Synchrony Financial

Good morning, and welcome to the Synchrony Financial second quarter 2025 earnings conference call. Please refer to the company's investor relations website for access to their earnings materials. Please be advised that today's conference call is being recorded. Currently, all callers have been placed in listen-only mode. The call will be opened up for your questions following the conclusion of management's prepared remarks. If at any time you should need operator assistance, please press star zero. If you wish to ask a question following the prepared remarks, please press star one. I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin. Kathryn Miller Thank you and good morning, everyone. Welcome to our quarterly earnings conference call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address during our call. The press release, detailed financial schedules, and presentation are available on our website, synchronyfinancial.com. This information can be accessed by going to the investor relations section of the website. Before we get started, I wanted to remind you that our comments today will include forward-looking statements. These statements are subject to risks and uncertainty, and actual results can differ materially. We list the factors that might cause actual results to differ materially in our SEC filings, which are available on our website. During the call, we will refer to non-GAAP financial measures in discussing the company's performance. You can find a reconciliation of these measures to GAAP financial measures in our materials for today's call. Finally, Synchrony Financial is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. On the call this morning are Brian Doubles, Synchrony's President and Chief Executive Officer, and Brian Wentzel, Executive Vice President and Chief Financial Officer. I will now turn the call over to Brian Doubles.

