Synchrony Financial - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 EPS of $1.89 vs SPGI consensus $1.65, driven by lower interest-bearing liabilities cost, PPPC-driven loan yield, and a $97M reserve release; net revenue $3.718B essentially in line with SPGI revenue consensus $3.711B; EPS beat is significant given continued purchase volume softness from prior credit tightening.
• Baseline FY 2025 guidance tightened positively: net charge-offs range improved to 5.8–6.0% (from 5.8–6.1%), and RSA range raised to 3.70–3.85% (from 3.60–3.85%); net revenue $15.2–$15.7B and efficiency ratio 31.5–32.5% maintained.
• Capital return catalyst: new $2.5B buyback through 6/30/2026 and 20% dividend increase to $0.30 beginning Q2 2025; company returned $697M in Q1 (repurchases $600M, dividends $97M); CET1 13.2% and Fitch LT IDR upgraded to ‘BBB’ (Stable).
• Operating KPIs reflect resilient credit: NIM +19 bps to 14.74%, 30+ DQ down 22 bps YoY, NCOs 6.38% (+7 bps YoY), payment rate flat vs prior year; purchase volume -4% and period-end receivables -2% reflect intentional credit actions and selective customer spend.

What Went Well and What Went Wrong

What Went Well

• Net interest margin expanded to 14.74% (+19 bps YoY) as PPPCs increased loan yields and funding costs declined with lower benchmark rates; net interest income rose +1% YoY.
• Credit formation improved: 30+ days delinquency fell to 4.52% (−22 bps YoY) and a reserve release of $97M vs prior-year reserve build supported lower provision; CFO cited “outperforming seasonality” and vintages trending better than 2019.
• Management confidence and capital plan: “Synchrony delivered a strong first quarter 2025 performance” (CEO), and a new $2.5B buyback plus dividend hike signal balance sheet strength and ROE discipline.

What Went Wrong

• Purchase volume decreased 4% to $40.7B and average active accounts fell 3% to 69.3M, reflecting prior credit tightening and selective consumer spend; net revenue -23% YoY due to non-repeat of 1Q’24 Pets Best gain.
• RSA increased 17% to $895M (3.59% of ALR), pressuring net revenue as programs improved with PPPC effects; Other expense +3% from tech investments and notable items (charitable and restructuring charges).
• Efficiency ratio increased to 33.4% from 25.1% (adjusted prior-year 32.3%); Other income -87% from lapping Pets Best gain, despite PPPC-related fees.

Transcript

Operator (participant)

Good morning and welcome to the Synchrony Financial First 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. Please listen only. 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 (SVP of Investor Relations)

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 Wenzel, Executive Vice President and Chief Financial Officer. I will now turn the call over to Brian Doubles.

Brian Doubles (President and CEO)

Thanks, Kathryn, and good morning, everyone. Synchrony delivered a strong financial performance in the first quarter of 2025 that included net earnings of $757 million, or $1.89 per diluted share, a return on average assets of 2.5%, and a return on tangible common equity of 22.4%. These results were driven by Synchrony's ability to leverage our core strengths in order to empower our customers with prudent financial flexibility and enduring value when they need it most, while also delivering loyalty and sales to the many partners, providers, and small businesses that form the foundation of our economy. During the first quarter, Synchrony engaged with approximately 70 million customers and generated $41 billion in purchase volume.

Year-over-year trends in both active accounts and purchase volume continued to be impacted by the credit actions that Synchrony previously implemented, as well as continued moderation in customer spend as they navigated the challenges of affordability. Day-to-day lives. Dual and co-branded cards accounted for 45% of total purchase volume for the quarter and increased 2%, generally reflecting the growth from our CareCredit dual card launch, which began last year and has been contributing to out-of-partner spend ever since. Purchase volume at the platform level ranged from between down 1% and down 9% year-over-year, as customers generally remained selective in their discretionary spend and bigger ticket purchases, particularly in categories like furniture, jewelry, outdoor, dental, and cosmetics. Slide three of our earnings presentation provides a closer look at our weekly purchase volume during the first quarter, as well as the first two weeks of April.

Our week-to-week sales were generally consistent throughout the quarter, as was the weekly variance the prior year, including in March when news of government layoffs and tariffs began to intensify. As you can see by the generational mix of weekly sales, we saw consistent engagement across the customer base throughout the quarter, with no discernible shift between generational cohorts. These portfolio spend trends, in combination with our credit actions, contributed to the 2% year-over-year decline in ending receivables. From a payment behavior perspective, payment rate remained flat compared to last year but increased sequentially by 10 basis points, generally in line with pre-pandemic seasonality. This sequential increase in payment behavior occurred across all credit grades, as the proportion of above-minimum payments increased and less-than-minimum payments decreased. In aggregate, the proportion of less-than-minimum payments in our portfolio remained below the 2017-2019 average across all credit segments.

Synchrony monitors our customers' behavior very closely across our portfolio through a comprehensive set of real-time indicators and data points, which range from cash usage and utility payment data to credit bureau and auto payment changes. When viewed in combination with the spend and payment behaviors we've observed, we believe that customers are continuing to manage their spending needs and payment obligations amidst the challenges of a persistent inflationary environment and uncertain economic backdrop. Of course, our customers, partners, and small and mid-sized businesses rely on Synchrony for access to financial products and flexibility with attractive value propositions and utility for wherever life may take them.

Our track record of leveraging our proprietary data, sophisticated underwriting and analytics, diverse product suite, and channel distribution to drive sales and enhance loyalty has reinforced Synchrony's position as the partner of choice, and we are proud of the consistently strong partner pipeline that has resulted from this execution. During the first quarter, Synchrony added or renewed more than 10 partners, including Sun Country, Texas A&M Veterinary Hospital, Ashley, Discount Tire, and American Eagle. Synchrony is always seeking opportunities to expand access to flexible financing across the wide range of spend categories we serve, particularly those where customers seek to maximize value. Our new co-brand program with Sun Country Airlines, a Minnesota-based hybrid low-cost air carrier, is a great opportunity to deliver compelling utility and rewards for flights throughout the United States and to destinations in Mexico, Central America, Canada, and the Caribbean.

We have also continued to expand our CareCredit acceptance across the veterinary space, and are excited to announce that CareCredit has been named the preferred financing partner for the Texas A&M University Veterinary Medical Teaching Hospital. This new partnership reflects a significant milestone in solidifying CareCredit's acceptance at all 29 public veterinary university hospitals in the country, as well as Synchrony's commitment to supporting the veterinary community and ensuring pet parents have access to care for their beloved pets. In addition, our program renewal with Ashley, the number one furniture-selling brand in the U.S.A. and one of the world's largest furniture manufacturers, extends our nearly 15-year partnership. We are excited about the opportunity we see to help drive retail growth and enable customers to access flexible financing solutions to purchase quality furnishings that fit their lifestyle and budget.

