding, capital, and liquidity continue to provide a strong foundation for our business. Our consumer bank offerings continue to resonate with our consumers as we grew deposits by $2.4 billion in the first quarter. Deposits represent 84% of our total funding at quarter end and are complemented by our securitized debt and unsecured funding strategies, which each represent 8% of our total funding. During the quarter, we issued $750 million of secured funding and completed a preferred stock issuance of $500 million, which served to more fully optimize our capital. Total liquid assets and undrawn credit facilities were $24.9 billion.

Brian: Synchrony, we will continue to make its annual transition adjustment to our regulatory capital metrics of approximately 50 basis points. Each January through 2025, the impact of seasonal has already been recognized in our income statement and balance sheet under the seasonal transition rules. We ended the first quarter was CET one ratio of 12, 6% 40 basis points.

Sure than last year's 13.0% the net capital impacts of our pets best sale and ally lending acquisition added approximately 40 basis points to our CET one ratio our tier one capital ratio was 13, 8% unchanged compared to last year, our total capital ratio decreased 10 basis points to 15, 8%.

Brian: And our tier one capital plus reserve ratio on a fully phased in basis increased to 23, 8% compared to 23% last year.

Brian J. Wenzel: Up 3.2 billion from last year, and a quarter end represented 20.5 percent of total assets, up 38 basis points from last year. Moving on to our capital ratio. As a reminder, we elected to take the benefit of the CECL transition rules issued by the Joint Federal Banking Agency. Synchrony will continue to make its annual transition adjustment to our regulatory capital metrics of approximately 50 basis points each January through 2025. The impact of Steep Soil has always been recognized in our income statement and balance.

Brian: During the first quarter, we returned $402 million to shareholders, consisting of $300 million of share repurchases and $102 million of common stock dividends.

Brian: As of March 31, 2024, we had $300 million remaining in our share repurchase authorization.

Brian: As part of our capital planning approved by the board of directors, our share repurchase authorization was increased by $1 billion.

Brian: Bringing our total authorization to $1 $3 billion for the period ending June 32025. Furthermore, the board intends to maintain our current quarterly dividend of <unk> 25 per share.

Particularly remains well positioned to return capital to shareholders is guided by our business performance market conditions regulatory restrictions and subject to our capital plan.

Brian J. Wenzel: Under the Cecil Transition Rules, we entered the first quarter with a CET1 ratio of 12.6 percent, 40 basis points lower than last year's 13.0 percent. The net capital impact of our Pets Best sale and Ally Lending acquisition added approximately 40 basis points to our CET1 ratio. Our Tier 1 Capital Ratio is 13.8%, unchanged compared to last year. Our Total Capital Ratio decreased 10 basis points to 15.8%.

Brian: Turning to slide 13 for a review of our 2024 business trends.

Brian: As a reminder, synchrony previously filed an 8-K on March 5th 2024, with a revised financial outlook, including EPS guidance for the full year 2024.

Brian: Specifically related to the framework around the pending late fee rule change in our product policy and pricing changes there continues to be uncertainty regarding the timing and outcome of the <unk> related litigation that was filed in March.

Brian J. Wenzel: And our Tier 1 Capital plus Reserve Ratio, on a fully phased-in basis, increased to 23.8% compared to 23% last year. During the first quarter, we returned $402 million to shareholders. Consisting of $300 million of shareholder purchases and $102 million of common stock dividends. As of March 31st, 2024, we had $300 million remaining in our share of purchase authorization. As part of our capital planning approved by the Board of Directors, our share of purchase authorization was increased by $1 billion, bringing our total authorization to $1.3 billion for the period ending June 30, 2025. Furthermore, the Board intends to maintain our current quarterly dividend of $0.25 per share.

Brian: The potential changes in consumer behavior that could occur as a result of the <unk> rule changes and any potential changes in consumer behavior and response to the product policy and pricing changes we implemented as a result of the new rule.

Brian: Outcomes in actual performance related to any of these uncertainties could impact the EPS outlook.

Brian: Looking at the remainder of the year simply we'll continue to execute across our key strategic priorities and prepare our business as we navigate an evolving operating environment. We have commenced the implementation of our product policy and pricing changes the majority of which will be completed over the next two to three months and we anticipate having greater clarity on the impacts of these changes likely in the second half.

Brian: Of the year.

Brian: In the meantime, we continue to expect our business to demonstrate typical season patterns in many of our key metrics.

Brian: We expect net charge offs to peak in the first half of the year and that the reserve coverage at year end should be lower than the year end 2023 re.

Brian J. Wenzel: Think of your means well positioned to return capital to shareholders as guided by our business performance, market conditions, regulatory restrictions, and subject to our capital. Turn to slide 13 for a review of our 2024 business. As a reminder, Synchrony previously filed an 8K on March 5, 2024, with a revised financial outlook, including EPA's guidance for the full year 2024. Specifically related to the framework around the pending late fee rule change and our product policy and pricing changes, there continues to be uncertainty regarding the timing and outcome of the late fee-related litigation that was filed in March, and the Potential Changes in Consumer Behavior That Could Occur as Outcomes and actual performance related to any of these uncertainties could impact the EPS outlook.

Brian: Finally, we expect that the RSA will continue to align program performance and continue to function as design <unk>.

Brian: Including synchrony is focused on leveraging our core strengths to optimize our business position and build on our long history of delivering steady growth and strong risk adjusted returns our depth of consumer lending experience informs our go to market and product strategies are.

Brian: Our investment in sophisticated credit management tools empower our agility.

Brian: And our RSA supports our financial resilience.

Brian: Whether our differentiated model continues to consistently deliver value to each of our stakeholders through changing environments. I will now turn the call back over to Brian for his closing thoughts.

Brian: Thanks, Brian Synchroneyes first quarter results were driven by our differentiated business model and our commitment to delivering sustainable strong results for our customers partners and stakeholders, we are leveraging our proprietary industry and consumer insights our diversified products and platforms in our advanced data analytics to consistently.

Brian: <unk> access to responsible financing solutions for our customers' sales and loyalty for our partners.

Brian: And sustainable growth as strong risk adjusted returns for our stakeholders. We're confident that synchrony is operating from a position of strength as we navigate the year ahead.

Brian J. Wenzel: Looking ahead to the remainder of the year, Synchrony will continue to execute across our key strategic priorities and prepare our business as we navigate an evolving operating environment. We have commenced the implementation of our product, policy, and pricing changes. The majority of these changes will be completed over the next two to three months, and we anticipate having greater clarity on the impacts of these changes likely in the second half of the year. In the meantime, we continue to expect our business to demonstrate typical seasonal patterns in many of our key metrics. We expect net charge-offs to peak in the first half of the year and that reserve coverage at year-end should be lower than the year-end 2023 rate.

Brian: We're excited about the opportunities we see to drive still greater long term value as we continue to partner with hundreds of thousands of small and midsized businesses and help providers to provide access to credit to our more than 70 million customers for their everyday needs and wants and with that I'll turn the call back to Catherine to open the Q&A that concludes our prepared remarks.

Catherine: 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.

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

Catherine: And at this time unless you wish to ask a question. Please press star one on your telephone keypad.

Catherine: As yourself further question Keybanc pressing star team.

Brian D. Doubles: Finally, we expect that the RSA will continue to align program performance and continue to function as designed. In closing, Synchrony is focused on leveraging our core strengths to optimize our business position and build our own long history of delivering steady growth and strong risk-adjusted returns. Our depth of consumer lending experience informs our go-to-market and product strategy. Our investment in sophisticated credit management tools empowers our agility, and our RRC supports our financial resources. Together, our differentiated model continues to consistently deliver value to each of our stakeholders through changing environments. I will now turn the call back over to Brian for his closing thoughts. Thanks, Brian.

Catherine: One question and one follow up question, we will take our first question from Ryan Nash with Goldman Sachs. Please go ahead.

Ryan Matthew Nash: Hey, Good morning, guys, Hi, Ryan Good morning, Ryan.

Ryan Matthew Nash: It seems like charge offs are coming in a little bit higher than expected, but we've now seen delinquencies potentially inflect.

Ryan Matthew Nash: Starting to follow a seasonal pattern. So can you maybe talk about what this means for the full year loss rate and where do you see losses and the allowance settling out or the intermediate timeframe. If you are a forward view proves accurate.

Speaker Change: Yes. Thanks for the question Ryan So again I think we had been.

Speaker Change: Somewhat clear that we believe charge offs. When you look at the delinquency trend as we entered into 2024 net charge offs will peak in the first half of the year and decline I think you see that we will certainly in the bend in the first quarter I think when you see.

Brian D. Doubles: Synchrony's first quarter results were driven by our differentiated business model and our commitment to delivering sustainable, strong results for our customers, partners, and stakeholders. We are leveraging our proprietary industry and consumer insights, our diversified products and platforms, and our advanced data analytics to consistently provide access to responsible financing solutions for our customers, as well as sales and loyalty for our partners. Sustainable Growth at Strong Risk-Adjusted Returns for Our Stakeholders. We're confident that Synchrony is operating from a position of strength as we navigate the year ahead. We're excited about the opportunities we see to drive still greater long-term value. And with that, I'll turn the call back to Kathryn to open the Q&A.

