Synchrony Financial - Earnings Call - Q3 2025

Executive Summary

• Strong quarter with credit-led upside: EPS rose 47% YoY to $2.86 as net charge-offs fell 90 bps to 5.16%, ROA reached 3.6%, and NIM expanded 58 bps to 15.62%. Purchase volume returned to growth (+2% YoY to $46.0B), led by Digital (+5%) and Diversified & Value (+3%).
• Capital return accelerated: Board added $1.0B to buybacks; total authorization $2.1B through 2Q26. Q3 capital returned was $971M ($861M repurchases, $110M dividends). Dividend maintained at $0.30 per share (declared Oct 23).
• Guidance mixed: Net revenue trimmed to $15.0–$15.1B (from $15.0–$15.3B) on higher payment rates/lower late fees; NIM expected to average ~15.7% in 2H’25; NCOs tightened to 5.6–5.7% (from 5.6–5.8%); efficiency ratio raised to 33.0–33.5% (from 32.0–33.0%).
• Strategic catalysts: Launch of Walmart/OnePay co‑brand (Sept), Amazon Pay Later ramp, PayPal physical card rollout, and Versatile Credit acquisition underpin 2026 growth; Lowe’s commercial co‑brand portfolio acquisition expected to close 1H26.
• S&P Global consensus vs results: EPS beat ($2.86 vs $2.21*). S&P’s revenue framework shows a miss ($2.68B* vs $3.80B*), but company-reported net revenue was $3.82B; differences reflect revenue definition for financials (see Estimates Context). Values retrieved from S&P Global.*

What Went Well and What Went Wrong

What Went Well

• Credit outperformance drove earnings: NCO rate fell to 5.16% (–90 bps YoY) and delinquencies improved (30+ DPD 4.39%, –39 bps YoY; 90+ DPD 2.12%, –21 bps YoY), enabling a $152M reserve release and lifting EPS to $2.86. CFO: “Provision…decreased $451 million…driven by lower net charge‑offs…and a reserve release of $152 million”.
• Margin expansion: NIM rose to 15.62% (+58 bps YoY) on lower funding costs (–58 bps liabilities cost) and higher loan yields from PPPCs, partly offset by lower liquidity portfolio yields and asset mix. CFO detailed NIM drivers and basis-point attribution on the call.
• Capital return and authorization: $971M returned in Q3 ($861M buybacks, $110M dividends) and authorization increased by $1.0B to $2.1B through 2Q26; CET1 improved to 13.7% (vs 13.1%). CEO framed buyback expansion as confidence in “strong capital generation capacity”.

What Went Wrong

• Net revenue guidance trimmed; efficiency ratio higher: FY net revenue narrowed to $15.0–$15.1B (vs $15.0–$15.3B prior) and efficiency ratio raised to 33.0–33.5% (vs 32.0–33.0%) due to higher payment rates and lower late fee incidence offsetting PPPC benefits and NIM gains.
• Payment rate elevated at 16.3% (≈+60 bps YoY), dampening receivables and interest & fee income growth despite spend inflecting positive; average active accounts fell 3% YoY.
• Home & Auto and Lifestyle remain soft: Home & Auto purchase volume −1% and receivables −6%; Lifestyle purchase −3%, reflecting selective consumer behavior in larger-ticket/discretionary categories.

Transcript

Operator (participant)

Good morning, everyone. Welcome to the Synchrony financial third 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 a 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 (SVP, 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 another strong financial performance in the third quarter of 2025 that included net earnings of $1.1 billion, or $2.86 per diluted share, a return on average assets of 3.6%, and a return on tangible common equity of 30.6%. We generated $46 billion of purchase volume in the third quarter, a year-over-year increase of 2% as trends across our five platforms improved, even as the effects of our previous credit actions continue to impact average active accounts. Spend across our digital platform increased 5%, driven by higher spend per account and reflecting strong customer response to our enhanced product offerings and refreshed value propositions. Diversified and value purchase volume grew 3%, reflecting strong retailer performance and growth in out-of-partner spend. Purchase volume in health and wellness also grew 3%, reflecting growth in pet and audiology, partially offset by lower spend in cosmetics.

Meanwhile, purchase volume in home and auto was down 1%, generally due to selective spending in home specialty. Purchase volume in our lifestyle platform was down 3%, reflecting lower spend in outdoor and specialty as consumers continue to manage discretionary spend. Dual and co-branded cards accounted for 46% of total purchase volume in the third quarter, an increase of 8% versus last year, driven by higher broad-based spend across these card programs and Synchrony-branded general purpose card. Out-of-partner spend on our dual and co-branded cards generally reflected year-over-year improvement in the mix of discretionary spend as the quarter progressed, with continued points of strength coming from restaurants and electronics. As highlighted on slide three of our earnings presentation, average transaction values for the portfolio were approximately 40 basis points higher than last year, building on the improving trend over the last four quarters.

This trend occurred across all credit grades and generations within our portfolio, with particular strength coming from non-prime, pointing to the efficacy of our credit actions as we strengthen the mix of that cohort. Customers across credit grades and generations also increased their spend frequency during the third quarter, up about 3.4% in the quarter versus last year. Collectively, Synchrony's portfolio spend trends suggest that the utility and value we offer through our variety of product offerings are resonating with our customers and driving stronger engagement as they navigate the continued uncertainty in the broader environment. We are a trusted partner to almost 70 million customers, many of the nation's most respected brands, and hundreds of thousands of small and mid-sized businesses across the country. It is both a privilege and an opportunity to connect them through our financial ecosystem and empower them with financial flexibility and choice.

Given how our credit actions have outperformed our expectations, we began gradually reversing some of our tightening in areas where we see strong risk-adjusted growth opportunities. We're monitoring our portfolio closely and expect to make similar incremental adjustments gradually over the coming months, as supported by broader macroeconomic conditions. In the meantime, Synchrony has continued investing in our business and executing across our strategic priorities. We added, renewed, or expanded more than 15 partners during the third quarter, including The Toro Company, Regency Showrooms, Lowe's Commercial Program, including the pending acquisition of its co-branded credit card portfolio, and Dental Intelligence. Synchrony's launch of The Toro Company credit card will deliver a variety of our promotional financing options to their extensive network of independent dealers across the outdoor environment solution space.