Meanwhile, our program renewal of Discount Tire will provide their millions of cardholders with access to expanded utility at over 1 million US locations through the Synchrony Car Care network for automotive services and repairs, as well as for purchases like insurance, gas, oil changes, and more. Finally, we're proud to build on our nearly 30-year partnership with American Eagle Outfitters through a multi-year extension that will continue to deliver exceptional value, enhance the customer experience, and deepen customer relationships. The Real Rewards by American Eagle and Aerie Loyalty Program was recognized as one of America's best loyalty programs by Newsweek for the fifth consecutive year, and the Real Rewards credit card was named Money's Best Retail Credit Card in-store rewards for 2025. These awards reflect our collective commitment to delivering value to loyal customers and driving growth, and we look forward to expanding access to these industry-leading financial solutions.

As we look to the remainder of 2025 and beyond, Synchrony remains in a position of strength. We are focused on executing across our strategic priorities and maintaining our differentiated approach to serving our customers and partners. Synchrony's ability to optimize the outcomes for our many stakeholders has been made possible by the incredible people here at Synchrony, who deeply understand their evolving needs and expectations. Our team approaches each opportunity to deliver best-in-class experiences with a passion and a commitment to excellence that is inspiring. That's why I'm so proud to share that Synchrony was named as the number two best company to work for in the U.S. by Fortune Magazine and Great Place to Work.

This recognition is a testament to our unique culture, our company values that our employees embody every day, and our unwavering dedication to keeping our people at the heart of all that we do. As our team continues to drive innovation, expand access to flexible financing, and deliver compelling results for all those we serve, we also remain focused on building our leadership position and driving significant long-term value for our stakeholders. With that, I'll turn the call over to Brian to discuss our financial performance in greater detail.

Brian Wenzel (EVP and CFO)

Thanks, Brian, and good morning, everyone. Synchrony's first quarter performance continued to demonstrate the strength of our differentiated business model, which has been built to deliver resilient, risk-adjusted returns through evolving market conditions. We generated $41 billion of purchase volume during the first quarter, which was down 4% year-over-year when compared to a record first quarter last year. That included the effects of the credit actions we took between mid-2023 and early 2024, continued selectivity in customer spend behavior, and one less day in the quarter, which had an approximate 1 percentage point impact. Ending loan receivables decreased 2% to $100 billion in the first quarter due to lower purchase volume. Our portfolio payment rate remained flat versus last year at 15.8% and was approximately 60 basis points above the pre-pandemic first quarter average.

Net revenue decreased 23% to $3.7 billion, primarily reflecting the impact of the Pets Best gain on sale in the prior year. Excluding this impact, net revenue was essentially flat, as lower interest expense and higher other income were offset by higher RSA. Net interest income increased 1% to $4.5 billion, as a 7% decrease in interest expense was partially offset by a modest decline in interest income. Our first quarter net interest margin was 14.74% and increased 19 basis points compared to last year. The increase was driven in part by lower interest-bearing liabilities costs, which decreased 26 basis points versus last year and contributed approximately 25 basis points to our net interest margin. Our loan receivable yield grew 24 basis points, 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 approximately 20 basis points to our net interest margin. Our liquidity portfolio yield declined 88 basis points, generally reflecting the impact of lower benchmark rates, and reduced our net interest margin by 15 basis points. In the mix of our interest-earning assets, decreased by 62 basis points and reduced our net interest margin by approximately 11 basis points. RSAs of $895 million were 3.59% of average loan receivables in the first quarter and increased $131 million versus the prior year, primarily reflecting the program performance, which included the impact of our PPPCs. Other income decreased 87% year-over-year to $149 million due to the impact of the Pets Best gain on sale in the prior year. Excluding that impact, other income increased 69%, primarily driven by the impact of our PPPC-related fees.

Provision for credit losses decreased to $1.5 billion, driven by a $97 million reserve release in the first quarter compared to the prior year's reserve build of $299 million, which included a $190 million reserve build related to our Ally Lending acquisition. Other expense increased 3% to $1.2 billion, generally due to the cost associated with the technology investments, and included a $15 million charitable contribution and a $12 million restructuring charge related to the Ally Lending business and the expected completion of its integration in the second quarter. Excluding the charitable contribution and the restructuring charge impacts, other expense would have been up 1% versus last year. The first quarter efficiency ratio was 33.4%, approximately 110 basis points higher than last year when excluding the impact of the Pets Best gain on sale.

Taken together, Synchrony generated net earnings of $757 million, or $1.89 per diluted share, and delivered an average return on assets of 2.5%, a return on tangible common equity of 22.4%, and a 15% increase in tangible book value per share. Next, I'll cover our key credit trends on slide 8, which highlight the efficacy of our credit actions that Synchrony took from mid-2023 through early 2024 and gives us confidence in our portfolio's trajectory towards our long-term net charge-off target of 5.5%-6%. At quarter end, our 30-plus delinquency rate was 4.52%, a decline of 22 basis points from 4.74% in the prior year, and 4 basis points below our historical average for the first quarters of 2017 to 2019.

Our 90-plus delinquency rate was 2.29%, a decrease of 13 basis points from 2.42% in the prior year, and 1 basis point above our historical average for the first quarters of 2017 to 2019. Our net charge-off rate was 6.38% in the first quarter, an increase of 7 basis points from the 6.31% in the prior year, and 54 basis points above our historical average from the first quarters of 2017 to 2019. Net charge-off dollars were down 4% sequentially. This compares favorably to the 2017 to 2019 average sequential increase of 9%. Our allowance for credit losses as a percent of loan receivables was 10.87%, which increased approximately 43 basis points from the 10.44% in the fourth quarter. Turning to slide nine, Synchrony's funding, capital, and liquidity continues to provide a strong foundation for our business.

During the first quarter, Synchrony grew our direct deposits by approximately $1.7 billion and reduced our broker deposits by $338 million. In addition, we executed both secured and unsecured deals and attractive credit spreads when compared to historical deals. In the secured market, we issued $750 million of three-year bonds with a coupon of 4.78%. In the unsecured market, we issued $800 million of six-year non-call five-year note at a coupon of 5.45%. We also achieved a credit rating upgrade from Fitch, moving our long-term issuer default rating up to triple B with a stable outlook. We are proud of this rating action as it reflects Synchrony's strong balance sheet, the resiliency of our business model, and strong execution as a public company over a decade since our IPO. At quarter end, deposits represented 83% of our total funding, with secured and unsecured debt representing 9% and 8% respectively.

Total liquid assets increased 9% to $23.8 billion and represented 19.5% of total assets, 142 basis points higher than last year. Moving to our capital ratios. As a reminder, Synchrony elected to take the benefit of CECL transition rules issued by the joint federal banking agencies. We made our final transitional adjustment of approximately 50 basis points to our regulatory capital metrics in January 2025. Our capital metrics now fully reflect the phase-in effects of CECL. The impact of CECL has already been recognized in our income statement and balance sheet. We ended the first quarter with a CET1 ratio of 13.2%, 60 basis points higher than last year's 12.6%. Our Tier 1 capital ratio was 14.4%, 60 basis points above last year. Our total capital ratio increased 70 basis points to 16.5%.