Speaker Change: The results in April when we put out our 8-K, you will see delinquencies down on both a <unk>.

Speaker Change: 30, plus and 90 plus basis relative to what we just reported here today. So I think when you start looking at that you look at the seasoning of the.

Speaker Change: Credit actions that we took early in the second and third quarter of last year, we feel good that the charge off rate.

Speaker Change: We will decline in the back half of the year and we will certainly we haven't changed our underwriting.

Speaker Change: Targets to be in the five 5% to 6% range generally speaking so so we feel good about that which leads us to the belief.

Speaker Change: If you see that lower net charge off rate in the back half of the year.

Kathryn Harmon Miller: That concludes our prepared remarks. We will now begin the Q&A session. 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.

Speaker Change: And you project that forward into 2025.

Speaker Change: The reserve coverage rates should be below the $10 two six rate that we had.

Really at the end of last year and really the increase in the first quarter here was reflective more of the seasonal patterns and anything else.

Operator: And at this time, if you wish to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the question key by pressing star 2.

Speaker Change: Got it and then maybe as a follow up so the RSA is several quarters in a row <unk> was well below that could be 50 to $3 75, I think you had outlined in the prior guidance. So maybe just talk a little bit about how youre thinking about the RSA for 24. This is of course ex late fees.

Operator: Please limit yourself to one question and one follow-up question. We'll take our first question from Ryan Nash of Goldman Snacks. Please go ahead.

Unnamed Speakers: Good morning, guys. Hey, Ryan. Good morning, Ryan.

Speaker Change: And.

Speaker Change: Do you think the new normal for this is below that four to four and a quarter four and a half you had outlined in the past. Thank you.

Unnamed Speakers: So, it seems like charges are coming in a little bit higher than expected, but we've now seen delinquencies potentially inflect and start to follow seasonal patterns. So, can you maybe talk about what this means for the full-year loss rate and where you see losses in the allowance settling out over the intermediate time frame, if your forward view proves accurate?

Speaker Change: Yes, Ryan as I look at the RSA trend. The first quarter was was it that clearly when you look at a year over year on the higher net charge offs, which was a substantial amount of the decrease in the RSA, partially offset about a third of it offset by by really.

Unnamed Speakers: Charge-offs, when you look at the delinquency trend as we entered into 2024, charge-offs will peak in the first half of the year and decline. I think you see that, well, certainly in the bend in the first quarter.

Ryan Matthew Nash: NII on growth in Eni was a little bit suppressed because you had the last full.

Ryan Matthew Nash: Impact on your interest bearing liabilities.

Ryan Matthew Nash: If I take a step back for a second and think about the core business Ryan.

Ryan Matthew Nash: I believe we're at a point, where we have peaked on assuming no rate increases and peak on our interest bearing liability costs as I talked about the net charge off rate, peaking in the first half you should see an upward bias then.

Unnamed Speakers: I think when you see the results in April when we put out our, you will see delinquencies down on both a 30-plus and 90-plus basis relative to what we just reported here today. So I think when you start looking at that, and you see the seasoning of the credit actions that we took really in the second and third quarter of last year, we feel good that the charge-off rate will decline in the back half of the year.

Ryan Matthew Nash: In the RSA as we step through the remaining quarters of the year either variable will be volume. So even if you looked on a linked quarter basis.

Unnamed Speakers: And most certainly, we haven't changed our underwriting targets to be in the 5.5% to 6% range, generally speaking. So we feel good about that, which leads us to the belief that if you see that lower net charge-off rate in the back half of the year and project that forward into 2025, the reserve coverage rate should be below the 10.26 rate that we had really at the end of last year. And really, the increase in the first quarter here was reflective more of seasonal patterns than anything else.

Ryan Matthew Nash: Volume being down and being down a little bit year over year for some of the RSA clients will play a factor, but it should trend upwards as we step through given the peaky nature of the interest bearing liability cost and charge offs.

Speaker Change: Thanks for the color Brian.

Speaker Change: Thanks, Brian.

Speaker Change: Thank you we'll take our next question from Sanjay <unk> with Teva Debbie. Please go ahead.

Speaker Change: Okay.

Sanjay: Thank you good morning, I guess my first question stock purchase volume, obviously that continues to remain weak could we just talk about sort of how we get it back to a baseline that accelerates I know inflation is sort of weighing in on the consumer maybe just talk about what's driving that and how and when we get it back to a baseline that's higher.

Unnamed Source: Transcripts provided by Transcription Outsourcing, LLC. Yeah, yeah, Ryan, as I look at

Unnamed Speakers: Yeah, Ryan, as I look at the RSA trend, you know, the first quarter was clearly when you look at it year over year on the higher net charge-offs, which was a substantial amount of the decrease in the RSA, partially offset, about a third of it offset by really NII growth. And the NII was a little bit suppressed because you had the last full impact on your interest-bearing liabilities. If I take a step back for a second and think about the core business, Ryan, I believe we're at a point where we have peaked on assuming no rate increases and peaked on our interest-bearing liability costs.

Speaker Change: Yes, Sanjay maybe I'll start on this and then and then pass it to Brian.

Brian: Generally we're pretty pleased with the growth that we're seeing in the business I think the consumer is still in good shape.

Brian: Obviously, the job market is very strong not helping.

Speaker Change: But you are seeing a lot of that spend being driven by the higher end consumer the higher income consumer and that's actually not a bad thing I think theyre benefiting obviously the job market house prices are up stock prices are up.

Speaker Change: On the lower end, Thats, where youre seeing some of the slowdown and from a credit perspective, that's not the worst thing.

Speaker Change: I think we see people being.

Unnamed Speakers: As I talked about the net charge-off rate peaking in the first half, you should see an upward bias in the RSA as we step through the remaining quarters of the year. You know, the other variable will be volume. So even if you looked on a linked quarter basis, you know, volume being down and being down a little bit year over year for some of the RSA clients will play a factor, but it should trend upwards as we step through given the peaking nature of the interest-bearing liability costs and charge-offs.

Prudent I think they are managing to a budget, they're managing their cash flows.

Theyre not overextending. So I think there is a positive read through from a credit perspective on that.

Speaker Change: I don't know, Brian if you want to.

Brian: The first thing Sanjay.

Sanjay: To remind people we are comping off of what I would say is.

Sanjay: A really strong quarter last year. So when you look at a 2% up.

Sanjay: That is very strong as a record for our company for the first quarter, Brian highlighted some of the differences I think youre plus 8% on the higher FICO is down a little bit year over year and lower plant goes we are seeing.

Operator: Thank you. We'll take our next question from Sanjay Sakhrani with KBW. Please go ahead.

Sanjay: Certainly the consumer.

Unnamed Speakers: Thank you. Good morning.

Sanjay: Step back in certain bigger ticket areas right, either going down and transaction values, which I see I think you'll see reflected in the home and auto purchase line being down and really in lifestyle, but we do see strength in those pockets are home specialty business is up.

Unnamed Speakers: I guess my first question is stunt purchase volume. Obviously, that continues to remain weak.

Unnamed Speakers: Could we just talk about sort of how we get it back to the base?

Unnamed Speakers: [inaudible] Yeah, maybe I'll start on this and then pass it to Brian. I mean, look, I think, generally, we're pretty pleased with the growth that we're seeing in the business. I think the consumer is still in good shape. Obviously, the job market is very strong, and that's helping. But you know, you are seeing a lot of that spend being driven by the higher-end consumer. And, you know, that's actually not a bad thing.

Sanjay: In the double digits are outdoors businesses. So it has selected the consumer is just being more prudent with the dollars.

Sanjay: We see transaction frequency up even though the transaction values down so the consumer I would say it is managing through this period.

Sanjay: So I wouldn't necessarily.

Read too much into it that there is a big change in the consumer profile and what they're doing.

Unnamed Speakers: You know, I think they're benefiting, obviously, from the job market, house prices are up, and stock prices are up. On the lower end, that's where you're seeing some of the slowdown. And from a credit perspective, that's not the worst thing.

Speaker Change: Okay very helpful. Thank you.

And I Couldnt, let you guys get away without a lengthy question so.

And maybe just as we are waiting here on the courts at this point maybe you can just talk about how you are planning for a mid west mid may implementation and how much flexibility you have if there's an injunction after the current planned implementation period and any early observations on the PPP.

Unnamed Speakers: You know, I think we see people being prudent. I think they're managing to a budget, they're managing their cash flows, and they're not overextending.

Unnamed Speakers: So I think there's a positive read through from a credit perspective on that. I don't know, Brian, if you want to... You know, the first thing, Sanjay, and I want to remind people, we're copping off of what I'd say was a really strong quarter last year, so when you look at a 2% up, that is very strong as a record for our company for the first quarter. Brian highlighted some of the differences.

Speaker Change: Behavior changes I know most of that will be in the second half. Thank you.

Speaker Change: Yes, Sanjay so we're not surprised US was the second question, we thought it might be the first.

Speaker Change: Obviously, we are waiting on the outcome of the litigation that is uncertain.

Unnamed Speakers: I think you're plus 8% on the higher FICOs, down a little bit year over year in the lower FICOs. We are seeing, most certainly, the consumer step back in certain bigger ticket areas, right? Either going down in transaction values, which I think you see reflected in the home and auto purchase line being down, and really in lifestyle. But when you see strength in those pockets, our home specialty business is up in the double digits, or our outdoors business is up. So it's selected.

