Q2 2024 Synchrony Financial Earnings Call

Thank you and good morning everyone. Welcome to our quarterly earnings conference call.

Unnamed Speaker: In today's press release, we have provided a presentation that covers the topics we plan to address during our call. The press release, detailed financial schedules, and presentation are available on our website, synchronyfinancial.com. This information can be accessed by going to the Investor Relations section of the website.

In addition to today's press release, we have provided a presentation that covers the topics we plan to address during our call.

The press release, detailed financial schedules, and presentation are available on our website, synchronyfinancial.com. This information can be accessed by going to the investor relations section of the website.

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

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

Unnamed Speaker: During the call, we will refer to non-GAAP financial measures in discussing the company's performance. You can find a reconciliation of these measures to GAAP financial measures in our materials for today's call. Finally, Synchrony Financial is not responsible for, and does not edit or guarantee, the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website.

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.

Brian D. Doubles: Finally, Synchrony Financial is not responsible for, and does not edit or guarantee, the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website.

Kathryn Harmon Miller: 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. Thanks, Kathryn. Good morning, everyone.

On the call this morning are Brian Doubles, Synchrony's President and Chief Executive Officer, and Brian Wenzel, Executive Vice President and Chief Financial Officer. I will now turn the call over to Brian Doubles.

Brian D. Doubles: Today Synchrony reported strong second quarter results, including net earnings of $643 million, or $1.55 per diluted share, a return on average assets of 2.2%, and a return on tangible common equity of 20.2%. This performance is a testament to our differentiated business model. We continue to leverage our diversified portfolio of products and sales platforms, a disciplined approach to credit underwriting and management, and innovative digital capabilities to further progress on our strategic objectives and deliver sustainable risk-adjusted growth and returns over the long term. Customer demand for Synchrony's product and value propositions remains strong during the second quarter.

Brian D. Doubles: Thanks, Kathryn, and good morning, everyone. Today, Synchrony reported strong second-quarter results, including net earnings of $643 million, or $1.55 per diluted share, a return on average assets of 2.2 percent, and a return on tangible common equity of 20.2 percent.

Brian D. Doubles: This performance is a testament to our differentiated business model.

Brian D. Doubles: We continue to leverage our diversified portfolio of products and sales platforms, disciplined approach to credit underwriting and management, and innovative digital capabilities to further progress on our strategic objectives and to deliver sustainable, risk-adjusted growth and returns over the long term.

Brian D. Doubles: Customer demand for Synchrony's product and value propositions remained strong during the second quarter, as Synchrony added 5.1 million new accounts, grew average active accounts by 2%, generated $47 billion of purchase volume, and delivered ending receivables growth of 8% compared to last year.

Brian D. Doubles: Synchrony added 5.1 million new accounts, grew average active accounts by 2%, generated $47 billion in purchase volume, and delivered ending receivables growth of 8% compared to last year. Synchrony's proprietary data and analytics, in combination with our flexible financing solutions and dynamic technology platform, have been core drivers of our performance through evolving market conditions, particularly as we seek to responsibly address the needs of our customers and partners. And while our credit trends relative to pre-pandemic levels have outperformed most of the industry today, we have leveraged these strengths to take action in our portfolio where we have seen indications of higher probability of default.

Brian D. Doubles: Synchrony's proprietary data and analytics, in combination with our flexible financing solutions and dynamic technology platform, have been core drivers of our performance through evolving market conditions, particularly as we seek to responsibly address the needs of our customers and partners.

Brian D. Doubles: And while our credit trends relative to pre-pandemic levels have outperformed most of the industry to date, we have leveraged these strengths to take action in our portfolio where we have seen indications of higher probability of default.

Brian D. Doubles: These credit actions, along with a more selectively spending consumer, contributed to lower new account and purchase volume growth in the second quarter, but they have also improved our recent delinquency trends and should strengthen our portfolio's credit trajectory in 2024 and beyond. At the platform level, purchase volume and receivables trends were generally consistent in the second quarter.

Brian D. Doubles: These credit actions, along with a more selectively spending consumer, have contributed to lower new account and purchase volume growth in the second quarter, but have also improved our recent delinquency trends and should strengthen our portfolio's credit trajectory in 2024 and beyond.

Brian D. Doubles: At the platform level, purchase volume and receivables trends were generally consistent in the second quarter.

Brian D. Doubles: Purchase volume growth ranged from up 2% to down 3% year over year, broadly reflecting lower consumer spend on bigger ticket items, particularly in categories like furniture, jewelry, and vision, as well as the impact of the credit action. Meanwhile, receivables growth across the platforms ranged from 6-15% higher versus last year, driven primarily by payment rate moderation. Dual and co-branded cards accounted for 42% of total purchase volume for the quarter and increased

Brian D. Doubles: Purchase volume growth ranged from up 2% to down 3% year over year, broadly reflecting lower consumer spend on bigger ticket items, particularly in categories like furniture, jewelry and vision, as well as the impact of the credit actions.

Brian D. Doubles: Meanwhile, receivables growth across the platforms ranged from 6 to 15 percent higher versus last year, driven primarily by payment rate moderation.

Brian D. Doubles: Dual and co-branded cards accounted for 42% of total purchase volume for the quarter and increased 2%.

Brian D. Doubles: Synchrony's out-of-partner spend gives us deeper insight into recent customer trends, as the broad utility of our offerings and compelling value propositions attract purchases across a range of categories, industries, and products. Our customers continue to be discerning in their discretionary purchases, particularly in larger ticket categories such as home furnishings, travel, and entertainment. They have been spending more at restaurants, though, and continue to spend at the pharmacy and on health and wellness needs, contributing to non-discretionary spending growth more broadly.

Speaker Change: Synchrony's out-of-partner spend gives us deeper insight into recent customer trends, as the broad utility of our offerings and compelling value propositions attract purchases across a range of categories, industries, and products.

Speaker Change: Our customers continue to be discerning in their discretionary purchases, particularly in larger ticket categories such as home furnishings, travel, and entertainment.

Speaker Change: They have been spending more at restaurants, though, and continue to spend at the pharmacy and on health and wellness needs, and contributing to non-discretionary spend growth more broadly.

Brian D. Doubles: That said, our customers are spending slightly less per transaction across most categories and credit grades, as average transaction values decline about 2% versus last. Only our top credit segment saw growth in average ticket values during the second quarter. Customers across credit grades are transacting more frequently, however, which generally offsets most of the impact of lower transaction values. All together, we view these spend behaviors as appropriate and consistent with the payment rate normalization that began in our portfolio in 2023 and has continued since.

Speaker Change: That said, our customers are spending slightly less per transaction across most categories and credit grades, as average transaction values declined about 2% versus last year.

Speaker Change: Only our top credit segment saw growth in average ticket values during the second quarter.

Speaker Change: Customers across credit grades are transacting more frequently, however, which is generally offset most of the impact of lower transaction values. Altogether, we view these spend behaviors as appropriate and consistent with the payment rate normalization that began in our portfolio in 2023 and has continued since.

Brian D. Doubles: Over the first six months of 2024, however, the pace of this payment rate moderation has decelerated across credit grades. And according to the external deposit data we monitor, there continues to be relative stability in savings balances compared to the rapid tapering that occurred through the middle of last year.

Speaker Change: Over the first six months of 2024, however, the pace of this payment rate moderation has decelerated across credit grades.

Speaker Change: And according to the external deposit data we monitor, there continues to be relative stability and savings balances compared to the rapid tapering that occurred through the middle of last year.

Brian D. Doubles: When taken together, we believe these spend, payment, and savings trends support our view that consumers are making healthy decisions to actively manage their cash flows. And these trends, coupled with the impact of our credit actions, give us confidence that Synchrony's net charge offer rate should be lower in the second half of this year than in the first half. As we continue to monitor the health of the consumer, our portfolio credit performance, and that of the broader industry, Synchrony is also utilizing its proprietary insights and lending expertise to position its business for sustainable, risk-adjusted growth for many years to come.

Speaker Change: When taken together, we believe these spend, payment, and savings trends support our view that consumers are making healthy decisions to actively manage their cash flows. And these trends, coupled with the impact of our credit actions, give us confidence that Synchrony's net charge offer rate should be lower in the second half of this year than in the first half.

Speaker Change: As we continue to monitor the health of the consumer, our portfolio credit performance, and that of the broader industry, Synchrony is also utilizing our proprietary insights and lending expertise to position our business for sustainable, risk-adjusted growth for many years to come.

Brian D. Doubles: During the second quarter, we added or renewed more than 15 partners, including a program expansion and extension with Verizon and the addition of Virgin Red. We're excited about our continued partnership with Verizon and the opportunity we see to deliver maximum customer value on purchases made at Verizon. We are also proud to be the exclusive issuer of Virgin Red's multi-category travel card, the first-ever Virgin Red Rewards World Elite MasterCard, which will connect members across the Virgin family, from flights to cruises, hotels, and experiences, with points that never expire.

Speaker Change: During the second quarter, we added or renewed more than 15 partners, including a program expansion and extension with Verizon and the addition of Virgin Red. We are excited about our continued partnership with Verizon and the opportunity we see to deliver maximum customer value on purchases made at Verizon.

Speaker Change: We are also proud to be the exclusive issuer of Virgin Red's multi-category travel card, the first-ever Virgin Red Rewards World Elite MasterCard, which will connect members across the Virgin family, from flights to cruises, hotels, and experiences, with points that never expire.

Brian D. Doubles: Cardholders will earn Virgin Points on all of their Virgin Red Rewards card spend, which can be used for a range of gifts and rewards, all while enjoying a first-rate digital experience from application to service. And as Synchrony continues to extend its reach and further optimize outcomes for both our customers and partners, we are incorporating strategic and technology-oriented partnerships to power more seamless digital experiences. Synchrony selectively works with Second Look Financing Solutions to enhance the customer experience and our partner relationship.

Speaker Change: Cardholders will earn Virgin Points on all of their Virgin Red Rewards card spend, which can be used for a range of gifts and rewards, all while enjoying a first-rate digital experience from application to servicing.

Speaker Change: And if Synchrony continues to extend our reach and further optimize outcomes for both our customers and partners, we are incorporating strategic and technology-oriented partnerships to power more seamless digital experiences.

Speaker Change: Synchrony selectively works with second look financing solutions to enhance the customer experience and our partner relationships. We recently announced an expanded relationship that will utilize a fully integrated solution spanning the full customer apply and buy experience across all points of sale.

Brian D. Doubles: We recently announced an expanded relationship that will utilize a fully integrated solution spanning the full customer apply and buy experience across all points of sale. Synchrony will own the point of sale platform and connect to the second source provider in a way that's seamless to both the partner and the customer that's applying. This collaboration will utilize our innovative technology and data to responsibly expand access to credit to more consumers while also driving stronger loyalty and sales for the many small businesses, healthcare providers, and retail partners we serve. Meanwhile, Synchrony launched its partnership with Installation Made Easy, a leading enterprise software and services company that supports retail-based home improvement programs.