Our Tier 1 capital plus reserves ratio on a fully phased-in basis increased to 25.1% compared to 23.8% last year. During the first quarter, Synchrony completed our existing share purchase authorization for the period ending June 30th, 2025, and returned $697 million to shareholders, consisting of $600 million in share purchases and $97 million in common stock dividends. Given our strong capital position, we announced today that as part of our capital plan, our board approved a new share purchase authorization of $2.5 billion for the period ending June 30, 2026, and increased our regular quarterly dividend by 20% to $0.30 per common share beginning in the second quarter of 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. Turning to our baseline outlook for 2025 on slide 10.

Given the court order entered last week in the litigation that ultimately vacated the late fee rule, Synchrony will begin the process of assessing next steps and engaging with our partners regarding the performance of our implemented PPPCs to determine if any adjustments are warranted. Our baseline assumptions exclude any potential impacts from changes to the PPPCs, as well as any potential impacts from a deteriorating macroeconomic environment or from the implementation of tariffs and retaliatory tariffs, as they are unknown at this point. Turning to our outlook in more detail. We continue to expect purchase volume growth to be impacted by our previous credit actions and selective customer spend behavior, and that payment rate will remain generally in line with 2024 levels. As a result, we are maintaining our full-year expectation of low single-digit growth in ending loan receivables.

We continue to expect net revenue between $15.2 billion and $15.7 billion for the full year. The industry's income is expected to follow seasonal trends associated with growth, credit performance, and liquidity, and will ultimately be determined by a number of factors, including year-over-year growth in both interest income and other income, as the impact of our PPPCs builds partially offset by the full-through effect of lower average benchmark rates on our variable-rate receivables, lower assessed late fees as liquidity performance improves, a lower yielding investment portfolio due to lower benchmark rates, and finance charges and late fee reversals associated with the seasonality of our credit performance. Lower average benchmark rates should also continue to contribute to lower funding costs as our CD maturity is repriced, although this will be influenced by competitive deposit data trends in response to any additional rate cuts that may occur.

In addition, we continue to expect higher levels of liquidity in the second quarter, given our desire to prioritize our deposit customer relationships and pre-fund future growth. We anticipate reducing our excess liquidity portfolio gradually as growth begins to build in the back half of the year. As a result, our liquid assets as a percent of total assets will average approximately 17% for the full year, which is higher than our historical average over the prior three years. We now expect RSA as a percent of average loan receivables to be between 3.70%-3.85%, driven by improving program performance, as our net charge-off outlook has improved to be between 5.8%-6.0%. Our revised net charge-off range expectation for the full year is now inside our long-term financial framework of 5.5%-6%, driven by our prior credit actions and differentiated approach to underwriting and credit management.

Lastly, we are maintaining our expectation of an efficiency ratio between 31.5% and 32.5%. Before I turn the call over to Q&A, I'd like to leave you with three key takeaways from today's discussion. First, our customers have remained stable. They've been consistently making choices that align their day-to-day needs and seeking value and flexibility to provenly manage their financial situations amid an inflationary and highly fluid environment. Second, Synchrony's credit trends continue to outperform relative to the industry, which is underscored by our current year outlook. Our sophisticated underwriting and credit management strategy have enabled a lower relative net charge-off peak than most of our peers and swift or expected return to our long-term target range. While our credit actions create near-term impact on growth, our portfolio's credit position should provide greater long-term resilience as market conditions continue to evolve.

Third, Synchrony's robust capital remains a clear strength. Our new capital plan reflects the confidence of our board and our company that Synchrony is well-positioned to continue to drive progress towards our long-term financial targets and deliver significant long-term value for our stakeholders. With that, I'll turn the call back over to Catherine to open the Q&A.

Kathryn Miller (SVP of Investor Relations)

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.

Operator (participant)

At this time, if you wish to ask a question, please press Star one on your telephone keypad. You may remove yourself from the queue by pressing Star two.

Please limit yourself to one question and one follow-up question. We'll take our first question from Ryan Nash with Goldman Sachs. Please go ahead.

Ryan Nash (Managing Director)

Hey, good morning, guys.

Brian Doubles (President and CEO)

Hey, Ryan.

Brian Wenzel (EVP and CFO)

Morning, Ryan.

Ryan Nash (Managing Director)

You know, obviously lots of concerns in the market on credit. You guys were able to take down the top end of the guide. Can you maybe just talk about what you're seeing? What gave you the confidence to bring down the upper end of the range? Second, you know, the allowance was up with seasonality, but you know, can you maybe just remind us what's assumed for unemployment, particularly when you overlay your qualitative reserves?

Brian Doubles (President and CEO)

Yeah, Ryan, why don't I start on that, and then Brian can talk in more detail on the reserve assumptions. Look, I think we feel pretty constructive around the consumer and the trends that we're seeing right now.

I think our credit team did a fantastic job kind of navigating the last two years. I think the investments that we made in our Prism proprietary underwriting system are certainly paying off. It was great to see us turn the corner on delinquencies. You know, 30-plus was down 22 basis points, 90-plus was down 13 basis points. I think both a little better than our expectations. You know, with that said, you know, we did not adjust the guidance all that much, but we did feel comfortable given the trends that we are seeing, just tweaking it a little bit. I think what is particularly important is we are doing that with, you know, receivables maybe just a touch softer than we expected. You know, you have got the denominator impact, which is not exactly helping. Credit is trending better than we expected.

We feel pretty good overall in terms of how we started the year on credit.

Brian Wenzel (EVP and CFO)

Yeah, Ryan, let me fill a little piece in here, Credit, and then talk about the reserves. You know, obviously, as we look at the formation that was at the end of the first quarter, you know, we're down 18 basis points versus last year. We're better than, you know, our 17-19, you know, seasonality or pre-pandemic period by four basis points. 90-plus is right on top of that pre-pandemic period. When we continue to look, you know, we continue to see strength in the entry rate as we as what's flowing into delinquency. What we're seeing is some improved performance in the back end of delinquency. That gives us comfort, right, how delinquency is performing. Those trends have been consistent.

You look at outperforming seasonality, you know, for the better part of six months, we have been outperforming seasonality on a 30-plus and 90-plus. What's giving us comfort is obviously the credit actions that we've taken both in the middle part of 2023 and the late part of 2024 has really resonated. If you look at the vintages that we see in 2024, they're outperforming 2019, albeit it's early, outperforming 2019 and 2023. We feel comfortable about the formation. We feel comfortable about what we're underwriting today as it relates to that. That's what kind of gives us comfort. I mean, we're already three months into the year. You see delinquency, which gives you a pretty good indication for the next six months. We felt good that we're back inside of our long-term target of 5.5%-6% as a guide for this year.

Now, when you think about the reserves, albeit we had a release of $97 million, inside of that, we had a $5 million post-up for an acquisition. You think about a $100 million reserve release, there was an increase to the qualitative reserve. The quantitative reserve based on performance came down, but we increased the qualitative reserve over $200 million. What really underpins that is the macroeconomic overlay that essentially has a 5.3% unemployment rate in it. When you factor in the imprecision factor, you're north of a 5.3% unemployment rate. I think as we think about credit charge-offs, you know, we feel really good about. I think, you know, we probably have been thoughtful about it during macro, at least from a reserve standpoint, as we closed out the quarter.