Our multi-year renewal with Regency Furniture provides access to Synchrony financing across more than 95 furniture stores across the Northeast under the brand names of Regency, Marlo, Value City of New Jersey, and Ashley. Synchrony is also proud to build on our more than 45-year relationship with Lowe's by enhancing our existing commercial program and acquiring their commercial co-branded credit card portfolio. We look forward to relaunching the Lowe's Business Rewards credit card with enhanced value and a seamless customer experience as we help Lowe's pros pay for the tools and supplies they need. In addition, we announced our strategic partnership with Dental Intelligence, a leading patient relationship management and analytics platform used by over 9,000 dental practices. That joined Synchrony's more than 40 healthcare software solution partnerships designed to strengthen patient-provider relationships and enhance practice operations through innovative technology.

Our new seamless integration with Dental Intelligence now includes Synchrony's CareCredit financing options, including CareCredit Status Tool. Providers can offer CareCredit to patients more intuitively through simple automated payment communications and make it easier for patients to understand their payment options. Our integration process is faster and more efficient than ever, strengthening care processes, driving administrative efficiency, and empowering patients to get the care they need when insurance is not sufficient. Synchrony's recent acquisition of Versatile Credit is yet another example of how we are driving expanded access to flexible financing while also enhancing the value we deliver to small and mid-sized businesses across the country.

Versatile is a leading multi-source financing platform with more than 30 integrated lenders across the full credit spectrum that helps merchants and providers empower their customers with smarter financing options across online, in-store, and mobile points of sale. They are able to deliver seamless integrations, higher approval rates, and detailed reporting to drive sales across home, auto, and elective medical merchants and providers. Moving forward, Versatile will continue to operate its existing business strategy and maintain its data integrity to continue to provide financing through their existing lender integrations for their merchants. Synchrony will receive referral revenue and leverage our scale and underwriting expertise in combination with Versatile's innovative technology to accelerate our embedded finance strategy. While we do not expect Versatile to be material to Synchrony's near-term financial performance, we do expect our collaboration to contribute to Synchrony's profitable growth for years to come.

Lastly, albeit early, the momentum and execution in the first month of our Walmart program launch is off to a great start, and the initial results have been very encouraging. We believe that the combination of such a compelling value proposition, innovative customer experience, and highly prominent product placement should position this product as a top-of-wallet card and drive deeper engagement for Walmart customers across the country. With that, I'll turn the call over to Brian to discuss our financial performance in greater detail.

Brian Wenzel (CFO)

Thanks, Brian, and good morning, everyone. Synchrony's third quarter financial results were highlighted by continued strength in our credit performance and acceleration of our purchase volume trends, which was broad-based across our five sales platforms and all generations. We generated $46 billion of purchase volume during the third quarter, which was up 2% year-over-year and continued to be affected by the credit actions we took between mid-2023 and early 2024 and continued selectivity in customer spend behavior. Ending loan receivables decreased 2% to $100 billion in the third quarter due to the combination of lower prior-period purchase volume and average active accounts, as well as higher payment rate. The payment rate increased by approximately 60 basis points versus last year to 16.3%, and was approximately 120 basis points above the pre-pandemic third quarter average. Net revenue of $3.8 billion was flat versus last year.

Its higher net interest income was offset by higher RSAs, driven by program performance. Our net interest income increased 2% to $4.7 billion, reflecting a 14% decrease in interest expense, partially offset by a 16% lower interest income on investment securities. Our third quarter net interest margin increased 58 basis points versus last year to 15.62%. There are two key drivers of this net interest margin improvement. One, a 58 basis point decline in our total interest-bearing liabilities cost versus last year, which contributed approximately 49 basis points to our net interest margin. Two, a 35 basis point increase in our loan receivables yield, which contributed approximately 29 basis points to our net interest margin. This increase was primarily driven by the impact of our product pricing and policy changes, or PPPCs, partially offset by lower benchmark rates and lower assessed late fees.

These improvements were partially offset by another two key drivers of net interest margin. One, an 88 basis point reduction in our liquidity portfolio yield, which reduced our net interest margin by 14 basis points. The decline generally reflected the impact of lower benchmark rates. Two, a 35 basis point decrease in the mix of loan receivables as a percent of interest-earning assets, which reduced our net interest margin by approximately six basis points. Moving on, RSAs of $1 billion were 4.07% of average loan receivables in the third quarter and increased $110 million versus the prior year, primarily reflecting program performance, which included lower net charge-offs and the impact of our PPPCs. Other income increased 7% year-over-year to $127 million, which included the impact of PPPC-related fees.

Provision for credit losses decreased $451 million-$1.1 billion, driven by a $255 million decrease in net charge-offs and a reserve release of $152 million versus a build of $44 million in the prior year. The current year reserve release included the impact of a $45 million reserve build for the pending acquisition of the Lowe’s Commercial Program Co-Brand Credit Card portfolio, which is expected to close during the first half of 2026. Other expense increased 5% to $1.2 billion, generally reflecting higher employee costs and costs related to technology investments, partially offset by preparatory expenses related to the proposed late fee rule change in the prior year. The third quarter efficiency ratio was 32.6%, approximately 140 basis points higher than last year due to higher overall expenses and the impact of higher RSAs on net revenue as credit performance improved.

Taken together, Synchrony generated net earnings of $1.1 billion, or $2.86 per diluted share, and delivered a return on average assets of 3.6%, a return on tangible common equity of 30.6%, and a 16% increase in tangible book value per share. Next, I'll cover our key credit trends on slide eight. At quarter end, our 30+ delinquency rate was 4.39%, a decrease of 39 basis points from 4.78% in the prior year, and 23 basis points below our historical average for the third quarters of 2017 to 2019. Our 90+ delinquency rate was 2.12%, a decrease of 21 basis points from 2.33% in the prior year, in line with our historical average from the third quarters of 2017 to 2019.