Speaker Change: We're executing our plan, we said from the beginning that we werent going to wait for the outcome on litigation just given the uncertainty. So we began the implementation of our changes in December.

Speaker Change: We're already over 60% done with those we've got them.

Speaker Change: Sent out the changes in terms et cetera.

Speaker Change: The vast majority of those will be done in the next two months.

Speaker Change: So look we're executing the plan.

Speaker Change: In terms of timing our base case was October one that assumed an injunction.

Unnamed Speakers: The consumer is just being more prudent with the dollars. Again, we see transaction frequency up, but you know, transaction value is down. So the consumer, I'd say, is managing through this period. So I wouldn't necessarily read too much into it that there's a big change in the consumer profile and what they're doing. Okay, very helpful. Thank you. And I couldn't let you guys get away without a late fee question. So, um, maybe just as we're waiting here in court at this point, maybe just talk about how

Speaker Change: With that said.

Speaker Change: It will be extremely operationally challenging to get this implemented in may, but we're preparing for that as well as a scenario.

Speaker Change: Thank you.

Speaker Change: Thanks, Thanks Sanjay.

Speaker Change: Thank you we'll take our next question from Terry MA with Barclays. Please go ahead.

Terry Ma: Hey, Thanks, Good morning, I, just wanted to follow up on the product policy and pricing changes is there any way we.

Terry Ma: Think about how those benefits.

Terry Ma: Materialise once it's kind of fully phased in.

Terry Ma: A way to think about whether or not it's a slower ramp through the year, a step up or kind of like a quicker ramp.

Unnamed Speakers: you're planning for a midway mid-may implementation

Speaker Change: Yes, sorry.

Take this and see it Brian as a follow on.

Unnamed Speakers: and how much flexibility you have.

Unnamed Speakers: and Injunction after the current planned implementation period, and any early observations on the PPPC behavior changes. I know most of that will be in the second half. Thank you.

Brian: I think what you should expect to see is beginning and impact a little bit in the second quarter more in the third quarter with regard to the mitigates and then it continues to build from there.

Unnamed Speakers: I know most of that will be in the second half. Thank you.

Unnamed Speakers: Yeah, Sanjay, so we're not surprised this was the second question. We thought it might have been the first. You know, obviously, we are waiting on the outcome of the litigation. That is uncertain.

Brian: Got a question in the past and we really haven't talked very much about it when you think about how the APR phases in.

Brian: For the consumer so when the HR becomes effective which again think about that as 60 days after notice.

Unnamed Speakers: But you know, we're executing our plan. We said from the beginning that we weren't going to wait for the outcome of the litigation, just given the uncertainty. So we began the implementation of our changes in December. We're already over 60% done with those. We've got them sent out, the changes in terms, etc. The vast majority of those will be done in the next two months. So look, we're executing the plan.

Brian: Begin to feel the effects of that.

Brian: Say, 50% in the first 12 months.

Brian: If you roll that out 75% and 24 months.

Brian: So you begin to feel that out now some of the other fees that they can manage some of the policy changes. They are more immediate when it comes through there now and we will certainly we will see as that flows through there will be some adoption really relating to go into these statements and things like that that will flow through different parts of the P&L that we expect so so again I think you'll begin to see a <unk>.

Unnamed Speakers: In terms of timing, you know, our base case was October 1st. It assumed an injunction. With that said, it will be extremely operationally challenging to get this implemented in May, but we're preparing for that as well as any scenario.

Brian: With some of the things that are more immediate and it gives you a sense on how the APR comes in but that's why there was a blend in order to kind of get to that neutrality point.

Brian: A little bit sooner than just relying upon apr's.

Speaker Change: Got it Thats helpful.

Unnamed Speakers: Thanks Sanjay. Thanks, Sanjay.

And then for my follow up just had a question on your cash balances it looked quite elevated this quarter relative to last year.

Operator: Thank you. We'll take our next question from Terry Ma with Mark Lace. Please go ahead.

Unnamed Speakers: Hey, thanks. Good morning.

Unnamed Speakers: I just want to follow up on the product policy and pricing changes. Is there any way we should think about how those benefits sort of materialize once they're kind of fully phased in? Like, is there a way to think about whether or not it's a slower ramp through the year, a step up, or kind of like a quicker ramp?

Speaker Change: Color you can provide there on how we should think about that going forward.

Speaker Change: Hi, Terry.

Speaker Change: To be honest with you we have excess liquidity this quarter.

Speaker Change: I would go back and attribute that really to the strength of our deposit franchise I think when you just look at the core retail deposits were up $3 $4 billion.

Terry: From the end of end of last year, and then you put the seasonal nature of the cash that kind of comes in.

Unnamed Speakers: you should expect to see is beginning an impact a little bit in the second quarter, more in the third quarter with regard to the mitigants, and then it continues to build from there. You know, I've gotten the question in the past, and we really hadn't talked very much about it.

Terry: It served us well as we purchased ally for $2 billion, but we also got $600 million coming in from the sale of the pets best franchise. So I'd say liquidity is kind of peaking so I think if you think about margin and the effects on margins you step through.

Unnamed Speakers: When you think about how the APR phases in for the consumer, so when the APR becomes effective, which again, think about that as 60 days after notice, you'll begin to feel the effects of that. You know, I'd say 50% in the first 12 months. You know, if you roll that out, 75% in 24 months. So you begin to fill that out. Now, some of the other fees that come in and some of the other policy changes are more immediate when they come through there.

Terry: Net interest margin is probably at its low point for the year in the first quarter given all of that.

Terry: Excess liquidity and listen I think we've heard other other lenders over the last week or two talk about balances being down flatter balance sheets, that's not what we're expecting so so so clearly we're still in deposit gathering mode. We haven't really.

Terry: Don anything consider significantly attract new deposits just to the <unk>.

Terry: Treads and attractiveness of our digital franchise.

Speaker Change: Okay, great. Thank you.

Unnamed Speakers: Now, certainly, we'll see as that flows through, there will be some adoption really relating to going with the e-statements and things like that that will flow through different parts of the P&L than we expect. So again, I think you begin to see a ramp with some of the things that are more immediate, and it gives you a sense of how the APR comes in. But that's why there was a blend in order to kind of get to that neutrality point a little bit sooner than just relying upon APRs.

Speaker Change: Thanks Terry.

Speaker Change: Thank you we will take our next question from John Hecht with Jefferies. Please go ahead.

John Hecht: Yeah, guys Martin and thanks for taking my questions I guess, just a little bit more on the net interest margin Brian it.

John Hecht: I know, there's always a seasonal impact in Q1 as you gather deposits kind of pre fund for growth later in the year and then you mentioned the petsmart.

Unnamed Speakers: Got it. That's helpful. And then for my follow-up question, just had a question on cash balances. It looked quite elevated this quarter relative to last year. Any color you can provide on how we should think about that going forward? Hi.

John Hecht: Kind of causing incremental cash balances, but.

John Hecht: And maybe could you give us some sense for the.

John Hecht: Okay.

John Hecht: The parse out.

John Hecht: What drove the margin decline this quarter relative to say <unk> 23, and then maybe talk about marginal deposit pricing and where you're kind of in the CD market and the savings account markets.

Unnamed Speakers: You know, Terry, to be honest with you, we have access to liquidity this quarter. I would go back and attribute that really to the strength of our deposit franchise. I think when you just look at the core retail deposits, we're up $3.4 billion from the end of last year. And then you add the seasonal nature of the cash that kind of comes in. It served us well as we purchased Ally for $2 billion, but we also got $600 million coming in from the sale of the Pets by Pets franchise.

John Hecht: And when deposit costs should level out.

Great great. Thanks, Thanks for the question Jon So when I think about year over year net interest margin rate it's down.

Unnamed Speakers: So I'd say liquidity is kind of peaking. So I think if you think about margin and the effects on margins, you step through, then just margin is probably at its lowest point for the year in the first quarter, given all that excess liquidity. And listen, I think we've heard other lenders over the last week or two talk about balances being down, and flatter balance sheets. That's not what we're expecting. So clearly, we're still in deposit gathering mode. We haven't really done anything to significantly attract new deposits. It's just the strength and attractiveness of our digital franchise.

Speaker Change: 67 basis points, the biggest driver of that.

Speaker Change: I do net funding costs, so think about your interest bearing liability costs.

Speaker Change: Offset by your income coming off the investment portfolio.

Speaker Change: About 88 points of decline.

Speaker Change: They came off of that there's another 19 basis points a decline of having a higher.

<unk>.

Speaker Change: At a higher liquidity portfolio year over year, that's been offset by the interest and fee yield which is plus 40.

Speaker Change: Again, as we think about how that develops through the year.

Unnamed Speakers: Great, thank you.

Speaker Change: Asset.

Speaker Change: Or kind of mix will neutralize back out.

Operator: Thank you. We'll take our next question from John Hecht with Jeffrey. Please go ahead.

Speaker Change: We believe we peaked on interest bearing liability costs.

Unnamed Speakers: Yeah, guys. Morning.