Ryan Nash (Managing Director)

Got it. Appreciate the color.

And then, you know, Brian, the guidance says, you know, no changes to PPPCs already implemented. You know, you mentioned starting to think about next steps. I guess, you know, one, do we have enough clarity that the rule may not come back at a later date? How should we think about the timing and process as to whether you hold on to what's already been implemented or inevitably they will be reversed? Thank you.

Brian Doubles (President and CEO)

Yeah, Ryan, I think we feel pretty comfortable that the rule has been vacated, and we do not expect it to come back in a similar form in time in the near future. You know, with that said, we do not currently have plans to roll anything back in terms of the changes that we made.

Obviously, now that we have some certainty that the rule is not going to go into effect, we are going to go out and we will talk to our partners, you know, just like we did when we rolled out those actions. We will be transparent, you know, like we are with any major decisions that we make related to the program. We will look at a number of different factors. Frankly, every partner we have is going to look at this differently. We are going to look at the behavioral changes that we saw when we rolled out the pricing actions. Frankly, they have not been material. We did not see, you know, a big reduction in, you know, accounts or spend related to the actions. We did a lot of test and control around that. Our partners will certainly look at where other merchants and providers are pricing their programs.

They always look at their competitive set. You have to keep in mind that the prime rate has come down. On our variable-rate cards, consumers have gotten the benefit of that. Lastly, we'll go through the financial impact of what it would mean if we were going to do some kind of rollback. They'd look at the RSA, and they'd look at maybe a growth trade-off to that extent that there is one. The other thing I just want to highlight, I think this is important. Any kind of change that we're going to make could come in a variety of forms. That could be adding value to the card and giving value back to the consumer through promotions and offers and stuff like that. It doesn't have to just be a price rollback necessarily.

We could also approve more customers at the margins, you know, where we have the opportunity to do that at attractive returns. Lastly, I'd just say, look, this is going to take some time. You know, we're going partner by partner, just like it took quite a bit of time to roll out the PPPCs. It's going to take a lot of time to get through, you know, those discussions. It's complex. Every partner is going to look at it differently. Frankly, our partners are focused on other stuff at the moment, just given the uncertainty in the environment.

Ryan Nash (Managing Director)

Appreciate all the call, Brian.

Brian Doubles (President and CEO)

Thanks, Ryan.

Brian Wenzel (EVP and CFO)

Thanks, Ryan.

Operator (participant)

We'll move next to Terry Ma with Barclays. Please go ahead.

Terry Ma (Senior Equity Research Analyst)

Hi, thank you. Good morning. I'm just curious about your.

Brian Doubles (President and CEO)

Good morning, Terry.

Terry Ma (Senior Equity Research Analyst)

Good morning. I'm just curious about your growth outlook.

It's good to see that you reaffirmed your year-end receivables guide in the face of an uncertain macro. Purchase volumes, loan growth, and account growth were all lower year over year. What is the driver of the return to positive growth by year-end? Is there anything you can do to help drive that?

Brian Wenzel (EVP and CFO)

Yeah, thanks for the question, Terry. You know, as we look at the, you know, start at the top of the funnel, the purchase volume, you know, purchase volume, we had negative 4%, negative 3% when you factor out a leap year. We are comping against the highest purchase volume for a single quarter in the first quarter, you know, in our history. It is up comp.

You know, what we saw last year, though, was a decline in purchase volume, or slowing in purchase volume that began in June of last year through the end of the year. The comps get a little bit better. I think you see on the charts that we've kind of showed in the earnings deck today, this narrative that the consumer is pulling back, we have not seen the consumer pull back for us. You know, sales have been consistent both on a weekly basis all the way throughout, you know, the second week into April. Sales have been consistent, and we haven't seen any generational shifts, which we try to show in the charts. The consumer is continuing to be resilient through this period of time.

When you think about some of the other metrics, when you think about active accounts and the like, part of that's, you know, really influenced by our credit actions and the impact on new accounts. That has given us a little bit of a headwind. Again, we believe that as the consumer kind of gets their footing here, you know, with hopefully a lower core inflationary market, that the strength continues. We see the pickup in volume that should accelerate through the year, mainly in the back half of the year, you know, following more seasonal trends. Our curtain by the first quarter performance is generally in line with, you know, how we thought it would play out. You know, we kind of indicated in the beginning part of the year the first half would be much like the second half of last year.

Again, once you start lapping that and getting through, you know, we believe that a low single-digit receivable growth is achievable. This also does not factor in any potential adjustments to credit, right? If the environment holds the way it is today, you know, there is some thought that we may do things that are to existing customers that we know and have relationships that could accelerate that growth. That is not factored into this, you know, outlook. Something we will consider as we watch the macroeconomic environment and how things play out.

Terry Ma (Senior Equity Research Analyst)

Got it. That is helpful. I guess to the extent that, you know, loan growth does not come in as expected in the low single digit, how does that impact the phase-in of your PPPCs, particularly the APR piece? Any way to kind of quantify or contextualize that? Thank you.

Brian Wenzel (EVP and CFO)

Yeah, you know, listen, I think you have a core book today, right, that's going to continue to, you know, build in value, right, as the APR continues to increase. If you have lower purchase volume, right, that means that the phase-in approach and the protective balance will accelerate, you know, will be impacted. The amount that the PPPCs become effective will actually accelerate throughout the year. A lower volume actually does help the PPPCs from an interest perspective. Most certainly, having lower active accounts will provide a little bit of headwind from another income perspective when you think about paper statement dues.

Brian Doubles (President and CEO)

Thanks, Terry. Have a good day.

Operator (participant)

We'll move next to Moshe Orenbuch with TD Cowen. Please go ahead.

Moshe Orenbuch (Managing Director)

Thanks. Thanks very much.

Brian Doubles, I was intrigued by your comment about, you know, using the benefits from the, you know, from the mitigants or PPPCs to kind of add value and add growth either, you know, by adding value to specific consumer, you know, propositions or by underwriting a little deeper. Maybe could you just flesh that out a little bit and, you know, talk about maybe the, maybe not specific merchants, but are there, you know, categories of merchants where that's going to where each of those could work better and maybe talk about how that factors into your growth plan for 2025?

Brian Doubles (President and CEO)

Yeah, you know, it's interesting, Moshe. We've been talking about this. I think the investment community has been talking about this as just a simple rollback of what we've done.

You know, given the work has already been completed to roll out the pricing changes, any changes from here on out will be similar to changes that we're always looking at with our partners. They're typically looking at doing one of two things, you know, incenting the consumer to spend more to drive growth for themselves, for the program, to provide more value on the card. One of the things that, you know, particularly in times that are uncertain like this, our partners lean even more heavily on the card programs. You know, we're in there discussing with some of the additional revenue, can we improve the value prop a little bit? Can we do more promotions, more marketing, different placement to drive growth? You know, those are the kind of discussions that we're having.

I think the other interesting thing that we're talking to them about is, you know, now with maybe an increase in APR, can we approve more customers on the margin? Now, obviously, we would do that at very strong risk-adjusted returns. We would likely do it in our highest returning portfolios. Can we approve more of that marginal customer that may not have been approved under the old APR? There are a number of different things that we're looking at. I would not say it's unique to any one platform or industry. It really is across the board. Those are the types of things that our teams are out there working on.

