Synchrony Financial Stock

All right. So we'll get started. The first presentation of the day. Very pleased to have Brian Wenzel, CFO of Synchrony Financial here again. So welcome, Brian.

Terry, thank you. Glad to be with you today.

Yes. All right. We'll just jump right into it. Maybe we'll just start with the quarter. How are third quarter volume trends -- purchase volume trends materializing? And what are you seeing across income cohorts in key verticals?

Yes. If you go back to July, we talked about the first part of... So I'd be very consistent with the second quarter, which had about an 8% purchase volume growth. I'd sit back and say we're 2.5 months through the third quarter, and that's kind of held true. So we're in that high single-digit purchase volume growth.

Again, if you break it down a little bit, Terry, when you first look at the credit cohorts, right? What we saw earlier part of the year was strength in super prime, nonprime and the prime was in the middle. I think when you look at it now, you see super prime continuing to pull. We see some -- a little bit more strength in the prime and the nonprime is just a little bit behind, but nothing that's concerning whatsoever from that perspective, number one.

Number two, I think when you look at the presentation we did back in July, we showed not only consistency in growth, but really the consumers' willingness in the face of affordability in the face of higher gasoline prices, their willingness to do discretionary purchases. We've continued to see that in the third quarter. So we've not seen the consumer being in any way dissuade from those discretionary increases.

Now again, that being said, you still see pockets of bigger ticket discretionary pressure, right, most certainly in outdoor and lifestyle, in health and wellness, big ticket dental, cosmetics, you do see a little bit of that pressure, too. Furniture is one that, again, a lot of winners and losers in the furniture space.

But the good news is you saw the results this morning, but Labor Day fell a little bit later this year, some sales are being pushed into September. But all in all, the consumer from a spending behavior pattern and even a payment behavior pattern is holding very firm and very consistent with the trends we saw in the first part of the year.

Got it. That's helpful color. You published your monthly credit metrics this morning. Delinquencies have been largely stable. Net charge-offs continue to trend lower. How would you characterize the health of Synchrony's consumer today? And what gives you confidence on the credit outlook?

Yes. First of all, from a credit standpoint, again, you continue to see strength entering delinquency. Our entry rate into delinquency is better than 2018 and 2019, which is remarkable in this period given the affordability and things like that, but it has been incredibly consistent. I think early stage and late stage has been consistent. Five due is probably a little bit weaker.

But all in all, from a credit standpoint, we continue to see it as a strength. And part of it is where our credit aperture is set, right? Because as we came through what was really an overextension of credit for a number of years, we wanted to get our loss rate back inside of the 5.5% to 6%. Now one of the things that you sit back and say, well, we got to slightly less than 5.5% this year.

That's the anticipation, right? You have a Walmart portfolio that at the end of the day, we just finished our 12th month of originations. So you're just starting to see the losses kind of come through on that, number one. Number two, we opened the credit aperture, I'd say, third quarter last year, you'll begin to see those losses flow through. So if you were higher end of that range, you'd be bumping up against the 6%.

So I think we feel really good about credit. It's in a good space. Consumers are being incredibly responsible at this point in the cycle. So we feel good. Now again, we sit here in September, for the most part, 2026 is baked, right? So now you're sitting around saying, what's the setup for the first half of 2027, which obviously looks positive. Again, you'd expect it to tick up, right, with Walmart and the maturation of our credit actions, but really, really positive as we exit the third quarter.

Got it. Maybe just drilling into that a little bit more. You guys are operating below your long-term framework of 5.5% to 6% net charge-offs. You're about to lap your credit unwinding actions from last year. Just any key learnings or surprises from that process you can share? And then just looking forward, how are you thinking about underwriting and risk appetite? What do you need to see for you to kind of unwind even more?

Yes. Let me start where you ended. Some of the credit actions, we continue to take credit actions, they're more idiosyncratic. So where we see pockets of opportunity where the performance of a product, the channel vertical makes sense, we are continuing to widen that aperture. Again, it's not broad-based, but it's going to be idiosyncratic, which we normally do as we kind of go. From a credit standpoint, I think we feel really good about the changes that we made last year.

Consumers have stepped into whether it was credit line increases or new accounts that we generated and they're being incredibly responsible. So we feel good that the credit we're standing is in a good place. And again, I think when you look at the maturation and seasoning of the credit actions as well as Walmart coming through, it's going to put the consumer in a really good space. And you're going to look at this business, we'll originate over 20 million new accounts this year. So credit is available for those who need it and want it, and we're there to meet their needs.

Got it. On that point, your allowance for loan losses ratio declined by 50 basis points year-over-year in the second quarter. How should we think about reserve adequacy from here? Is the reserve rate closer to a kind of through-the-cycle level? Or is there still room to bring that down if credit continues to improve?

Yes. I go back to a mile mark. I'm not saying this is a goal where we should be. If you go back to CECL day 1, which lasted probably about a day, right, because the pandemic happened, it is around a 9.7% rate. So the first question is, when can you get back to that 9.7% rate? We're hovering around 10% today.

But that has QAs involved because at the end of the day, the macro environment, while we feel good about it, while it's been constructive for the most part for the U.S. consumer even in the face of affordability, there's still downside risk, right? So I think if you looked at the reserves without some of the QA and out some of the negative bias from a macro standpoint, I think you'd push lower.

I think when we talked about it back in July, I sat back and said, listen, you probably don't expect releases or anything significant now because I think we do have to see what's going to happen this week with the Fed in the latter part of this year and what they're going to do relative to inflation.

You're going to have to continue to figure out what the geopolitical consequences are with the war with Iran. So there are some variables that go here. But I think we feel good about this rate. I tend to believe over the medium term, there's probably, I would hope a little bit of more downward bias on the rate. But again, that's going to play out here with the macro economy.

Got it. That makes sense. Maybe we'll just turn to loan growth. You've guided to mid-single digits by year-end. You're currently tracking up 2.8% year-over-year based on today's report. What gives you confidence in that acceleration that you're guiding to? And what important milestones should investors be watching over the next few months?

Yes. There's a couple of things. First of all, we're excited about the new programs we have in place, right? When you think about a Walmart, which has just completed its 12th month really at the end of August, exciting opportunity, just a tremendous retailer, tremendous traffic that goes through that either digitally or through the retail footprint.

You look at our expanded relationship with Lowe's and the commercial portfolio there. There's a heavy push into the pro side of Lowe's. So our ability to offer not only that dual card, but also we had the private label card. Now you're picking up the accounts out here in the middle that maybe the prior issuer would not necessarily have approved. You go out into the furniture space, you look at Bob's that's come on a top 10 furniture retailer in the United States, very good program, much smaller, you think about RH, you think about Chico's, you think about J.Crew.

So we had a bunch of different wins. So I think on the side where we've added to the partnership base and expanded relationships, I think we feel good. We've relaunched our Pay Later product in the health and wellness space. I think that's going to get some momentum behind the health and wellness sales vertical, which is really one of our most attractive opportunities in the space given the extended leverage we have and scale we have in that business.

And then you look at the roster of what I would say, some of the larger partners out there. You think about an Amazon and a PayPal who are doing incredibly well. But then you think about some of the more value-oriented retailers, the Sam's Club, a TJX, we play in a lot of the right spaces. And I think if you start to see some of the bigger ticket discretionary come back in, so you look next spring into -- I'm looking ahead a little bit here, Terry, home specialty kind of come back into play.