Speaker Change: Synchrony will own the point-of-sale platform and connect to the second source provider in a way that's seamless to both the partner and the customer that's applying.

Speaker Change: This collaboration will utilize our innovative technology and data to responsibly expand access to credit to more consumers while also driving stronger loyalty and sales for the many small businesses, healthcare providers, and retail partners we serve.

Speaker Change: Meanwhile, Synchrony launched our partnership with Installation Made Easy, a leading enterprise software and services company that supports retail-based home improvement programs.

Brian D. Doubles: This partnership will enable Floor & Decor cardholders to use their Synchrony-issued credit card to finance both the materials and the installation service required for their home improvement projects through one streamlined process. We're excited about the opportunity we see to strengthen our position in the home improvement market and plan to scale this capability to additional retailers over time. So, whether it's through the continued expansion of our distribution networks, the addition and renewal of programs that span most consumer spend categories, or enhanced functionality at the point of sale, Synchrony is leveraging its proprietary data and analytics, its diverse product suite, and its innovative technology to drive greater access, flexibility, and utility for both our customers and partners. With that, I'll turn the call over to Brian to discuss our financial performance in greater detail. Thanks Brian, and good morning everyone.

Speaker Change: This partnership will enable Floor & Decor cardholders to use their Synchrony-issued credit card to finance both the materials and the installation service required for their home improvement projects through one streamlined process.

Speaker Change: We're excited about the opportunity we see to strengthen our position in the home improvement market and plan to scale this capability to additional retailers over time.

Speaker Change: The weather is through the continued expansion of our distribution networks.

Speaker Change: The addition and renewal of programs that span most consumer spend categories, or the enhanced functionality at point-of-sale, Synchrony is leveraging our proprietary data and analytics, our diverse product suite, and our innovative technology to drive greater access, flexibility and utility for both our customers and partners.

Brian J. Wenzel: Synchrony's second quarter results continue to demonstrate the resilience of our differentiated business model through an evolving environment. While consumers are managing their cash flows and consumption, and the impact of our credit actions is beginning this season, we remain focused on driving sustainable risk-adjusted growth. Turning to our financial performance, ending loan receivables grew 7.9% to $102 billion in the second quarter, benefiting from an approximately 80 basis point decrease in the payment rate and reflecting growth across each of our sales platforms.

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

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

CICRINI: Synchrony's second quarter results continue to demonstrate the resilience of our differentiated business model through an evolving environment. While consumers are managing their cash flows and consumption, and the impact of our credit actions are beginning this season, we remain focused on driving sustainable, risk-adjusted growth.

Brian J. Wenzel: Net revenue increased 13% to $3.7 billion, reflecting higher interest and fees, lower RSA, and an increase in other income. Net interest income increased 7% to $4.4 billion as interest and fees grew 10%, primarily reflecting growth in average loan receivables.

CICRINI: Turning to our financial performance, ending loan receivables grew 7.9% to $102 billion in the second quarter, benefiting from an approximately 80 basis point decrease in the payment rate and reflecting growth across each of our sales platforms.

CICRINI: Net revenue increased 13% to $3.7 billion, reflecting higher interest and fees, lower RSA, and an increase in other income.

CICRINI: Net interest income increased 7% to $4.4 billion as interest and fees grew 10%, primarily reflecting growth in average loan receivables.

Brian J. Wenzel: Our loan receivable yield grew 14 basis points, benefiting from product repricing actions and lower payment rates, partially offset by higher reversals as our net charge-offs increased. RSAs of $810 million in the second quarter were 3.21% of average loan receivables, down $77 million versus the prior year, driven by higher net charge-offs, partially offset by higher net interest income. And the increase in other income primarily reflected a $51 million gain related to the exchange of our Visa B1 shares, as well as the initial fee-related impact of our product, pricing, and policy changes, or PPPCs. These benefits were partially offset by the impact of the Petsfest disposition.

CICRINI: Our loan receivable yield grew 14 basis points, benefiting from product repricing actions and lower payment rate, partially offset by the higher reversals as our net charge-offs increased.

CICRINI: RSAs of $810 million in the second quarter were 3.21% of average loan receivables, down $77 million versus the prior year, driven by higher net charge-offs, partially offset by higher net interest income.

CICRINI: An increase in other income primarily reflected a $51 million gain related to the exchange of our Visa B1 shares, as well as initial fee-related impact of our product, pricing, and policy changes, or PPPCs.

Brian J. Wenzel: Provision for credit losses increased to $1.7 billion, reflecting higher net charge-offs and a $70 million reserve bill. Our expenses grew 1% to $1.2 billion, which was driven by technology investments, preparatory expenses related to the late fee rule change, and servicing costs related to newly acquired businesses. Partially offset by the operational losses and costs that have been resulting from lower employee and marketing costs. The preparatory expenses related to the late fee rule changes reflected $23 million of incremental costs related to both the execution of our PPP fees and the implementation of the rule itself, should it become effective.

CICRINI: These benefits were partially offset by the impact of the PEPFEST disposition. Provision for credit losses increased to $1.7 billion, reflecting higher net charge-offs and a $70 million reserve bill.

CICRINI: Our expenses grew 1% to $1.2 billion, which was driven by technology investments, preparatory expenses related to late fee rule change, and servicing costs related to newly acquired businesses.

CICRINI: Partially offset by the operational losses and costs that's been resulting from lower employee and marketing costs.

CICRINI: The preparatory expenses related to the late fee rule changes reflected $23 million of incremental costs related to both the execution of our PPPCs and the implementation of the rule itself, should it become effective.

Brian J. Wenzel: Even with these incremental costs, Synchrony's efficiency ratio was 31.7% for the second quarter, an improvement of approximately 380 basis points versus last year. In sum, Synchrony generated net earnings of $643 million, or $1.55 per diluted share.

CICRINI: Even with these incremental costs, Synchrony's efficiency ratio was 31.7% for the second quarter, an improvement of approximately 380 basis points versus last year.

Speaker Change: In sum, Synchrony generated net earnings of $643 million, or $1.55 per diluted share. This produced a return on average assets of 2.2% and a return on tangible common equity of 20.2%.

Brian J. Wenzel: This produced a return on average assets of 2.2% and a return on tangible common equity of 20.2%. Next, I'll cover our key credit trends on slide nine. At quarter end, our 30-plus delinquency rate was 4.47% versus 3.84% in the prior year, and 19 basis points above our historical average in the second quarters of 2017 to 2019. Our 90-plus likelihood to default rate was 2.19% versus 1.77% last year, 18 basis points above our historical average in the second quarter of 2017 to 2018.

Speaker Change: Next, I'll cover our key credit trends on slide 9.

Speaker Change: At quarter end, our 30-plus delinquency rate was 4.47% versus 3.84% in the prior year, and 19 basis points above our historical average in the second quarters of 2017 to 2019.

Speaker Change: Our 90 plus delinquency rate was 2.19% versus 1.77% last year, an 18 basis points above our historical average from the second quarters of 2017 to 2019.

Brian J. Wenzel: And our net charge-off rate was 6.42% in the second quarter, compared to 4.75% in the prior year and 62 basis points above our historical average from the second quarters of 2017 to 2019. Additionally, our allowance for credit losses as a percent of loan receivables was 10.74%, down two basis points from 10.72% in the first quarter.

Speaker Change: And our net charge-off rate was 6.42% in the second quarter, compared to 4.75% in the prior year, and 62 basis points above our historical average from the second quarters of 2017-2019.

Speaker Change: Our allowance for credit losses as a percent of loan receivables was 10.74%, up two basis points from 10.72% in the first quarter.

Brian J. Wenzel: The Reserve Bill of the Quarter primarily reflected long receivable growth. As shown on slide 10, the credit actions we've taken thus far are improving our delinquency trajectory as the rate of year-over-year growth continues to decelerate. We will continue to closely monitor our portfolio performance and credit trends for the broader industry given our share consumer, and we will take additional credit actions as necessary. While these actions are reducing new account and purchase finance growth in the short term, we expect they will strengthen our portfolio's positioning as we exit 2024 and support our ability to deliver our targeted risk-adjusted returns over the long term.

Speaker Change: The Reserve Bill and Quarter primarily reflected low and receivable growth.

Speaker Change: As shown on slide 10, the credit actions we've taken thus far are improving our delinquency trajectory as the rate of year-over-year growth continues to decelerate.

Speaker Change: We will continue to closely monitor our portfolio performance and credit trends for the broader industry given our shared consumer, and we will take additional credit actions as necessary.

Speaker Change: While these actions are reducing new account and purchase volume growth in the short term, we expect they will strengthen our portfolio's positioning as we exit 2024 and support our ability to deliver our targeted risk-adjusted returns over the long term.

Brian J. Wenzel: Turn to slide 11. Synchrony's funding, capital, and liquidity remain a source of strength. We drew in more direct deposits in the quarter as consumers responded to our strong offerings while reducing our brokered deposits. Deposits represented 84% of our total funding at quarter end, and secured and unsecured debt each represented 8% of total funding. Total liquid assets and undrawing credit facilities were $23 billion, up 3.6 billion dollars from last year and represented 19.1 percent of total assets, up 124 basis points from last year.

Speaker Change: Turn to slide 11. Synchrony's funding, capital, and liquidity remain a source of strength. We grew our direct deposits in the quarter as consumers responded to our strong offerings while reducing our brokered deposits.

Speaker Change: The posits represent 84% of our total funding at quarter end, and secured and unsecured debt each represent 8% of total funding.

Speaker Change: Total liquid assets and undrawn credit facilities were $23 billion, up $3.6 billion from last year and represented 19.1% of total assets, up 124 basis points from last year.

Brian J. Wenzel: Moving on to our capital issue. As a reminder, we elected to take the benefit of the CECL transition rules issued by the Joint Federal Banking Agencies. Synchrony will make a final transitional adjustment to its regulatory capital metrics of approximately 50 basis points in January 2020-2025. The impact of CECL has already been recognized in our income statement and balance sheet.

Speaker Change: Moving on to our capital ratios.

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

Speaker Change: Synchrony will make a final transitional adjustment to our regulatory capital metrics of approximately 50 basis points in January 2020-2025.

Speaker Change: The impact of CECL has already been recognized in our income statement and balance sheet.

Brian J. Wenzel: Under CECL transition rules, we ended the second quarter with a CET1 ratio of 12.6 percent, 20 basis points lower than last year's 12.8 percent. Additionally, our tier one capital ratio was 13.8%, 20 basis points above last year. Our total capital ratio increased 10 basis points to 15.8%, and our tier one capital plus reserves ratio on a fully phased in basis increased to 23.9% compared to 22.8% last year. During the second quarter, we returned $400 million to shareholders, consisting of $300 million of share purchases and $100 million of common stock dividends.