Unnamed Speakers: Thanks for taking my questions. I guess just a little bit more on the net interest margin, Brian. I know there's always a seasonal impact in Q1 as you gather deposits to kind of pre-fund for growth later in the year, and then you mentioned PetSmart kind of causing incremental cash balances, but maybe could you give us some sense for like the parse out what drove the margin decline this quarter relative to, say, 1Q23, and then maybe talk about marginal deposit pricing, and where you are kind of in the CD markets and the savings account markets Great, great.

Speaker Change: From here. So so in theory as you step through net interest margin should should really improve.

Speaker Change: As you move throughout the year to your second question around pricing.

Speaker Change: Really when you think about the various tenors.

Speaker Change: Looked at our 12 month CD rate were down 50 basis points from the end of the year <unk> 'twenty three down to a four eight days, we followed all our people down.

Speaker Change: Which is generally flat to the second quarter of 2023.

All issuers all digital banks do have promo rates so.

Speaker Change: So we had one promo rates still over 5% which is R.

Unnamed Speakers: Thanks for the question, John. So when I think about the year-over-year debt interest margin, right, it's down 67 basis points. The biggest driver of that, if I do net funding costs, so think about your interest-bearing liability costs offset by your income coming off the investment portfolio, that's about 88 points of decline that came off of that. There are another 19 basis points of decline from having a higher liquidity portfolio year-over-year. That's then offset by the interest and fee yield, which is plus 40.

Speaker Change: We were 15 months and Thats really to manage at the end of the day, our retention on Cds and be competitive with other people, which add kind of off tenor alter I would expect as we see people who are trying to manage their balancing their liquidity down we'll follow the market down here, we generally lagged the brick.

Speaker Change: Moyer banks, but we will file the digital banks down.

Speaker Change: As you move throughout the year.

Speaker Change: The final piece I would say John is we still had three rate cuts in but we didn't really hasnt coming into September. So there is no real impact.

Unnamed Speakers: Again, as we think about how that develops through the year, the asset and the ALR kind of mix will neutralize back out. You know, we believe we've peaked on interest-bearing liability costs from here. So in theory, as you step through, the interest margin should really improve as you move throughout the year. Your second question around pricing, you know, really when you think about the various tenors, you know, if you looked at our 12-month CDE rate, we're down 50 basis points from the end of the year, 4Q23, down to a 4A base.

Speaker Change: Unless something was more significant move sooner in the year frame from deferred.

Okay and then.

Maybe this is a little sticky or a question but.

John Hecht: And I know you pulled EPS guidance, but.

John Hecht: X linked fees would be your original $5 75 to $6 EPS still hold or are there. Other changes that we should consider reflective of kind of just the trend changes that we want to consider in terms of modeling.

Speaker Change: Yes, so just to be clear John we put out the 8-K on March 5th that adds EPA, Scott, we have not pulled that guidance.

Unnamed Speakers: We followed other people down, which is generally flat to the second quarter of 2023. All issuers or all digital banks do have promotional rates. So we have one promo rate still over 5%, which is our 15-month rate. And that's really to manage, at the end of the day, our retention on CDs and be competitive with other people, which have, you know, kind of an off-tenor.

Speaker Change: We just didnt reiterate it because it's only 45 days ago. So we didn't put it on the page. This morning, if I think about that core core business, what I would say, Brian I would probably tell you is it worse. We're ahead of what we thought were going to be.

Speaker Change: I think interest bearing liability costs are up where were better than our expectations.

Speaker Change: Charge offs generally in line with our expectations and then when you start to think about some of the things that I've highlighted about.

Unnamed Speakers: I would expect that as we see people who are trying to balance their liquidity down, we'll follow the market down here. We generally lag the brick-and-mortar banks, but we will follow the digital banks down as we move throughout the year. The final piece I'd say, John, is we still have three rate cuts in, but we didn't really have them coming into September, so there's no real impact, and we thought it was more significant and moved sooner in the year from the Fed.

Speaker Change: Number one your interest bearing liabilities cost, peaking number to.

Speaker Change: Charge offs, peaking in the second half and I mentioned on this call that youre going to see the sequential decline in delinquencies.

Speaker Change: That's in line.

Speaker Change: When you then think about the reserve rate being lower than 10, 26, I think that sets up in.

It is consistent with the guidance we provided out in on March 5th but again, it's only.

Speaker Change: 45 days or so ago.

Speaker Change: That's great color. Thanks, so much thanks.

Unnamed Speakers: Okay, and then, you know, maybe this is a little sticky of a question, but it's, and I know you've polled EPS guidance, but... Ex-late fees: would your original $5.75 to $6.00 EPS still hold, or are there other changes that we should consider reflective of kind of just the trend changes that we want to consider in terms of modeling? Yeah, so just to be clear, John, we put out an AK on March 5th that had the EPA's guidance. We have not pulled that guidance yet. We just didn't reiterate it because it was only 45 days ago, so we didn't put it on the page this morning.

Speaker Change: Thanks Shannon.

Speaker Change: Thank you we'll take our next question.

Speaker Change: Jeff Adelson with Morgan Stanley. Please go ahead.

Jeffrey David Adelson: Hey, good morning, guys. Thanks for taking my questions.

Jeffrey David Adelson: Just on the credit outlook I wanted to dig in a little bit more on the mid 24 versus first half 'twenty four.

Jeffrey David Adelson: Given the nice delinquency formation improvement you've been seeing.

Jeffrey David Adelson: Ed.

Jeffrey David Adelson: Your second quarter tends to be the seasonally best for you I was just wanted to.

Jeffrey David Adelson: Understand what what mid 2024, it looks like here is that more of a seasonally adjusted peak year over year growth peak or.

Unnamed Speakers: If I think about that core business, what I'd say Brian and I would probably tell you is that we're ahead of what we thought we were going to be. I think interest-bearing liability costs are up, but we're better than our expectations. Charge-offs generally align with our expectations, and then when you start to think about some of the things I've highlighted about, number one, interest-bearing liabilities cost peaking. Number two, charge-offs peaking in the second half, and I mentioned on this call that you're going to see a sequence of decline in delinquencies.

Jeffrey David Adelson: Maybe just help us understand what youre thinking about there.

Yeah, maybe I'll try to simplify this jeff but thanks for the question.

Jeffrey David Adelson: Everything is seasonally adjusted so we built our plan. It is the seasonal overlays, which had been you did the last couple of years, given the normalization to happen as we move back to the pre pandemic levels of delinquency.

Jeffrey David Adelson: Think about it in this way.

Jeffrey David Adelson: Fairly simple first half losses will be higher than second half losses.

Jeffrey David Adelson: I think if you just kind of roles will certainly our 30, plus and 90 plus that you can kind of see how that will play through if you believe that youre going to get a band here in April further than $1.

Unnamed Speakers: That's in line. I think when you then think about the reserve rate being lower than 1026, I think that sets up and is consistent with the guidance we provided out on March 5th, but again, it's only 45 days or so ago. That's Greg Keller. Thanks so much.

Jeffrey David Adelson: You can see outflows out so I, just think about and asked us to simplify versus trying to get to a exact date when it peaks.

Speaker Change: Got it.

Speaker Change: Again on the latency.

Operator: Thank you. We'll take our next question from Jeff Adelson with Morgan Stanley. Please go ahead.

Speaker Change: I think you mentioned how difficult it would be to implement operationally could you just talk about what that specifically it might look like.

Unnamed Speakers: Hey, good morning, guys. Thanks for taking my questions. Just on the credit outlook, wanted to dig in a little bit more on the mid-24 versus first half of 24. Just given the, you know, nice delinquency formation improvement you've been seeing, and, you know, your second quarter tends to be the seasonally best for NCOs, just wanted to help you understand what mid-2024 looks like here. Is that more of a seasonally adjusted peak, year-over-year growth peak, or maybe just to help us understand what you're thinking about there?

Speaker Change: For you and how we may be you can think about the 15 to 25 cents impact you laid out previously if that does happen.

Speaker Change: In Canada as part of the question as well.

Speaker Change: You mentioned, 60% of the changes or are you just talk a little bit about the consumer behavior response rate in terms of other react to those changes so far.

Speaker Change: I'll take the first part of that so.

Speaker Change: Operationally, it's very challenging from a number of different angles and obviously, it's for the issuer, but also the vendors.

Speaker Change: Issuers rely on.

Speaker Change: I think it is important to note too that this is across the industry. It's not specific to US everybody has got the same challenges.

Unnamed Speakers: Everything is seasonally adjusted, so we built our plan; it has seasonal overlays, which have been muted in the last couple of years, given the normalization that happened as we moved back to pre-pandemic levels of delinquency. I would think about it in this way; it's just fairly simple. First half losses will be higher than second half losses, and I think if you just kind of rolled our 30-plus and 90-plus out, you can kind of see how that will play out.

Speaker Change: If in the event, we do have to implement this on may 14th.

We were prepared to make the systematic changes and things like that.

Speaker Change: The real challenges come around terms changes in updating collateral and things like that so that's where a lot of the operational complexities.

Speaker Change: I'll turn it over to Brian.

Brian: So they are trying to provide a dimension really more of a framework for how you think about it Jeff.

Brian: <unk>.

Brian: Our base case assumption as we walked in was in October implementation date, we thought that its communication and there are a lot of scenarios between here and.