But then as you head into holiday, you'd see some of that coming back into play. I think from a core standpoint, you're getting it. And we've seen the green shoots in that discretionary space. So I think when we look at the diversity of the verticals, combined with some of the newer relationships, I think it gives us -- it gives us some confidence in how we're going to deliver this year, but really how we continue to progress towards our long-term target of the upper single digits.

Got it. You touched on it a little bit, but maybe just drilling down to performance by sales platform, digital and diversified value, which is where Walmart's at. That's already up mid-single digits. Any room for that to continue to accelerate the rest of the year? And then as you look out to some of the other platforms like home and auto, what needs to happen before it starts to contribute more meaningfully?

Yes. Starting with -- I'll start with digital for a second. We have -- again, think about Amazon and PayPal, we have tremendous opportunity to generate penetration growth there. So our ability to have a value proposition that resonates. We relaunched the value proposition on the PayPal card not too long ago.

That's given us great momentum in that business. And Amazon just continues to grow, and we have a very strong relationship with them. So there, you're just going to -- you're going to continue to ride, I'd say, penetration increases and some modifications to the product offering, which is exciting. In the diversified value space, yes, Walmart will be a big driver there. But again, TJX, which may have had a little bit of struggles this last quarter, is doing incredibly well in the space, right?

It's providing a compelling offering to consumers. So we're going to continue to lean in there. Sam's Club the same way when you have the affordability issues you have. So I think there's good momentum there. You mentioned home and auto. I think you'll see that continue to accelerate. Here as we move into the back half of the year, it was kind of flattish in the front. I think that's going to turn positive here. Again, in the furniture space, there are some winners and people are willing to invest back.

They look at buying a new house, maybe it's not as affordable as they like. So they're willing to invest now in furniture and doing some things around the home. So good momentum there. Health and wellness, again, I talked about our Pay Later installment loan push that we've just kind of rolled out here. I think you'll see that comp positive here in the back half of the year.

The one that's probably the tougher one is lifestyle, to be honest with you. And again, there are things that are real positive in there. You think about DICK's Sporting Goods and American Eagle, DICK'S Sporting Goods, we did the value prop, very compelling value prop. American Eagle is strong there. You have, again, J.Crew and the like, Chico's. But really, the bigger part of that vertical is outdoor, which the whole industry is feeling pressure.

So again, if we can continue to stay close to dealers, I think when that pivots, we'll get momentum. So again, I look at 4 of the 5, again, should be -- people should be pleasantly surprised, which should help us drive into the back half of the year in that hopeful mid-single-digit end-of-period reserve timing and receivable guide.

Got it. That's helpful. And maybe just looking beyond 2026, you've previously discussed a long-term growth target of 7% to 10%, do you still view that as the right long-term framework? And what are the biggest building blocks required to return to that level of growth?

Yes. Terry, we haven't changed any of the long-term framework for us through the cycle. So again, that is our target. If you take a step back and say, okay, what do you need to do as a business in order to achieve that? It's really important when you're in the retail space to understand your customer. Our customer is a customer who is the most engaged, most valued customer of our partners, right?

It's not someone who shows up one time a year and says, okay, let me take out credit and doesn't purchase. There's someone who goes into a store goes online, continues to buy, they're not as price sensitive, generally speaking, because they're connected to the brand. When you have that type of customer, you're generally going to over-index, you'll gain penetration, right, number one, and you should see growth in penetration and conversion rates in those stores.

Number two, then you should be -- in this type of space, you probably should grow at 2x GDP. So if you take 2x GDP plus that penetration growth, you should be into what would be a high single-digit type comp. And I think the other thing that you have to take a step back and the unique thing about our business, we're 1 of 2 full spectrum lenders in the United States, right?

So we can go a little bit deeper into nonprime, but we can also go super prime. And then you look at the diversity that we have inside these sales platforms in the verticals. We just have a lot of different ways. So if you have a piece that may not be doing as well, it can be carried by some other part. And that diversification means an awful lot to the business.

So again, I think it's important for us to continue to focus on a multiproduct offering to have the product presented or multiple products presented to a customer to allow them to choose what products is right in the path for the consumer when they're buying goods or services. So we're excited about that.

We continue to invest there. We're going to continue to push multiproduct. We're going to continue to push multichannel. And again, I think the relationships we have, we're going to drive penetration and growth. So we're not -- we're very focused on trying to get back to that double digit over the long term given the portfolio we have.

Got it. So let's just touch on the Walmart partnership. How has that performed relative to your original expectations, both from a growth perspective, certainly it looks like growth is picking up, but also from a profitability and returns perspective.

Yes. I mean, Terry, we don't talk about things specifically about any one program, most certainly when it comes to profitability. But here's what I sit back and say, people ask me quite a bit about the differences between when we had it before and we had it now. When we had the program back in '18, the program was focused on maybe a lower revenue content.

How do I get kind of everyday low APRs, but no value proposition. I think you fast forward to today, I think it's an APR that's competitive with the market, number one. But number two and more importantly, is the value proposition that's on that card. If you're a Walmart+ holder, you're much more engaged with the brand. You're doing a whole heck of a lot more shopping there. It's not just groceries, it's all sorts of goods.

So you have a much more engaged customer. That much more engaged customer is more inclined to take our cards, right? And you can see that most certainly on a read-through to loyalty because if you can take out our card and you're a Walmart+ holder, you're getting 5% back when you add up the value proposition, very compelling in-store. I'd say the leadership of Walmart is highly engaged.

So I think when we look at a more competitive product, I think when we look at the expansion that they've done digitally and with Walmart+, the product is much more compelling than it was. And I think you combine that with an incredibly loyal base of customers that go into Walmart. It has -- it's a powerful growth engine.

And most certainly, I've said this consistently, it shouldn't be long before, hopefully, it's a top 10. And most certainly, it was a top 5 before. We can potentially get to there. So we're excited about the relationship. We're very pleased with the partnership and the way in which we're engaged with them and to present not only digitally, but as well as in the store.

Got it. Let's just touch on the competitive landscape for total brand and private label. How would you characterize the current environment? And what does the pipeline for new partnerships look like today? Anything to call out on the horizon with respect to renewals.

Yes. So let me break competition down into different pieces, right? So when you think about larger relationships, you traditionally see or you had traditionally seen Capital One, Citibank, to some degree, your company as well in the mix for. And you see branded people. You may see a U.S. bank or a Bank of America that has a corporate relationship.

I sit back and say, when you look at that landscape for a second, Capital One, I think, is very prescriptive with their strikes on and where they show up. So you don't see them all the time, but they're focused when they see a relationship that makes sense given their total portfolio. I think Citi is a little bit more of a transition. I think that they want to keep some of the larger relationships, I presume, when you think about a Macy's or Depot.

But some of the other ones, I'm not sure over the long term, what they've said is, are they going to be quite as competitive to keep some of those. So that's an opportunity for us. Your company is probably a little bit more aggressive as it tries to get scale and relevance in the space, given the relationships that you guys have. So again, we're focused on what you guys do.

So I think that's in the larger partner space. I think what you continue to see is more narrowly focused on Fintechs that you see, whether it's in health and wellness, home specialty, outdoor, et cetera, that are there that are focused into certain verticals. And most certainly, they have a different I don't want to say advantage, but they have differences in the regulatory framework they operate in because it's generally unregulated, number one.