Thanks, Katherine. Good morning, everyone. Synchrony delivered a strong financial performance in the second quarter of 2025 that included net earnings of $967 million, or $2.50 per diluted share, a return on average assets of 3.2%, and a return on tangible common equity of 28.3%. Despite an uncertain macroeconomic backdrop, we executed at a high level across our strategic priorities to drive value for our many stakeholders. Synchrony's diversified portfolio of products and spend categories industry-leading value propositions and expansive network of distribution channels enabled us to connect approximately 70 million Americans with a broad range of small and mid-sized businesses and national brands. And our continued credit discipline and previous credit actions drove better-than-expected delinquency and net charge-out performance, reinforcing our ability to drive sustainable growth and strong risk-adjusted returns as we look forward. And while our credit actions, in combination with selective consumer spend behavior, have had a short-term impact on our year-over-year growth in purchase volume and receivables, we have begun to see some encouraging signs within the portfolio. Symphony generated $46 billion of purchase volume in the second quarter. Dual and co-branded cards accounted for 45% of that purchase volume and increased 5% versus last year, primarily reflecting growth from our care credit dual card, as well as broad-based growth across our other dual card programs. Out-of-partner spend on our dual and co-branded cards generally continue to reflect a discerning customer with the mix of discretionary spend down slightly compared to last year. That said, we saw gradual growth in the mix of discretionary spend as the quarter progressed, with points of strength coming from restaurants, cosmetics, and electronics. We also saw continued improvement in average transaction values during the second quarter, which were down only about 50 basis points compared to last year. a clear improvement from the 1.7% decline in the first quarter and the 2.4% decline in the fourth quarter. Customers across credit grades contributed to this trend, but particular strengths came from our non-prime credit segment. Customers across credit grades continued to transact with relatively consistent frequency over the last several quarters, up about 3% in the second quarter versus last year, which partially offset the impact of lower transaction values. Overall, we feel good about the resilience we've seen in our customers thus far and will continue to leverage our core strengths as we navigate this operating environment. Of course, Synchrony has built a long track record of driving powerful outcomes for our customers and partners through constantly changing market conditions. This has earned us both the opportunity and privilege to be a partner of choice for hundreds of thousands of businesses across the country. And during the second quarter, we added or renewed more than 15 partners, including the addition of our program with Walmart and OnePay and our renewed relationship with Amazon. We are proud to announce our partnership with OnePay, a leading consumer fintech to exclusively power a new industry-leading credit card program with Walmart, one of the most iconic and largest retailers in the world. Together, we will leverage our respective expertise to launch a general purpose card and a private label card, both featuring a seamless digital experience embedded inside the OnePay app and compelling value propositions. We expect the program to launch this fall and are excited to deliver even greater innovation and choice to better serve the millions of consumers that seek to maximize their purchasing power. Synchrony's renewed relationship with Amazon builds on more than 15 years of collaboration and financing innovation. which is why we are also proud to announce our recently completed launch of Synchrony Pay Later at Amazon. Our Buy Now Pay Later offering is available for all transactions of $50 or more for approved Amazon customers. Synchrony continuously seeks to evolve and enhance the customer experience and the ways in which we drive utility and choice for our customers and loyalty and sales for our partners. And in today's world, that often means providing access to flexible financing anywhere that a customer is seeking to make a purchase, whether that's online or in person. One of our offerings with PayPal called PayPal Credit has been a popular choice among consumers for many years and historically has been a digital-only product. Over the last several years, however, we've seen increasing demand for a physical PayPal credit card so that customers could utilize their favorite form of financing more broadly in their day-to-day lives. Together, PayPal and Synchrony sought to deliver a more innovative payment solution that would enable our customers to take PayPal credit anywhere and still have access to six-month promotional financing on qualifying PayPal purchases. We are currently rolling out the fiscal PayPal credit card to U.S. customers, which can be added to mobile wallets for fast and easy tap-to-pay and includes a limited-time promotional offer to pay for qualifying travel purchases like flights, hotels, cruises, and rideshares. As we look ahead, Syncline is in a position of strength. We have been consistently executing across our business to reinforce our resilience amidst an ever-changing economic backdrop. We've been investing in our continued evolution to deliver the right products at the right time and for the right purchases as customer preferences and needs change. We are also driving customer loyalty, sales, and lifetime value for the many small and mid-sized businesses, local merchants and providers, and major national brands that we serve. In the last quarter alone, Synchrony launched new products with two of our top five partners and announced a new partnership with a previous top five partner. We also renewed one of our top five partners. With this renewal, the current expiration dates of our program agreements with our five largest partners range from 2030 through 2035. In addition, 22 of Synchrony's 25 largest program agreements have an expiration date in 2027 or beyond, and those 22 programs represent 98% of our interest and fees attributable to the top 25 as of year end 24. Synchrony is clearly building upon a long track record of delivering truly differentiated outcomes for our many stakeholders and solidifying our position as the partner of choice within the heart of American commerce. With that, I'll turn the call over to Brian to discuss our financial performance in greater detail. Thanks, Brian, and good morning, everyone. Synchrony's second quarter performance showcased the strength of our differentiated business model, which has been built to deliver resilient, risk-adjusted returns through evolving market conditions. We generated $46 billion of purchase volume during the second quarter, which was down 2% year-over-year, and include the effects of the credit actions we took between mid-2023 and early 2024, and continued selectivity in consumer spend behavior. Purchase volume at the platform level ranged between down 7% year-over-year in home and auto, reflecting discerning customer spend and this uncertain macroeconomic backdrop and up 2% in digital as growth in both new accounts and spend per active was partially offset by lower average active accounts. Ending loan receivables decreased 2% to $100 billion in the second quarter due to the combination of lower purchase line and higher payment rate. The payment rate increased by approximately 30 basis points versus last year to 16.3% and was approximately 100 basis points above the pre-pandemic second quarter average. The higher payment rate primarily reflects the impact of our previous credit actions, which contributed to approximately 1.5 percentage point sequential increase in our super prime credit card mix and an almost equivalent decrease in the proportion of non-prime. Payment rate was also impacted by a reduction in percentage of promotional financing loan receivables, which generally carry a lower payment rate. We expect the mixed shift to gradually revert to the historical mean over time. Net revenue decreased 2% to $3.6 billion, primarily reflecting the impact of higher RSAs driven by program performance. Net interest income increased 3% to $4.5 billion as a 10% decrease in interest expense and a 1% increase in interest and fees on loans was partially offset by lower interest income on investment securities. Our second quarter net interest margin increased 32 basis points versus last year to 14.78%. The increase was driven in part by a 53 basis point increase in our loan receivable yield, which was primarily driven by the impact of our product, pricing, and policy changes, or PPPCs, and partially offset by lower benchmark rates and lower assessed late fees. This contributed to approximately 43 basis points of our net interest margin. Total interest-bearing