Our net charge-off rate was 5.16% in the third quarter, a decrease of 90 basis points from the 6.06% in the prior year and seven basis points above our historical average for the third quarters of 2017 to 2019. Net charge-off dollars were down 8% sequentially. This compares favorably to the 2017 to 2019 average sequential dollar decline of 7%. When evaluating our 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 strategies. These trends reinforce our confidence in our portfolio's credit positioning as we move forward and provide a strong foundation for us to execute our business strategy. Finally, our allowance for credit losses as a percent of loan receivables was 10.35%, which decreased approximately 24 basis points from 10.59% in the second quarter.

Turning to slide nine, Synchrony's funding, capital, and liquidity continue to provide a strong foundation for our business. During the third quarter, Synchrony's direct deposits remained sequentially flat as broker deposits declined by $2.4 billion. At quarter end, deposits represented 85% of our total funding, with unsecured debt representing 7% and secured debt representing 8%. Total liquid assets decreased 7% to $18.2 billion and represented 15.6% of total assets, 94 basis points lower than last year. Moving to our capital ratios, Synchrony ended the third quarter with a CET1 ratio of 13.7%, 60 basis points higher than last year's 13.1%. Our tier 1 capital ratio was 14.9%, 60 basis points higher than last year. Our total capital ratio increased 60 basis points to 17%. Our tier-one capital plus reserves ratio increased to 25.1% compared to 24.5% last year.

During the third quarter, Synchrony returned $971 million to shareholders, consisting of $861 million in share repurchases and $110 million in common stock dividends. Recognizing the strength of our balance sheet, our strong capital generation capacity, and the resilience of our business from both our sophisticated underwriting and retailer share arrangements, Synchrony's board approved an incremental $1 billion in share repurchases in September, bringing our total authorization to $2.1 billion at the end of the third quarter. 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 assumptions for the full-year outlook continue to include minor modifications we made to our PPPCs this year, as well as our September launch of a Walmart OnePay program.

Exclude any potential impacts from a deteriorating macroeconomic environment or from the implementation of tariffs and potential retaliatory tariffs as the effects remain unknown. Now also included the acquisition of Versatile Credit, which is not expected to have a material impact on our 2025 financial performance. Focusing on our outlook in more detail, we continue to expect flat ending receivables versus last year, reflecting the ongoing impact of selective customer spend and the continued effect of our past credit actions on purchase volume and payment rate, the latter of which remains elevated relative to our pre-pandemic average. While we made certain modifications to our credit strategy in the third quarter and expect to make further adjustments in the fourth quarter, we do not expect them to have a material effect on growth in 2025.

While our past credit actions have contributed to higher payment rate and slower loan receivables growth over the short term, they have meaningfully strengthened our portfolio's credit performance. We now expect our loss rate to be between 5.6% and 5.7%, which is towards the lower end of our long-term underwriting target of 5.5%-6%. The combination of higher payment rates and improved credit outlook is contributing to lower interest and fees, which is expected to reduce net interest income and result in RSAs between 3.95% and 4.05% of receivables and net revenue between $15 billion and $15.1 billion.

We expect our net interest margin to increase and average approximately 15.7% for the full second half of 2025, reflecting lower funding costs due to lower benchmark rates, partially offset by a lower yielding investment portfolio, and an increasing mix of loan receivables as a percent of earning assets driven by the impact of seasonal growth and a continued reduction of our excess liquidity. Lastly, we're updating our efficiency ratio expectation between 33% and 33.5%, primarily reflecting the updated net revenue outlook. We continue to expect other expenses to increase approximately 3% on a dollar basis for the full year, which includes the Walmart program launch costs. In summary, Synchrony's outlook for 2025 demonstrates the strength of our distinctive business model and delivers net interest margin expansion, stronger delinquency formation and net charge-offs, and continued performance alignment through the RSA.

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.

Brian Doubles (President and CEO)

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, the combination of Synchrony's credit expertise, discipline, and credit actions have enhanced the resilience of our portfolio, creating a strong foundation on which to grow in 2026 and beyond. We're encouraged by the trends we've seen in our customers and our portfolio, and are optimistic that we will continue to adjust our credit actions subject to macroeconomic conditions. Second, Synchrony is executing on our key strategic priorities to grow and win new partners, diversify our programs, products, and markets, and deliver best-in-class experiences for all those we serve. As we continue to elevate the ways in which we connect our customers with our partners, providers, and merchants, we're driving greater utility and value and deepening our position at the heart of American commerce.

Third, Synchrony's differentiated business model, consistent prioritization of growth at strong risk-adjusted returns, and robust capital generation position us uniquely well to drive considerable long-term value for our many stakeholders. With that, I'll turn the call back to Kathryn to open the Q&A.

Kathryn Miller (SVP, 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)

Certainly. Thank you, Ms. Miller. Ladies and gentlemen, at this time, if you do wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Again, please limit yourself to one question and one follow-up question. We'll go first this morning to Terry Ma with Barclays. Please go ahead.

Terry Ma (Senior Equity Research Analyst)

Hi. Thank you. Good morning. Maybe just to start off with the updated revenue guide, you lowered the high end of the range this quarter after lowering it last quarter. I am just curious, what was kind of incremental throughout the quarter that led you to lower it?

Brian Wenzel (CFO)

Yeah. Good morning, Terry. You know, when you think about the net revenue guide, you have a couple of moving pieces in there. One is the positive nature of the PPPCs that are going into place that drive revenue. I think two things that count. I'm going to balance that a little bit, Terry. Number one, the continued improvement in delinquencies. You know, you could look at the rate, you know, 4.39% at the end of the quarter, which is better than the pre-pandemic period of 2017 to 2019 by 23 basis points. That's driven a lower incident rate, really, of late fees, which we view as positive because you're getting it from, you're getting the positivity from a credit perspective. Obviously, the payment rate is elevated because we have lower subprime. Again, that's 80 basis points down year-over-year on non-prime, flat quarter on quarter.