And number two, what you see is they don't have the balance sheet in order to do it. So they have to rely upon the liquidity. And right now, there's a lot of liquidity, particularly in the private equity markets, et cetera. So we continue to watch them, but they're more focused on certain verticals. So it's really important for us to maintain, particularly in the fragmented side of the business, having a product that's really relevant and having good relationships and ease of doing business with them.

So again, I think it's different depending upon what part of the business you're talking about, but it's not one where we look at and say it's significantly moving one direction or another direction. To unpack your question a little bit further with regard to relationships, our bigger relationships are all between 2030 and 2035.

So I think we feel good about that. We have a handful of more moderate ones between now and 2030. But again, you try not to wait to the expiration date. You're trying to work on these relationships every day and try to get that extension every day. And when there's an opportunity to change the value proposition, change the way you drive marketing, it gives you an opportunity to extend those relationships without having to give up economics.

So that's what we're focused on to continue to build them. And listen, there'll be some opportunities probably in portfolios in that $500 million to $1 billion, $1.5 billion range over the next couple of years from competitors, and we look to compete for those.

Got it. So I appreciate you don't comment on specific partnerships. One of your big partners has been in merger headlines this year. Maybe just talk about change of control, how Synchrony would potentially handle any renegotiation or potential loss of a partner.

Yes. What's -- you're right. I don't talk about individual relationships. I'm not going to talk about the one large relationship you're specifically referring to. But listen, what we try to do is say, how do we make sure we are really relevant to that partner.

And I think in any situation where there could be a merger or an acquisition, if you're relevant to the partner and you provide a fair economic distribution to them, you're generally going to hopefully continue on with that relationship. And if it's a fair economic relationship, there's generally not an opportunity to have significant extraction.

In larger relationships, for all of our customers, there is some contemplation of change of control, both for us and for partners, and that's going to vary by partner. But again, they're all unique, but it's really important for us to maintain the focus of how do we maintain the best partnership and fair economics with our partners. And that puts you in the best place regardless of what happens with them.

Got it. Makes sense. We'll switch gears and let's just touch on RSA and loyalty costs. Both have been increasing as credit performance have improved and value propositions have become richer. How do you think about balancing partner economics, customer value props and Synchrony's target returns when you price new business?

Yes. So I hope for those in the room and online and listen to the webcast who own the stock, you own the stock for a couple of reasons. Number one, an incredibly attractive for the asset class return on assets. Number two, there's stability in that return on asset profile. And the key for us is the RSA. And we've been doing this for over 20 years. I've been with the company 28 years. We've been doing it well over 20 years where we align the interest with our partners.

So when losses go down, RSA goes up. When loyalty goes up, RSA goes down. So it balances up, but it provides that stability. So yes, under that model, we may give up upside, but we also protect the downside, but it aligns the interest. I think from an RSA standpoint, the partners really do understand, and I think we spent a lot of time with them about what a good value prop is and what a good value prop isn't.

Something that creates adverse incentives for a consumer to not engage with the card in the right way, we really spend time with the partner to go through that and ones in which we're trying to incent the behavior and what they want from the card given it's the most loyal customer is a big focus. I think one thing over time, Terry, that we have a track record for is we're very disciplined when it comes to pricing and how we think about it, and we're incredibly transparent. I think you're not going to wake up someday and half our earnings go away because we share that P&L with the card, here's the profit pool.

And we can have a discussion about what's -- depending upon where the levels are set with regard to sharing, how that profit pool is distributed. I think when you've done that for a long period of time, you have the trust of a partner to sit back and say, okay, I understand it.

Your interests are aligned much -- it's much more easy to get that alignment of interest. I think when we approach new relationships, I think we go through that philosophy with folks and go through a long education process because it's really critical to the model that we have is we want to have aligned interest. So again, we're very disciplined when it comes to pricing, but a key element is going to be that retailer sharing arrangements and transparency.

Got it. That's helpful. So let's touch on your fiscal year guide. You recently revised your EPS guide, provided more color on just the cadence of expenses, expecting OpEx to be similar in second half to first half. Can you touch upon some of the tech investments you're excited for? And where should we expect to see the benefits, whether it's customer acquisition or something else?

Yes. So technology for us, and we've scaled up our technology over the last 5 years. If you think about the big thing, we're probably 20-plus minutes into this. We haven't talked about AI, but we've spent a lot of time on AI and a lot of money and investment there. And that's really kind of spread across different things.

There's foundational elements that you have to build as you get the workforce to engage with that technology. Number one. But then you look at where we are deploying our AI investments, right? So there are some that are more productivity oriented. So we're working on deploying agents into a dispute channel.

So if you just a credit card transaction, it's really complicated, labor-intensive. If you've ever done it, every credit card I would tell you it takes 30 to 60 days to resolve a dispute because it's cumbersome. I think AI is going to speed that up and will certainly help us to drive productivity there.

But then you go on to the other side of the equation and say, okay, how do I use it to drive growth and engagement? And 2 examples there is one is on our merchant onboarding process. If I can get a merchant up faster and get them engaged quicker, they tend to pass us more applications, particularly in the fragmented business, number one. Number two, it's our investment around Agentic commerce and how do you get into that discoverability phase and relevance as consumer behavior will shift over time into Agentic commerce.

So AI is a big investment. We're in probably your 2- or 3-year journey on cloud. We're going to move a lot of applications there, which ultimately will have a cost benefit as I think about in '28, but really drive capacity and the ability to do things faster. So that's one. I think when you look about the investment for multiproduct offering, so we can pop an offer to you that has an installment loan, a dual card loan or dual card offering at the same time and have offer persistence, that digital capabilities that we have there, we launched the marketplace.

So it's all around digital assets for us as we continue to do that as we do that. And we're also not exciting, but on the back side of this business, we're redoing the technology stack inside our operations to make it easier for the consumers to -- and our associates to kind of get through that process that they need to contact us. So we'll continue to focus there for the medium and long term. We think things that -- particularly on the digital side at Agentic commerce will differentiate ourselves.

Got it. You previously mentioned that Synchrony could potentially see double-digit EPS growth in '27 and beyond. Can you maybe touch on your confidence in achieving that? And what does the path to improved efficiency ratios look like?

Yes. The way our framework, our long-term framework works is our core earnings power should match our receivable growth. Now we talked quite a bit about this year. Most certainly, when you get into -- in the lending business, step function changes in growth rate, that creates either headwinds or tailwinds. We were negative 2% last year. We're going mid-single digits. That step-up creates effectively with a flattish EPS.

If you look at the outlook versus last year, flattish EPS look as you kind of get behind that. Once you're kind of in a relative range, even if you accelerate a point or 2, you don't really feel that. So again, I think what you're going to be -- hopefully see is that earnings power of the core business matching receivables. So if you say, okay, I want to be high singles or mid-singles, take this year, if you can get to mid-singles core earnings growth.

And then the strength of this business, Terry, is just we generate because of that high ROA and the excess capital we have, we just have a lot of capital to deploy. So I can move that mid-single-digit EPS or high single-digit EPS to a very reasonable share repurchase program, assuming I don't have opportunities to grow the organic side of the business to double digits.