liabilities cost decreased 45 basis points versus last year and contributed approximately 38 basis points to our net interest margin. Our liquidity portfolio yield declined 95 basis points, generally reflecting the impact of lower benchmark rates, and reduced our net interest margin by 16 basis points. In our loan receivables mix, as the percentage of interest-earning assets decreased by 194 basis points, which reduced our net interest margin by approximately 33 basis points. RSAs of $992 million were 4.01% of average loan receivables in the second quarter and increased $182 million versus the prior year, primarily reflecting program performance, which included lower net charge-offs and the impact of our PPP fees. And other income increased 1% year-over-year to $118 million, driven by the impact of our PPPC-related fees and partially offset by the $51 million gain from the Visa V-1 share exchange in the prior year. Excluding the impact of this gain, other income would have increased 79% versus last year. Provision for credit losses decreased $545 million to $1.1 billion, covered by a $265 million reserve release in the second quarter, compared to the prior year reserve build of $70 million, and a $210 million decrease in net charge-offs. Including the reserve relief, it's $12 million relating to the movement of approximately $200 million in loan receivables to help for sale. Other expenses increased 6% to $1.2 billion, generally reflecting higher employee costs, partially offset by lower operational losses, and preparatory expenses related to the late fee rule in the prior year. The second quarter efficiency ratio was 34.1%, approximately 240 basis points higher than last year, driven by the higher expenses and the impact of higher RSAs on net revenue as credit performance improved. secretly generate net earnings of $967 million, or $2.50 per diluted share, and deliver a return on average assets of 3.2%, return on tangible common equity of 28.3%, and an 18% increase in tangible book value per share. Next, I'll cover our key credit trends on slide eight. At quarter end, our 30-plus delinquency rate was 4.18%, a decrease of 29 basis points from the 4.47% in the prior year, and 10 basis points below our historical average from the second quarters of 2017 to 2019. Our 90-plus delinquency rate was 2.06%, a decrease of 13 basis points from 2.19% in the prior year, and five basis points above our historical average from the second quarters of 2017 to 2019. Our net charge-off rate was 5.70% in the second quarter, a decrease of 72 basis points from 6.42% in the prior year, and 10 basis points below our historical average from the second quarter of 2017 to 2019. Net charge-off dollars are down 11% sequentially. This compares variably to the 2017 to 2019 average sequential trend of essentially flat. And as highlighted on slide three of our presentation, sequencing sequential net charge-off trends have generally outperformed our quarterly average sequential movement between 2017 and 2018. When evaluating credit performance, our portfolio delinquency and net charge-off trends reflect both the efficacy of our credit actions and the power of our disciplined underwriting and credit management, and reinforce our confidence in the portfolio's credit positioning as we move forward. Finally, our allowance for credit losses as a percent of loan receivables was 10.59%, which decreased approximately 28 basis points from the 10.87% in the first quarter. Turning to slide nine, Synchrony's funding, capital, and liquidity continue to provide a strong foundation for our business. During the second quarter, Synchrony's direct deposits decreased by approximately $310 million, and broker deposits declined by $863 million. At quarter end, deposits represented 84% of our total funding, with both secured and unsecured debt each representing 8%. Total liquid assets increased 9% to $21.8 billion and represented 18.1% of total assets, 145 basis points higher than last year. Moving to our capital ratios. Synchrony ended the second quarter with CET1 ratio of 13.6%, 100 basis points higher than last year's 12.6%. Our Tier 1 capital ratio was 14.8%, 100 basis points above last year. Our total capital ratio increased 110 basis points to 16.9%. And our Tier 1 capital plus reserves ratio increased to 25.2% compared to 23.9% last year. During the second quarter, Synchrony returned $614 million to shareholders, consisting of $500 million in share purchases and $114 million in common stock dividends. Synchrony remains well positioned to return capital to shareholders as guided by our business performance, market conditions, regulatory restrictions, and our capital plan. Turning to our outlook for 2025 on slide 10. Our baseline assumption for the four-year outlook now include the minor modifications we expect to make to our PPPCs this year, as well as the impact of the launch of a Walmart OnePay program in the fall, and exclude any potential impact from the deteriorating macroeconomic environment or from the implementation of tariffs or potential retaliatory tariffs, as their effects remain unknown. Turning to our outlook in more detail. Our current expectation is that ending loan receivables will be flat versus last year. This expectation includes the continued impact of selective consumer spend and the ongoing effects of our past credit actions on purchase line and payment rate. Previously, we expect payment rate to generally remain flat relative to 2024. However, we now expect it to remain elevated in 2025, reflecting the credit and promotional finance mix shift discussed earlier. While our past credit actions may have impacted our growth trajectory over the short term, they have needfully strengthened the trajectory of our portfolio's delinquency and net charge-off performance. We now expect our loss rate to be between 5.6% and 5.8%, which is comfortably within our long-term underwriting target of 5.5% to 6%. This improved credit outlook will contribute to higher RSAs as partner program performance further improves. As a result, We now expect RSA as a percent of average receivables to be between 3.95% and 4.1%, which will also shift our net revenue outlook for the full year to be between $15 and $15.3 billion. Managers' income for the year will be impacted by lower receivables, but it's still expected to follow seasonal trends associated with growth, credit performance, and liquidity. we expect our net interest margin to increase to an average 15.6 percent in the second half of 2025, reflecting improving loan receivables yield related to credit seasonality and the building impact of our PPPCs, lower funding costs due to lower benchmark rates, partially offset by lower yielding investment portfolio, and an increasing mix of loan receivables as a percent of burning assets, driven by the impact of seasonal growth and a gradual reduction of our excess liquidity. And lastly, we're updating our efficiency ratio expectation to be between 32% and 33%, primarily reflecting the updated net revenue outlook, as well as higher expenses associated with the launch of the Walmart OnePay program. We expect other expenses to increase approximately 3% on a dollar basis for the full year. In summary, Synchrony's differentiated business model is expected to deliver net interest margin expansion, lower net charge-offs, and continued performance alignment to RSA this year. This will drive higher risk-adjusted return and return on average assets that exceeds our long-term target of 2.5%. With that, I'll turn the call back over to Brian. Thanks, Brian. Before I turn the call over to Q&A, I'd like to leave you with three key takeaways from today's discussion. First, synchronous credit trends have outperformed relative to the industry, which is underscored by our current year outlook. Our portfolio's credit position will provide a strong foundation on which we can grow and deliver strong risk-adjusted returns. While we have begun to selectively unwind some of our credit actions on the margin, we are closely monitoring the environment and our portfolio and are evaluating further actions as we gain more clarity. Second, Synchrony's unique business model delivers industry-leading value propositions, a diverse product suite, and advanced digital solutions, empowering customers with financial flexibility and driving loyalty and sales for businesses. And our interests are closely aligned. When our customers thrive, so do our partners. And third, Synchrony is the nationwide leader in the private label and co-brand industry. It is positioned to deliver market-leading returns for our shareholders. We consistently earn and win new and existing partners, including more than 25 partners in the first half of 2025 alone. And we have built a long track record of execution through our intense focus on delivering outstanding outcomes for our customers and partners. This is what drives deep, long-lasting relationships and meaningful long-term value for all. With that, I'll turn the call back to Katherine to open the Q&A.