It's really the fact that the payment rate's elevated, a little bit lower late fee incidents, but you have some positivities, right, relative to PPPCs that are in there.

Terry Ma (Senior Equity Research Analyst)

Got it. Maybe just to follow up on the triple PC modifications, you had disclosed, I think, last quarter and even on stage with me a month ago that you rolled back APRs for one partner. I did also recently notice an updated TJ Maxx agreement with a lower APR. Just wanted to confirm that is, in fact, the retailer you cited before, and it's not a new rollback. To the extent possible, any color you can provide on whether or not there are additional conversations happening.

Brian Doubles (President and CEO)

Yeah. Let me take that. First, we're not going to comment on any specific partner programs. As I mentioned previously, any potential rollbacks are going to happen partner by partner. There is no big rollback plan that's in the works. Frankly, there's not a lot of discussions happening with our partners right now. As I mentioned last quarter, we did have one partner that wanted to make a change to one element on their program, which we've already done. We had one other change that we made in the fragmented space related to promotional fee. That added up to less than $50 million in revenue, pretty small overall, and that's already been incorporated into the outlook. Any other potential discussions in the future are going to happen partner by partner. I would think of them as kind of normal course.

We're always looking at pricing in conjunction with credit, the value proposition on the card, where the competition's priced, where other partner programs are priced, and again, with the goal of leveraging price to drive sales for our partners and growth for the program at good returns.

Terry Ma (Senior Equity Research Analyst)

Okay, got it. Thank you.

Brian Wenzel (CFO)

Great. Thanks, Terry.

Terry Ma (Senior Equity Research Analyst)

Thanks, everyone.

Brian Wenzel (CFO)

Have a good day.

Operator (participant)

Thank you. We go next now to Ryan Nash with Goldman Sachs. Please go ahead.

Ryan Nash (MD Equity Research)

Hey, good morning, guys.

Brian Doubles (President and CEO)

Hey, Ryan.

Brian Wenzel (CFO)

Morning, Ryan.

Ryan Nash (MD Equity Research)

You seem to be bucking the trend that the broader market had been concerned about this quarter, given concerns on credit and the low-end consumer. Brian Doubles, maybe just expand a little bit on what you're seeing on the consumer. Given the actions that you've taken, if we're in sort of a stable macro environment, can we continue to see this better than expected credit performance? I have a follow-up.

Brian Doubles (President and CEO)

Yeah, sure, Ryan. Look, we still think the consumer's in pretty good shape. They've been very resilient. We're not really seeing any signs of weakness. We're actually seeing improvement as we think about both spending trends, but also what we're seeing on credit has outpaced our expectations. We're pretty optimistic in terms of the trends we're seeing across the portfolio. Purchase volume turned positive this quarter, up 2%. All five platforms improved as you look at them sequentially. We saw particular strength in digital, health and wellness, D&D. We're seeing nice growth in the co-brand portfolio. Purchase volume was up 8%, and receivables were up 13%. I think there's definitely reason to be optimistic. Inside of those numbers, there really isn't much lift from opening up the credit box. We have plans to add back about 30% of the sales from the credit actions that we took earlier.

That leaves another 70% that we'll evaluate over the next couple of quarters. All else being equal, we should get a little more lift towards year-end and as we head into next year. We're pretty optimistic in terms of everything we're seeing from the consumer at this point.

Ryan Nash (MD Equity Research)

Gotcha. Maybe just as a follow-up to the point that you just made, obviously, you've been in a bit of a restrictive credit environment. You talked about rolling back 30% of the credit actions. You have Walmart coming back, coming on board, which should help. You made some positive comments there. Maybe just talk about the path back to, call it mid-single-digit growth that any of you guys have talked about. Maybe talk about in terms of Walmart versus everything else, and what do you see as the key drivers there? Obviously, the 70% unwind would be a big part of that. Maybe just help contextualize that for us. Thank you.

Brian Doubles (President and CEO)

Yeah. We've got a few things that we're really excited about. Walmart, obviously, is a big one. We're officially launched now as of September. We're very excited by the early results. We're seeing good growth in new accounts. We like the mix that we're seeing. We like the out-of-store spend that we're seeing. The placement in-store and on all of Walmart's digital properties has been really great. Out of the gate, this is one of the fastest de novo programs that I can remember. We've also got the Pay Later launch at Amazon. We're seeing really good results there out of the gate. That should benefit us as we head into 2026. Last quarter, we announced the PayPal physical card launch. It's very early, but we like what we're seeing there. There is still opportunity to drive some growth through opening up the credit box.

We're going to be balanced there. We're going to look at areas where we know we're going to get really good risk-adjusted returns. We started in our health and wellness platform. We're going to continue to evaluate that as we get through the end of this year and into 2026. There's a lot of really positive momentum and different dynamics when you look at product launches, value props, and things that we think will really benefit us as we get into 2026.

Ryan Nash (MD Equity Research)

Got it. Thanks for the call, Brian.

Brian Doubles (President and CEO)

Yep, thanks, Brian.

Brian Wenzel (CFO)

Thanks Brian.

Operator (participant)

Thank you. We go next now to John Pancari with Evercore. Please go ahead, John.

John Pancari (SMD and Senior Research Analyst)

Morning. Just back to the broader consumer, it's encouraging to hear that you're not yet seeing broader signs of weakness, and the consumer's still in pretty good shape. We're clearly seeing a degree of bifurcation out there in terms of the lower income brackets. Can you talk a little bit more specifically about what you're seeing amid your lower income cohorts? Are you seeing differing payment rate behavior, greater stress in terms of spend behavior or credit dynamics? Just to see how you may be seeing it within your base.