Unnamed Speakers: If you believe that you're going to get a bend here in April for the bend in dollars, you can see how it flows out. So I just think about it in half to simplify it versus trying to get to an exact date when it peaks.

Speaker Change: When the courts will take action.

Speaker Change: On the pending litigation in the junction so it's difficult to speculate on any particular scenario because it's just so uncertain I think everyone would have thought.

Unnamed Speakers: Got it. And again, on the late fee, you mentioned how difficult it would be to implement operationally in May. Could you just talk about what that specifically might look like for you and how we maybe can think about the $0.15 to $0.25 impact you laid out previously if that does happen? And kind of as part of the question as well, I know you mentioned 60% of the changes are out. Can you just talk a little bit about the consumer behavior response rate in terms of how they're reacting to those changes so far? Yeah, I'll take the first part of that. So, you know,

Speaker Change: Different at least everyone on this call was that a different opinion.

Speaker Change: <unk> said.

If you want to think about a framework for one second number one I'd say this doesn't impact.

Speaker Change: <unk> exited at a 2025.

Speaker Change: From from Project Awards October or earlier than October that exit point is exactly the same number one number two it doesn't really impact the ability of our business. What we're doing from our P&C changes as Brian talked about how much we've rolled out so that those two things fundamentally don't change.

Speaker Change: That being said if you think about EMEA implementation date Theres a much larger impact in 2024 on EPS, but then as you think about 2025 is that EPS is generally then would be higher than either of the October scenario or.

Unnamed Speakers: Yeah, I'll take the first part of that. So, operationally, it's very challenging from a number of different angles. And obviously, it's for the issuer, but also the vendors that the issuers rely on. I think it's important to note, too, that this is across the industry. It's not specific to us.

Speaker Change: <unk> higher on an actual 24 to 25 basis as you look at it. So once we have greater clarity with regard to.

Unnamed Speakers: Everybody's got the same challenges. If anything, we do have to implement this on May 14th. I think we were prepared to make the systematic changes and things like that. The real challenges come around, you know, terms changes and updating collateral and things like that. So that's where a lot of the operational complexity sits. And I'll turn it over to Brian about that. Yeah.

Speaker Change: When the actual implementation date.

Speaker Change: Happens or occurs or will occur.

Speaker Change: He will then provide incremental transparency relative to the financial implications. Both on 24 and tried to Dimensionalize 25 for people as well, but I think it's important to understand those frameworks about how we exit to exit 25 today.

Unnamed Speakers: So to try to provide a dimension, really more a framework for how you think about it, Jeff, you know, our base case assumption as we walked in was an October implementation date. We thought that was going to be the case. There are a lot of scenarios between here and when the courts will take action on defending litigation and the injunction. So it's difficult to speculate on any particular scenario because it's just so uncertain.

Speaker Change: Any any incremental detriment in 'twenty, four and theory gets a benefit in 'twenty five.

Speaker Change: And then just on your last question on consumer behavior and impact I would say, we haven't seen anything yet.

Speaker Change: Different than our expectations I would say is largely in line, but the only caution I would add is it's very early.

Unnamed Speakers: I think everyone would have thought something different, you know, at least everyone on this call would have had a different opinion. That being said, if you want to think about a framework for one second, number one, I'd say this doesn't impact where you exit out of 2025 from protecting whether it's October or earlier than October. That exit point is exactly the same.

Speaker Change: As a lead in period for a lot of these term changes, but so far we're seeing from the consumer side is generally in line with what we expected.

Speaker Change: Great. Thank you. Thanks.

Speaker Change: Thanks, Jeff.

Speaker Change: Thank you we will take our next question from Sal Martinez with HSBC. Please go ahead.

Sal Martinez: Hi, Thanks, good morning, and thanks for taking it so I think so.

Sal Martinez: Just a follow up on the response to the last question on the PC.

We see.

Sal Martinez: Impact so if I hear you right the March 5th.

Unnamed Speakers: Number two, it doesn't really impact the visibility of our business and what we're doing with our PP&C changes that Brian talked about, how much we've rolled out. So those two things fundamentally don't change. That being said, if you think about a May implementation date, there's a much larger impact in 2024 on EPS. But then as you think about 2025, that EPS generally would be higher than either the October scenario, or it's significantly higher on an actual 24 to 25 basis as you look at it.

Speaker Change: Hey, the guidance that or the <unk>.

Speaker Change: Estimates that you gave there.

Speaker Change: Thats ranging from $6 50 to 700 million pretax, which would imply a pretty significant ramp given the time horizons gate into the fourth quarter.

Speaker Change: We should have seen shaping those are still good benchmark to use and I think it obviously does imply a pretty significant ramp in the back end of the year in terms of NII works the other way the impact.

Speaker Change: Impacts I, just want to make sure that debt.

Speaker Change: Members are still applicable or am I missing something there.

Unnamed Speakers: So once we have greater clarity with regard to, you know, when the actual implementation date happens or occurs or will occur, we'll then provide incremental transparency relative to the financial implications both on 24 and try to dimensionalize 25 for people as well. But I think it's important to understand those frameworks about how we exit 25 and any incremental detriment in 24 in theory gets a benefit in 25. And then on your last question on consumer behavior and impact, I'd say, you know, we haven't seen anything yet that's different from our expectations.

Speaker Change: Let me just start with that based off on October implementation date, and the way to think about it as you begin to add some of the PPC.

Speaker Change: PC changes happen in the second and third quarters, partially offset by RSA. Then you come into the fourth quarter, you would have the detriment from the late fee going away, but a higher RSA offset in that quarter.

Speaker Change: That all shifts.

Speaker Change: You went to an earlier implementation date, so so that range.

Unnamed Speakers: I'd say it's largely in line, but the only caution I would have is it's very early. You know, there's a lead-in period for a lot of these terms changes, but so far, what we're seeing from the consumer side is generally in line with what we expected.

Speaker Change: Would change.

Speaker Change: Materially.

Speaker Change: The situation, where you added potential implementation date prior to October again I think.

Unnamed Speakers: Thank you. We will take our next question from Saul Martinez with HSBC. Please go ahead.

Speaker Change: Does happen, we will come back and provide greater clarity on the impact on late fees as well as the impact on the changes that we're doing.

Unnamed Speakers: Which does imply a pretty significant ramp given the time horizon today into the fourth quarter, you know, we should assume that those are still good benchmarks to use because it obviously does imply a pretty significant ramp in the back end of the year in terms of NII. That's the impact, so I just want to make sure that, you know, those numbers are still applicable, or am I missing something?

Speaker Change: Okay. Okay, that's helpful and I guess just.

Speaker Change: Broader.

Speaker Change: I guess a broader question do you think in your presentation.

Reiterate the long term target to eight.

Speaker Change: Plus percent ROA 28, plus percent RPC.

Speaker Change: <unk>.

Unnamed Speakers: Well, let me just start with that's based on an October implementation date. And the way to think about it is you begin to have some of the PPC changes happen in the second and third quarters, partially offset by RSA. Then you come into the fourth quarter, you would have the detriment from the late fee going away, but a higher RSA offset in that quarter. Obviously, that all shifts if you went to an earlier implementation date.

You guys are working too.

Speaker Change: Fully offset.

Speaker Change: It is a pretty significant.

Speaker Change:

If it gets implemented it is a pretty significant.

Speaker Change: Sure.

Speaker Change: Reduction.

Speaker Change: Of course of revenue, while effectively goes away.

Speaker Change: We'll see what happens with Basel III.

Speaker Change: Maybe.

Speaker Change: But the direction of travel that we've done on capital is moving higher I was just curious like how you were thinking about the long term targets for profitability going forward the group profit.

Speaker Change: What do you think those are still.

Unnamed Speakers: So that range would change materially in a situation where you had a potential implementation date prior to October. Again, I think if that does happen, we'll come back and provide greater clarity on the impact on late fees as well as the impact on the changes that we're doing. Okay.

Speaker Change: Applicable targets.

Speaker Change: Yeah.

Speaker Change: We look at it and Brian and I have been very clear that the organization.

Speaker Change: Our goal is to be ROA neutral.

Speaker Change: At the end of.

Speaker Change: The impact of the late fee rule change.

Unnamed Speakers: Okay, okay. That's helpful.

Unnamed Speakers: Water question: you reiterated in your presentation the long-term targets of two and a half plus percent ROA.

Speaker Change: And again, when we get better clarity with regard to.

Speaker Change: The actual implementation day, we could talk a little bit about that timing. So so the goal is to get back to ROA mutual.

Unnamed Speakers: 20, Plus Percent RMTC. I get the offsets, and you guys are working.

Unnamed Speakers: The Long-Term Targets for Profitability Going forward, you need to be confident.

Speaker Change: And that's the plan that we are rolling out.

Speaker Change: And beginning to execute today understanding there are a lot of assumptions with regard to consumer behavior that are in there.

Unnamed Speakers: Degree of Confidence, and where do you think those are still applicable targets?

Unnamed Speakers: Yeah, obviously, we look at it, and Brian and I have been very clear that the organization's goal is to be ROA neutral at the end of the Um... impact of the late fee rule change. And again, when we get better clarity with regard to the actual implementation date, we can talk a little bit about that timing. So the goal is to get back to ROA neutral, and that's the plan that we are rolling out.