Speaker Change: Under CECL transition rules, we ended the second quarter with a CET1 ratio of 12.6 percent, 20 basis points lower than last year's 12.8 percent.

Speaker Change: Our Tier 1 capital ratio was 13.8%, 20 basis points above last year. Our total capital ratio increased 10 basis points to 15.8%.

Speaker Change: And our Tier 1 capital plus reserves ratio on a fully phased-in basis increased to 23.9% compared to 22.8% last year.

Speaker Change: During the second quarter, we returned $400 million to shareholders, consisting of $300 million of shareholder purchases and $100 million of common stock dividends.

Brian J. Wenzel: As of quarter end, we had $1 billion remaining over a share of purchase authorization for the period ending June 30, 2025. Synchrony remains well positioned to return capital to shareholders as guided by our business performance, market conditions, regulatory restrictions, and subject to our capital plan. Combining those results, Synchrony delivered a second quarter performance largely within our expectations. We remain focused on taking appropriate actions to prepare our business for years to come, including our ability to deliver our long-term target loss rate between 5.5 and 6% and average return assets of at least 2.5% on average over time.

Speaker Change: As of quarter end, we had $1 billion remaining of our share of purchase authorization for the period ending June 30, 2025.

Speaker Change: Synchrony remains well positioned to return capital to shareholders as guided by our business performance, market conditions, regulatory restrictions, and subject to our capital plan.

Speaker Change: Combining those results, Synchrony delivered a second quarter performance largely within our expectations.

Speaker Change: We remain focused on taking appropriate actions to prepare our business for years to come, including our ability to deliver our long-term target loss rate between 5.5% and 6% and average return assets of at least 2.5% on average over time.

Brian J. Wenzel: We've been closely monitoring our performance and taking prudent credit actions in support of these objectives, and in preparation for the pending new rule on late fees and our desire to offset the impact on our business as soon as possible, Synchrony has completed the first phase of our PPP fees. Most of these actions will begin to go into effect in the second half of 2024, and we will continue to track their financial and operational impact on our customers, partners, and portfolio to determine, alongside our partners, whether any refinements to our strategies are warranted to achieve our shared objective.

Speaker Change: We've been closely monitoring our performance and taking prudent credit actions in support of these objectives. And, in preparation for the pending new rule on late fees and our desire to offset the impact on our business as soon as possible, Synchrony has completed the first phase of our PPP fees.

Speaker Change: Most of these actions will begin to go into effect in the second half of 2024.

Speaker Change: and we'll continue to track their financial and operational impact on our customers.

Speaker Change: Partners, and Portfolio to determine, alongside our partners, whether any refinements to our strategies are warranted to achieve our shared objective.

Brian J. Wenzel: As a reminder, specifically related to the framework around the pending Lafey rules and our PPPCs, there continues to be uncertainty regarding the timing and outcome of late fee-related litigation that was filed in March, the potential changes in consumer behavior that could occur as a result of late fee rule changes, and any potential changes in consumer behavior in response to the PPPCs we implement as a result of the new rule.

Speaker Change: As a reminder, specifically related to the framework around the pending Lafey rules and our PPPCs.

Speaker Change: There continues to be uncertainty regarding the timing and outcome of late fee related litigation that was filed in March, the potential changes in consumer behavior that could occur as a result of late fee rule changes,

Speaker Change: and any potential changes in consumer behavior in response to the PPPCs we implement as a result of the new rule.

Brian J. Wenzel: Outcomes and actual performance related to these uncertainties could impact our outlook. With that in mind, let's turn to the outlook for the second half of 2024. We expect consumers to continue to manage their cash flows and consumption, which, when combined with their credit actions, should result in a flat to low single-digit decline in purchase finance.

Speaker Change: Outcomes and actual performance related to these uncertainties could impact our outlook.

Speaker Change: With that framework, let's turn to the outlook for the second half of 2024.

Speaker Change: We expect the consumer to continue to manage their cash flows and consumption, which, when combined with their credit actions, should result in a flat to low single-digit decline in purchase volume.

Brian J. Wenzel: We continue to expect payment rates to moderate, which, when combined with our purchase volume expectations, should contribute to more moderate loan receivable growth in the second half. Excluding the impact of late fee rule implementation, we expect net interest income and other income to progressively grow in the third and fourth quarters as our PPPCs take effect. From a career perspective, delinquency should continue to trend in line with, or better than, seasonality

Speaker Change: We continue to expect payment rates to moderate, which, when combined with our purchase volume expectations, should contribute to more moderate loan receivable growth in the second half.

Speaker Change: Excluding the impact of late fee rule implementation, we expect net interest income and other income to progressively grow in the third and fourth quarters as our PPPCs take effect.

Speaker Change: From a career perspective, delinquency should continue to trend in line with, or better than, seasonality. We expect our net charge-off rate to be lower in the second half of this year than the first half.

Brian J. Wenzel: We expect our net charge-off rate to be lower in the second half of this year than in the first half. A reserve coverage ratio at the end of 2024 is expected to be generally in line with our year-end 2023 reserve. RSA will continue to align with program and company performance. And finally, we expect other expenses to trend in line with the first half average on a dollar basis. We combine these factors and include the impact of the Lafey rule, assuming an implementation date of October 1st, 2024, along with the various offsets from the implementation of our PPPCs and a $1.96 per share gain on the sale of our PetsBest business in 1Q24. Synchrony expects to deliver fully diluted earnings per share between $7.60 and $7.80 for the full year.

Speaker Change: A reserve coverage ratio at the end of 2024 is expected to be generally in line with our year-end 2023 reserve rate.

Speaker Change: RSA will continue to align with program and company performance.

Speaker Change: And finally, we expect other expenses to trend in line with the first half average on a dollar basis.

Speaker Change: When you combine these factors and include the impact of the late fee rule, assuming an implementation date of October 1st, 2024.

Speaker Change: along with the various offsets from the implementation of our PPPCs and a $1.96 per share gain on the sale of our Pets Best business on 1Q24.

Brian D. Doubles: This consolidated and updated EPS range is in the upper end of our prior guidance and reflects Synchrony's dedication to delivering optimized outcomes for our many stakeholders, including strong risk-adjusted return for our shareholders. I will now turn the call back over to Brian for his closing thoughts. Thanks, Brian.

Speaker Change: Synchrony expects to deliver fully diluted earns per share between $7.60 and $7.80 for the full year.

Speaker Change: This consolidated and updated EPS range is in the upper end of our prior guidance and reflects Synchrony's dedication to delivering optimized outcomes for our many stakeholders.

Speaker Change: Including strong risk-adjusted return for our shareholders.

Kathryn Harmon Miller: We are leveraging our scale, our data analytics and credit management tools, our advanced digital capabilities, and our deep lending expertise to remain nimble and responsive while powering even better experiences and greater value to the customers, partners, providers, and small businesses we serve. We are consistently driving compelling results for our many stakeholders. And that momentum is increasingly attracting new and deepening existing opportunities for continued risk-adjusted growth, further embedding synchrony at the heart of American commerce.

Speaker Change: I will now turn the call back over to Brian for his closing thoughts.

Speaker Change: Thanks, Brian . Synchrony continues to execute at a high level in an evolving environment.

Brian: We are leveraging our scale, our data analytics and credit management tools, our advanced digital capabilities, and our deep lending expertise to remain nimble and responsive, while powering still better experiences and greater value to the customers, partners, providers, and small businesses we serve.

Brian: We are consistently driving compelling results for our many stakeholders, and that momentum is increasingly attracting new and deepening existing opportunities for continued risk-adjusted growth.

Brian: Further Embedding Synchrony at the Heart of American Commerce. And with that, I'll turn the call back to Kathryn to open the Q&A.

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

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

Operator: If you have additional questions, the Investor Relations team will be available after the call. Operator, please start the Q&A session. At this time, if you wish to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 2.

Catherine: If you have additional questions, the Investor Relations team will be available after the call. Operator, please start the Q&A session.

Speaker Change: At this time, if you wish to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 2. Again, please limit yourself to one question and one follow-up question.

Operator: Again, please limit yourself to one question and one follow-up question. We'll take our first question from Mihir Bhatia with Bank of America. Please go ahead. Good morning.

Speaker Change: We'll take our first question from Mihir Bhatia with Bank of America, please go ahead.

Mihir Bhatia: Thank you for taking my question. I wanted to start with just, you know, the health of the consumer. It sounds like the consumer is coming in a little weaker than you had maybe anticipated between purchase volume being lower and reserve rate being a little higher. First, I guess, is that a fair statement? And if so, can you just comment on what other changes that are driving it? Is it signaling that you need to tighten underwriting? Are you continuing to tighten underwriting? Is that broad? Is it about tweaking around the edges?

Mihir Bhatia: Good morning. Thank you for taking my question. I wanted to start with just, you know, the health of the consumer. It sounds like the consumer is coming in a little weaker than you had maybe anticipated, between purchase volume being lower, reserve rate a little higher.

Speaker Change: First, I guess, is that a fair statement? And if so, can you just comment on what other changes that is driving? Is it signaling that you need to type in underwriting? Are you continuing to type in underwriting? Is that broad-based? Is it about tweaking around the edges? How are you thinking of the consumer heading into, like, back-to-school season here?

Brian D. Doubles: How are you thinking of the consumer heading into back-to-school season here? And just trying to understand your view of the consumer. Yeah, no, thanks for the question.

Brian D. Doubles: I think, well, generally, I think the aggregate, the consumer is still in pretty good shape. I think the trends that we're seeing are pretty similar across the industry. Obviously, the labor market is strong.

Speaker Change: I'm just trying to understand your view on the consumer market.

Speaker Change: Yeah, no, thanks for the question. I think, well, generally, I think in the aggregate, the consumer is still in pretty good shape. I think the trends that we're seeing are pretty similar across the industry.

Brian D. Doubles: That's definitely helping. I think most of the indicators so far are largely in line with what we expected to see. With that said, as you kind of dig into the portfolio, there are clearly some differences, as well as when you look at different customer cohorts. The more affluent, higher-income segments are still spending.

Speaker Change: Obviously, the labor market is strong. That's definitely helping. I think most of the indicators so far are largely in line with what we expected to see.

Speaker Change: With that said, as you kind of dig into the portfolio, there are clearly some differences as well as you look at different customer cohorts. The more affluent, higher income segments are still spending.

Brian D. Doubles: They're not really as impacted by inflation. On the other end of the spectrum, you are starting to see the lower-income consumer pull back a bit. [inaudible] And so while you're seeing that impact, you know, purchase volume of the debt, new accounts, we think that's actually a positive from a credit perspective. You know, people are being disciplined.