Brian Wenzel (CFO)

Great. Good morning, John. Thanks for the question. When we look at what I'd say, two specific areas. When you first think about spending for a second, we showed a chart in the presentation this morning about average transaction value and average transaction frequency. When you look at it on a credit-tier basis, the non-prime for us actually performed better than the other cohorts, right? When I think about it on a sequential basis and even on a year-over-year basis, that's mainly the fact that what we've done with the credit actions is remove probably the lower end of that subprime population. I think we're seeing stronger behavioral patterns, whether it's on a transaction value basis or a frequency basis.

Their willingness to engage, their willingness to use the card, their willingness to engage with the products has been better than the other cohorts simply by the fact of what we've done, right, relative to the credit actions. I want to reinforce the fact that our non-prime is down about 80 basis points year-over-year. When you go into the payment trends, actually, the payment trends are very strong for us when you think about that cohort that is non-prime. When I look at it, John, the implications of the benefit, you're seeing more people that are paying min pay in the non-prime population, but where the shift is coming from is really from below min pay players. The way to interpret that is we have lower delinquency in some of those, but they are paying min pay.

When we look at the payment strength of non-prime borrowers and we look at the payment engagement, whether it's values or frequency, they are performing better than some of the other cohorts. Performing extremely well. We're probably better positioned because we took those broader-based actions over 2023 and 2024. Brian talked about some of the opening of the credit aperture. These are things around upgrades to dual card. These are things around giving credit line increases to people who have been around a year. We're not taking what I would view as incremental risk exposure, but rather we're taking what you could term more thoughtful growth actions into the portfolio itself, where we're not just lowering credit scores and taking greater risk.

John Pancari (SMD and Senior Research Analyst)

Got it. Okay. Great. Thanks for that. On the capital front, saw a nice increase in your CET1. Buybacks came in higher than expected, around $861 million. You still have the, and now with the increase, you have the $2.1 billion authorization. Can you maybe help us frame how you think about the potential pace of buybacks as we look at the fourth quarter and into 2026, given your capital levels where they stand now? Thanks.

Brian Wenzel (CFO)

Yeah. You know, John, capital is a real strength for our company, right? We clearly know we operate from a position of excess capital. The great thing about this business is it generates a lot of capital. When you look at page nine of our deck over the last year, we generated over 350 basis points of incremental CET1 just from the earnings of the business. Strong capital generation and the ability to deploy that, right? The board felt really confident when they looked at the resiliency of the business, that capital generation, and where we were to add that billion dollars. That leaves us with $2.1 billion over the next three quarters. We don't really provide guidance for that, but obviously, you know, we're going to deploy that in what I would say is an aggressive but prudent manner.

I think we've demonstrated that whether you go back to 2019 and then after the pandemic. Obviously, we're focused on reducing the CET1. I think if you look over the history, we retired over 55% of the common shares here since we began share repurchases back in 2016. Again, we'll be aggressive but prudent through the rest of this capital plan. You know, we're going to focus now in the fourth quarter about getting set to prepare our capital plan for the early part of next year.

John Pancari (SMD and Senior Research Analyst)

Thanks, Brian. Appreciate the call.

Brian Wenzel (CFO)

Thanks, sir. Have a great day.

Operator (participant)

Thank you. We go next now to Mihir Bhatia of Bank of America.

Mihir Bhatia (Director and Senior Equity Research Analyst)

Hi. Good morning. Thank you for taking my questions. Maybe I wanted to start with just the allowance ratio and the reserve rate outlook. Maybe just talk a little bit about the puts and takes in the quarter in terms of what drove the step down. Was it just your own credit performance? How much did macro scenarios contribute? As we think about 4Q, should we expect a typical seasonal step down, or was some of that already incorporated in this quarter?

Brian Wenzel (CFO)

Good morning, Mihir, and thanks for the question. As you think about the reserve rate reduction and release that happened in the third quarter, I'd say a couple of things. Number one, first and foremost, it was driven by our credit performance, not only the delinquency formation, but the performance of how it rolled through. We continue to see a tremendously strong entry rate into delinquency below the pre-pandemic period. We saw a stabilization really in early-stage delinquency. Think about that two to two due and then 4+, we saw some strengthening. That continued strength that we saw, which hopefully, you know, led to us narrowing our range down to 5.6%-5.7% for the year. That credit performance is a big driver in the rate reduction that you saw. I'd also say, you know, we use the Moody's baseline.

If you looked at that baseline August to May, it was actually a little bit better than that. There is a little bit of macro improvement in the base model. What I'd say is the macroeconomic QA overlay that we had on there stayed consistent from a deterioration standpoint from the second quarter to the third quarter. It really was the base performance of the business that drove that. As you think, you know, we don't provide guidance for the fourth quarter, but as you think about the fourth quarter, the way I think about it is this. You generally see a step down, right, relative in the reserve rate for the seasonal balances kind of coming in. I think it's fair to say that the seasonal balance you may have seen last year will not be as strong.

I would expect a reserve dollar post in the fourth quarter to reflect the growth in the assets, but not quite as much seasonal given where we are. If I take it up here to 10,000 ft, what you're going to see and what you should see is that there ultimately, over a period of time, will be a downward bias on the reserve rate, right, as you get unemployment in the base model, which, you know, again, the base model before you overlay any macro has a 4.8% unemployment rate at the end of next year. As that comes down more in line, as the QAs go away, you should see more tightening of the reserve rates moving forward that potentially can offset future growth-related builds.

Mihir Bhatia (Director and Senior Equity Research Analyst)

Got it. No, that makes sense. Thank you. If I could just turn to go back to growth and the discussion about, you know, the unwinding of credit actions and the 30% and the 70%. I guess maybe to tie that a little bit to, like, you know, average accounts are still down year-over-year. Obviously, transaction frequency and values are up. It sounded like some of the unwinding you're doing is much more related to your existing accounts. I guess what do we need to see for average accounts to start trending up or to turn positive? Is it just going to come from, like, natural growth, or is there, like, credit unwinding that will be happening in the short term? I guess what I'm trying to understand is the 30%, 70% discussion. The 30% sounded like very much focused on internal accounts, like existing upgrades, etc.

I'm trying to think of, like, account growth and just increasing the number of consumers. What's going to drive that?