Moshe Orenbuch (Managing Director)

Great. Thanks. Maybe as a follow-up, I know we probably gave you a little bit of a hard time last year about not using the share repurchases aggressively.

You know, your comment about waiting for some market volatility, certainly have seen that. You know, given that you're now past the full implementation of CECL, and, you know, at the moment, loans are not growing, you're expecting them to come back a little bit, but still be, obviously, you know, you'll be generating a lot of excess capital. Can you talk about, in the current environment, given all the factors that we know, positive and negative, you know, how you think about the use of that, you know, that new share repurchase authorization?

Brian Wenzel (EVP and CFO)

Yeah, thanks for the question, Moshe. You know, the way we think about it, you know, we're starting from a place where we have a lot of excess capital, right?

We know that this year, you know, hopefully, if things play out, that we will generate, you know, like other years, significant capital for utilization. You know, our number one priority is always going to be organic RWA growth. Again, we have a growing year, low single digits, which is below our historic norm. Obviously, we would be pleased if it exceeded that. You know, our second to dividend, and you know, you noted, you know, hopefully noticed this morning, we increased our dividend 20% to $0.30 per share on a quarterly basis. You get into share repurchases or inorganic opportunities.

We're going to be very disciplined when it comes to inorganic opportunities to add things to the portfolio or add capabilities to the portfolio, either at attractive financial returns, IRR, ROIC, or, you know, returns that are accretive to the baseline ROA of the company as we move forward. That being said, $2.5 billion is probably one of our larger historical share repurchases. That doesn't preclude us to the extent that growth doesn't necessarily come through going back to the board and increasing that if we deem that to be the best use of capital. You know, for us, it's a strategic advantage right now that we can employ either in the short term or invest in the longer term.

It gives us a lot of flexibility as a company and gives the board a lot of flexibility of how we can, you know, execute against our long-term strategy. I mean, Brian is the priority.

Moshe Orenbuch (Managing Director)

Thanks very much.

Brian Doubles (President and CEO)

I would just reiterate, emphasize that, you know, over the last 10 years, we bought back half the shares of the company. We are laser-focused on returning capital to shareholders if, in the event that we do not need it for our dividend growth.

Moshe Orenbuch (Managing Director)

Thanks very much.

Brian Doubles (President and CEO)

Thanks, Moshe.

Operator (participant)

We will move next to Mihir Bhatia with Bank of America. Please go ahead.

Mihir Bhatia (Analyst)

Hi, good morning. Maybe I just want to take a step back first. Just to amplify the macro commentary a little bit, I just want to talk a little bit about what you are seeing in your data, hearing from retail partners.

How are they prepping for the potential of tariffs? Is there anything you guys are involved with that process with, or just like even thinking through, you know, what it looks like when spending comes, when the tariffs come in place? Then just on the weekly data, if you could just talk a little bit. It's been pretty stable, clearly, and you saw this in April too. Do you think there's a little bit of a pull forward or Easter impact in there that's maybe propping the first two weeks of April up? Thanks.

Brian Doubles (President and CEO)

Yeah, there's a lot in there. Let me start on that. I think, look, I think it's important just to differentiate between all of the uncertainty in the market and the macroeconomic kind of futures and what people are predicting and what we're seeing right now in terms of the health of the consumer.

You know, the uncertainty is clearly out there. It's impacting consumer confidence, but at this point, it's not impacting what consumers are actually doing. You know, spend levels are still pretty strong. Credit is performing in line to better than we expected. I think the consumer is still in pretty good shape. I think the labor market is strong. You know, with that said, look, they're being selective around how they spend. They're navigating inflation as they have been, you know, for quite some time now. I think as you look inside the portfolio, you've got the lower-income consumer. You know, they started tapering their spend, you know, about a year ago. That was largely driven by inflation. You saw a rotation out of discretionary and bigger ticket. You're seeing still pretty good spend levels for the higher-income consumer. You know, our client segment grew sales 1%.

Average tickets were down a little bit, but frequency was up. You know, I think what can't get lost in all this is that that moderation in spending patterns is actually a positive in terms of credit. You know, we actually are encouraged by that pullback because consumers are not overextending. They're being disciplined. Overall, you know, we're very pleased with the trends that we're seeing. I think it's responsible. It's in line or better than our expectations when you look at credit. I think we feel like the setup is pretty good. Now, on tariffs, we're obviously spending a lot of time with our partners. That's creating a lot of the uncertainty. I think our partners, some are more impacted than others. You know, they're rethinking strategies around inventory management, supply chain, pricing actions. You're seeing some marketing to kind of pull forward sales.

I would tell you we haven't seen that yet. We haven't seen that materialize. We may. It's still very early, but we're not seeing it in the data. You saw the weekly data was still, you know, relatively consistent, relatively flat. Look, we're in an uncertain situation here. We're staying close to our partners. We're doing everything we can to serve them. You know, times like these, like I said, you generally see our partners lean on the credit program even more heavily. Those are their best customers typically, and that's where we're spending a lot of our time right now.

Brian Wenzel (EVP and CFO)

Here, let me add a little bit more color on, I think, on the outlook and then answer your second question about pull forward.

You know, when you look at the outlook, I think people look at that and say, well, there's no macroeconomic deterioration that's in here or the impact of tariffs. You know, let me give you a little bit of a framework. If you think about a traditional macroeconomic call recessionary type environment, what you generally see in this industry, right, is in theory slowing down a payment rate, higher revolve. You end up in the short term having higher interest income, higher late fees, which precedes net charge-offs. Put aside the reserve for a second.

If you got into a recessionary period like today, I think what you start to see is a change in the consumer behavior that in theory would provide you incremental revenue offset by the RSA and then charge-offs because the way in which unemployment builds, people lose their jobs, they have severance, they get unemployment, they go through a period of trying to deal with their financial situations, they went to delinquency, then roll. Your charge-offs are more a 2026 issue if you were in that scenario today. You have to consider whether or not your reserve outlook really took into account what you think the top end of the unemployment looks like in 2025.

That is why it was not really factored in because there are, you know, if you were in a very traditional recessionary environment, you know, upside to some of the base case that is in here. When we talk about, you know, consumer behavioral attributes from tariffs, there are two elements that come through there. One, yes, sales volume may get or purchase volume may get a little bit more challenged, right? So consumer has to spend more on certain goods and rotate maybe out of discretionary goods, but also payment rates should, in theory, decline, which would give you higher revolve. Those are the ones we will watch. We have not seen any of these factors today, either in unemployment or in changes in behavioral impact from tariffs.

Your specific question about the pull forward, and we look at the weekly sales as we showed you the first couple of weeks of April, if you look at weeks 12 and 13 versus week, you know, 15, the second week in there, when we unpack that, there were three platforms that were impacted. You know, one platform had what we believe increased relative to home, right, which we traditionally see in the springtime. One platform had a significant campaign run by our partner, which included our credit card where we saw an uplift in new accounts and activity. That was fairly normal. The third platform was really more Easter. I think we see it.