That concludes our prepared remarks. We will now begin the Q&A session. so that we can accommodate as many of you as possible, I'd like to ask the participants to please limit yourself to one primary and one follow-up question. If you have additional questions, the investor relations team will be available after the call. Operator, 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. Please limit yourself to one question and one follow-up question. We'll take our first question from Ryan Nash with Goldman Sachs. Your line is open. Please go ahead.

Good morning, everyone.

Good morning, Ryan.

Good morning, Ryan. So, Brian, you noted that you're seeing some encouraging signs in the portfolio when you talked about selectively unwinding some of the credit actions. Maybe just talk about what some of those encouraging signs are and actions that you've taken to loosen credit to drive growth. And then I guess second, we're clearly running below where, you know, you've historically targeted that 7% plus level. Maybe just talk about just, you know, with Walmart coming on board, renewing Amazon, a stabilizing consumer. Maybe just talk about do you see a path back towards that mid to high single-digit growth level? Thank you.

Yeah, sure, Ryan. Look, I think, you know, just starting with the consumer, I think they're still in pretty good shape. You know, we're not seeing signs of weakness. I think Spend is still pretty strong. I think credit is definitely performing better than we expected. You know, they continue to be selective, but we are seeing some positive signs. You know, if you look at our co-brand growth, that was pretty encouraging, up 5% versus the prior year. That compares to plus 2% last quarter, so that's a nice trend. You can see decent trends in retail, cosmetics, electronics. So there are some green shoes as we look across the portfolio. And to your point, because credits performed better than we expected, we did start to open up selectively in the second quarter, really focused initially on our health and wellness space. But I'm optimistic that there's room to do more in the second half. So I'm still pretty optimistic around the growth trajectory, particularly as we head into 2026. Because you've got, you know, just look at what we announced today. You've got Walmart, OnePay. That's launching in the second half. You've got PayLater launched at Amazon. What we're doing at PayPal with the physical card. And then, you know, you add all those things up. And then on top of that, you look at opening up the credit box a little bit just based on the trends of those things.

i'm pretty bullish so i think we should be able to drive some nice growth as we head into 2026. great maybe a follow-up for for brian wenzel um you know on the outlook you highlighted minor modifications to the pppcs Brian, maybe can you just touch upon how the discussions have gone with partners? Are you done with the conversations and the modifications you're making? And maybe just give us some examples of what type of modifications that you guys have made. Thank you.

Yeah, Brian, why don't I start on this one and then turn it over to Brian Wenzel. As I mentioned previously, any potential rollbacks are going to happen partner by partner. There's no big rollback plan that's in the works. And, frankly, there's not a lot of discussion happening right now with our partners. You know, we had one partner that wanted to make a change to one element of their program. We're going to do that in the second half. We had one other change in the fragmented space related to the promotional fee and some of our verticals. And when you add all those up, it's less than $50 million in net revenue and a go-forward impact, so pretty small overall. And I think, look, any potential discussions in the future, I think the way you should think about this and the way that we're actually approaching it is this is now like normal course. These are normal course pricing discussions that we've always had with our partners. We're always looking at pricing in conjunction with the credit that we're providing and the value proposition on the card. And we'll continue to do that. We'll have those conversations, and we'll do it with an eye towards driving sales for our partners and growth for the program at attractive returns. I don't know, Brian, if you want to add anything. Yeah, Ryan, the only two points, again, I'd emphasize, again, it's less than $50 million in net revenue that was impacted. Particularly when you think about, you know, Brian highlighted before, you know, as we engage with some of our partners, it was really around, you know, looking at the programs and making sure there are benefits coming through. One of the things that we have seen, well, certainly in the bigger ticket space in home and auto and lifestyle, we've seen some duration shortening on promotional finances as merchants try to manage the cost of, you know, the program. So as we engage with discussions around the promo fee, we've also engaged them around lengthening back out some of those promotional financings, which provide a better benefit for us over the longer term. So, again, I think it's a thoughtful way in which we engage the partners in order to try to drive growth into the portfolio as well as, you know, meet needs for the customers.

Thanks for taking my questions, and great credit corner. Thanks, Ryan. Thanks, Ryan.

We'll take our next question from Terry Maul with Barclays. Your line is open. Please go ahead.

Hey, thank you. Good morning. I wanted to ask about the NIM guide in the second half of 15.6%. That's a material step up from your first half NIM. Can you maybe just expand on the drivers that get you there and maybe talk about your level of confidence in achieving that second half NIM? And then as we kind of look forward, you guys kind of averaged 16% NIM kind of pre-pandemic. Can you still get back there?

Yeah, good morning, Terry. You know, as you think about the sequential movement into the back half of the year, what you're going to feel as you step quarter on quarter is the reduction of or an increase really in our average of loan receivables as a percent of our interest-earning assets. That is a meaningful position. Again, we probably held deposit rates a little bit higher for longer, which gave us more liquidity. You see that relative to the percent of ALR in the last quarter. So that is, first of all, the biggest delta as you step into Q3 and then step further into Q4 as you have the seasonal run-up of receivables. That's number one. Number two, what you're also going to feel is the impact of the PPPCs, which you see in loan yield, continue to drive up the portfolio into the back half of the year as you step through with the seasonal increases. And then finally, what you're going to see is a little bit of benefit, and particularly in the third quarter, as our CD book reprices, we'll get more interest expense benefit as we lower the cost of interest-bearing liabilities. That said, you're also going to have less reversals in the back half. So with that, you know, hopefully we have a pretty good line of sight. It's really going to come down to how much the liquidity burns off in the third quarter and fourth quarter.

Got it. And then I guess in the pre-pandemic NIM, the average of 16%, do you believe you can kind of get back there longer term?

Yeah, you know, I don't think we see things structurally. I mean, most certainly what we've seen in the first half of this year is a little bit less promotional financing in the book, which actually should drive up your yield because the promotional financings carry a lower... lower yield. So that's one. I think ultimately what you're going to get back to, Terry, are two things. One, we're over-indexing now a little bit more into the super prime component as we've tightened our credit aperture. As that begins to even go back to normal levels, you'll begin to see a better revolve rate, which should continue to push up your net interest margin, number one. Number two, you also have an environment where you're at 4.5% Fed funds rate, where the guy at 16 was at, you know, 2.5%. So you should get, as you move closer back to that norm, you should be able to get a lift. And then, you know, most certainly you have the PPVC that should stack on top of it. So, again, it's more the timing of when the interest rate environment normalizes and when we fully open the credit aperture back to where we are and probably get back to a similar mix in assets.

Great. Thank you. Thanks, Terry. Have a good day.

We'll take our next question from Sanjay Sakrani with KBW. Your line is open. Please go ahead.

Thank you. Good morning. I want to go back to Ryan's first question on loan growth. Brian Doubles, I know you're bullish on loan growth. Is it fair to assume that you guys haven't necessarily baked in some of the growth expansion coming from the loosening of credit standards? And I guess, like, how does the guidance factor in Walmart? Is there a contribution this year? And just one final related matter question, sorry. You talked about tariffs, and that's obviously a moving target. But you and your partners have had time to sort of digest their impacts for the year. How would that play out if there were higher tariffs for the year?