Brian Wenzel (CFO)

Yeah. Again, I think the way to think about the active accounts here, you know, we had been in a restrictive position. We continue to remain in a restrictive position. I think when we were with you back in July, we talked about taking certain credit actions really in the health and wellness business. Some of that clearly would be at the acquisition point. There is some of the unwind that we're doing in the fourth quarter that is also acquisition-related. I think even though we don't disclose the topic or the metric in our earnings material now, if you look at the new account, our new account will sequentially in year-over-year is up 10%. We're starting to see the consumer more willing to not only apply, but also our ability to approve them. I think that's a turning point.

I think when you look at average active sequentially, they did inflect in the third quarter, so we would expect it to go back up. You hope in the fourth quarter, given the product where you have people potentially who are inactive today reengage with the product for holiday, we'd expect to see a lift. Most certainly, Brian highlighted a couple of places where we're adding, whether it's Walmart, Pay Later, or Amazon, and really the PayPal modifications we've made should also add to average active account increases as we move forward.

Mihir Bhatia (Director and Senior Equity Research Analyst)

Got it. Thank you for taking my questions.

Brian Wenzel (CFO)

Thank you. Have a good day.

Operator (participant)

Thank you. We'll go next now to Rob Wildhack with Autonomous Research.

Rob Wildhack (Equity Research Analyst)

Morning, guys. Maybe one more on potentially reversing the tightening. Could you give us some color on maybe what the waypoints you might be looking for to unwind that as we go forward? I guess, is it going to be more macro-related, or is it going to be more driven by your own credit results?

Brian Wenzel (CFO)

Yeah. Good morning, Rob. Again, thanks for the question. It's a combination, right? Clearly, what we want to see is the macro environment potentially clear. I think there is some, I'd say, a mixed labor market. People focus on the unemployment rate. When you look down on Nick Schultz, when you think about both the demand side and supply side of the employment market and wage gains, there are some mixed messages in there, clearly softening, but mixed messages. Clearly, we would like to see the macro environment clear. We've seen consistency in the performance of our book to the extent that it continues to perform well. That's a good indicator on how we could potentially remove some of those restrictions or open that aperture a little bit more.

If our credit continues to improve, and we've seen a trajectory, when you look at the sequential benefit year-over-year, it's widening out. It's been widening out for the last several quarters on 30+ delinquency. You can't make those things happen. It is a combination clearly of the macro environment and clearly in the on-us behavioral patterns that we have in here.

Brian Doubles (President and CEO)

I think it's probably fair to say also that if we were just myopically looking at the performance of our own book, we would probably open up a little bit more than we are. There are some, as Brian said, mixed signals in the macro that give us a little bit of pause, not concern. When we look at the performance inside of our portfolio, we're very encouraged by what we've seen. Just look at any of the delinquency metrics, and even underneath those metrics, when you look at entry and roll rates, we're very encouraged by the trends that we're seeing.

Rob Wildhack (Equity Research Analyst)

Helpful. Thanks. Maybe on NII and NIM, you know, we can back into the fourth quarter numbers implied by the guidance. What are the puts and takes you would advise us on as we're thinking about that exit rate on NII and NIM and extrapolating that out beyond this quarter?

Brian Wenzel (CFO)

Yeah. Again, thanks for the question, Rob. I think as you think about our framework for the fourth quarter, clearly, the biggest piece is going to be the mix on ALR versus AEA, right? You're going to increase the percentage of receivables, which is traditional. That's going to be the bulk of the driver that kind of comes in. When you think about the subcomponents that go into there, when I think about loan yield for a second, you've got factors that go a little bit both ways. Number one, you're going to get a PPPC lift sequentially on a dollar basis that will flow through. You'll get a little bit of compression from prime that kind of comes through there. Then you'll have a little bit of the denominator impact that kind of comes through. That's the benefit of the PPPCs roll through, but there's some offsets.

The seasonal nature of the denominator that kind of comes through. I think when you think about the interest expense or interest-bearing liability side, while a lot of our maturities in the fourth quarter are at kind of current rates, maybe a little bit lower, I think you get the benefit of some of the things that we did earlier. That should be a benefit and a step up of the net interest margin as we close out the fourth quarter. I appreciate the question on 2026, but obviously, as the PPPCs kind of come in, payment rate ultimately should begin to navigate down. You would hope that there would be a bias for some upward momentum, but we'll be back in January to give you a more specific color on how NIM develops.

Rob Wildhack (Equity Research Analyst)

All right. Thank you very much.

Brian Wenzel (CFO)

Thanks. Have a good day, Rob.

Operator (participant)

We'll go next to Mark Devries at Deutsche Bank. Mark, please go ahead.

Mark Devries (Senior Research Analyst)

Yeah. Brian Doubles, thanks for the comments on kind of the encouraging signs on the Walmart program. I was hoping you could just elaborate on how the value prop of that card kind of compares to the last time you partnered with Walmart, kind of what that does for your optimism about how big that program can be relative to the last time you partnered. Also, just kind of what it's doing in terms of driving uptake on the card, engagement, and the types of customers you're attracting.

Brian Doubles (President and CEO)

Yeah, sure, Mark. There are a couple of things I'd highlight. First, this is a leading-edge program from a tech perspective. We're leveraging the OnePay app and our API stack. We're connected in their completely embedded digital experience, so that entire experience from application through servicing will be done through the OnePay app. This is definitely one of our most technologically advanced programs. That's the first thing I would highlight. Second, to your point, we have a very strong value proposition on the card. The Walmart Plus members get unlimited 5% cashback at Walmart. They get 1.5% cashback everywhere else. Even if you're not a Walmart Plus member, you still save 3% at Walmart and 1.5% everywhere else. It's a very attractive value proposition on the card.