Speaker Change: You know, they're not really as impacted by inflation. On the other end of the spectrum, you are starting to see the lower-income consumer pull back a bit. They're rotating into non-discretionary categories. So it's clear that, you know, they're feeling the effects of inflation and they're managing to a budget.

Speaker Change: And so while you're seeing that impact, you know, purchase volume of the debt, new accounts, we think that's actually a positive from a credit perspective.

Brian D. Doubles: That's a good thing. We don't see, you know, people overextending themselves, you know, so they're managing their spend and their cash flows, which again, I think is positive from a credit perspective. Now, maybe just staying on credit, then just on the reserve rate guidance, you know, it's, Changed to be, I think now you're saying year-end 24 in line with 23, whereas I think earlier it was a little bit better than 23.

Speaker Change: You know, people are being disciplined. That's a good thing. We don't see, you know, we don't see people overextending, you know, so they're managing their spend and their cash flows, which again, I think is a positive from a credit perspective.

Speaker Change: Maybe just staying on credit, then, just on the reserve rate guidance, you know, it's

Speaker Change: Change to be, I think now you're saying you're at 24 in line with 23, I think earlier it was a little bit better than 23.

Brian D. Doubles: That said, you did call out, and we see the data, right, the delinquency rate is trending to in line with better than seasonality. Were you expecting more improvements than you got? I'm just trying to understand the factors driving the higher guide on the reserve rate, and if that implies 25, the net charge also will be similar to 24.

Speaker Change: That said, you did call out, and we see the data, right, the delinquency rate is trending to in-line to better than seasonality. Were you expecting more improvements than you got? I'm just trying to understand the factors driving the higher guide on reserve rate, and if that implies 25 net charge also will be similar to 24.

Brian J. Wenzel: Yeah, thanks for the question, Mihir. You know, when we entered the year, I think everyone had a perspective with regard to how the economy was going to develop, how inflation potentially could bend, and interest rates could move down, right? As Brian mentioned, the consumer is managing, and the longer they stay in a period of higher cost, particularly those that are lower income to medium income, that poses different risks.

Speaker Change: Yeah, thanks for the question, Mihir. You know, when we entered the year, I think everyone had a perspective with regard to how the economy is going to develop, how inflation potentially could bend.

Speaker Change: And interest rates could move down, right? As Brian mentioned, the consumer is managing. And the longer they stay in a period of higher cost, particularly those that are lower income to medium income, you know, that poses different risks. I think as we sit here in the middle part of the year...

Brian J. Wenzel: I think as we sit here in the middle part of the year, we would have hoped for probably greater progression against the inflation tar, even though we understood it was sticky. And we'd hope for, even though we only had three rate increases or rate, I'm sorry, rate decreases for the back half of the year; we're down to one. So I think things have shifted out a little bit. So I think we're just being a little bit more cautious with regard to how we think about the macro going forward until we see signs that inflation really is breaking through some of this stickiness, and you see some health in those consumers. So I don't think it's a tremendously different posture.

Brian: We would have hoped for a probably greater...

Speaker Change: Progression Against the Inflation Target, even though we understood it was sticky.

Speaker Change: And we'd hoped for, even though we only had three rate increases or rate, I'm sorry, rate decreases for the back half of the year, we're down to one. So I think things have shifted out a little bit.

Speaker Change: So, I think we're just being a little bit more cautious with regard to how we think about the macro going forward until we see signs that inflation really is...

Speaker Change: is breaking through some of this stickiness and you see some help to those consumers. So I don't think it's a tremendously different posture. It's just a little bit more conservative in how you think about your quantitative reserves versus your qualitative reserves.

Speaker Change: Thank you for taking my question.

Terry Ma: It's just a little bit more conservative in how you think about your quantitative reserves versus your qualitative reserves. Thank you. Thank you. Thanks, Mihir. Our next question comes from Terry Ma with Barclays. Please go ahead. Hi, thanks. Good morning.

Speaker Change: Thank you. Our next question comes from Terry Ma with Barclays. Please go ahead.

Brian J. Wenzel: So I guess based on the rollout of your PPPCs, is the $650-$700 million range still kind of the right range to think about for the second half? And then, secondly, is there a way you can kind of quantify how that range changes if the late fee cap were to not be implemented this year? Thanks for the question, Terry. You know, I'll start where you ended.

Terry Ma: Hi, thanks, good morning. So I guess based on the rollout of your PPPCs, is the $650 to $700 million range still kind of the right range to think about for the second half?

Terry Ma: And then secondly, is there a way you can kind of quantify how that range changes if the late fee cap were to not be implemented this year?

Terry Ma: You know, as we sit here today, there continues to be activity in the Texas courts, and, as Brian indicated and I indicated in our remarks, that is uncertain. So the best guess we have now is an October 1st implementation date. And until we get some more definitive view with regard to whether or not that rule becomes effective on that date or a different date, we don't really have an update with regard to its impact and its effect if it doesn't go into play.

Terry Ma: Thanks for the question, Terry. You know, I'll start where you ended. As we sit here today, there continues to be activity in the Texas courts, and as Brian indicated and I indicated in our remarks,

Speaker Change: That is uncertain. So the best guess we have now is an October 1st implementation date. And until we get some more definitive view with regard to whether or not that rule becomes effective on that date or a different date,

Speaker Change: We don't really have an update with regard to the impact and its effect if it doesn't go into play. So, again, when we have greater certainty with regard to that implementation date, we'll most certainly come back.

Terry Ma: So, again, when we have greater certainty with regard to that implementation date, we'll most certainly come back. With regard to the impact of the PPPCs, you know, we provided updated guidance today. Again, if you take the midpoint of both the core as well as the late fee, assuming October 1st as the implementation date, and add the PEPFEST, you're at the midpoint to high end of the range from an EPS perspective, which should give you a perspective on how we feel about both the core business as well as the actions we're taking with regard to the potential change in late fees.

Speaker Change: With regard to the impact of the PPPC, you know, we provided updated guidance today.

Speaker Change: Again, if you take the midpoint of both the core, as well as the late fee, assuming October 1st implementation date, and add the PETS-BEST.

Speaker Change: You know, you're at the midpoint to high end of the range from an EPS, which should give you a perspective on how we feel about both the core business as well as the actions we're taking with regard to the potential change in late fees.

Brian J. Wenzel: Okay, that's helpful. And then, in terms of the RSA, how should we think about how that would trend in the second half as you kind of, but again, start rolling? Yeah, you know, a framework to think about it, Terry, is to think about the pieces that are going to flow through here. Obviously, you know, we indicated that the second half loss rate would be lower than the first half loss rate, so obviously, that's an upward bias on the RSA percent.

Speaker Change: Got it. Okay, that's helpful. And then in terms of the RSA, how should we think about that? How that would trend in the second half as you're kind of, but again, start rolling in?

Speaker Change: Yeah, you know, a framework to think about it, Terry, is to think about the pieces that are going to flow through here. Obviously, you know, we indicated that the second half loss rate will be lower than the first half loss rate, so obviously that's an upward bias on the RSA percent.

Brian J. Wenzel: Most certainly I think in the third quarter you're going to see as some of the PPPC actions roll through that's going to create an upward bias in the RSA and then that turns around in the fourth quarter is is you know again assuming in October 1st in rotation data late fees that comes into place and then I think it's just going to track with NII growth which will be a little bit beneficial with with slightly lower purchase volume so there'll be some puts and takes some of which will create headwinds some which create tailwinds. Yep, got it, thank you.

Terry Ma: Most certainly, I think in the third quarter, you're going to see some of the PPPC actions roll through. That's going to create an upward bias in the RSA.

Terry Ma: And then that turns around in the fourth quarter is, you know, again, assuming in October 1st in rotation data late fees, that comes into play. And then I think it's just going to track with NII.

Terry Ma: growth, which will be a little bit beneficial with slightly lower purchase volume. So there'll be some puts and takes, some of which will create headwinds, some of which create tailwinds.

Mark Devries: Thanks, Terry. Thank you. Our next question will come from Mark DeVries with Deutsche Bank. Please go ahead.

Speaker Change: Yep, got it, thank you.

Terry Ma: Thanks, Terry.

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

Brian J. Wenzel: Yeah, thanks. Look, I appreciate there are a lot of moving pieces on NIM for the second half of the year, just given the implementation of some of the PPCs and the potential role in the late fee impact. But could you, Brian, maybe just give us a sense of kind of what the moving pieces are and what your expectations are for NIM in the back half of the year? Sure.

Mark Devries: Yeah, thanks. Look, I appreciate there's a lot of moving pieces on the NIMH.

Mark Devries: For the second half of the year, just given the implementation of some of the PPCs and the...

Mark Devries: and the potential role in the late fee impact. But could you just, Brian , maybe just give us a sense of kind of what the moving pieces are and what kind of your expectations are for them in the back half of the year?

Brian J. Wenzel: Thanks for the question, Mark. So here's a framework for how I think about some of the moving pieces you've got to take into consideration, right? Number one, as we talked about net charge-offs being lower in the second half versus the first half, you'll get a benefit to the net interest margin, right, relative to lower reversals. So that's a positive for the net interest margin. I think when you look at the net funding costs, so the interest expense and the investment income, that's probably going to be flattish for the back half of the year. You will pick up, and there'll be a benefit to the net interest margin relative to the mix between average loan receivables and average interest-earning assets.

Brian: Sure. Thanks for the question, Mark.

Brian: So here's a framework how I think about some of the moving pieces you got to take into consideration, right?

Brian: Number one, as we talked about net charge-offs being lower in the second half versus the first half, you'll get a benefit to the net interest margin relative to lower reversals.

Brian: So that's a positive to the net interest margin. I think when you look at the net funding costs, so the interest expense and the investment income, that's probably going to be flattish to the back half of the year.

Brian: You will pick up and there'll be a benefit into the net interest margin relative to the mix between average loan receivables and average interest earning assets.

Brian J. Wenzel: So that will be a positive for them. You will pick up, you know, and you should see it in the third quarter, some of the PPPC actions that are yield related. So again, some of the things that were strictly APR related, some of the practices related to how interest was assessed, and a little bit related to some promotional fees that have rolled into place.

Brian: So that will be a positive to them.

Brian: You will pick up, you know, and you should see it in the third quarter.

Brian: Some of the PPPC actions that are yield-related. So again, some of the things that were strictly APR-related. Some of the practices related to how interest was assessed.

Brian J. Wenzel: And you should see, you know, again, hopefully, a little bit of benefit on the interest and fee line. So, generally, there should be a positive trend from where we move here into the back half of the year. Okay, that's helpful.