Let me start and I'll turn it over to Brian. I think the thing that is important to appreciate, we started to loosen up a little bit around the margin starting the second quarter and there's more we can do in the second half, but it does take time for those credit actions to work their way in to the growth metrics. I would think about most of those things, including uh walmart one pay uh pay later some of those things you know weaving into the balance sheet in the first half of 2026 and really benefiting you know full year 26 so it does take a little bit of time but we are optimistic that you know not only do we have a good pipeline of growth opportunities things that are launched and things that uh you know will be launched but also the opportunity around opening up on credit so we see um you know plenty of positive dynamics as we think about 2026 but it will take a little bit of time to bleed in yeah let me just add some color sanjay onto that you know brian highlighted a couple different points number one as we scoot towards the super prime we have more dual card in the book so you are seeing that lift whether it's five percent on purchase volume or six percent on loan receivables number one Two, Brian highlighted that in particularly on the out-of-store, out-of-partner spend relative to that, we've seen positive trends over the last four quarters really in clothing, cosmetics, electronics. uh as well as restaurants so we are seeing those green shoots of spin as consumers are more willing to go into some of those discretionary uh discretionary type items i'll also point you to page five of the deck where we have three platforms that are essentially flat so so we are seeing um you know a turn both in digital health and wellness and diversified values that kind of comes out You know, the Walmart impact, it's going to be back after the year. It's probably not going to be meaningful on the growth rate of the company, but we'll certainly launch you into, you know, 2026 from a big perspective. It's going to be the timing around, you know, the pre-screening when we actually get it launched both in the app as well as in the store. So there are positive momentum. The last thing I'd share with you is we look at the first three weeks of July or go through the 20th. We actually are seeing positive comps on total purchase volume. So, you know, we feel good about, you know, where we're starting the quarter, albeit early, and we'll continue to watch as we move through.

Great color. Just to follow up, capital management, obviously you guys are solidly capitalized at this point. I'm just trying to think through uses of that excess capital as we look forward in the second half into next year. Maybe you can also address the pipeline of any acquisitions, if there are any. Thanks.

Yeah, why don't I take the first part and then let Brian talk a little bit about the pipeline. You know, Sanjay, obviously we have $2 million remaining on the existing share repurchase program. you know, we're fully committed to bring capital back to shareholders. I caution people when they try to think about the cadence as you step through. First is our business performance, which I think when you look at the net income and delivering $2.50 per share this quarter, we're strong positioned there. I think also you have to recognize there are certain times during a quarter where we may be limited on our ability to repurchase for nonpublic information, which can hinder you at times. But as we step through, you know, the first piece is going to be funding our RWA growth, which, again, we hope to have an increase here in the back half of the year. We've shown the increase in the dividend up to $0.30 again, you know, for this quarter. And then we get into share repurchases and inorganic. And, again, we're going to continue to be very disciplined when it comes to pricing. I'll let Brian talk about the pipeline in a second. But again, as long as the market is there, we understand we're in a position of real strength at a 13.6% CET1. And to the extent that we have an opportunity to potentially increase our share of purchases, we'll look at it. But again, it's going to be guided by business performance and our capital plan. I would just also reiterate that we are laser focused on returning capital to shareholders. I think we've got a great track record demonstrating that. We bought back half the shares over the last 10 years. So it's not lost on us that we have excess capital today and we are actively looking to deploy it. Brian walked through the priorities. The only one I'll touch on briefly is the pipeline. I think we've got a strong pipeline if you look across The different verticals in the business, that continues to be the case. I think competition is rational right now, and I feel really good about our position to win. If you look at what we announced this quarter with Walmart OnePay, renewal on Amazon, I feel great about our ability to compete for what's sitting in the pipeline. So that is a very attractive use of capital from our perspective. But we also look selectively at M&A. We're very disciplined around that. But, again, not lost on us that we're sitting with excess capital today, and we're actively looking to deploy it. Thank you, guys. Thanks, Andre. Thanks, Andre.

We'll go next to Moshe Orenbach with TD Cowen. Your line is open. Please go ahead.

Great, thanks. I was hoping, you know, that you could talk a little bit about

the comments that you made on you know new products with your existing largest customers and maybe talk about how those can contribute to growth it would seem that you probably have a shorter startup period for things like that maybe just a little more detail about the plans and how much that could contribute to growth whether it's in 25 or 26. thanks Yeah, I think the two biggest ones, you know, we talked a little bit about with the Pay Later launch at Amazon. We're very excited about that. First, we're excited about the renewal and the long-term extension. You know, if you look at our top five relationships now, the expiration dates are between 2030 and 2035. So, we feel really good about that profile. It gives us, you know, it allows us to really focus on innovating and growing inside of those programs. At Amazon now, we've got three products. We've got the private label card, we've got the secured card, and now pay later. And I think that really speaks to the power of the multi-product strategy. We've been talking about this for a while now, and we love a program where we have multiple products. where we can cater those products both uh the type of customer and the type of purchase that they're making and we think that that choice is really important we also love the strategy of being able to start uh someone in maybe a secured card and migrate them to private label and then you know to multiple products within the suite so i feel great about our product suite and our ability to compete i think for you know let's take pay later at Amazon and what we're doing with PayPal with the physical card, I think you'll see those primarily again bleed in through, you know, 2026 and impact the growth there. You know, we'll get, we'll clearly get a little bit of benefit in 25, but I don't think you'll see it necessarily show up in the, in the full year guide. Okay. Thanks. And, you know, to follow up kind of on Sanjay's questions about capital return, you know, I guess, you know, You know in the quarter you had a you know you had 28 percent return on tangible equity and commented that you expected loan growth to actually slow. So you're generating more capital and kind of needing it a little bit less than you would have thought perhaps three months ago I guess. What other signs do you need to see to actually step up that repurchase? I guess that's the you know, it seems like, you know, almost as if you would want to be doing that to just demonstrate that, you know, yes, we've got a little lower loan growth, but, you know, capital position is still very, very strong. Yeah, thanks so much for the question. Again, I point you back to my comments earlier. Sometimes within quarters, there are situations where we're prohibited from repurchasing on certain information. Most certainly when you think about announcing a relationship with Walmart and Amazon most certainly can influence the timing of when we're able to purchase. Again, subject to market conditions, we're going to continue to be prudent but yet aggressive, but understand we do have certain restrictions at times. But that should not influence or affect our confidence level in returning capital and even evaluating whether or not we want to increase that share of purchase with our board at some later point during the year. Thanks very much, Brian.