So I think, again, what we have to do is focus on getting that core earnings back. Expenses, we've significantly increased technology. I think now what we're trying to focus on is, okay, what do we need to stop doing in order to reallocate dollars versus continuing to just add on to dollars. So this year, we'll end up with headcount that's probably down year-over-year. Part of that is just driving productivity and AI into it, and we're going to continue to drive that. So we should see better operating leverage, I think, as you move into '27 and beyond, which just helps you get back to that core EPS growing in line with receivables.

Got it. That's helpful. Since you mentioned it, we just maybe just touch on excess capital. You recently issued $500 million of press your CET1 ratio is above 13%. How should we think about the balance between supporting loan growth and just capacity for capital return?

Yes. To unpack that a little bit, Terry, the preferred stock offering, that was the very last piece of having a fully developed capital stack for us. So when I think about maximizing the Tier 1, I take away that as any form of binding strain, not that it was, but that now we're just back to CET1 and that focus.

Again, this business generates -- you sit back and say you have a high 2s, call it, a 2.7% or so ROA, you just generate a lot of capital. Our first preference is to have RWA growth, right? That is solely focused. That's what we prefer to do because the return on investment and that return on capital is the best alternative. We'll then have a reasonable dividend. It's going to be, I think, in line on a yield basis and a percent of net income.

And then we get back into inorganic versus share repurchase. Inorganic, we're very disciplined. I don't think you'll see us do large transactions. A lot of times, they don't end up working or take too long in order to pay back. We tend to focus on small bolt-on things when you think about Allegro, when you think about Ally, when you think about what we do with Pets Best, that's probably worth better use of capital for us if we were to go down that path. And in an asset price, to be honest with you, it is probably not in line with reality of the earnings power of available assets.

So again, that brings you back to share repurchases. So you combine the earnings power of the business with excess capital we have today. We're hopeful that when Basel III comes out at the end of the year, there is some incremental relief that's there. And we're going to try to move the CET1 ratio, which again was 13 plus at the end of 2Q, down closer to our target externally of 11%.

Got it. Maybe we'll just touch on NIM. NIM has benefited from the PPPCs, while lower late fees have been a headwind -- as you look ahead, what do you see as the key drivers of NIM in the second half and beyond? And then just longer term, it is 16% NIM roughly the right target? And what needs to happen for you to get back there?

Yes. So we haven't changed our long-term framework, which had a 16%. I think it's important to kind of go back and unpack that framework for 1 second. That framework had essentially a Fed funds rate around 2.5%, right? It had a loss rate, call it, 5.75% at the midpoint of the range, and it carried a certain revolve rate with that. So when you look about where we are today, I have a loss rate that's lower, right? I'm not -- I don't have the same revolve rate, which is a headwind to NIM to the target.

I have an elevated funding cost, which more impacts you on some of your fixed rate loans, which is the promotional financing program. So while we have some mechanism to offset price for our merchant discount, it doesn't fully do that. So you have some compression there. Those are headwinds to that target. What's kept us closer to the target has been the PPPCs.

So I think as you say, okay, how does it gravitate up over the long term, you're going to sit back and say, when does that funding cost begin to come down 2.5 to 3. I'm not going to be like the Federal Reserve and give a point, call it 2.5 to 3 relieve some of that pressure. How do I get more of the revolve rate that's associated with, call it, a 5.75-ish type loss rate, that's going to help give you momentum and then you have the PPPCs that sit on top of that.

So there should be strong momentum. As you think about the back half of this year, one of the things we said is you should -- coming out of 2Q, you should see it sequentially move up here in the third and fourth quarter. That's partially because you're not necessarily comping some of the negative when it comes to late fees.

The interest rate environment, again, assuming the Fed doesn't move this week or the back half of the year is a little bit more favorable, then it just comes down to liquidity, which is going to go a little bit lower. So again, you should see a push up in the back half of the year, which I think most people have set that expectation.

Okay. Got it. Just a few minutes left. I'll just open it up to the floor for any questions, if there are any.

Everyone is excited about the Giants win last night.

Yes. All right. So just 2 minutes left. Maybe just to close out the discussion. It sounds like there's a lot to be excited for moving forward. As you look out over the next 3 to 5 years, what do you think investors are underappreciating most about the Synchrony story today?

Yes. I think people think about this business and they think about the downsides with the consumer and how the consumer is going to come through credit and they're afraid of that. I think one thing we've demonstrated whether you go back to '16 to '17 or most certainly in the period post 2023, we've been able to control credit. We've been able to do it.

We've been -- we've done this for 90-plus years. The technology and the investments we've made, we call it Prism in our advanced underwriting. I would believe, and I'm sure others would say for their own companies is really a differentiator for us. So I think people are probably more concerned that, hey, listen, you're nonprime and you're exposed to the consumer more. We're less nonprime than Capital One.

We're most certainly significantly less nonprime than bread. So I think we can weather that storm quite a bit. I think the diversity of the business and the ability for us to generate a high ROA and the amount of capital that we have, and again, we hope positive effects of Basel III rules when they come out at the end of the year, is going to create a tailwind.

So I think when you think about that return, when you think about the ability to control credit as well as we have, when you think about the partnerships that we have, the multiproduct offering, I just think there's a lot of tailwinds on to this business. And I'd say the last thing, Terry, we're spending a lot of time trying to be a leader here as the landscape is now shifting most certainly as it comes to AI and Agentic commerce.

You're seeing a lot happening in discoverability. We're on the front lines of that, whether it's with OpenAI and Anthropic, et cetera. We are trying to push that and be a leader in that space. So I think that gives us momentum. So it's a high return control of credit, just a tremendous set of partners and diversity in the platforms.

Okay. Great. With that, I think we're out of time. We'll just end it there. Thank you.

Great. Thanks, Terry.

Good morning, and welcome to the Synchrony Financial Second Quarter 2026 Earnings Conference Call. Please refer to the company's Investor Relations website for access to the earnings materials. Please be advised that today's conference is being recorded. [Operator Instructions]

I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin.

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 could 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.

Thanks, Kathryn, and good morning, everyone. Synchrony's second quarter performance reflected strong momentum across our core business drivers. New accounts continued to grow and average active accounts inflected to growth. Customer engagement continued to be strong, leading to higher spend per account across each of our 5 sales platforms and 8% growth in purchase volume which reached an all-time high of almost $50 billion in the quarter. Growth was broad-based across all 5 of our sales platforms, led by diversified value. The broad utility and strong value offered by the partners in this vertical continue to resonate deeply with customers, including our ongoing partner expansion and in combination with higher gas sales drove a 12% increase in purchase volume compared to last year.

Spend across our digital platform grew 9%, primarily reflecting strong performance across partners with broad diversified offerings and highly engaged customers. Purchase volume in both our home and auto and lifestyle platforms increased by 6% compared to last year. Home & Auto growth was driven by the performance of new programs. And in our lifestyle platform, higher spend was primarily driven by the performance of new programs and strength in the other apparel and goods category as well as in the luxury category.

Meanwhile, Health & Wellness purchase volume grew 2%, primarily reflecting growth in Pet. Synchrony's co-branded cards, including our consumer and commercial Dual Cards accounted for 52% of our total purchase volume in the second quarter and increased 23% versus last year. This trend was driven by the combination of new programs and product upgrades as well as higher broad-based spend and enhanced utility across our card programs.