Brian: and a little bit related to some promotional fees that roll into place. And you should see, you know, again, hopefully a little bit of benefit on the interest and fee line. So, generally, there should be a positive trend up from where we move here into the back half of the year.

Brian J. Wenzel: And are there any contemplated PPPC measures that you've yet to put in place and are waiting for either, you know, to see how the consumer behaves or for actual implementation of the changes to the late fee rules? Yeah, what our team has gone through, you know, the first wave that we've executed against are ones that we have fully vetted internally with ourselves and then with our partners. So they're fully executed.

Speaker Change: Okay, that's helpful. And are there any contemplated PPPC measures that you've yet to put in place and are waiting for either, you know, to see how the consumer behaves or for actual implementation of the changes to the late fee rules?

Speaker Change: Yeah, what our team has gone through, you know, the first wave.

Speaker Change: That we've executed against that are ones that we have fully vetted internally.

Brian J. Wenzel: There are other things down the road that are probably a little bit longer term, but we're still continuing to evaluate some around product configuration and other types of products for different segments inside the portfolio. So that's not necessarily part of the initial solution, but that may be a reaction that we come back with over time, but wasn't necessarily critical to us when trying to achieve the goal of being ROA neutral with the same level of sales.

Speaker Change: With ourselves and with our partners, so they are they're fully executed

Speaker Change: There are other things down the road that are probably a little bit longer tell and we're still continuing to evaluate some around product configuration.

Speaker Change: and other types of products for different segments inside the portfolio.

Speaker Change: That's not necessarily part of the initial solve, but that may be a reaction that we come back with over time, but wasn't necessarily critical to us in trying to achieve the goal of being ROI neutral with the same level of sales.

Mark Devries: Thank you. Thanks Mark, have a good day. Thank you. Our next comes from Moshe Orenbuch with T.D. Cowan.

Speaker Change: Got it. Thank you.

Moshe Ari Orenbuch: Please go ahead. Great, thanks. Just continuing on that idea of, you know, the pricing changes. I know it's early, but, you know, have there been any kind of impact on the consumer side that you can kind of see or talk about, positive or negative, from the pricing changes that you've put in place? Yeah. Thank you, Moshe, for the question. You know, we have a detailed monitoring dashboard that's in place that looks at a lot of different measures. It starts with the purchase active rate and sales per account.

Speaker Change: Thanks Mark, have a good day.

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

Moshe Ari Orenbuch: Great, thanks. Just continuing on that idea of, you know, of the pricing changes. I know it's early, but, you know, have there been, you know, kind of impacts on the consumer side that you, you know, that you can kind of see or talk about?

Speaker Change: Positive or negative from the pricing changes that you've put in place.

Speaker Change: Yeah, thank you, Moshe, for the question. You know, we have a detailed...

Brian J. Wenzel: As you can imagine, it includes, you know, closure rates, voluntary closure rates, call volume, complaint volume, all sorts of different measures that we would look at relative to this. I think it's important to understand why the first wave is complete now. You know, we only have the CITs that we mailed in December having a full quarter.

Speaker Change: Monitoring Dashboard, that's a place that looks at a lot of different measures, Moshe. It starts with...

Speaker Change: Purchase active rates, sales per account, as you can imagine, it includes closure rates.

Speaker Change: Voluntary Closure Rates

Speaker Change: It includes call volume, complaint volume.

Speaker Change: All sorts of different measures that we would look at relative to this.

Speaker Change: I think it's important to understand why the first wave is complete now.

Speaker Change: We only have the CITs that we mailed in December having a full quarter.

Brian J. Wenzel: When we look at that dashboard in its entirety, it's generally in line with our expectations. As we step into the third quarter, I think we're going to get a greater view with regard to consumers' adoption of it. I think we've seen some positive things around e-bill adoption, et cetera. So we closely monitor it getting produced and distributed to a wide variety of people inside the organization as we closely, you know, look at that and share that with our partners. I got it.

Speaker Change: When we look at that dashboard in its entirety...

Speaker Change: It's generally in line with our expectations.

Speaker Change: As we step into the third quarter, I think we're going to get a greater view with regard to consumers' adoption, with regard to it. I think we've seen some positive things around e-bill adoption, et cetera. So we closely monitor how it gets produced.

Speaker Change: and distributed to a wide variety of people inside the organization as we closely look at that and share that with our partners.

Moshe Ari Orenbuch: Thanks. And Brian, you talked a little bit about the delinquency and loss rates, you know, relative to the 2017 to 2019 averages. [inaudible] And what is it that would then kind of get you to the point where you could think about neutralizing or reversing some of those tightening efforts? Yeah, so I think it's important, Moshe, to really take a step back.

Brian: Brian , you talked a little bit about the delinquency and loss rates relative to the 2017-2019 averages.

Brian: You know, given that you've kind of said and, you know, and reaffirmed that they will continue to improve and be lower in the second half and possibly better than seasonals.

Speaker Change: How do you see that? Assuming employment levels are stable here, how would you see that kind of trending towards those averages? How close could they get and what is it that it would then

Speaker Change: And then, we'll get you to the point where you could think about neutralizing or reversing some of those tightening efforts.

Brian J. Wenzel: First of all, we've lagged the industry with regard to normalization. I think when you look at the amount that we are above our 17 to 19 range, I think outside of maybe one or two issuers, we actually are performing pretty well, being that our 30 plus is 19 basis points higher than a historical average, and our 90 plus is 18 basis points higher than a historical average. And then again, you're right, when you look at the second quarter on a 30 plus basis, we're a couple of basis points favorable to seasonality, and for 90 plus, I think we were in a range of one to two basis points less than, so generally in line to slightly better than seasonality.

Speaker Change: Yeah, so I think it's important, Moshe, to really take a step back. First of all, we've lagged the industry with regard to normalization. I think when you look at the amount that we are above,

Speaker Change: Our 17th and 19th range, I think outside of maybe one or two issuers, we actually are performing pretty well, being our 30 plus is 19 basis points higher than the historical average.

Speaker Change: And our 90 plus being 18 basis points higher than a historical average. And then again, you know, you're right, when you look at the second quarter on a 30 plus basis.

Speaker Change: We're a couple of basis points favorable to seasonality, and 90 plus, I think we were from range of one to two basis points.

Brian J. Wenzel: So I think we'll look at that. I think we're going to look at how the macro environment develops, and again, the consumer's managing today as we start to see relief kind of come to them. I think we'll reevaluate it. I would not have an expectation that we're going to adjust those refinements in the near term here until we get greater clarity on the environment. Okay, thank you. Thanks, Moshe.

Speaker Change: Less than so generally in line to slightly better than seasonality. So I think we look at that

Speaker Change: I think we're going to look at the, you know, how the macro environment develops. And again, the consumer's managing today, as we start to see relief kind of come to them, I think we'll reevaluate it. I would not, you know, have an expectation that we're going to adjust those refinements.

Speaker Change: in the near term here until we get greater clarity on the environment.

Speaker Change: Okay, thank you.

Moshe Ari Orenbuch: Have a good day. Thank you. Our next question comes from Brian Nash with Goldman Sachs. Please go ahead. Good morning, everyone. Good morning.

Speaker Change: Thanks, Moshe. Have a good day.

Speaker Change: Thank you. Our next question comes from Brian Nash with Goldman Sachs. Please go ahead. Hey, good morning, everyone.

Ryan Matthew Nash: Good morning, Ryan. Maybe we can stick with the late-seed topic. You know, given the range of things that have been added, APRs, paper statements, trailing interest, and the like, obviously, markets have become hopeful that the rule could get delayed or, you know, may rule in favor of the industry. And I'm just curious, in a scenario, in a positive outcome for the industry, when you think about the range of changes you've made, what changes do you foresee sticking versus others that there Yeah, first of all, good morning, Ryan.

Ryan: Morning. Morning, Ryan.

Brian Nash: Maybe stick with the late fee topic, you know, given the range of things that have been added, APRs, paper statements.

Brian Nash: Trailing interest in the like, you know, obviously markets have become hopeful that you know The rule could get delayed or you know may roll in favor of the industry and I'm just curious

Speaker Change: In a scenario, in a positive outcome for the industry, when you think about the range of changes you've made, what changes do you foresee sticking versus others that there's the potential you may pare back over time?

Brian J. Wenzel: You know, the first thing I think we have to have certainty, right, relative to whether or not the Lafey rule, you know, if it is delayed or ultimately overturned by the courts, whether or not the CFPB would continue down the path of pursuing some type of limitation on Lafey. So, I think you have to have some level of certainty beyond that. I think as you think about the pricing change, you know, first and foremost, we're going to look at consumer behavior and whether or not consumer behavior changes here, and whether or not changes will be warranted.

Speaker Change: Yeah, first of all, good morning, Ryan. You know, the first thing, I think...

Speaker Change: We have to have certainty, right, relative to whether or not the Lafey rule, if it is

Speaker Change: and they were delayed or ultimately overturned by the courts, whether or not the CFPB would continue down the path of pursuing some type of

Speaker Change: Limitation on late fees. So I think you have to have some level of certainty beyond that.

Speaker Change: I think as you think about the pricing change, first and foremost, we're going to look at consumer behavior and whether or not consumer behavior changes here and whether or not changes will be warranted.

Brian J. Wenzel: I think when you step beyond that, Ryan, there are probably two buckets. The first bucket is one that involves our partners and RSAs, and there we would go and share the data with our partners and have a discussion with regard to pricing and make some decisions with their input.

Speaker Change: I think when you step beyond that, you know, there's probably two buckets, Ryan. The first bucket is one that involves our partners and RSAs, and there we would go and share the data with our partners and have a discussion with regard to pricing and make some decisions, you know, with their input.

Brian J. Wenzel: And then bucket B is things that are inside our brand and control. So, you think about our Synchron MasterCard, our home and auto card, things like that that we would control, but obviously, we do that. It's fair to say not everything would ever get rolled back, but to be honest with you, Ryan, we have not spent a lot of time as a team going through this scenario right now.

Speaker Change: And then bucket B is things that are inside our brand and control. So you think about our Synchrony MasterCard.

Brian J. Wenzel: We're really focused on implementing the PPPCs and following the developments in the court and being prepared, I think, for the outcome that the Lafey rule goes into effect. Got it.

Speaker Change: A lot of time as a team going through this scenario right now, we're really focused on implementing the PPPCs and following the developments in the core and being prepared, I think, for the outcome that the late fee rule goes into effect.

Ryan Matthew Nash: If you look at how new accounts have progressed, obviously, they're down a decent amount year over year, which makes sense given the discussion regarding tighter underwriting. But as you look ahead, you know, given the tightness of the market, it doesn't sound like we're going to be rolled back right now, you also have some payment rate normalization. How do you think about the pace of loan growth over an intermediate time frame? Yeah, so first, let me just focus for a little bit on new accounts, the 14%. There are probably two big buckets there, Ryan.