We'll take our next question from Rick Shane with JPMorgan. Please go ahead.

Thanks for taking my question this morning. Portfolio construction is about sort of dynamically balancing higher ROA and higher volatility, riskier borrowers against lower ROA and lower vol. higher quality borrowers. I'm kind of curious, does the stickiness of PPPC enhance the ROA of prime borrowers in a way that they become even more attractive for you going forward? And does that change the model a little bit?

Yeah, thanks for the question, Rick. Yeah, most certainly I think where you see, you know, the potential to have a greater impact is in that prime segment. So when you think about advantage 650 plus into the low 700s, to the extent that you can introduce a higher margin on that customer, that's going to give you a better ROA. At the high end of super prime segment, again, their payment rate is fairly high in and of itself, so I don't think you're going to move that ROA needle substantially. And then certainly you'll get some benefit in the non-prime customers, but really it's in that prime segment where you can become actually more capital efficient and drive a higher return on assets.

Got it. Okay. Look, you know, obviously the pushback on the quarter is going to be the debate between the credit quality and the loan growth. You know, to me, handing out money is the easy part. Getting it back is the hard part. As you think about the second half and widening the aperture, how do you balance that? I mean, you see your borrowers behaving in a more disciplined way. Do you respect that or do you give them a little bit more room?

Yeah, look, Ray, this has always been, it's art and science, right? You know, everything we do is in the context of our long-term NCO guidance of 5.5% to 6% and targeting areas in the portfolio where we have really strong risk-adjusted returns, which is why when we started to open up in the second quarter, We started with our health and wellness business. You know, we liked the return profile there. We liked everything we were seeing in terms of the credit trends, and we looked at that in combination with PPPCs, and we said, okay, we have an opportunity. to open up a little bit. And now we're looking, as you get in the second half here, there are other places in the portfolio where we have the opportunity to do that. And so, look, if I take a step all the way back, when we saw credit starting to go where it was going, just given what the industry had done for a couple of years, and the shared consumer, we said it's prudent to dial back a little bit around the margins. And we did that. And frankly, I think our credit team did a fantastic job navigating, you know, that fairly uncertain environment. Now we've got credit comfortably within our long-term guidance, and we see some pockets of opportunity to drive some growth, you know, with a very manageable loss rate and strong returns. And so that's what we're doing. The one thing I'd add, Rick, if you take a step back other general purpose issuers had the luxury of dialing back mail volume, adjusting a little bit more on the fly. With our partners and merchants, we need to be consistent or want to be consistent with them with regard to that credit aperture. So again, we try not to adjust as quickly on the downside as well as on the upside. Again, the most important part here now is what's going to happen with the economy and essentially the entire situation. So I think we're going to prudently step through that in order not to make sure that we're not going to be putting our merchants in a situation where we're opening that credit after and then they have to close it a little bit. So I think we're just stepping out quarter by quarter, making sure we have good visibility into how the environment's playing out.

It's very helpful, and the last part is something I hadn't actually thought about before, so thank you.

Thanks, Rick.

We'll go next to John Heck with Jefferies. Your line is open. Please go ahead.

Good morning, guys, and thanks very much for taking my question.

You mentioned health and health and wellness. I know that's been a relative to the overall business, you know, has had higher growth historically. Maybe can you just give us an update on health and wellness? You know what the kind of product categories are and where you're seeing the opportunities there? yeah you know thanks sean look i think elder wellness is clearly one of our strongest platforms uh it's an area where we've been investing heavily for the last three years you know you've seen the growth outperform the rest of the business you know we are uh we have a great competitive position there we've got a great brand uh we've got great digital assets that our provider base uses we are um We're innovating new products and launching new products in that space every day. And I feel really good about how we're positioned in health and wellness. Now, we did dial back a little bit in terms of credit. You know, over the last 12 months, we started to open back up. So I'm actually, you know, fairly optimistic that we're going to return to above average growth in health and wellness going forward. and it isn't one industry or segment you know we're very strong in dental vet cosmetic uh it's and and we see great growth opportunities across the board so we're not we're not targeting one or another but we see really strong opportunities as we look across all those verticals okay that's helpful and then um you know but maybe just on credit touching on credit you know i know it's A little early to be, you know, getting, I guess, definitive look at 24. But what are the early looks at the 24 vintage and how that compares to maybe pre-pandemic? And if those trends continue, what do we think about the ALL level over time? Yeah, thanks, John. Good morning. So if I work backwards, John – I'll be very early. The 25 vintage is performing incredibly well. It has a fully seasoned effect. So the credit actions, when I say that, I'm really comparing back to the 2018 vintage. The 2024 vintage, putting in the first half and second half, again, that's performing better than our 2018 vintages. So again, where we had the credit actions probably fully in play, most certainly for the back half of the year, but almost for most of the first half of the year, performing better than that 2018 vintage. And, again, 22 and 23 vintages, they're performing slightly worse than the 2018 vintage, which is why we took those actions. But, again, we feel comfortable that what we're originating in 25 and 24 as it's seasoning out is better than 2018.