We do not see, even though we see some of our partners running tariff-related promotions, there has been no discernible information or data that says we have any pull forward from tariffs in and of themselves.

Mihir Bhatia (Analyst)

Got it. That was tremendously helpful. Thank you. Maybe just switching gears a little bit to partners and competitive intensity for retail programs. Can you just talk about your appetite for onboarding a larger portfolio in this environment? Just relatedly, I did want to ask about deal renewals because I think in your 10-K, the percentage of revenue that is under contract 24 months out was a little lighter this year compared to the last few years. Anything to call out there? Thank you.

Brian Doubles (President and CEO)

Yeah, I think the competitive environment is pretty consistent with where it has been the last couple of years.

You know, I think we haven't been in a very stable, predictable environment. I think when you have some uncertainty out there, you see issuers demonstrate a little more discipline in terms of how they're pricing programs, how they're looking at the risk-return equation. You know, we believe we have that discipline through cycles more so than maybe anybody else. I'll tell you, it's felt like a pretty good competitive environment. Look, we're always looking to bring on new programs. We signed some this week. This quarter, we had some great renewals. Big, small, you know, we kind of cater to such a diversified set of partners. Tons of small to medium-sized businesses, hundreds of thousands. We've got really large partners that are really attractive as well. If you think about just the past year, we renewed Sam's Club, J.Crew.

We're always in those types of discussions with our partners looking to early renew when we can outside of an RFP. There's typically things inside of the program that, you know, as you get into these 10-year agreements, something that we want to fix, something that they want to change, maybe it's a refreshed value prop. You know, we'll typically get together on those with our partners and say, okay, we're both willing to make this investment. You know, let's add some years to the back end of the contract.

Brian Wenzel (EVP and CFO)

In here to answer the second part of your question, you know, in our 10-K disclosure, obviously the year shifted between 2023 and 2024. We slid out to 2027 and beyond from a disclosure standpoint.

I think back in December, when we finalized the year and produced the K in February, we're in the low 80% range relative to revenue that was beyond 2027. That's now in the high 80s. We continue to make progress and we have, you know, we have some renewals to go here in the next couple of years. You know, as Brian has always told us, you know, we earn renewals every day and we'll continue to work on those, you know, over the course of the next year or so. You know, obviously delivering for our partners, particularly in an uncertain environment, is the best way to have renewals.

Mihir Bhatia (Analyst)

Thank you.

Brian Doubles (President and CEO)

Thanks, Mihir. Have a good day.

Operator (participant)

We will move next to Rob Wildhack with Autonomous Research. Please go ahead.

Rob Wildhack (Director of Equity Research Analyst)

Morning, guys.

I think last quarter you had mentioned running with higher levels of liquidity this, or at least for the early part of this year, to pre-fund growth. Does that stance change at all with respect to the current macro environment and the uncertainty out there today? Is it possible that you would run with liquidity even higher now?

Brian Wenzel (EVP and CFO)

You know, first of all, thanks for the question, Rob, and good morning. You know, I think our liquidity position, as we thought about it as we entered the year, was twofold. Albeit a slower growth environment than historical norms, we realized we're going to return to growth, right? Coming on and off and trying to start the engine of growth on your digital bank and deposits did not make a lot of sense to us given the rate environment. Even if I have excess liquidity, why it's a drain on them.

If I'm borrowing at 4%, I'm getting 4.5% at the Fed, it's positive economic trade. We weren't necessarily troubled by having necessarily excess liquidity, number one. The view, you know, hasn't really changed relative to the asset growth. We will use it at some point as we move forward. The second, you know, benefit of having access to liquidity, we're into some significant maturity towers here on CDs that are up for renewal. It gives us a little bit of pricing flexibility as we think about that to lower our interest-bearing liabilities cost without the fear that we're going to have to raise rates somewhere else in order to keep that customer or maintain liquidity. We expect to earn higher liquidity, most certainly in the first half of the year. You know, as we talked about, growth should accelerate in the back half of the year.

We'll begin to use that liquidity both in the back half of this year and into next year. The simple answer is no, it hasn't changed our view since December.

Rob Wildhack (Director of Equity Research Analyst)

Okay, thanks. I just wanted to dig in a little bit and ask about dual card and co-brands. The volume and loan growth there was better than the portfolio overall and accelerated sequentially. Last quarter, you had mentioned that as kind of being a waypoint for a reversal of some of your tightening. Maybe this is just normal ebbs and flows Q4 to Q1, but could you just unpack that dynamic and then talk about how you're thinking about things with respect to private label growth versus dual card or co-brand growth going forward? Thanks.

Brian Wenzel (EVP and CFO)

Yeah, again, thanks for the question, Rob.

When you think about the dual card growth for a second, you know, one of the areas that we've talked about, kind of, you know, prioritizing for the company has been our health and wellness. The dual card we have issued in our CareCredit business allows customers the flexibility, whether they're in network, using many of the places where CareCredit is accepted, the veterinary dental offices, and over the 40 specialties that we have in there, but also generating benefits in the world has been very attractive to folks. It's been one of our growth vectors for last year, and that continues to drive growth into this year. As you continue to think about, you know, our core partners, right, where we have a dual card private label offering, it really comes through the through-door population.

As we get a stronger through-door population, we're able to approve more dual cards. They put on, they recognize the value in the world back into the brand of which they have intense loyalty to, which is why they apply for credit with us. I think it really is a testament to the brand strength of our partners and then places where we're leaning into from a dual card perspective. With regards to that, we still do run a strategy where we are lower line of service than traditional general purpose cards, which allows us to maintain, you know, a very attractive risk-adjusted margin and maintain the charge-off profile, you know, of the company.

Brian Doubles (President and CEO)

This is why the multi-product strategy is so important.

I mean, we can start somebody off in a secure card, in a set-pay product, private label, and then migrate them over time as they demonstrate the ability to pay creditworthiness. We get to know that customer, how they spend, what types of purchases they make. That is really the power of the multi-product strategy. That is, you know, really resonating with our partners. We talked about new wins, renewals. That has been a key component of, particularly the big renewals where we have added a product or two to those programs.

Rob Wildhack (Director of Equity Research Analyst)

Very helpful. Thank you.

Brian Doubles (President and CEO)

Thank you, Rob.

Operator (participant)

We will move next to Sanjay Sakhrani with KBW. Please go ahead.

Sanjay Sakhrani (Managing Director and Senior Analyst)

Thank you. I guess I wanted to follow up on credit quality.

I know we've talked extensively about it, but when I look at sort of the path of the delinquency rate over the last several months and then the charge-off rates actually came down year over year in March, it seems like there's a good glide path, all else equal, for credit to improve quite decently. I'm just trying to think about, you know, where we would expect, all else equal, the charge-off to migrate. You know, can we go below average given you've tightened so much? Maybe you could just talk a little bit about that.

Brian Doubles (President and CEO)

Yeah, let me start at a high level, Sanjay. Look, I think we feel very pleased with the credit trends that we're seeing. You know, the actions that we took starting in, you know, mid-2023 are clearly having the desired impact. You know, we're trending a little bit better than we expected.