Speaker Change: Got it.

Speaker Change: If you look at how new accounts have progressed, obviously they're down a decent amount year over year, which makes sense given the discussion regarding tighter underwriting.

Speaker Change: As you look ahead, given the tightness that it doesn't sound like we're going to be rolled back right now, you also have some payment rate normalization. How do you think about the pace of loan growth over an intermediate time frame?

Speaker Change: Yeah, so first let me just focus for a little bit on new accounts, the 14%, there's probably two big buckets there, Ryan. The first is...

Brian J. Wenzel: The first thing we are seeing, and Brian talked about this with discretionary spend and some of the things where the consumer is managing their spend levels, we are seeing lower foot traffic and lower retail traffic, both in a physical footprint as well as in a digital orientation. So the through the door population most certainly is limiting some of the opportunities to generate new accounts, and then obviously, you've had a modest impact. Credit Actions with regard to doing that.

Speaker Change: We are seeing, and Brian talked about this, with discretionary spend and some of the things where the consumer's managing

Speaker Change: We are seeing lower foot traffic and lower retail traffic, both in a physical footprint as well as in a digital orientation. So the through-the-door population most certainly is limiting some of the opportunities.

Speaker Change: to generate new accounts. And then obviously you've had a modest impact from.

Brian J. Wenzel: That will impact growth more so in 2025 than it does really in 2024, right? So you think about an account bill that probably takes about 12 months or so to kind of get to an average balance per account that's more mature. So I think you're going to feel a little bit of pressure here. I do think, given our position with most of our partners, you will probably see something above GDP levels and will continue to grow.

Speaker Change: Credit Actions with regard to doing that.

Speaker Change: An account build that probably takes about 12 months or so to kind of get to an average balance per account that's more mature.

Speaker Change: So, I think you're going to feel a little bit of pressure here. I do think, you know, given our position with most of our partners, you know, you'd see probably something.

Brian D. Doubles: Most certainly, when you look at the platforms, you know, we're excited about the health and wellness growth we continue to experience, even though there's some pullback there in cosmetics and LASIK, for example. But that is a strength for us. We continue to have strength in some of the other platforms, like our home specialty business and home and auto. So, you know, again, we're not going to necessarily give guidance, but I think there are some positive things inside of the sales platforms that will hopefully bridge us into a better economic period.

Speaker Change: you know, above GDP level and will continue to grow. Most certainly when you look at the platforms, you know, we're excited about the health and wellness growths we continue to experience, even though there's some pullback there in cosmetic and LASIK.

Speaker Change: For example, but that is a strength for us. We continue to have strength in some of the other platforms like our own specialty business and home and auto. So, you know, again, we're not going to necessarily give guidance, but I think there's some positive things inside of.

Speaker Change: Inside of the sales platforms that will hopefully bridge us into a better economic period.

Brian D. Doubles: I think the other thing I would add, Ryan, is the active account growth that we're seeing. We actually probably watched that even more than new account growth because we've been, you know, making big investments in lifecycle marketing and figuring out across all of our platforms, how do you engage that customer in the second, third, and fourth purchase? And so just seeing that positive inflection year over year is, I think, positive.

Ryan: I think the other thing I would add, Ryan, the active account growth that we're seeing, and we actually probably watched that even more than new account growth because we've been, you know, making big investments in lifecycle marketing and figuring out across all of our platforms, how do you engage that customer in the second and third or fourth purchase?

Speaker Change: And so just seeing that positive inflection year-over-year, I think is a positive. And then, you know, look, the consumer is still in a good spot, but we are seeing lower store traffic and some pullback there.

Ryan Matthew Nash: And then, you know, look, the consumer is still in a good spot, but we are seeing lower store traffic and some pullback there. And then we're obviously proactively making some credit actions that'll improve the trajectory into next year. So overall, we feel pretty good about the trends that we're seeing. Thanks.

Speaker Change: We're obviously proactively making some credit actions that'll improve the trajectory into next year. So overall, we feel pretty good about the trends that we're seeing.

Speaker Change: Awesome. Appreciate the call. Yep. Thanks, Ryan. Thanks, Ryan.

Ryan Matthew Nash: Yep. Thanks, Ryan. Thank you. Our next question comes from Sanjay Sakhrani with KBW. Please go ahead. Thanks. Good morning.

Speaker Change: Thank you. Our next question comes from Sanjay Sakhrani with KBW. Please go ahead.

Sanjay Harkishin Sakhrani: Maybe just to follow up on some of the questions around credit quality. Brian Wenzel, I know I've heard you talk about some of the moves you made to sort of refine the underwriting some time ago. I mean, are the benefits of that in front of us so that we should see some more stepped-up improvement in that second derivative on delinquency rates? And then, I'm trying to think through some of the questions that were asked before, like, shouldn't that really... That, coupled with the tighter underwriting and the slower loan growth, should help credit quality, wouldn't it? So, I mean, is that just built in conservatism in your credit outlook for this year in terms of the flat reserve rates? Yeah, first of all, good morning, Sanjay.

Sanjay Harkishin Sakhrani: Thanks. Good morning. Maybe just to follow up on some of the questions around credit quality, Brian Wenzel, I know I've heard you talk about some of the moves you made to sort of refine the underwriting

Brian J. Wenzel: some time ago. I mean, are the benefits of that in front of us? So that we should see some more stepped up improvement in that second derivative on delinquency rates and then

Speaker Change: I'm trying to think through some of the questions that were asked before.

Speaker Change: Shouldn't that really, that coupled with the tighter underwriting and the slower loan growth should help credit quality, shouldn't it? So I mean, is that just built in conservatism in your credit outlook or what for this year in terms of the flat reserve rate? Thanks.

Brian J. Wenzel: Thanks for the question. I think there's a combination where the credit actions, you remember we started this in the second quarter last year into the third and then really started it again in, again, the latter part of the first quarter into the second quarter of this year. You see it reflected in the moderation of the year-over-year change in delinquencies, which we showed on page 10 of the earnings presentation here. So some of it is manifesting itself in the delinquency trends. Obviously, it takes time to season.

Speaker Change: Yeah, first of all, good morning, Sanjay. Thanks for the thanks for the question. I think there's a combination where the credit actions

Speaker Change: Remember, we started this in second quarter last year, into third, and then...

Speaker Change: Really started and again the latter part of the first quarter into the second quarter of this year You see reflecting in the moderation of the year over year

Speaker Change: Change, Delinquencies, which we showed on page 10 of the earnings presentation here. So some of it is being manifested itself in delinquency trends.

Brian J. Wenzel: So I think you would expect the benefit of those actions to kind of continue to go through. Now, again, actions that we put in place in the second quarter this year probably have a little bit more of a reduced effect on this year, more effect as you exit out of 24 into 25. So it's really a combination.

Speaker Change: Obviously, it takes time to season, so I think you would expect the benefit.

Speaker Change: of those actions to kind of continue to go through. Now, again, actions that we put in place in the second quarter this year have probably a little bit more reduced effect on this year, more effect as you exit out of 24 into 25. So it's really a combination.

Brian J. Wenzel: I'd say from an efficacy standpoint, we are not taking or not continuing to take broad-based actions at this point. But we stand ready to do that if something deteriorates. But right now, we're continuing with our normal refinements, which are more idiosyncratic at the partner portfolio product and channel level. I have a question for Brian Doubles follow-up. Maybe you could just talk about the state of potential partnership opportunities or deals for portfolios.

Speaker Change: You know, I'd say from an efficacy standpoint,

Speaker Change: We are not taking or not continuing to take broad-based actions at this point. We stand ready to do that if something deteriorates, but right now we're continuing with our normal refinements which are more idiosyncratic at the partner portfolio, product, and channel level.

Speaker Change: Okay.

Speaker Change: And I have a question for Brian Doubles, follow-up. Maybe you could just talk about the state of potential partnership opportunities or deals for portfolios. Anything change relative to the previous quarter? Thanks.

Brian D. Doubles: Anything change relative to the previous quarter? Thanks. Yeah, sure, Sanjay.

Brian D. Doubles: Look, I would say that we have a pretty healthy pipeline of opportunities. You know, that continues to be true. I think, competitively, we're certainly differentiated in terms of our technology investments. How we partner, how we integrate, and so that continues to resonate with both our existing partners and also new prospects. So I feel really good about all that. I think, you know, look in this environment, too, whenever you're in an environment that's a little bit uncertain, you tend to see more rational pricing, a little more discipline across the industry, which, again, is a good thing. You know, when we were in the headier days of 21, 22, you know, things could get a little bit irrational when you're pricing at, you know, historically low loss rates.

Brian D. Doubles: Yeah, sure, Sanjay. Look, I would say that we have a pretty healthy pipeline of opportunities.

Brian D. Doubles: You know, that continues to be true. I think, you know, competitively, we're certainly differentiated in terms of our technology investments, how we partner, how we integrate. And so that that continues to resonate with both our existing partners, but also new prospects.

Brian D. Doubles: So I feel really good about all that. I think, you know, look, in this environment too, whenever you're in an environment that's a little bit uncertain, you tend to see more rational pricing, a little more discipline.

Brian D. Doubles: across the industry, which again is a good thing. You know, when we were in the headier days of 21, 22, you know, things could get a little bit irrational when you're pricing at, you know, historically low loss rates. You know, we always price through a cycle.

Brian D. Doubles: You know, we always price through a cycle. We'll continue to do that, but I think, you know, the environment right now across the industry, across the competitive sect is pretty rational. So I feel really good about how we're positioned, and we've got a good pipeline of opportunities. Right. Thank you. Yeah. Thanks, Sanjay.

Brian D. Doubles: will continue to do that. But I think, you know, the environment right now, across the industry, across the competitive side is pretty rational. So I feel really good about how we're positioned, and we got a we got a good pipeline of opportunities.

Brian D. Doubles: Right. Thank you. Yep. Thanks, Sanjay. Thanks, Sanjay.

Sanjay Harkishin Sakhrani: Thank you. Our next question will come from Rick Shane with J.P. Morgan. Please go ahead. Good morning, everybody. And thanks for taking my questions. Hey Rick.

Speaker Change: Thank you. Our next question will come from Rick Shane with J.P. Morgan. Please go ahead.

Richard Barry Shane: Look, I'd love to talk a little bit. You've moved guidance to sort of the upper end of your fire range. And I'm curious, how much of that is a function of timing, favorable timing with PPC implementation versus late feed? How much is a function potentially of, (inaudible) Yeah, thanks for the question, Rick.

Speaker Change: Good morning, everybody, and thanks for taking my questions. Hey, Rick. Look, I'd love to talk a little bit. You've moved guidance to sort of the upper end of your fire range.