Speaker Change: And other things that can impact it.

That being said, we if you think about a more normalized environment right. So I think five 5% interest rates are not normalized.

Speaker Change: When you think about an inflation rate that is relevant when they normalize you should be able to come back to that ROA profile.

Unnamed Speakers: I'm beginning to execute today, and I understand there are a lot of assumptions with regard to consumer behavior that are in there, and other things that can impact it. That being said, if you think about a more normalized environment, right, so I think 5.5% interest rates are not normalized. You think about an inflation rate that's elevated. When inflation rates normalize, you should be able to come back to that ROA profile that's there. And that's one of the strengths of the RSA itself that kind of helps us get back to that.

Speaker Change: That's fair and that's one of the strengths of the RSA itself.

Speaker Change: That kind of helps us get back to that from a capital standpoint.

Speaker Change: Can't really forecast I'm not sure that people can wear exactly the fed may or may not go with regard to <unk>.

Speaker Change: Basel III you mean, most certainly there has not been a lot of <unk>.

Speaker Change: <unk>.

Speaker Change: Around that.

Speaker Change: So we will see what those changes are that being said, we actually have excess capital and we're going to continue to move down towards our target, which helps us get to the rotc's. So so again the focus on being an ROA neutral through the Levy will change number one.

Unnamed Speakers: From a capital standpoint, I can't really forecast, and I'm not sure other people can forecast, where exactly the Fed may or may not go with regard to Basel III. I mean, certainly, there's not been a lot of support around that.

Deploying our excess capital.

Unnamed Speakers: So we'll see what those changes are. But that being said, we actually have excess capital, and we're going to continue to move down towards our target, which helps us get to the ROTC. So again, being focused on being ROA neutral through the LEP rule change number one, deploying our excess capital, whether that be into RWA, the decreed earnings in ROA, or whether that would return it to shareholders. Our goal is to get back to those medium to long-term targets we put out a couple of years ago.

Speaker Change: That would be into <unk>.

Speaker Change: It's accretive to earnings in ROA.

Speaker Change: I will return it back through back to shareholders. Our goal is to get back to those those medium to long term targets, we put out a couple of years ago.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you have a good day.

Speaker Change: Thank you we'll take our next question from Doug.

Speaker Change: Jonathan <unk> with Wells Fargo. Please go ahead.

Doug: Yes, good morning.

Doug: Our capital position is.

Unnamed Speakers: Okay, thank you. Thank you, have a good day. Thank you. We'll take our next question from

Pretty strong I was just curious if you thought the CFPB changes could lead to some portfolio movements over the next year or two and do you see any more opportunistic deals like ally.

Operator: Thank you. We'll take our next question from Don Fandetti with Wells Fargo. Please go ahead. Oh, yes. Good morning.

Unnamed Speakers: Yeah, you know, look, we're always on the lookout for potential acquisitions or new programs. You know, Ally fit our business model perfectly. It's exactly the type of acquisition that we look for. It's in industries that we know really well, we understand the products, a great cultural fit, like it just, it checked all the boxes.

Doug: Yes.

Speaker Change: We're always on the lookout for potential acquisitions or new programs.

Speaker Change: Ally fit our business model perfectly it's exactly the type of acquisition that we look for.

Speaker Change: It's in industries that we know really well we understand the products at a great cultural fit like it just it checked all the boxes. So we.

Unnamed Speakers: So we do, we have excess capital today; we generate a lot of capital, you know, over the calendar year. And if we have the opportunity to do something opportunistic, we certainly have the financial resources to do it. Yeah, the only thing I'd add to that, you know, just to dimensionize it for you, if you look at page 12 of our earnings deck, we showed that the earnings power of this business does generate that capital. And if you look year over year, last 12 months, we generated two and a half percent of CET1 just from the net earnings of the business. So, really positive effects that you can look at and lean into.

Speaker Change: We do we have excess capital today, we generate a lot of capital.

Speaker Change: Over the over the calendar year, and if we have the opportunity to do something opportunistic we certainly have the financial resources to do it.

Speaker Change: The only thing I would add onto that.

Speaker Change: Dimensionalize. It for you if you look at page 12 of our earnings deck. We showed that the earnings power of this business does generate that capital. If you look year over year last 12 months, we generated two 5% CET one just from net earnings of the business. So.

Speaker Change: Really positive effects that you can look at and lean into.

Unnamed Speakers: You know, plus you have the excess capital that weighs between there and our target level of CET1. Yeah, the only other point I'd make on this is that we are very disciplined when it comes to accretive acquisitions that have a really good strategic fit. I mean, I think you've seen that discipline over the years. We haven't done, you know, really large-scale M&A. We've been very thoughtful about finding things that are relatively modest from a capital outlay perspective but are businesses that we can grow really well. That's a great example of that, a perfect example of that. Allegro, I think Ally is going to be a home run for us. We are very disciplined in terms of what we look for.

Speaker Change: Plus you have the excess capital that really between there and our targeted level of the CET one yes. The only other point I'd make on this is we are very disciplined when it comes to.

Speaker Change: Accretive acquisitions that have a really good strategic fit I mean, I think you've seen that discipline over the years, we haven't we haven't done.

Speaker Change: Large scale M&A.

Speaker Change: We've been very thoughtful about finding things that are.

Speaker Change: Relatively modest from a.

Speaker Change: From a capital outlay perspective, but.

Speaker Change: Our businesses that we can grow really well that's a great example of that a perfect example of that Allegro.

Speaker Change: Ally is going to be a homerun for us. So we are we are very disciplined.

Speaker Change: In terms of what we look for.

Unnamed Speakers: Thank you. We'll take our next question from Rick Shane with J.P. Morgan. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Thanks, Don.

Speaker Change: Thank you we'll take our next question from.

Speaker Change: Rick Shane with Jpmorgan. Please go ahead hi.

Operator: Hi guys, two questions this morning. First, on the CFPB, one of the consequences that the industry has raised in terms of the rule change is the loss of deterrence, which suggests that DQs will be higher. I'm curious if you guys have had discussions with your accountants related to how you will tweak reserve policies if you have higher delinquencies but potentially assume lower pull throughs.

Richard Barry Shane: Hey, guys two questions. This morning first on the CFP being one of the consequences that the industry has raised.

Richard Barry Shane: In terms of the rule changes the loss of deterrents.

Richard Barry Shane: Would suggest that <unk> will be higher.

Richard Barry Shane: I'm curious if you guys have had discussions with your accountants related to how you will.

Richard Barry Shane: Reserve policies, you have higher delinquencies, but potentially assume lower pull throughs.

Unnamed Speakers: Yeah, Rick, thanks for the question. Most certainly, we've had internal conversations about the effects of deterrence. And it's really going to be how we model any potential change in delinquency. And again, what you're looking at here are individuals who are making a choice not to pay. Those who lost their job or had a health event and rolled into delinquency, you're not going to rehabilitate them. This wasn't a deterrent for them.

Richard Barry Shane: Yes.

Speaker Change: Thanks for the question certainly we've had internal conversations.

Speaker Change: The effects of deterrence, and it's really going to be how we modeled the any potential change in delinquency and again, which are what you are looking at here are individuals who are making a choice not to pay those who lost their job or had.

Speaker Change: Health event.

Speaker Change: And rule of delinquency youre, not going to rehabilitate and that this wasn't a deterrent for them and their role to loss of role of settlement et cetera. This is people who made enacted decision too.

Unnamed Speakers: They either rolled to loss or rolled to settlement, etc. These are people who made an active decision to, you know, prioritize one payment over another payment. We would have to model that out, and then we'll certainly get our accounts comfortable with how it is. But again, you know, we'll have to see because no one really did a lot of testing control at this level of deterrence. Most certainly, there were things done back in the CARD Act that demonstrated deterrence, but we'll have to see how it plays out, Rick.

Speaker Change: May take prioritize one payment over another payment we would have to model that out.

Speaker Change: And then most certainly get.

Speaker Change: <unk> comfortable with as it is but again, we'll have to see because no. One really did a lot of test and control.

At this level of at this level of returns most earlier things done back in the cardiac which demonstrated it turns but but we'll have to see how it plays out Rick.

Unnamed Speakers: In terms of the concept of a charge-off peak in the middle of the year, seasonality works in your favor really steadily over the next six months and then starts to reverse in the fourth quarter. When you're talking about a peak, are you suggesting that as we move into the fourth quarter, charge-offs will continue to decline, or that they will normally rebound seasonally? Yeah.

Richard Barry Shane: Got it. Thank you and then in terms of the concept of charge off peak.

Richard Barry Shane: Middle of the year seasonality works in your favor.

Richard Barry Shane: Really steadily over the next six months and then starts to reverse in the fourth quarter when you're talking about up peak are you, suggesting that as we move into the fourth quarter charge offs will continue to decline or that they will normally seasonally rebound, but perhaps not quite as much as they have.

Unnamed Speakers: I'm just going to give you the framework. We applied seasonal patterns to how the loss rate works. Again, we believe we're more normalized and back to pre-pandemic levels. And I think as you begin to see, you will see, again, in April, dollar declines of 30 plus and 90 plus, which have a flow-through effect both on the third quarter and the fourth quarter as they kind of come through. So we're not going to get into specific quarter guides now, but again, the rates in the first half of the year will be higher than the rates in the second half.