I think you really do get an exponential benefit when you align a terrific loyalty program like Walmart Plus with the credit program, and that's what we're trying to do here. I mentioned earlier, we have really strong digital and in-store placement, so a nice commitment from all parties to grow the program. Walmart's investments in e-commerce give us a great platform to drive new accounts. If you go online and see walmart.com, you can see the placement across the digital properties is really strong. The signage in the store is very prevalent and allows customers to easily just scan a QR code and apply for the card anywhere in the store. I think it's a combination of all those things that gets us, frankly, really excited about this program and the opportunities ahead. It can clearly be a top five program at some point in the future.

We're excited about the growth that this could drive for both us and for Walmart.

Mark Devries (Senior Research Analyst)

Okay. That's helpful. Just a follow-up question on your delinquency trends. It looks like they continue to trend more favorable than normal seasonalities. Is that your perception? If so, what are the implications for trends for DQs and charge-offs as we look out six to 12 months?

Brian Wenzel (CFO)

Yeah. Thanks, Mark. They have not necessarily a perception. That's our analysis. They have been performing better. As Brian highlighted, that's why we adjusted the credit aperture both in the third quarter. Now we're going to do in the fourth quarter again, unwinding that roughly 30%. Different items, but adding back some of the restrictions that we put in place. I think as you do that, as we kind of settle in here, you're going to begin to merge back or migrate back to generally seasonal trends as we move forward here. We've seen that improvement. I think it goes to, as a testament really to the underwriting models we deployed, the alternative data we use in the model, as well as the power of having the data that comes from our partners, that really drove that.

I would think about it more seasonally from this point would be the safest bet. We're very proud of the performance and credit and really positions us well as we exit 2025 into 2026 from a business perspective.

Mark Devries (Senior Research Analyst)

Got it. Thank you.

Brian Wenzel (CFO)

Excellent. Thanks, Mark. Have a good day.

Operator (participant)

Thank you. We go next now to Don Fandetti at Wells Fargo.

Don Fandetti (MD)

Good morning. Can you talk about any potential portfolio acquisitions that you might be looking at or new de novo programs? On the Versatile Credit acquisition, is that sort of a one-off, or do you feel like, you know, you need, we'll see more of these bolt-on technology acquisitions?

Brian Doubles (President and CEO)

Yeah, sure, Don. Look, I would say, without getting too specific, we've got a really strong pipeline across all of our platforms, a combination of some programs with existing portfolios, plenty of de novo opportunities. We're encouraged when we look at the pipeline. Our team is very active, just given our size and scale in the partner-based business. Pretty much every RFP in the industry comes across our desk, and we compete really hard on those. I think in terms of what we're seeing in the market, I think pricing continues to be pretty disciplined. We're not seeing any real irrational behavior. We're competing and winning based on our products and capabilities, our technology stack, what we're doing around data, our underwriting engine with Prism. I feel great about how we're competing and what we're winning.

We won't win every program out there because there's always going to be some pricing or terms considerations that we won't agree to. We're very disciplined around risk-adjusted returns. Generally, I feel really good about the pipeline. On Versatile Credit, it's going to be a great acquisition for us. They built a really strong business. We've been partnering with them for 20 years. We know each other really well. We've got a great relationship, really strong cultural fit. At the end of the day, all of our partners are looking to leverage credit to drive more sales and enhance loyalty, right? The Versatile Credit platform is going to allow us to approve more customers. That's great for our partner base. It's great for their customers. We'll drive a higher approval rate, and we'll do that either by doing the lending ourselves or through other institutions.

For those loans that we don't underwrite, we'll earn a fee. It benefits us and helps us drive some non-lending revenue. Positive from all aspects. Relatively small acquisition. Won't be material in the near term, but it's exactly the type of acquisition that we look for, where it's not a big capital outlay, but an acquisition that allows us to leverage our scale to grow it, to grow the business.

Brian Wenzel (CFO)

Yeah. I'd just add on, you know, when you think about Versatile for us, again, you know, Brian, it's not necessarily material to all of Synchrony, but when you look at whether it's the IRR or ROIC, it's very attractive, which goes back to some of the pricing discipline and how we look at these acquisitions and a very reasonable payback on tangible book value.

Don Fandetti (MD)

Got it. Thank you.

Brian Wenzel (CFO)

Thanks. Have a great day.

Brian Doubles (President and CEO)

Thanks, Don.

Operator (participant)

We'll go next to John Hecht at Jefferies.

John Hecht (MD)

Morning, guys. Thanks for taking my questions. I know you don't give details at the partner level by name, but maybe can you talk about characteristics of partners where you're seeing expansion versus maybe modest contraction? I mean, maybe like the digital mix or versus in-store or anything like that. Is there any way for us to think about the growth from that perspective?

Brian Doubles (President and CEO)

Yeah. I think, you know, John, the thing that really makes a program successful is a little bit of the intangible, which is how engaged is the partner in the program? Where does it sit on their list of priorities and the things that they're trying to drive across the business? Regardless of what platform you're in for a second, I just think about it. It is a priority of the CEOs and the executive leadership team of one of our partners to promote credit, to drive the program, to measure the program, to hold their teams accountable, as well as to hold us accountable for driving growth. That's really the secret sauce. In order to do that, both parties have to be all in. You have to have really good alignment in the contract, really good alignment through the RSA.

If it's a priority for them, and you have all of those other building blocks, you know, great technology integration, a seamless customer experience, strong NPS, all of those things. Really good growth. It's a combination of, you know, a lot of different building blocks. There's also just the intangible of where does it sit inside of the partner in terms of their priority and what are they trying to drive and how are they trying to leverage credit to, you know, improve their sales to drive loyalty in their customer base.

Brian Wenzel (CFO)

Yeah. The one thing I'd add, and you kind of go through the platforms, John, you know, you think about, let me just point out the areas where we probably see more pressure, right? In home and auto, you see pressure in the home specialty/home improvement business. When you think about lifestyle, the other platform that, again, still doesn't have positive purchase volume growth, it's in that outdoor power equipment, power sports. When you think about that bigger ticket, really more discretionary purchases, a little bit in cosmetic and health and wellness, that's where the consumers pull back, where you do see areas of strength where, you know, think about diversified value. We have some real value-oriented players in there that, as a retailer, are growing fairly significantly. We're maintaining or expanding penetration as you think about that.