Richard Barry Shane: And I'm curious, how much of that is a function of timing, favorable timing with PPC implementation versus late fee? How much is a function, potentially, of...

Brian J. Wenzel: You know, from a timing perspective, I don't believe that there's anything significant about the timing of the execution. I'd say from an execution standpoint, I think we've hit all our deliverables, given the process you have to go through to make the amount of changes in terms that we've done. We've executed on the timeframes that we have in place, and they're rolling out according to schedule. So, there's really nothing really timing-related there.

Richard Barry Shane: Yeah, thanks for the question, Rick. You know, from a timing perspective, I don't believe that there's anything...

Speaker Change: I'd say, from an execution standpoint, I think we've hit all of our deliverables, given

Speaker Change: Given the process you have to go through to do the amount of changes in terms that we've done, we've executed on the time frame, in the time frames that we have in place, and they're rolling out according to schedule. So there's nothing really timing related there.

Brian J. Wenzel: You know, I sit back and say moving to the middle end of the range, to the higher end of the range, just really overall business performance. I think we, while purchase volume might be slightly lower than expectations, it shows the consumer's managing. We don't see them going under stress.

Speaker Change: You know, I sit back and say, moving to the middle end of the range, to the higher end of the range.

Speaker Change: Just really overall business performance, I think we, you know, while purchase volume might be slightly lower than expectations, it shows the consumer's managing. We don't see them going under stress. So I think as we look through the various elements.

Brian J. Wenzel: So, I think as we look through the various elements, you know, our funding costs have stabilized and stabilized and are moving into the back half of the year. I think the expenses, which we haven't really talked about, only being up 1%, including the cost of $23 million related to the execution of the change in terms, which otherwise would have been down, I think is a positive as we move forward. So, I think we're continuing to execute the business plan.

Speaker Change: Our funding cost has stabilized and stabilized and moving into the back half of the year. I think the expenses, which we haven't really talked about, only being up 1% including.

Speaker Change: The cost of $23 million related to the execution of change in terms of otherwise would have been down, I think, is a positive as we move forward. So I think we're continuing to execute the business. The business is really focused on what we have to do this year in order to execute both on the core business.

Brian J. Wenzel: The business is really focused on what we have to do this year in order to execute both on the core business, the reaction to, or the PPPC changes that we're rolling out, as well as the integration of ally lending, which we're very happy about in this position, if that's best. So, the team is focused on execution. That's what I would say drove us to the higher end of the range.

Speaker Change: The reaction to, or the PPPC changes that we're rolling out, as well as the integration of ally lending, which we're very happy about in this position, if that's best, so the team is focused on execution, that's what I'd say drove us to the higher end of the range.

Richard Barry Shane: Great, Brian, thank you very much. It's incredibly helpful. Thanks, Rick. Thank you. Our next question will come from Bill Karachi with Wolf Research. Please go ahead. Thanks. Good morning, everyone.

Speaker Change: Great. Brian , thank you very much. It's incredibly helpful.

Richard Barry Shane: Thanks, Rick.

Speaker Change: Thank you. Our next question will come from Bill Karachi with Wolf Research. Please go ahead.

Bill Carcache: I wanted to ask you about capital. In contrast to many banks that are still dealing with large AOCI marks, you guys appear to have greater clarity on the level of capital that you're going to need to run with. And therefore, you seem like you may be in a better position to perhaps return the capital in excess of your target a little bit more aggressively relative to those who are still accreting capital to sort of plug that OCI hole. Can you speak to that dynamic and how we should think about the trajectory of that excess capital position relative to the 11% target you've talked about historically? I have thought about this a number of times.

Bill Karachi: Thanks. Good morning, everyone. I wanted to ask about capital.

Speaker Change: So, in contrast to many banks that are still dealing with large AOCI marks, you guys...

Bill Karachi: appear to have greater clarity on the level of capital that you're going to need to run with and therefore you don't seem like you may be in a better position to perhaps return the capital in excess of your target a little bit more aggressively relative to those who are still accreting capital to sort of plug that OCI hole. Can you speak to that dynamic?

Speaker Change: And, you know, how we should think about, like, the trajectory of that excess capital position relative to the 11% target you've talked about historically.

Speaker Change: Yeah, thanks Bill for the question. You know, we've been on a journey, you've heard me talk about this a number of times when we separated from our former parent.

Brian J. Wenzel: When we separated from our former parent, you know, we started out and got to a peak of CT1 of 18%. And then there's been a journey down, you know, where today we're at 12.6%. We have an excess relative to the target.

Speaker Change: You know, we started out and got to a peak of CT1 of 18%, and then there's been a journey down, you know, where today we're at 12.6%, we have an excess relative to the target.

Brian J. Wenzel: We're continuing on the path, right? You know, but our first priority is always going to be organic RWA growth. Our second will be the dividend. And the third will be, you know, what we do with the share of purchases or inorganic growth. And Brian talks about the discipline we have around inorganic growth.

Speaker Change: We're continuing on the path, right? But our first priority is always going to be organic RWA growth. Our second is going to be the dividend. And then the third will be what we do with share of purchases or inorganic. And Brian talks about the discipline we have around

Brian J. Wenzel: So, you know, we have the ability to do that. I think we're going to be prudent with regard to the way in which we return the money to shareholders. We're not going to just drop it, you know, tomorrow, because obviously, we have many stakeholders here who would not necessarily agree with that action, but we are on trajectory and moving towards our target, which has always been our long-term goal, reserve rate at the end of 24 versus 23, and it seems like your expectation of a more favorable loss trajectory in your reasonable and supportable forecast period under CECL would be supportive of reserve releases, a la CECL.

Brian: and Organic Growth. So, you know, we have the ability to do that. I think we're going to be prudent with regards to the way in which we return it back to shareholders.

Speaker Change: We're not going to just drop it tomorrow because obviously we have many stakeholders here who would not necessarily agree with that action, but we are on a trajectory and moving towards our target, which has always been our long-term goal.

Speaker Change: Thanks. Thanks, Brian . That's helpful. And then, I guess, as a follow-up on your expectation of a stable reserve rate at the end of 24 versus 23, it seems like...

Speaker Change: Your expectation of a more favorable loss trajectory in your reasonable and supportable forecast period under CECL would be supportive?

Brian J. Wenzel: So is the takeaway that your outlook is essentially de-risked and now embeds greater conservatism, just trying to get a sense for when you'd feel comfortable getting that reserve rate back to the day one level and whether we should be thinking of that more as a 2025 event? Yeah, you know, most certainly it's not going to be a 2024 event, right?

Speaker Change: of Reserve Releases, a la Sequel. So is the takeaway that your outlook is essentially de-risked and now embeds greater conservatism? Just trying to get a sense for when you'd feel comfortable getting that reserve rate back to the day one level and whether we should be thinking of that more as a 2025 event.

Bill Carcache: As you said, it's flatter than last year. It really goes back to when do we have greater clarity, you know, across the industry? Everyone has great clarity with regard to the macroeconomic.

Speaker Change: Yeah, you know, most certainly it's not going to be 2024, Van Rey, as you said, it's flattest to the last year. It really goes back to when do we have greater clarity, you know, across the industry, everyone has greater clarity with regard to the macroeconomic.

Brian J. Wenzel: You know, when are we going to get back to a more normalized interest rate environment, and a more normalized inflation environment, which makes the everyday costs for our consumers, a shared consumer across the industry, much more manageable? It's that uncertainty that I think will give people pause in how they run the different scenarios and make their qualitative assessments. That's probably the largest wild card.

Speaker Change: Interest Rate Environment, More Normalized Inflation Environment, which makes the everyday cost for our consumers, a shared consumer across the industry, much more manageable. It's that uncertainty.

Bill Carcache: Obviously, you're going to have to watch how your portfolio delinquencies develop and mix, but it's really getting clarity on that environment. Again, I think being prudent now is a better course.

Speaker Change: that I think will give people pause in how they run the different scenarios and have their qualitative assessments. That's probably the largest wildcard. Obviously, you're going to have to watch how your portfolio delinquencies develop and mix, but it's really getting clarity on that environment. So...

Speaker Change: Again, I think being prudent now is a better course.

Bill Carcache: Thanks again for taking my questions. Thanks, Bill. Have a good day. Thank you. Our next question will come from Dave Rochester with Compass Points. Please go ahead. Hey, good morning, guys. Good morning.

Speaker Change: Understood. That makes a lot of sense. Thanks again for taking my questions. Thanks, Bill. Have a good day.

Speaker Change: Thank you. Our next question will come from Dave Rochester with Compass Points. Please go ahead.

David Patrick Rochester: By the time we get to October 1st, will you guys have implemented your PVPC at substantially all of your partners at that point? Or is there a segment that has opted to wait on those until the rule actually takes effect? And how large is that segment, if you have a sense?

Dave Rochester: Hey, good morning guys. By the time we get to October the 1st, will you guys have implemented your PVPC at substantially all of your partners at that point, or is there a segment that opted to wait on those until the rule actually takes effect? And how large is that segment, if you have a sense?

Brian D. Doubles: As Brian said, we've completed the first phase that covers a substantial part of the business. We do have one or two partners where we've largely agreed on what we would do, but we are waiting for the rules to be effective. Again, that doesn't change our view that we will fully offset this. We'll get back to, you know, pre-late fee ROAs, and we'll still support the customers and underwrite the customers that we do today.

Dave Rochester: As Brian said, we've completed the first phase that covers a substantial part of the business. We do have one or two partners where we've largely agreed on what we would do, but we are waiting for the rule to be effective.

Speaker Change: Again, that doesn't change our view that we will fully offset this. We'll get back to pre-Leafy ROAs and we'll still support the customers and underwrite the customers that we do today.

Brian D. Doubles: The only thing I'd add, Dave, is there is a tail, right, with regard to this, right? Because accounts that we originated in the back half of last year, we wouldn't give them a change in terms six months after we just originated the account or three months after we originated the account. So there will be a tail that goes on here for a long period of time as well as the number of inactive accounts that become active. Once they become active, they'll get a CIT. So it takes a long time to get to 100% under any scenario.

Dave Rochester: The only thing I'd add, Dave, is there is a tail, right, with regard to this, right, because

Dave Rochester: Accounts that we originated in the back half of last year.

Speaker Change: We wouldn't give them a change in terms six months after we dis-originated the account or three months after we originated the account. So there will be a tail that goes on here for a long period of time as well as the number of inactive accounts.

Speaker Change: That will become active. Once they become active, they'll get a CIT, so it takes a long time to get to 100% under any scenario, but this will go on and that's part of the normal course, and any time we do a CIT that is...

Brian J. Wenzel: But this will go on. That's part of the normal course. And any time we do a CIT, that is... You know, kind of a regular course of action. Got it. That makes a lot of sense.