Great. Thank you so much. Thanks, John. Have a good day.

We'll take our next question from Don Fandetti with Wells Fargo. Please go ahead.

Yes. Good morning. On the July purchase volume improvement, can you talk a little bit more about if that's broad-based, low-end, high-end, across verticals? You know, if I layer that in with your average ticket comment on the improvement in the low-end, it sounds like pretty constructive, almost like a mini-acceleration-type environment.

Yeah, thank you, Don, for your question. You know, I think where you're seeing it is in the three platforms that have experienced better purchasing performance. So think about health and wellness, diversified value, and digital. You're really seeing the acceleration there. Again, you're seeing a little bit in home and auto and lifestyle, but, again, those are bigger ticket purchases. We also hope by trying to get the shift out in some of the promotional terms,

uh in the back half a year can help those verticals but it's really in the three core sales platforms that are experiencing a little bit uh a little bit more sign to life got it okay um and then can you just give us an update on your technology investment um you know whether it's ai and other initiatives clearly you're doing well relative to peers on digital engagement

Yeah, sure. So let me start on that one. I think just because you mentioned GenAI, I mean, that's a big opportunity for us, as it is for most others. We're investing in a number of areas right now. You know, I think about it in a few big buckets. Obviously, big efficiency opportunity across the company. We can improve speed to market. We can drive costs down. We've developed and launched an internal what we call synchrony GPT. It really gives access to all employees in terms of being able to leverage GenAI in their day-to-day jobs. We're excited about that. I think there's a big opportunity in customer service, you know, creating GenAI tools that will help our contact center associates help the customer solve their problems more quickly. And then lastly, you know, we're using it to drive the top line as well. So we launched some GenAI capabilities in our marketplace that allow you to search for, say, furniture with a certain theme or from a certain decade, which is pretty cool. And then it brings back results from our partner base. So we love that because it's bringing sales to our partners. And so we see so many use cases there that this is clearly an area that we're going to invest. And then outside of Gen AI, you know, we continue to invest our products, our capabilities. We're investing in the point of sale. You know, we talked about Walmart OnePay. That's going to be one of the most technologically advanced programs that we have. We're super excited about it. We're going to be completely embedded in the OnePay app, very seamless integration, leveraging our API stack. So many areas across the business, but this is how we're competing. If I had to pick one or two things, In terms of when we go in and compete for new business, it's the technology investments that we've made and our credit and underwriting. Frankly, that's how we're differentiating ourselves right now. So those investments we're getting a fantastic return on. Just to add some color, I know there's a focus on expenses both for the quarter and the year. I think when we look at expenses for the total year being up 3%, But on the compensation line, what we are seeing is, you know, we've increased our exempt headcounts about 5%, and that's, you know, three-quarters of that's coming from IT and strategic investments. with a corresponding decrease in non-exempt as we buy into Jeff. So we are continuing to invest in that short to medium term because that's the right thing for our business, even though growth slowed down here a little bit. If we don't continue to invest in the areas Brian talked about, we can fall behind competition. So there is some mix there, but we are continuing to invest while maintaining expense discipline of being up, you know, our view about 3% for the full year.

we'll take our next question from jeff adelson with morgan stanley please go ahead hey good morning thanks for taking my questions uh yeah just wanted to ask uh again about expenses you talked about how the one-pay launch uh did drive up expenses this quarter you had a little bit more variable comp expense this quarter are we largely past those at this point or is there anything else left to be aware for the rest of the year or going forward and Just as we think about maybe opening up the credit box a little bit here, is there an opportunity for you to maybe lean a little bit more in on the marketing side, which I think has seen a little bit more moderate growth in the past year?

Yeah, good morning, Jeff. Let me unpack that a little bit. You know, first of all, the expenses related to the Walmart launch will primarily be back after the year, probably split between third quarter and fourth quarter, again, depending upon one of our large marketing campaigns. But that's kind of more back end, probably pretty equal between 3Q and 4Q, number one. Number two, there are some timing issues in the quarter. We do, in order to try to help our non-exempt employees, we played an inflation bonus, which we paid in the fourth quarter last year. We accelerated that to the second quarter in order to help that population of people. So that, again, will show some favorability in the fourth, but negative here in the second. And then some of the other compensation-related items were really marking some of the comp plans based upon the share of performance of the plan. So, again, you know, I've highlighted, Jeff, I think we're 3% for the full year. There are some more one-timers that I think were in this quarter than others. and some swings within the quarters. But again, the one-day Walmart will be split probably between the third quarter and the fourth quarter. And probably the bigger impact of the year, to be honest with you, would probably be more related to reserves, to the extent that the asset goes as you go into the holiday season.

Okay, great. Thanks. And just a quick follow-up on the Pay Later launch, and I know you've been rolling that out at different returns. I guess just how meaningful do you think that can be for you over time? And is there any sort of shift in economics we need to be aware of there? I mean, I know some of the terms you highlighted on Amazon are still 20% APR there, but just sort of curious if there's any sort of shift in the economics we need to be aware of as we think about that going forward. Thanks.