Obviously, in the digital, there's a lot of broad-based partners in there who are expanding at significant clips. Again, we're maintaining that penetration in those segments. I think when you look at some things that are probably bigger ticket discretionary, but even inside home, we see expansion in some of the furniture partners that we have and verticals we have there. I think we see green shoots inside the portfolio of really the consumer kind of engaging in some of those discretionary purchases. Maybe some of the bigger ones are still a little bit patient on making.

John Hecht (MD)

Okay. Super helpful color. Second question, you know, Brian, you mentioned payment rates, you know, and they've been elevated really since for the last several years. In your opinion, what's the source of that? Are you seeing that across, you know, a variety of income levels? Can you tell how much of that might be like debt consolidation?

Brian Wenzel (CFO)

Yeah. Let me bifurcate that a little bit, John. If I go up to 10,000 ft, you really have two big drivers in why payment rate is elevated when you look at an absolute rate basis. Number one is the credit actions we've done, which has been more restrictive into the non-prime area. When you go and look at non-prime as a percent of total, we're better 80 basis points year-over-year. Where it's coming out is the top end, which you see a higher payment rate out of that really top end versus the non-prime. That's number one. That's to be expected, right, relative to that. That's why you're getting the benefit in charge-offs and delinquency. The other thing is that, on some of the bigger ticket discretionary promotional financing purchases, promo as a percent of the balances are down.

Promo balances have a payment rate of, call it, 9%-10%. Your core balances have a payment rate of 19%-20%. That mixed shift that happens does have a little bit of influence on the payment rate in and of itself. When we start to kind of go down to it by credit grade, John, what we're seeing here is actually strength in the non-prime and payment rate because, again, we took out some of that bottom end of the non-prime through our credit actions. When I look at it on just a cohort across the entire book with regard to payment rate, it's really the strengthening that brings you back to the credit actions in and of itself. Even when we look at it generationally, it's kind of moving in parallel given the characteristics of each of those cohorts.

Again, the strength is more driven by a little bit of the mix between promotional balances versus core, and then really the credit actions are the biggest driver.

John Hecht (MD)

Okay, thanks very much.

Brian Wenzel (CFO)

Thanks, John. Have a good day.

Brian Doubles (President and CEO)

Thanks, John.

Operator (participant)

Thank you. Ladies and gentlemen, we do have time for one more question this morning. We'll take that now from Jeff Adelson of Morgan Stanley.

Jeff Adelson (Executive Director)

Hey, good morning, guys. Thanks for taking me off today meeting to be in here. Just as a follow-up on the payment rate question, you know, one topic that's come up more recently is, you know, there's been some more prepayment out there, more in the installment world of the lending spectrum. Some of that may be coming from increased competition or private credit demand to originate new loans. Now, I know credit cards are a different animal here, more of a revolving product, but just curious if you're maybe noticing any of that competitive dynamic flowing in and maybe keeping the payment rate a little bit more elevated here.

Brian Wenzel (CFO)

Yeah. Thanks for the question, Jeff. When I look at it, I'm going to cut it two different ways. When we look at whether installment is impacting our business, when we look at application flow, where maybe installments could be a different payment option, we have not seen application flow negatively decline. In fact, we've seen application flow increase throughout the portfolio. I don't think we see competitive dynamics where an installment product is disintermediating us, right, relative to that or causing that. Back to the question that John Hecht, I apologize for not necessarily answering it and maybe where you're heading a little bit. When you think about people consolidating debt into an installment-type loan or some type of personal loan, I'd say this. We did two different types of analysis, right, relative to that.

One, where we looked at a cohort of the Swiss portfolio and said, "Okay, look at accounts that were revolvers for six consecutive months and then paid off to zero." Has that balance shifted? It has not shifted materially, most certainly not in a manner that would equate to what you're seeing in some of the loan growth that you see in personal loans. We also went out and looked at a sample of the population and looked at, number one, do we see an increase in our portfolio? People who have taken out personal loans, number one. Then number two, for some of the heavy revolvers, have we seen any of the payment behavioral changes pre and post those that have taken out a personal loan? The answer is we have not seen that.

Again, every issuer is impacted by some form of personal loan, but it has not been a significant driver that's influenced our result either from a growth perspective or from a payment rate perspective.

Jeff Adelson (Executive Director)

Got it. That's helpful. As my follow-up, just piggybacking off the commentary on the success of Pay Later at Amazon, you obviously have that product out there with other partners like Lowe's. Does the success of that launch maybe reinforce or shift how you're thinking about leaning into that opportunity going forward? Should we be expecting a continuous kind of launch of this multi-product strategy going forward at every partner you have? Maybe just update us on how that's coming up in the conversations with your partners as they maybe compare you guys to the offering some of the other buy now, Pay Later players are giving them.

Brian Doubles (President and CEO)

Yeah, sure. Look, I think we've been able to demonstrate the power of being able to offer multiple products inside a program. We're thrilled with the progress on Pay Later across the business. We now have it at some of our largest partners. You mentioned Amazon. We have it at Lowe's, JCPenney, Belk, Sleep Number. Our partners aren't really seeing the products as an either/or. They really do see the value of the multi-product strategy. They think that's a real opportunity. They fully appreciate that customers have different financing needs. In some cases, a revolving product is right for some purchases. Others prefer fixed payments of a buy now, Pay Later product. We're anchored in that multi-product strategy, and based on our conversations with our partners, that's really resonating with them. That's the strategy going forward. We're excited to continue to roll it out to the partner base.

Jeff Adelson (Executive Director)

Okay. Great. Thank you.

Brian Wenzel (CFO)

Great. Thanks, Jeff. Have a good day.

Brian Doubles (President and CEO)

Thanks, Jeff.

Operator (participant)

Thank you. Ladies and gentlemen, this will bring us to the conclusion of today's Synchrony Financial third quarter earnings conference call. We'd like to thank you all so much for joining us this morning and wish you all a great rest of your day. Goodbye.