Auto partner discretionary spend on our consumer co-branded products grew in line with nondiscretionary, both up double digits despite elevated steel prices in the second quarter. Particular strength came from categories like entertainment, retail and electronics. And as you can see in the chart at the bottom of Slide 3, the proportion of discretionary spend was consistent or higher across customer cohorts throughout the quarter even as steel prices rose significantly. Overall, we believe these trends reflect resilient consumer behavior, likely supported by some benefit from increased tax refunds and lower tax withholdings and strong demand for the value and utility our products deliver.

Synchrony is focused on providing the purchasing power customers need for each of life's moments. That kind of financial flexibility depends on dynamic underwriting capabilities, a diversified product suite and the industry expertise to reach and serve a broad range of both local and national businesses and providers. To that end, we added or renewed more than 15 partners during the second quarter, ranging from Suzuki Motor to Amerivet and Roto-Rooter.

Our renewal with Suzuki Motor extends our 17-year partnership continuing to deliver secured installment financing solutions through their more than 700 dealers nationwide. Meanwhile, our renewed relationship with Amerivet which supports the network of over 200 locally led veterinary clinics across 37 states positions CareCredit as their exclusive financing partner through a seamless single application waterfall solution. Together, CareCredit and Amerivet are helping more pet parents access the care they need, ultimately enabling better outcomes and healthier pets.

In Synchrony's multiyear agreement with Roto-Rooter, plumbing and water cleanup will enable us to expand how customers pay for central home repairs and ongoing home care. We will deliver our multiproduct capabilities with revolving installment financing options available side-by-side to enhance flexibility and choice as customers manage these often unplanned expenses.

Synchrony's partnerships typically spend decades because we continue to evolve together as the consumer landscape changes and our customers' everyday needs and expectations shift. We recently refreshed our credit card program with DICK'S Sporting Goods, building on our long-standing partnership of over 20 years. Our products now feature an everyday 10% back in scorecard rewards and qualifying DICK's purchases to drive greater value, financing flexibility and convenience for consumers.

And in April, we completed our acquisition of the MyLowe's Pro Rewards American Express Card portfolio and became the issuer, delivering a cohesive customer experience with simpler applications, digital servicing, and more utility and value. The MyLowe's Pro Rewards Card complements the existing MyLowe's Pro Rewards private label credit card by extending pro purchasing power and rewards earning potential beyond Lowe's.

[indiscernible], we are empowering small and medium-sized contractors to keep their businesses running smoothly, unlocking greater value and loyalty for hobby purchases, are enabling pet families to access to care their pets need. Synchrony is driving more meaningful customer and partner outcomes through the moments that matter.

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

Thanks, Brian, and good morning, everyone. Synchrony's second quarter financial performance was highlighted by a positive inflection in average active account growth, all-time high purchase volume and continued acceleration in ending loan receivable growth, all while maintaining our credit discipline and delivering a strong credit performance. As a result, we generated net earnings of $885 million or $2.59 per diluted share, a return on average asset of 2.9%, a return on tangible common equity of 25.2% and an 8% increase in tangible book value per share.

Turning to our performance in detail. Purchase volume grew 8% versus last year and reached almost $50 billion. Ending loan receivables grew 2% to $102 billion, reflecting the impact of higher purchase volume, partially offset by the continued effects of elevated payment rates. The payment rate of 17% was approximately 70 basis points higher than last year and approximately 170 basis points above the pre-pandemic second quarter average, primarily reflecting the impacts of new portfolio seasoning, shifts in portfolio and product mix and our previous credit actions.

Net interest income increased 2% to $4.6 billion, primarily driven by the combination of higher interest and fees and lower interest expense. Interest and fees increased 1%, primarily driven by the growth in average loan receivables. Interest expense decreased 8%, primarily due to lower benchmark rates.

Our second quarter net interest margin increased 30 basis points versus last year to 15.08% reflecting 2 key drivers: one, a 39 basis point decline in our total interest-bearing liabilities cost, which reflected the impact of lower benchmark rates and contributed approximately 29 basis points to our net interest margin; and two, a 131 basis point increase in the mix of loan receivables as a percent of interest-earning assets versus last year, which contributed approximately 23 basis points to our net interest margin.

These improvements were partially offset by 2 factors: one, a 68 basis point reduction in our liquidity portfolio yield, which reduced our net interest margin by 13 basis points. The decline was generally driven by lower benchmark rates; and two, an 11 basis point decrease in our loan receivables yield, which was primarily driven by lower benchmark rates and lower [indiscernible] late fees, partially offset by the continued impact of our PPPCs. This reduced our net interest margin by approximately 9 basis points.

On a sequential basis, net interest margin decreased 42 basis points primarily due to 2 drivers: one, the decline in our interest and fee yield which reduced our net interest margin by approximately 31 basis points. This was primarily due to the lower assessed late fees as delinquency reaches seasonal low and as the efficacy of our credit actions and ongoing credit discipline support our fewer defaulting accounts; and two, the decline in the mix of loan receivables as a percent of interest-earning assets, which reduced our net interest margin by approximately 16 basis points. This was generally due to seasonal prefunding ahead of our expected loan acceleration in the back half of the year.

Turning to the remainder of our P&L. RSAs of $1 billion or 4% of average loan receivables in the second quarter and increased $35 million versus the prior year, primarily reflecting program performance and higher purchase volume. Provision for credit losses increased $55 million to $1.2 billion primarily driven by a reserve release of $163 million versus $265 million release in the prior year, partially offset by a $47 million decrease in net charge-offs.

Other income increased $19 million to $137 million, primarily reflecting the impact of a $30 million gain related to the exchange of our Visa B-2 Shares, partially offset by higher loyalty costs. Other expense increased 7% to $1.3 billion, primarily driven by higher operational losses and technology investments. The second quarter efficiency ratio was 35.8%, approximately 170 basis points higher than last year. This resulted from higher overall expenses and the impact of higher RSA.

Turning to our portfolio credit trends on Slide 8. Both our 30-plus and 90-plus delinquency rates at the end of the second quarter were generally in line with the prior year. Our net charge-off rate was 5.43%, reflecting a decrease of 27 basis points from 5.7% in the prior year. And our allowance for credit losses as a percent of loan receivables was 10.9%, a decrease of approximately 33 basis points from 10.42% in the first quarter and a decrease of approximately 50 basis points from 10.59% last year.

Slide 9 shows Synchrony's funding, capital and liquidity ratios, which remain a core strength of our business. We grew our direct deposits by $2.9 billion versus last year and reduced broker deposits by $2.4 billion. At quarter end, deposits represented 83% of our total funding with secured debt representing 9% and unsecured debt representing 8%. Total liquid assets decreased 9% to $19.8 billion and represented 16.2% of total assets, 186 basis points lower than last year.

Turning to capital. During the second quarter, we issued $500 million of preferred stock with a final dividend of 7.25%, a full 100 basis points lower than our previous resettable preferred deal that was priced in February 2024. With this issuance, our capital stack is now fully developed. Synchrony remains focused on returning capital to shareholders and making further progress towards our CET1 target of 11%.