Richard Barry Shane: In the past.

Speaker Change: Yes. Thanks for the question again, Rick we haven't give quarterly guidance again, I'm just going to give you the framework, we applied seasonal patterns.

Speaker Change: The luxury works again, we believe were more normalized back to the pre pandemic levels.

Speaker Change: And I think as you begin to see you will see again in April dollar declines in 30, plus and 90, plus which have a flow through effect, both on the third quarter and the fourth quarter.

As they kind of come through so we're not going to we're not going to get into specific quarter guidance now, but again the rates in the first half of the year will be higher than the rates in the second half of the year.

Speaker Change: Got it alright, thank you very much thanks.

Unnamed Speakers: Thank you. We'll take our next question from Brian Foran with Autonomous Research. Please go ahead.

Thanks, Rick I have a good day.

Speaker Change: Thank you we'll take our next question from.

Speaker Change: Brian Foran with Autonomous research. Please go ahead.

Operator: Hi, I was wondering if you could just speak to your annual internal stress testing process.

Brian D. Doubles: Hi, I was wondering if you could just speak to.

Unnamed Speakers: And, you know, it's a little screwy, I guess, in this two-year window, because you've got the late fee folding in, but then you would arguably hit the business with peak losses. Does that become a constraint at all for capital considerations? Or do you feel like you have enough excess capital and enough line of sight to this ROA neutrality that you can kind of look through that, you know, maybe a temporarily elevated stress test result? Yeah, thanks, Brian.

Brian D. Doubles: Your annual internal stress testing process.

Brian D. Doubles: It's a little screwy I guess in this two year window, because you've got the late fee folding in but then you would arguably hit the business with peak losses does that become a constraint at all for capital considerations or do you feel like you have enough excess capital and enough line of sight to this ROE neutrality that you can kind of.

Brian D. Doubles: Look through that maybe.

Brian D. Doubles: It may be a temporarily elevated stress.

Brian D. Doubles: The stress test results.

Speaker Change: Yes, Thanks, Brian So first let me just be clear we have submitted our capital plan to the.

Unnamed Speakers: So first, let me just be clear, we have submitted our capital plan to the Fed, we're part of the Horizontals, and we're part of the CCAR group, albeit we do not get a stress capital buffer until 2026. So the process remains somewhat the same as in prior years, other than we'll engage a little bit differently with the Fed than we have in the past. But again, a stress capital buffer comes in 20

Speaker Change: They were part of the Horizontals were part of the CCAR group, albeit we do not get a stress capital buffer until 2026. So so the process remained somewhat the same as in prior years other than.

Speaker Change: We will engage a little bit differently with the fed than we have in the past, but again the stress capital buffer comes in 2026.

Unnamed Speakers: When you specifically look at the capital plan that our board just approved and management presented to them, there were scenarios or scenarios in there around late fees and the impact of late fees that were put in there that didn't, you know, that informed our overall capital decision but didn't necessarily restrict the plans that we had. Even if I came back and said I had an earlier implementation date, you know, which we discussed a little bit on this call, that would not necessarily interfere with our capital targets and our plans.

Speaker Change: When you specifically look at the capital plan that our board just approved and management.

Speaker Change: <unk> to them.

There were scenarios or scenario in there around lead fees and the impact of late fees.

Speaker Change: That put in there that doesn't.

Speaker Change: That informed our overall capital decision, but didn't necessarily restrict.

Speaker Change: The plans that we had even if I came back and said I had an earlier implementation date, which we've talked a little bit on this call that would not necessarily interfere with our capital targets in our plans you had all that subject to the normal things. We would say is the market conditions and everything else, Brian, but the the impact of the way.

Unnamed Speakers: Again, all that's subject to the normal things we'd say about the market conditions and everything else, Brian, but the impact of the late fee rule doesn't necessarily impact the capital plan that we announced this morning. That's very helpful. And maybe if I could sneak in on competition, are you generally seeing competitors in the market respond in common ways to these kinds of PPPC efforts? Is there any evidence of any, you know, points of big divergence or people breaking from the pack?

Speaker Change: The rule doesn't necessarily impact the capital plan that we announced this morning.

Brian: That's very helpful and maybe if I could sneak in on competition.

Brian: Are you generally seeing competitors in the market respond and common ways.

Brian: On these kind of PTC efforts.

Brian: Is there any evidence of any.

Brian: I'm going to pick divergence or people breaking from the pack or is kind of everyone's doing different combinations of similar things.

Unnamed Speakers: Or is everyone kind of doing different combinations of similar things? You know, we only see what's out there in terms of public changes in terms. But, you know, I would tell you my expectation is that everybody's going to do a combination of the same things that we're doing. You know, it's pretty, it's a relatively standard playbook.

Brian: We only see what's out there in terms of public changes and terms, but.

Brian: I would tell you my expectation is that everybody is going to do a combination of the same things that we're doing.

Brian: I think it's a relatively standard playbook you might see.

Unnamed Speakers: You know, you might see some issuers do a couple things differently. But I think, on the whole, it's going to be, you know, the APR increases, different types of fees, etc. to offset this, and it's important that we do. You know, our goal from the beginning has been to protect our partners and continue to provide credit to the customers that we do today. And unfortunately, that's impossible to do without these offsets.

Some issuers do a couple of things differently, but I think on the whole it's going to be.

Brian: APR increases different types of fees et cetera to offset this.

Brian: And it's important that we do our goal from the beginning has been to protect our partners.

Brian: And continue to provide credit to the customers that we do today and unfortunately, that's that's impossible to do.

Brian: Without these offsets.

Unnamed Speakers: Yeah, doing that, Brian, I do think the one thing you will see is that we probably have been a little bit more, a little bit more sense of urgency and gotten out ahead of this, you know, based upon discussions with our partners. So that may pay a little bit, but I think Brian's right about the medium-term area. You know, that's where you're going to see the convergence.

Brian: Yes.

Speaker Change: And I'd add Brian I do think the one thing you will see.

We probably had been a little bit more.

Speaker Change: Sure by showed a little bit more sense urgency and gotten out ahead of this based upon discussions with our partners. So that may be a little bit, but I think Brian right over the over the medium term area, that's where you're going to see the convergence.

Speaker Change: Thank you.

Speaker Change: Thanks, Brian have a good day.

Operator: Thank you. We'll take our next question from John Pancari with Evercore. Please go ahead.

Speaker Change: Thank you we'll take our next question from John <unk>.

John Hecht: Any with Evercore. Please go ahead.

John Hecht: Good morning.

Unnamed Speakers: Good morning. On that very last point you just brought up, some of the pure card lenders that have somewhat smaller private label and co-brand card businesses have begun to indicate maybe a willingness to absorb the late fee, the foregone late fees as a result of the rule change. Can you talk about if we do see that happen at some players where late fees are a smaller piece of their overall revenue but they're in the private label and co-brand business? Do you view that as a competitive threat if they do absorb the impact? I don't see it as a competitive threat today.

John Hecht: Some of your on that very last point that you just brought up some of the pure card lenders that have somewhat smaller private label and co brand card businesses.

John Hecht: Begun to indicate maybe a willingness to absorb.

John Hecht: The late fee a foregone late fees as a result of the rule change.

John Hecht: Can you talk about if we do see that happen at some players were made fees or a smaller piece of their overall revenue, but they are in the private label and co brand business, we view that as a competitive threat to absorb the impact.

Speaker Change: I don't.

Speaker Change: Don't see it as a competitive threat today I think in our space and the vast majority of our business I think youre going to see issuers.

Unnamed Speakers: I think in our space and the vast majority of our business, I think you're going to see issuers do the same types of things that we're doing. I think it's going to be really important in terms of economic sharing with partners. I think, you know, we're obviously focused on providing credit to the customers that we do today. And fortunately, you need to do some of these things in order to protect that and protect our partners.

Speaker Change: Due to the same types of things that we're doing I think it's.

It's going to be really important in terms of the economic sharing with the partners.

Speaker Change: I think we're obviously focused on providing.

Speaker Change: Credit to the customers that we do today. Unfortunately, you need to do some of these things in order to in order to protect that and protect our partners. So I do think youll start to see and we're starting to see this now youll start to see some issuers.

Unnamed Speakers: So, I do think, you know, you'll start to see, and we're starting to see this now, you'll start to see some issuers. We're building this into pricing models as we look at new business, and we're starting to build it. You know, as we bring in portfolios from our competitors, you've got to contemplate an $8 latency. You have to assume that while we're hoping for a better outcome in the litigation, obviously, you have to build in scenarios where we have a much lower latency.

Speaker Change: Building this into pricing models as we look at new business, we're starting to build it.

Speaker Change: As we bring on portfolios from our competitors you've got to contemplate an $8 late fee you have to assume that.

Speaker Change: While we're hoping for a better outcome on the litigation obviously.

Speaker Change: You've got to build in scenarios, where we have a much lower late fees. So I think it'll it'll it'll even out over time across the industry, primarily in the space that we operate in today.