You know, we talked about 30, 90, you know, now showing down year over year. If you look at our performance relative to the industry and you benchmark that against 2019, you know, we've just simply performed better. And I think that's a lot of the investments that we've made. That's the investments we've made in Prism. I think our credit team's done a fantastic job navigating this. You know, as Brian talked about earlier, I think there may be an opportunity where we can open up a little bit in the back half of the year. You know, if we do that, it'll be very methodical. You know, we'll do that starting with our existing customers, giving them a little more spending power, you know, in some of our higher returning segments. I think we might have the opportunity to make some slight adjustments on approval rates.

Generally, we feel like it's a pretty good setup for the back half of the year. I'll turn it to Brian to talk a little more about the charge-off guidance.

Brian Wenzel (EVP and CFO)

Yeah, you know, Sanjay, I gave some framework earlier in the call really well to the charge-off. I think as we look at it and you kind of peel the onion back here a little bit, there are a number of factors, right? Number one was the credit actions that we've taken in order to, you know, as far as origination and authorization of transactions on existing accounts to get that in a place where we feel comfortable with that being inside of our long-term guidance.

We've also made a number of changes over the last, you know, couple of years around collections or strategies, whether it's on a pre-delinquent basis or inside of delinquency where we're able to do different things than we did a couple of years ago. We think it's really helping entry rate and some of the flows back in. I think some of the activity really with regard to even our recovery operation where we insource that from our third parties to really deliver benefits. You know, to be honest with you, relative to peers, we didn't really have the dip and recovery we had.

There are multiple different factors, I think, that help us produce that net charge-off rate, all of which are, you know, our view, performing well right now and gives us, you know, comfort that we can hit this net charge-off rate most certainly sitting here in mid-April.

Sanjay Sakhrani (Managing Director and Senior Analyst)

Okay, great. Brian Doubles, I think Mihir was also alluding to some of the larger RFPs out there for sizable portfolios. Could you just, I'm not sure if I heard the answer to that, but can you just talk about how you guys feel about sort of the opportunity to secure larger portfolios?

Brian Doubles (President and CEO)

Yeah, look, we are very interested in securing larger portfolios. We always have been. We have a lot of discipline, though, around how we evaluate those opportunities. You've got to have really good alignment with the partner.

You've got to have a good deal structure that's fair and equitable with both parties, good alignment in terms of how you want to grow. Because, you know, if you're going to sign a large program that's going to go over 10 years, you have to have that alignment because you're going to have to make changes to the program, whether it's underwriting, marketing strategies, placement, and those things need to benefit both parties. We do an enormous amount of financial due diligence on a lot of models. We stress those bigger opportunities significantly to make sure that as we look at a 10-year deal, we look at it every year and say, okay, are we going to like this deal in that year under these circumstances? Is the partner still going to like this deal? We've got a ton of rigor around that process.

At the end of the day, you know, we have other uses for our capital, and it has to compete with share repurchases and other things. It has to be, you know, in line with the overall return for the business or accretive. You know, these are very attractive opportunities, you know, when you look at larger programs and bringing on an earning portfolio, but it has to meet a lot of hurdles and have a really attractive risk-adjusted return and really good alignment between the parties.

Sanjay Sakhrani (Managing Director and Senior Analyst)

Is there a sense of timing on any of this, whether you know or not?

Brian Doubles (President and CEO)

It sounds like you're talking about a specific opportunity or two, Ryan, that I'm obviously not going to get into. I'm sorry, Sanjay.

Sanjay Sakhrani (Managing Director and Senior Analyst)

No, it's all right. All good. Thank you.

Brian Doubles (President and CEO)

Yeah, thanks, Sanjay.

Brian Wenzel (EVP and CFO)

Thanks, Sanjay.

Operator (participant)

We will move next to Rick Shane with JPMorgan. Please go ahead.

Rick Shane (Analyst)

Hey, guys, thanks for taking my questions. Look, I'd like to delve in a little bit more to the dual card. There was talk about the growth there, but I am curious, when you think about the credit profile, is it different both from a FICO score perspective, but maybe even more importantly from a utility perspective? Should we, in a slowdown, expect different performance for private label versus the dual cards?

Brian Wenzel (EVP and CFO)

Yeah, good morning, Rick. Thanks for the question. Yes, so dual card generally, you know, we use a number of factors to underwrite them. Yes, credit quality is one. We have our own proprietary score as well as we use data from our partners in order to determine whether or not they're dual card eligible or private label card eligible.

When we think through that, there are times when your credit score may be a little bit lower, but based on their performance, we give them a dual card because they perform better. They perform like a higher credit grade. Generally speaking, though, the credit quality of the dual card is higher. The spend and payment rates are generally higher than that of a private label card. I think as you enter, if you were to enter into an economic downturn, most certainly we, you know, deploy the same type of credit actions we normally would take, which would, you know, make sure we are not overextended on lines. We watch, you know, account transactions and authorizations.

It generally will have a higher severity because it's a bigger balance, but lower incident rate of charge-off where your private label book has, you know, a higher incident rate because it has a, generally speaking, a lower credit profile, but a lower severity rate because of the average balance and line restrictions.

Rick Shane (Analyst)

Got it. Can you speak a little bit to the impact of utility for the consumer of being able to use the card in one place as opposed to having it be their primary card and how that impacts payment behaviors?

Brian Wenzel (EVP and CFO)

Yeah, you know, I think every individual makes a payment hierarchy decision, right, relative to what cards. In a lot of places, you know, they'll make decisions, you know, and look at cards based upon, you know, the brand in which they're connected with, not solely utility.

I mean, it's not just a piece of plastic or a digital card, right? They want to sit back and say, listen, I like to go shop at, you know, retailer X or Y, and they want to continue to use that, and they use it there. That being said, we also have cards that are private label that have broad-based utility. You think about a PayPal card. You think about an Amazon card. You think about cards that we're now being able to load into, or we'll be able to load in Apple Pay that has broad utility. Utility does matter. There's lots of places where utility is broad-based. If you think about our home segment, we have home cards, car care cards that go across multiple retailers. CareCredit goes across multiple specialties.

While dual card is one, we have broad-based utility, which makes the card important to the consumer. Obviously, the connection with the brand really is relevant.

Rick Shane (Analyst)

Brian, that's really helpful and something I didn't fully appreciate. Thank you.

Brian Wenzel (EVP and CFO)

Thanks, Rick. Have a good day.

Operator (participant)

We will move next to John Pancari with Evercore. Please go ahead.

John Pancari (Analyst)

Good morning.

Brian Doubles (President and CEO)

Good morning, John.

John Pancari (Analyst)

On the macro assumptions, Brian Wenzel, thanks for the color regarding the baseline assumptions and why they don't dial in, you know, the recessionary backdrop. If you did dial in a weaker macro and recessionary dynamics into the baseline assumptions, I hear you that revenue and NII may benefit from a higher revolve rate. What would it mean for your charge-off expectation? I know maybe it's not a 2025 thing, but it's more of 2026.

I guess what I'm asking, what does a stressed charge-off level look like for Synchrony given your current business mix, your credit tightening as of today? How would that charge-off range compare to this 5.8-6% level that you're looking at for this year?