At the end of the second quarter, we changed the presentation of our internal use capitalized software costs on our balance sheet and reclassify prior periods to conform to this presentation. This change is reflecting our capital ratios for both the current and prior year. Accordingly, Synchrony ended the quarter with a CET1 ratio of 13.2%, reflecting 100 basis point reduction versus last year, a Tier 1 capital ratio of 14.9%, reflecting a 50 basis point reduction, a total capital ratio of 16.9%, reflecting a 60 basis point reduction and a Tier 1 capital plus reserves ratio of 24.7%, reflecting a 100 basis point reduction versus last year.

Synchrony returned $950 million to shareholders during the second quarter, which included $850 million in share repurchases and $100 million in common stock dividends. At quarter end, we had approximately $5.7 billion remaining of our share repurchase authorization.

Finally, I'd like to discuss our outlook on Slide 10. We continue to expect average active account acceleration and strong growth in purchase volume in the back half of this year while maintaining our credit discipline. This growth should more than offset the impact of elevated payment rate to deliver mid-single-digit growth in ending loan receivables by year-end.

Net interest income is expected to grow in 2026 as a result of higher average loan receivables, the building impact of PPPCs and lower funding liabilities compared to last year. These trends will be partially offset by the impacts of lower late fee incidents and new account growth acceleration.

We continue to expect net charge-offs to be less than 5.5% for the full year with delinquency and losses following seasonality. As strong program performance contributes to higher net interest income and lower losses compared to last year, RSA should increase, but remain within our long-term target range of 4% to 4.5% of average receivables.

Lastly, we expect other expense dollars in the second half of this year to be relatively consistent with the first half as we maintain our focus on driving operating leverage while also investing in Synchrony's capabilities and future growth opportunities. Given the performance of our business so far this year and the expectations for the remainder of 2026, we now expect to deliver between $9.25 and $9.50 in diluted earnings per share.

In summary, we're confident in our path forward as we execute on our strategic imperatives. We remain focused on enhancing our resilient foundation and generating strong profitability to drive intrinsic value over both the short and long term while also returning significant capital to shareholders.

With that, I'll turn the call back to Brian.

Thanks, Brian. Before I turn the call over to Q&A, I'd like to leave you with 3 key takeaways from today's discussion. First, demand remains strong. Synchrony delivers everyday value and utility for millions of consumers and compelling outcomes for hundreds of thousands of small and midsized businesses and providers across the country.

Second, Synchrony continues to raise the bar. Through consistent investment in our innovation and evolution, we are driving outcomes that position Synchrony at the heart of what matters to customers and partners alike.

And third, the power of our differentiated business model is evident through our financial performance. Synchrony is growing while maintaining our credit discipline, generating strong returns and building significant long-term value for our stakeholders.

With that, I'll turn the call back to Kathryn to open the Q&A.

That concludes our prepared remarks. We will now begin the Q&A session. So that we can accommodate as many of you as possible, I'd like to ask the participants to please limit yourself to 1 primary and 1 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 Instructions] Our first question comes from Ryan Nash with Goldman Sachs.

So Brian, if I look at the EPS in the second half relative to Street expectations, it implies some downsides. I know that there's color on some of the moving pieces of the guidance on Slide 10. But maybe just walk us through some of the things that are embedded for the second half in NII and credit? And where do you think expectations may be all from here? And I have a follow-up.

Yes. Thanks for the question, Ryan. I think when you look externally and what people have modeled, right, when you think about the reserve coverage ratio, I think the ending point how they got there was a little bit more peanut buttered across quarters, right? So when you look at the first half for us, the rate came down even though we had growth to offset the provisions against that growth. I think as you start thinking about the back half of the year, the reserve rate probably doesn't really moderate from here. Over the medium term, it probably can, but you're going to see more growth-driven provisions in the back half.

So I think you get to the ending point, it's just how people model the quarter, is #1. I think when you think about the EPS guide, right, net interest margin was really at the lowest point here in the second quarter, that's going to begin to build. And again, what we try to say to folks is, number one, you -- as much as you have net charge-off declines, you're going to have a significant impact relative to late fees. And when you look at and walking from the first quarter to second quarter, you had 18 basis points [indiscernible] related to late fees, put aside the AEA piece and the ALR piece.

So I think as people try to model this, I think they have to take it to better account. Number one, the effects of late fees are kind of coming from the better charge-off position; and two, kind of have to get the reserve trends probably right over the quarters as it kind of builds with growth.

The last thing I'd leave you with, and we try to be clear with this is put aside the operational losses, operating expenses are down or down year-over-year versus our expectations. And again, that's something we're dealing with and dealt with in the first half of the year. But that's really going to be consistent. I think people still model a little bit higher -- I'm sorry, a little bit lower OpEx because they're using efficiency ratio. Again, we're trying to help you with dollars. So those are the bigger pieces, I think, Ryan, as you think about the back half, it's just how you got there quarter-by-quarter versus the full year number.

Got you. I appreciate the color. And Brian, you had flagged that the margin could be lower in the quarter, and that came through. And I know that you just noted the margin begin to build from here. But maybe just talk about some of the drivers and the key assumptions embedded in that? And do these elevated payment rates, are they going to impede your ability to expand the margin further over time?

Yes. Let me start with where you ended, Ryan. I know there's probably a lot of questions with regard to the 73 basis point increase from the first quarter to the second quarter in the [indiscernible], 85% of that or 62 basis points were really driven by 2 factors. Number one, new portfolios, we're kind of [indiscernible] half that [indiscernible] which related to not only Walmart, but yet Bobs, you got some other portfolios that kind of come through. So the amalgamation of a bunch of new programs drove a significant increase in the payment rate quarter-on-quarter.

And then second, promo mix contributed a factor as well that's in there. So those 2 combined were 85% of the mix. So [indiscernible] was relatively stable quarter-on-quarter as you think about it. As you think about the net interest margin as you move to the back half of the year, you should see as a framework to think about it, you are going to get a benefit on ALR to step out. And that builds between the third quarter and the fourth quarter. Late fees probably have [indiscernible] what I'd say is a trough to some degree. So you won't see as much impact really as you kind of move into the back half of the year. So that headwind that's experienced, be 19 basis points this quarter, that kind of abates and swings quarter-on-quarter.

So those are probably some of the bigger pieces. And again, that late fee component is overwhelming the benefit that we got from the PPPCs. So I think as you kind of try to model through the late fee impact and the new account impact on NIM, again, that stems a little bit in the back half of the year.

We will move next with Sanjay Sakhrani with KBW.

Just building on what Ryan was talking to you about, Brian Wenzel. As I think about the RSAs, those also came in sort of at the low end of the range that you guys are targeting. As we think about the second half of the year, do those then elevate? I mean I'm just trying to think about where we land in that wide range that you have for the RSAs?

Thank you for the question. So RSAs, there's a number of things that factor through there. I think when you take a step back and look at the relative percent relative to PBR minus net charge-offs, exclusive of RSAs, it's generally in line with prior quarter, so it's not significantly different.

The one thing I'd say, though, Sanjay, in this particular quarter, as well as some effects in the first quarter, the way in which operational losses sometimes flow through and they go directly to RSA versus being an offset, it's a charge back through operational losses. So when I think about that piece of it for a second, good bulk, I want to say, 70-plus percent of the operational losses are covered by RSA and in particular, over $20 million this quarter was covered directly through the RSA and not through that offset in the operational losses line.