Yeah, look, I'd say first we're super excited about it. I think the pay later is going to be a meaningful part of the business for years to come. It's clearly a product that consumers want. I think what our product team has built is great. We're super excited to have it launched at Amazon. We've got it at a number of our big partners now, and we've got it at Amazon, Lowe's, JCPenney, Belk, Sleep Number. So, there's been really good partner adoption. And I think what we've been able to demonstrate with them is the power of the multi-product strategy. So, being able to offer a pay later loan for one customer, depending on what they're purchasing, or a private label card, or a dual card, or a co-brand card. And us having access to the consumer looking at how they spend, when they spend, what they're purchasing, and offering the right product at the right time is really powerful. And if I go back three or four years, you know, that didn't really exist because there was no one that could offer that broad suite of products. Now we can. And so I feel great about that, and I think it will be a meaningful part of our growth going forward.

Okay, great. Thank you, Gus.

Thanks, Jeff.

We'll take our next question from Erica Najarian with UBS. Please go ahead. Hi, yes, I just wanted to follow up on a couple of line items just to make sure that we're taking away the right message from the call. So you often talked about how, you know, the impact of your previous credit action sort of had a long tail, and we're seeing that in the growth. You know, as we think about, you know, I think, Brian, you mentioned stepping out quarter by quarter. Is the message really here is that sort of we, you know, we're now fully lapping the impact of those previous credit actions on growth. And as we think about 2026, and I think, you know, Brian, you know, Doubles mentioned, you know, first half of the year, you're going to start seeing growth. As we start thinking about 2026, you can have the impact of, you know, the credit actions in reverse and also Walmart. Just wanted to make sure that we're taking away from this call what the expected cadence of growth is beyond this year.

Yeah, thanks, Erica, for the question. Yes, you know, at this point in time, as you move to the back half of the year, we have lapped the credit actions, number one. I think, number two, if you go back to a year ago, I think around the same time of this call, we talked a little bit about The consumer being a little bit more discerning that started in the latter part of June into the back half of the year, particularly in those bigger ticket platforms like home and auto and lifestyle. So I think from that perspective, you should see the comps kind of come through. As you move into 2026, clearly you'll have the last quarter probably of those, you know, you're through the credit actions at that point. As we evaluate potentially opening that aperture up, you'll see some of the benefits of that begin to flow through as you step through 2026. And then obviously Walmart, there's a lot of opportunity here. So it's really about our execution, both through the app and the placement, as well as through the store. So those can provide that tailwind as we step into 2026.

And then lastly, is it possible at all to unpack the impact of the higher APRs for the second half margin to try to isolate that from seasonality? I guess I'm just thinking about, you know, other than rate actions by the Fed, what the launch point is that is maybe more permanent. And perhaps that's sort of a second follow-up. Are these sort of – are these PPPCs that are flowing through APR a little bit more permanent and not considered for modification?

Yeah, I think as you step through, remember the guidance that we gave was about 50% of the balance is probably a little bit more so would have been baked in through the second quarter of this year. You got about 75% next year. So you should continue to see that build through the portfolio, obviously adjusted for seasonal. So you should see the yield, the interest yield continue to increase even through some of those seasonal trends that you see in the 3Q into the 4Q. So, again, we're not breaking out the PPPCs directly, but you will see, you know, low yield increase in both those quarters.

Great. Thank you. And we have time for one last question. Our final question comes from Mahir Bhatia with Bank of America. Your line is open. Please go ahead.

Hi. Thanks for taking my question. The first question I wanted to ask you is about the Walmart program. Can you just talk a little bit about what's different this time, how OnePay's involvement changes things, any metrics or guideposts you can discuss that can help investors understand how that program will run. Thank you.

Yeah, sure. So look, I do think this is a different program than what has been historically. And I think that is largely because of one pay, but also, you know, as I mentioned, this will be one of the most technologically advanced programs that we have in the business. So completely embedded digital experience, you know, the entire process application through services can be done through the one pay app. From a product standpoint, we're going to have both a general purpose card with World Utility. We'll have a private label card that's really exclusive for Walmart purchases. We'll have a strong valve prop. I think the deal structure from our perspective has a strong financial profile. I think we've also got really good alignment with both Walmart and OnePay in terms of what we're trying to achieve here. We've got nice commitment from all the parties, so I think we'll have really good placement across the digital properties to drive apps and new accounts. So I'm very excited about it. I mean, there's no question that this should be a top-five program just given Walmart's size and scale. And that's my question, I guess. The value proposition will be significantly stronger, number one. Number two, the lost content of the portfolio will be significantly less than the 10% we ran last time, which I think will drive good behavior, we hope, inside the program. So, yeah, that's the one benefit of coming with the de novo book versus inheriting a back book.

But that's helpful, especially the point on losses. I think my final question, maybe just to put a ribbon on the call a little bit, has loan growth crossed, right? I mean, you highlighted quite a few levers that you have to pull. I understand macro is a bit of a wild card, but are you willing to say loan growth has crossed here? Oh, has crossed. Yeah, it crossed, sorry.

Yeah, I mean, the way to think about them here is if we're 2% negative, we're trying to say get to flat at the end of the year, you should see long growth, in theory, increase, albeit you're heading into the seasonal holiday nature of it. But, again, I think there's probably, you know, I think we've covered a number of times, there's probably more green shoots and positive data points as we step into the back half of the year that we're going to continue to evaluate and execute as we move forward. Yeah, I think, I mean, not to go back through the list of things that are in the pipeline, but you look at new program launches, new product launches, you look at the opportunities we have to open up around credit, you know, where we see strong risk-adjusted returns, you know, that all gives us some confidence that, you know, a lot of things are within our control. You know, it'll take a little bit of time, but as we look into 2026, we think we get back to seeing some pretty good growth in the portfolio.

Thank you for taking my questions. Thank you.

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