Brian Doubles (President and CEO)

Yeah, you know, thanks for the question, John. You know, first of all, go back to Ally Lending. I know you talked a little bit about some of the impacts you talked about in the revenue impact. I also think on the gross side of the equation, you have lower purchase line and slower payment rate, which, you know, counterbalance each other to some degree. It really depends upon the severity of the macroeconomic event.

You know, again, when you sit around saying, I'm in, you know, the 22nd of April of this year, depending upon the severity of the event, there's not as much net charge-off impact given the fact that it takes a while to go from losing your job to rolling through net charge-off, unless you say the person's going to go bankrupt or go into a settlement program right away, which has not been the historical norm. To some degree, there is a lag time of generally 9-12 months on certain economic events where you start to see the charge-off.

You know, the expectation, again, you know, this is all theoretical because there's not an assumption here, but there probably wouldn't be as much impact on that charge-off rate in 2025 if it follows some of the historical norms that we've seen on typical recessions, put aside the GFC and the pandemic.

John Pancari (Analyst)

Care to comment on what a 2026 number would look like under a recessionary scenario given your business mix and the mix in the balance sheet?

Brian Wenzel (EVP and CFO)

I actually do not care to comment. We're not commenting on 2026 yet. We're on a hypothetical inflationary or, I'm sorry, recessionary environment. Thanks for the question. I understand. Separately, I guess just in terms of the credit actions, I know you indicated that you're evaluating actions to accelerate growth.

You know, when you talked about some of the partnerships and everything, does that include a widening of the credit box from here, just given how your credit has performed? I mean, are you evaluating, unwinding some of the tightening actions that you put in place in 2023 and 2024 to drive some acceleration and growth? Yeah, I mean, I alluded to that earlier. I think it's something we're evaluating. You know, we'll be very methodical about how we'll do it. You know, we would tend to start with our existing customers. You know, we know them well. We know how they spend. They built a credit history with us. So we would give them a little more spending power potentially. Where we have higher returning segments in the portfolio, there may be an opportunity to widen the box a little bit.

Everything would be done in the context of that long-term net charge-off rate. So 5.5-6%, we're not looking to do anything outside of that. We don't want to run well below that because we're leaving growth on the table. We certainly don't want to run above that. You've seen us manage it back into that long-term charge-off guidance. You know, that's how we would approach it. You know, we're managing through a fairly uncertain environment. We're obviously taking that into account. That's why we move pretty methodically.

John Pancari (Analyst)

Great. Very helpful, Brian. Appreciate it.

Brian Doubles (President and CEO)

Thanks.

Brian Wenzel (EVP and CFO)

Thanks. Have a good day.

Operator (participant)

We will move next to Mark DeVries with Deutsche Bank. Please go ahead.

Mark DeVries (Director)

Yeah, thanks. I had a follow-up question on just capital levels and returns.

You're sitting here with CET1, you know, 13.2%, well above kind of the historic target range of 10-11%. The question is, is that still the right target for you to manage down to? Any thoughts on kind of pace at which we should expect you to kind of manage down to those levels?

Brian Wenzel (EVP and CFO)

Yeah, thanks for the question, Mark. Good morning. You know, our target level, which we've shared, is 11%. You know, so that's the goal in which we go through. Obviously, there's some buffer around that at different points given seasonality. You know, we're on a consistent pace to do that. Remember, Mark, we started out where our capital peaked at 18% CET1 in this company. Brian highlighted earlier on the call, you know, we've taken out over half the shares since 2016 to kind of get here now.

We understand the importance of having an efficient balance sheet. We've kind of built out, you know, our tier two. We have a little bit more on tier one. We're on a pace in which we, you know, we've shared with our board and our regulators over the course of several years on how our capital, you know, our capital directory goes. The $2.5 billion today, we think, is a good position relative to the earnings power there and the capital we're going to generate this year given the RWA, you know, expenditure, the increase in the dividend, and does not preclude us from coming back, you know, later in the year and discussing with the board whether or not that needs to be adjusted, you know, upwards.

You know, while we haven't provided a specific framework, our outlook hasn't changed to getting back to the 11%. Again, you know, I do think we should get some level of credit for reducing over half the shares of the company in the period of eight years.

Mark DeVries (Director)

Okay. Just to follow up on that, when you, you know, set this latest authorization, was it, you know, was it kind of sized to give you plenty of flexibility to outperform on the growth perspective? Because I just think about like what consensus earnings are and what the implied payout if you use 100% of the repurchase with the new dividend, you'd be kind of neutral to CET1 at the end of the year. Am I thinking about that right?

Either you outperform on a growth perspective or it is likely you come back and potentially look to buy back more stock or expand the authorization?

Brian Wenzel (EVP and CFO)

Yeah, I think, you know, whenever we do a capital plan, what we bring to the board is a number of different scenarios. We have baseline scenarios. Obviously, we have the stress scenarios. There are outlays that are in there. We have a full range that shows the type of resiliency the capital stack really has under different scenarios. You know, we did not go to the board and say we are going to be back later this year, but obviously that is an option for us to discuss with the board whether or not it is warranted. I mean, I think right now, $2.5 billion authorization is a good place to start.

We'll execute throughout the year and see how growth develops and see what the opportunities are to the board and have that discussion. Again, you know, we're very pleased with the capital plan that has a $0.30 dividend, up 20% from our existing dividend and a $2.5 billion authorization, you know, especially today given our market capitalization, which is unfortunately lower than its true value.

Mark DeVries (Director)

Yeah, makes sense. Thank you.

Brian Doubles (President and CEO)

Thanks, Mark.

Operator (participant)

Thank you. We only have time for one last questioner. Our last question comes from the line of Don Fandetti with Wells Fargo. Please go ahead.

Don Fandetti (Managing Director)

Hi, good morning. Brian, can you talk a little bit about the sort of runway for CareCredit? It's been a good growth story. Competitively, are you still seeing that as a fragmented market? Also, how has the credit performance been versus your expectations?

Brian Doubles (President and CEO)

Yeah, look, I think, you know, we still feel great about the health and wellness platform. That is certainly, if I had to pick a platform that we're really investing in and trying to grow, it is that one. It's a huge market. We've got a leadership position. We've been in the business almost 40 years. Our NPS scores in that platform are off the charts. We have a really good reputation in terms of, you know, the providers that we serve across dental and vet. It's a growing market as well. You know, Brian Wenzel talked a little bit about the CareCredit Tool Card. We're employing a number of strategies to continue to grow there. It's obviously bigger ticket.

Brian Wenzel (EVP and CFO)

You know, you've seen maybe just a little bit of softness here recently, but we are extremely optimistic about our ability to grow CareCredit over the long term. I would say on the credit performance side, you know, generally in line with the rest of the business, although, you know, given some of the margins, we are able to underwrite a little bit, a touch deeper there at very attractive risk-adjusted returns.

Don Fandetti (Managing Director)

Thank you.

Brian Doubles (President and CEO)

Thanks, Tom.

Brian Wenzel (EVP and CFO)

Thanks. Have a good day.

Operator (participant)

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