So as I take a step back, again, some of the idiosyncratic things that we saw in operational losses and some of the things may be caused by [indiscernible] modifications that had an unintended impact that hopefully is behind us. Now again, we're coming off of historic lows relative to operational losses in 2025. So while we expect it to elevate, we think that the acceleration here should flatten out in the back half of the year. But we'll certainly mix. And I'd say that item drove a little bit of the RSA movement, and you'll see RSAs generally move up a little bit from here, but stay within the range.

Okay. And then maybe if we pull up a little bit more just thinking about the business model because a lot has changed over the course of the late fees and then Walmart. And obviously, you guys have moved the mix to, I think, a higher credit quality consumer. Maybe this is a question for Brian Doubles. When we think about the ROA of the business and the portfolio, does that still -- is that still intact at like 2.5% or so? I'm just trying to think about the overall implications of all the different moves and what it means for the ROA.

Yes. I'll start on that, Sanjay. I think to your point, a lot has changed in the last 5 years. I think we've brought in new partners. Obviously, we've renewed a number of our top 10 partners. But the one thing that the lens we look at all of those things through is the long-term guidance of 2.5% plus ROA. And so I think when you do all the puts and takes, everything we brought on, even smaller programs that we've exited because they were below our return threshold, they all kind of steer you back to that same that same range in terms of return.

Our next question comes from Terry Ma with Barclays.

So you called out some of the impact on the overall consolidated yield for the book. But if I look at kind of platform results, it looks like digital and diversified value showed the most market decline in yields year-over-year. So any color on kind of what's going on with those 2 segments? Is it just more kind of promo usage? Or is it more late fees there? Like any color around that, please?

Yes. Thanks for the question, Terry. When you think about those 2 particular platforms, obviously, diversified value has seen really strong growth. That's across all the partners when you think about some of the value orientation you have there, whether it's a TJX or Sam's. But clearly, the deal gets impacted when you begin to introduce a new program like the Walmart OnePay program that's in there that has an impact in there. So there's nothing fundamental I would say, in diversified value.

As you slide up to digital, again, we have a couple of just amazing partners that are up there when you think about an Amazon and PayPal and the refresh value propositions, which has drawn significant growth in purchase volume and asset growth there, that has an impact. Again, when you change the trajectory of the company, we were down last year in assets. Now we're plus 2%. When you do that, there are implications, and I tried to outline this back in January throughout the P&L, including in the net interest margin as you have these new accounts. That begins to subside as you have a more consistent growth rate stepping out of 2026. So again, it's really a factor of the growth, whether it be a new partner or really a value process resonating with consumers.

Got it. That's helpful. And then maybe just talking about Home & Auto. It looks like Lowe's was in there this quarter. Maybe just talk about the underlying trends that you're seeing ex Lowe's. I think you called out some green shoots last quarter.

Yes. We're actually encouraged by Home & Auto. You think about that business. there were green shoots that we saw in the quarter. Furniture was up nicely in the quarter. Home Specialty was up mid-single digits, which had been more of a challenge for us as consumers wanted to maybe hold back on larger ticket type purchases. So real bright spots that are in there that we feel good about. And obviously, we're excited about expanding the relationship with Lowe's and bringing that commercial co-branded portfolio in that does have a very different type of payment and volume turned to it. But again, we're excited about expanding that relationship.

And what we haven't really talked about is when you add that co-brand relationship on top of what was our private label relationship, all the accounts that maybe imply for co-brand that would get nothing, now will get offered atleast a private label card. So hopefully, it should expand growth as we move forward. So again, we're encouraged by some of the trends that are in there, teams doing a very, very nice job, particularly in the home specialty and furniture area, which, again, goes back to the consumers being a little bit more resilient and we'll like to spend on certain discretionary items.

We will move next with Darrin Peller with Wolfe Research.

With much of the recent increase in expense from tech investments and just some early operational losses as your large [indiscernible] program is built, can you just give us some color on your expectation for similar second half expense dollars versus first half?

Darrin, as we think about it, you -- our expectation is that operational losses here again, flatten out to trend downward as you think about it. The tech investment will kind of continue at the same pace, but I think we're showing discipline relative to employee cost and other things. When you think about the back half generally has more volume associated than the first half [indiscernible] when you think about the fourth quarter. So when you think about volume-oriented expenses, whether it's active accounts going, increasing or whether it's some of the fees associated with the networks that are volume oriented, you see a little bit of more of those dollars coming through.

But again, dollars in totality in the back half will approximate the first half, which brings you back into, if you pull out operational losses, our expense that we're laying out for you on a dollar basis will align directly with the asset growth. So we feel good about that as we move forward. So, again, I think we're showing a lot of discipline around expenses, but making sure that we invest or certainly in technology so that we can ensure that we can hit medium- and longer-term goals for growth of the company driving intrinsic value.

Okay. Just for a quick follow-up. The chart we saw on Slide 3, we found that really helpful. It just shows at least among your co-branded cards, there appears to be pretty little discretionary spend impact despite higher gas prices, I suppose. I mean, is this the case from what you're seeing? Is it more the seasoning of the new program? Is there anything else that you can just touch on in terms of the drivers?

Yes. When you look at the consumer, again, people are expecting higher gasoline prices, which have abated recently, but hit a peak here in May as well as the accelerated inflation would cause that consumer to pull back and put a greater burden. While the consumers don't like it, and they we'll certainly are showing that. And what they say about consumer confidence, it hasn't really reflected in the action. And when you look at that trend, it was solid to accelerating throughout the quarter. So I think it goes back to having a right product set and a multiproduct set with value props that resonate. But again, we saw green shoots across the portfolio when it comes to discretionary.

If you go out to Health & Wellness, dental had been a little bit of a headwind when people think about some of the discretionary procedures there. That turned positive during the quarter. Cosmetics continues to be a little bit under pressure in that segment. But as you go down to our Lifestyle segment, we saw strength in luxury and in other areas, specialty retailer down there, again, a little bit of a headwind when it comes to the outdoor side. And again, I already hit on Home & Auto where we saw furniture and home specialty pulling. The value segment has a lot of just tremendous opportunities for consumers to spend.

So again, the consumer is showing tremendous discipline. And then you combine that, Darrin, with the charge-off perspective where entry rates are still as strong as or better than 2019. Late stage is stable to improving and a little bit of pressure on [indiscernible], but really solid credit trend. So the consumers are being very disciplined with regard to how they manage their own balance sheet, but they're willing to step in and spend in certain areas.

Our next question comes from Rick Shane with JPMorgan.

I'd like to talk about something a little bit more strategic in terms of your AI strategy and investment. We're sort of now through this period of rapid deployment and probably not an enormous amount of focus on token costs, et cetera. I'm curious, as you look at the opportunity now, how you are managing [indiscernible] expense? And more importantly, as you move forward, how you implement strategies to balance or give at a managerial level, the decision of tokens versus as employees?

Yes, Rick, I'll start on this one. I think, look, this is obviously a huge opportunity for us as it is with every company. We are investing. I think it's going to transform how we work. It's going to transform every function, every platform in the business. It's a big opportunity to increase capacity, deliver productivity. We're seeing nice efficiency gains already. Speed to market is improving. So I'm really bullish on it. I'm very excited about it. 90% of our exempt employees are actively using the tools. I think that's fantastic. So we've done this in a way where we're just -- we're in the stage of just encouraging as much usage as possible.