Speaker Change: You know, it's got a regular course of action.

David Patrick Rochester: Appreciate that. And then to follow up on Ryan's question from earlier in the scenario where the late fee rule is shot down regarding the changes that stick, I know you haven't given this a ton of thought yet, and that's understandable, but just based on your early assessment of consumer reaction so far and your dialogue with your partners and the fact that there's a good amount of expense associated with implementing those changes, is there any reason you've seen so far to indicate you would want to unwind the APR changes or would those be the easiest changes to leave in place?

Speaker Change: Got it. That makes a lot of sense.

Speaker Change: Appreciate that. And then to follow up on Ryan's question from earlier in the scenario where the late fee rule is shot down regarding the changes that stick, I know you haven't given this a ton of thought yet, and that's understandable, but just based on your early assessment of consumer reaction so far...

Speaker Change: and your dialogue with your partners, and the fact that there's a good amount of expense associated with implementing those changes, is there any reason you've seen so far to indicate you would want to unwind the APR changes, or would those be the easiest changes to leave in place?

David Patrick Rochester: I think, like Brian said earlier, this will be a discussion with the partners. We'll look at, you know, for the portion of the book that we control, we'll look at consumer behavioral changes. You know, it's still really early.

Brian: I think like Brian said earlier, this will be a discussion with the partners. We'll look at, you know, for the portion of the book that we control, we'll look at consumer behavioral changes. You know, it's still really early. You know, these CITs are now just working their way through the statements, and we're just...

Brian D. Doubles: You know, these CITs are now just working their way through the statements, and we're just starting to see the customer behavioral changes, which at this point are very slight. But we need to continue to monitor that. As Brian said, we're all over it, and we'll adjust along the way if we feel like we need to. But we're not preparing for a scenario where the rule doesn't go into effect.

Speaker Change: Starting to see the customer behavioral changes, which at this point are very slight.

Brian: We need to continue to monitor that. As Brian said, we're all over it, and we'll adjust along the way if we feel like we need to. But we're not preparing for a scenario where the rule doesn't go into effect. I think we have to control what we control, and we control...

Brian D. Doubles: I think we have to control what we control, and we control, you know, the pricing and policy changes, and that's what we've done. And, you know, we're obviously, think we've got a great case in terms of litigating the rule, but it's uncertain. So we've got to focus on what we can control.

Speaker Change: You know the pricing and policy changes, and that's what that's what we've done, and you know we're obviously we think we've got a great case in terms of Litigating the rule, but it's uncertain so we've got a we got to focus on what we can control

David Patrick Rochester: Great. Thanks, guys. Yeah, thanks. Thanks, Peter. Have a good day.

Speaker Change: Great. Thanks, guys. Yeah, thanks. Thanks, Peter. Have a good day.

John Hecht: Thank you. Our next question will come from John Hecht with Jeffries. Please go ahead. Morning, guys. And thanks for taking my question. Actually, I think all of my questions have been answered, or asked and answered.

Speaker Change: Thank you. Our next question will come from John Hecht with Jeffries. Please go ahead.

Brian D. Doubles: But I guess I have one incremental one, and that is, you did renew Verizon in the quarter, and then you added Virgin. I'm wondering, given the just, I guess, the overhang and uncertainty around the late fee situation, how have there been any kind of structural changes in how you negotiate these new contracts with that uncertainty in the background? Yeah, so let me start. I'll ask Brian to comment later. You know, look, first, we're very excited to launch what we think is a very unique, one-of-a-kind program with Virgin Red. You know, it'll span air travel, hotels, and cruises.

John Hecht: Morning, guys, and thanks for taking my question. Actually, I think all of my questions have been answered, or asked and answered, but I guess I have one incremental one. You did renew Verizon in the quarter, and then you added Virgin. I'm wondering, given just, I guess, the overhang and uncertainty around the

John Hecht: Late-see situation how if there been any kind of structural changes in how you negotiate these new contracts with that? uncertainty in the background

Brian D. Doubles: You know, we're tapping into a very strong, loyal customer base, so we could not be more excited to partner with Virgin Red on this new product, and equally as excited to renew our contract with Verizon.

Speaker Change: Yeah, so let me start. I'll ask Brian to comment. You know, look, first, we're very excited to launch

Speaker Change: What we think is a very unique, one-of-a-kind program with Virgin Red, you know, it'll span air travel, hotel, cruises, you know, we're tapping into a very strong, loyal customer base so we could not be more excited to partner with Virgin Red on this new product.

Speaker Change: Equally as excited to renew Verizon.

Brian D. Doubles: It's been a strong program for us. A great relationship. And, and so we're really excited about that as well. You know, certainly the late key issue has crept its way into negotiations, new business renewals, unsurprisingly, but there are ways to structure around this. So, we have certainly contemplated an $8 late fee in every program that we've renewed since the rule was published, as well as anything that we've extended.

Speaker Change: It's been a strong program for us, great relationship, and so we're really excited about that as well. You know, certainly the late fee issue has crept its way into negotiations, new business, renewals, unsurprisingly, but there are ways to structure around this.

Speaker Change: We have certainly contemplated an $8 late fee in every program that we've renewed since the rule was published, as well as anything that we've extended.

Brian D. Doubles: Yeah, the only thing I'd add, John, is in that in that structuring of pricing, we assume late fees go in at eight to the extent that there's upside, you know, you know, we're protected to downside, there may be things that you do on the upside relative to partners, purely even when you look at, you know, the portfolio required in the second quarter from another issuer, we're relatively protected, or are protected relative to the dollar late fee going to place it just, you know, we're more conservative in pricing, we you know, we think it's gonna, you know, as much as we like the chances that that the industry has against, you know, against the rule, we're not going to bank on it in pricing a deal that lasts, you know, seven to 10 years. Great. I appreciate the call guys. Thanks very much.

Speaker Change: Yeah, the only thing I'd add, John , is in that structuring of pricing, we assume late fees go in at 8 to the extent that there's upside, you know, we're protected to the outside, there may be...

Speaker Change: Things that you do on the upside relative to partners, even when you look at the portfolio required in the second quarter from another issuer, we're relatively protected.

Speaker Change: or are protected relative to the dollar late fee going in place. It's just, you know, we're more conservative in pricing. You know, we think it's going to, you know, as much as we like the chances that the industry has against, you know, against the rule.

Speaker Change: We're not going to bank on it or pricing a deal that lasts, you know, 7 to 10 years.

John Hecht: Thanks, John. Thanks, John. Have a good day. Thank you. We have time for one last question. It will come from Don Fandetti with Wells Fargo. Please go ahead.

Speaker Change: Great. I appreciate the call, guys. Thanks very much. Thanks, John . Thanks, John .

Donald James Fandetti: Yes, can you talk a little bit about the 23rd vintage and just how that's performing? You know, you've got another quarter under your belt relative to your expectations and maybe 22 and I know you haven't had as much sort of volatility versus general purpose. Yeah, you know, thanks for the thanks for the question, Don. So, again, I think, you know, level setting, first of all, I like to do it against the industry.

Speaker Change: Thank you. We have time for one last question. It will come from Don Fandetti with Wells Fargo. Please go ahead.

Donald James Fandetti: Yes, can you talk a little bit about the 23 vintage, just how that's performing? You know, you've got another quarter under your belt relative to your expectations and maybe 22, and I know you haven't had as much volatility versus general purpose.

Speaker Change: Yeah, you know, thanks for the thanks for the question, Don. So, so again, I think, you know, level setting, first of all, I like to do it against the industry. I think if you go and look to some of the credit bureaus,

Brian J. Wenzel: I think if you go and look at some of the credit bureaus, and you look at the industry's vintage curves, our, you know, relative portfolios are performing better than the industry's curves, both from a delinquency and accumulative net charge-off perspective. But that being said, we've talked extensively over time that there is a shared consumer. We do feel the effects of what other issuers did as they exited the pandemic, adjusting some of their credit criteria or courting the credit box in their world and issuing an awful lot of, you know, some of the biggest vintages we've ever seen in the credit card industry. So I use that as a background.

Speaker Change: And you look at the industry vintage curves, our relative portfolios are performing better than the industry's curves, both from delinquency and accumulative net charge-off perspective.

Speaker Change: You know, that being said, we've talked extensively over time that...

Speaker Change: We do feel the effects of what other issuers did as they exited the pandemic, adjusting some of their credit criteria or according to the credit box in their world.

Speaker Change: and issued an awful lot of some of the biggest vintages we've ever seen in the credit card industry. So I use that as a background.

Brian J. Wenzel: I think when you look at delinquencies, and I'll give you some of the details here, Don. When you look at delinquencies, the second half of 21 through the first half of 23 are performing, you know, slightly worse than or worse than, you know, the 2018 vintage. 2019 gets skewed because you have the year of the pandemic.

Speaker Change: I think when you look at...

Speaker Change: Delinquencies, and I'll give you some of the details here.

Speaker Change: Don, when you look at delinquencies...

Donald James Fandetti: The second half of 21 through the first half of...

Donald James Fandetti: Of 23 are performing, you know, slightly worse than or worse than, you know, 2018 vintage. 2019 gets skewed because you have the year of the pandemic.

Brian J. Wenzel: The second half, 23, and what we see, and again, it is very early, but when you look at the early indications from 24, because the credit actions we've taken, they are performing better than, you know, the first half of 23. And when you think about a charge-off perspective, the second half of 23 and the first half of 24 are performing better than 18. So I do think some of the modifications that we've made to credit actions are supporting it in the vintages.

Donald James Fandetti: The second half, 23, and what we see, and again, it is very early, but when you look at the early indications off of 24, because the credit actions we've taken, they are performing better than, you know, the first half of 23.

Donald James Fandetti: And when you think about it from a charge-off perspective, the second half of 23 and the first half of 24 are performing better than 18.

Donald James Fandetti: So I do think some of the modifications that we've made in credit actions are supporting it in the vintages. You know, we have we have some of the shared consumer in the back 21 into partially into the back half 21.

Brian J. Wenzel: We have some of the shared consumer in that 21 into partially into the back half of 21, into the early part of 23, that has given us a little bit of the trends above our historical delinquency rate. But again, we feel good about how the vintages are developing.

Donald James Fandetti: and today part of 23 that, you know, has given us a little bit of the, you know, trends above our historical delinquency rate. But again, we feel good about how the vintages are developing.

Brian D. Foran: Thanks, Brian. Great, thank you.

Donald James Fandetti: Thanks, Brian. Great, thank you. This does conclude Synchrony's earnings conference call. You may disconnect your line at this time and have a wonderful day. Thank you.

Brian: Thanks, Brian .

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

Brian: Great, thank you.

Speaker Change #100: This does conclude Synchrony's earnings conference call. You may disconnect your line at this time and have a wonderful day. Thank you.