Unnamed Speakers: So, I think it'll, you know, it'll even out over time across the industry, primarily in the space that we operate in today. But one thing, John, if you just took it up a notch for a second, so if you had a theoretical case where someone who has a smaller business than ours decides to absorb some of that latency, what you end up with is a suboptimal return profile. And inside a larger institution, while it may be immaterial, the question will be, does it attract capital, and how long can you sustain that?

Speaker Change: The one thing John if you just took it up a level for a second so if you add a theoretical case, where someone who has a smaller business than ours the size to absorb some of that Lacey.

Speaker Change: What you end up into as a suboptimal return profile and it's not a large institution why may be immaterial. The question would be does it attract capital how long can you sustain that and we've seen over over history.

Unnamed Speakers: And we've seen, over history, businesses come and go in certain larger institutions where this is a smaller part, and, you know, this is what we do. And the same way that we look inside our businesses, our platforms, and allocate capital to some of our better-performing, higher-returning portions of the portfolio, that, I think, over time, will have to happen in these institutions. So, I'm not sure that that's a long-term viable strategy if someone wants to do that, but, again, it's very theoretical. Your question, sorry to belabor that, but the, I know you're not reiterating that $576 guide.

Speaker Change: Businesses come out of flavor and certain larger institutions.

Speaker Change: This is a smaller part and this is what we do in same way that we look inside of our businesses.

Speaker Change: Our platforms and allocate capital to some of our better performing higher returning portions of the portfolio that I think over time will have to happen. These institutions. So I am not sure.

Speaker Change: That's a long term viable strategy, if someone wants to do that but but again, it's very theoretical your question.

Speaker Change: Got it that makes sense, thanks for that and then separately.

Speaker Change: Back to the EPS.

Speaker Change: Sorry to belabor that but I know, you're not reiterating that $5 7 million fixed dollar guide.

Unnamed Speakers: And just so I understand, it's just because it was only 45 days ago, and the underlying components that you had baked in at that point in March have not changed materially enough to change how you're thinking about your underlying trends. I know we've had moves in rates, and some development on the late fee dynamics. But I just want to make sure that the core expectations that were part of that $576 have not changed at all.

Speaker Change: And I just want to understand.

Speaker Change: It's just because it was only 45 days ago and the underlying components.

Speaker Change: <unk> been.

Speaker Change: At that point in March have not changed material enough to change how youre thinking about your underlying trends I know we've had moves in rates had some development on the <unk> dynamics.

Speaker Change: But just want to make sure that the core expectation that were part of that five 7% to $6 have not changed at all.

Unnamed Speakers: Yeah, again, I'm gonna just say it again, we put that guidance out 45 days ago. I didn't feel a need to, nor did I think Brian feel a need to, one, put it back on his page or two, you know, kind of updated. Again, what I've said is, the quarter and the points raised about the interest margin, losses, reserves, and positive on expenses should be viewed fairly relative to that kind of base. Based on the BAU performance of the business.

Speaker Change: Yes.

Speaker Change: I'm going to just say it again, we put in our guidance at 45 days ago, I didn't feel a need to nor I think Brian fill need to put.

Speaker Change: Put it back on the stage are to kind of update it again, what I've said is.

Speaker Change: The quarter in the points I raised about net interest margin losses and reserves.

Speaker Change: Positive on expenses I think should be viewed favorably relative to that kind of base.

Speaker Change: <unk> you.

Unnamed Speakers: So we're very pleased with how we're exiting out of the first quarter and moving in on a core BAU basis. Okay Brian, thanks for walking through that. Great. Thanks. Have a good day.

Speaker Change: Performance of the business. So we're very pleased on how we're exiting out of the first quarter moving in on a core basis.

Speaker Change: Okay, Brian Thanks for walking through that again.

Brian: Okay. Thanks have a good day.

Operator: And we are almost out of our allotted time. So, we will take one final question from Mihir Bhatia with Bank of America. Please go ahead.

Brian: And we are almost at a lot of time, we will take one final question from Mihir Bhatia with Bank of America. Please go ahead.

Unnamed Speakers: Hi, thank you for squeezing me in, and good morning.

Mihir Bhatia: Hi, Thanks for squeezing me in and good level just wanted to make.

Unnamed Speakers: I just wanted to do two big picture questions. Maybe to start with, just the competitive situation, and really not so much necessarily on the new programs, but just in terms of the financing offers that are already out there for consumers. Has the purchase volume been impacted at all by consumers just having more choices today? Are there any market share or penetration rates, or statistics you can share in terms of how often consumers are

Mihir Bhatia: Two questions maybe to start let's just on the competitive situation.

Mihir Bhatia: And really more not so much necessarily on the new programs, but just in terms of the financing all of those that are already out best luck with Google.

Mihir Bhatia: While it is being impacted at all by consumers just having more choices today are there any market share penetration. It simplistically can shed in terms of how often consumers are starting to completely.

Unnamed Speakers: GMOs are turning to Synchrony versus others. As a potential, you know, retailer partner sales or anything like that, I'm sure you'll crack it.

Mihir Bhatia: As others.

Mihir Bhatia: As a percentage.

Speaker Change: No sales or anything like that I'm sure you're correct yes.

Unnamed Speakers: Yeah, we do. We track it by partner. We look at the penetration rate, you know, sales on our card versus other products. I'll tell you, generally, we're very pleased that inside of, you know, the majority of our partner programs, we're gaining share. I think one of the things that helps us do that, as we think about a multi-product strategy, we see our partners engaging more on being able to offer a loved product, maybe a secured card, buy now, pay later, and I think that's helping us gain share.

Speaker Change: Yes, we do we track it by partner, we look at the penetration rate sales on our card versus other products and I'll tell you generally we're very pleased that inside of the majority of our partner programs that we're gaining share in it.

Speaker Change: One of the things that helped us do that as we think about our multi product strategy.

Speaker Change: We see our partners engaging more on being able to offer a revolving product.

Speaker Change: A secured card buy now pay later.

Speaker Change: I think that is helping us gain share.

Unnamed Speakers: If you stick to a one-product strategy, I think over time, that's a losing strategy, and I think you will lose share, which is why we think the multi-product strategy, over time, is a winning one, in terms of our ability to continue to take share inside of our partner programs but also just, you know, more generally and even from the smaller to midsize space. Thank you. And then Brian, just last question. In terms of your prepared remarks, I think in the press release today, you highlighted the partnership with small and medium-sized businesses as well as health.

Speaker Change: If you stick to a one product strategy I think overtime.

Speaker Change: That's a losing strategy and I think you will lose share which is why we think the multi product strategy over time.

Speaker Change: The winning one so we feel really good.

Speaker Change: About our ability to continue to take share in.

Speaker Change: Inside of our partner programs, but also just more generally and even some of the smaller to mid size space.

Speaker Change: Thank you and then Brian just last question in terms of your in the prepared remarks, I think in the press release today.

Speaker Change: The partnership with small and medium sized businesses as well as health providers.

Unnamed Speakers: I think the emphasis is, there's a little bit of a new emphasis on small and medium-sized businesses relative to...

Brian: I think the emphasis with a little bit of a new emphasis on small and medium sized businesses.

Unnamed Speakers: The Old Ones. I was just curious, is the growth focus at Synchrony changing a little bit?

Brian: Relative to <unk>.

Brian: The old one so I was just curious if the growth focus including switching a little bit smaller maybe the bulk proprietary programs worth it.

Unnamed Speakers: A little bit smaller, maybe the more proprietary programs versus. Maybe the historical focus on just being the partner of choice for large retailers.

Brian: Maybe the historical focus on being the partner of choice for larger retailers.

Unnamed Speakers: Well, I definitely think that's an underappreciated part of our business model. I think people tend to focus on the large partner programs, but we serve hundreds of thousands of providers and small to medium-sized businesses, and sometimes that gets lost a little bit. So we're definitely leaning in more there. We've shifted investment dollars into the health and wellness space, and you see that paying off when you look at the health and wellness numbers.

Speaker Change: I definitely think that's an underappreciated part of our business model I think people tend to focus on the large partner programs, but we do we serve hundreds of thousands.

Speaker Change: Providers and small to medium sized businesses and sometimes that gets lost a little bit. So we're definitely leaning in more there I'd say, the we've shifted investment dollars into the health and wellness space you see that paying off when you look at the health and wellness numbers.

Speaker Change: Receivables were up 20% like where we're really reaping the benefits of those investments. So that's a very attractive space for us.

Speaker Change: The large partner space is still very attractive as well, but I think that that part of the business always gets a lot of attention.

Unnamed Speakers: [inaudible] Great. Thanks, Mayor. Have a great day.

Speaker Change: We're trying to make sure that we talk enough about all of the small to medium sized businesses in the hundreds of thousands of dentists and.

Operator: And to conclude the Synchrony Earnings conference call, you may disconnect your line at this time and have a wonderful day. Thank you.

Speaker Change: In pet care specialists across the country that we serve.

Speaker Change: Okay. Thank you.

Speaker Change: Great. Thanks Nir.

Speaker Change: Thank you that concludes Synchrony earnings conference call. You may disconnect. Your lines at this time and have a wonderful day. Thank you.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Uh huh.

Speaker Change: No.

Speaker Change: Mhm.

Speaker Change: Thanks.

Speaker Change: Sure.

Speaker Change: I don't know.

Speaker Change: Okay.