Now with that said, obviously, we're going to be disciplined around the costs associated with that. But if we've got a good use case that drives productivity, drive speed to market, better answer for our partners and our customers, we're going to invest there. We've got great use cases across our tech teams, contact centers, collections, fraud, credit, it really is comprehensive. And those -- I don't even think of those as costs. Those are investments. We're going to make sure that we're getting a good return on those costs. But this is an area where we're going to invest.

I don't know, Brian, if you want to add anything to that?

Brian, [indiscernible]. Go ahead, Brian, sorry.

That's okay, Rick. Just to unpack that a little bit more. When you ask about the token cost, the token costs are not material to us, and it's not something that we spend a lot of money trying to control at this point. What I'd say is we have a framework around looking at the cost of AI, whether it's the license cost, the token or credits and how those kind of come in and how they're consumed. We have a whole FinOps team that has been part of how we manage the cloud costs that are managing this.

So right now, we're trying to get to adoption and figure out the right levels. I think where we think about it is probably longer term, Rick. You have a lot of these companies are investing billions of dollars in technology and how that cost is going to get -- if it's going to get passed through back through all the end users here, whether it's the license fees or token cost, that's what we're also trying to consider and work with people to understand the trajectory. But again, it's not something that's driving our results today. And we'll certainly -- I want to be really clear, it's not driving the technology cost here. This is really more investments in some of the core things like Pay Later and other initiatives that we have in technology and product.

Understood. That's actually really helpful. I'm just curious, at some point do you think we get to a world where we look at token costs the same way we look at T&E where their budgets and it's constrained. It feels right now like it's sort of, to your point, encourage 90% of your employees to use it as aggressively as possible. And I think that's very much the norm. But I do wonder at some point if that transforms to the way we look at other forms of expense and ROIC on that.

Yes. I think you're going to look at it differently inside the company. I think if you go into our technology group, there's most certainly going to be a different way in which we look at the engineers and how they deploy the tools and token utilization there, then you'd say someone that sits in a support function like finance or human resources. So there will be a different model. I think we've developed through RSAs, an activity-based costing system. I think we have to think about how we look at that in certain processes. So you may say, hey, I'm going to use AI to run a process today. But you understand what that cost is, right, when you think about the [indiscernible] and any other direct dollars, we're going to have to figure out do you do AI, what's that token consumption and what's the cost of that process moving forward. That's something that's going to develop. I'd say very early innings there for everyone. So -- but that is something we're going to have to build a framework around as we step out and it becomes more utilized throughout the company.

Rick, I think it becomes just how you look at return on investment, just like how we look at it today. We've got a very rigorous process where you're putting together a budget for a new product, and that includes all the expenses, people, maybe consultants, T&E, that kind of stuff. This will be one of those costs that goes into the overall investment. And we're very disciplined around the return that we expect to get on that investment and measuring it going forward.

We will move next to Rob Wildhack with Autonomous Research.

I wanted to go back to Slide 3 and zoom in on June a little bit. You have purchase volume in June spiking to 11% growth, which is great. I think loan growth in June, though was still a little slower than seasonality. So I guess, first, what are the drivers? Anything to call out on June volume growth? And then second, I appreciate all the color on payment rate. And in light of that commentary, like what are the purchase volume assumptions that kind of underpin the loan growth guide from here?

Yes. Thanks, Rob, for the question. As you think about the quarter, well, certainly, you have an impact of some of the new programs that kind of came in that accelerated in the back half of that. Whenever you go through a portfolio conversion, there's a little bit of lag time with regard to when new accounts start up. And really, people activating and using a new product versus a product that has gone away. Building levels, right? You think about [indiscernible] that came on in the middle part of the quarter. Walmart continues to grow as well as a program we launched, I think, late first quarter, [ Chico's ] and things like that. So a lot of it's new program oriented in advance of that.

Again, as you think about payment rate, it's going to remain elevated. And again, we try to help people here in the second quarter, think about it relative to net interest margin. It's going to remain elevated as you go through the back half of the year, but again, margins should expand. What that's left us with a higher PMA rate, you are going to have a slightly higher turn. And most certainly, the mix of the portfolio when you think about new programs and the commercial program that's come in, you would see a little bit of elevation but the historical turn will be a little bit higher as you think about the back half of the year.

We will move next with Mihir Bhatia with Bank of America.

First question I want to ask is [indiscernible] about capital. Can you talk a little bit more about the change in presentation [indiscernible] I think the internal use capitalized software, what happened there? What's driving the change? And then just more generally on capital levels and CET1 targets now that the capital stack is, I think, a little bit more build out. Is the current buyback cadence of $850 million, $900 million sustainable given the growth outlook you have for the next few quarters?

Yes. Thanks for the question, Mihir. Let me start a little bit where you ended. I mean we have significant amounts of capital, both surplus capital. And again, I think one of the strengths of the business model is that we generate large amounts of capital each quarter. So I think that's a real strength. And that allows us to grow RWAs as well as return capital to shareholders. We don't really comment on cadence by quarters, but again, you can look at history and what we've historically have done. So capital is a real strength of the company. It's something that we want to continue to leverage as we move forward, including the 13% dividend increase that we announced earlier this morning that takes effect this quarter.

If you take a step back, your initial question with regard to the treatment around the internally developed software. There is a new accounting standard that happened last year. And as part of that, we go back, we evaluate that standard, while that didn't have anything to do with it, we also did benchmarking with how we treated that software cost, those capitalized costs relative to our peer set. And we realized that we had a difference in presentation relative to others.

So we obviously had discussions both with our external accounts as well as regulators, and we decided to reclassify the capitalized software from intangibles to other assets. But that has an effect of -- it bolsters or reduces the reduction to capital and then puts it in [indiscernible] RWA that had a corresponding impact of about 80 basis points of CET1 that was recast both in the prior period and the current period. So again, it just gives us more room to operate whether we want to expand RWAs or again, have it available as we think about our capital return strategy.

Got it. And then just switching gears a little bit [indiscernible] back in the news a few weeks ago. I guess just wanted to check in with you all -- just any incremental ready have on that situation, what's going on there and the potential for that come back? I guess what does the toolkit look like if people start talking about that again and implementing it?

Yes. I mean not a lot that we can add. I mean nothing has been formalized at this point. So it's a little tough to speculate. I would just reiterate that, as we've said in the past, it's a very competitive industry. I think price controls generally are bad, whether it's fees or APRs, you have serious unintended consequences [indiscernible] for customers to pay on time. And I think if you take that ability for the industry to price for the risk that they're taking, you will have unintended consequences by giving restrict credit. The industry is going to close accounts. I think that's not good for the consumer, obviously not good for the economy. So we're staying very close to it.

In terms of the toolkit, obviously, there are things that the industry and we would potentially do, but we're clearly not there yet. This is very early. We don't know the intent of any potential RFI. But we're obviously staying very close to it.

We will move next with John Hecht with Jefferies.

Last year, I think you guys had a really strong year of customer acquisition. How are -- how is that looking thus far this year? And where are customers coming from? And are there any kind of notable trends there?

Yes. Listen, I think we have seen really strong new account growth. I think if you look at the second quarter, we generated over 5.1 million new accounts during the quarter and probably just under 10 million, I think, between 9.5 million and 10 million new accounts for the first half of the year, which is strong. We view it -- and to be honest with you, it's obviously some benefit from new programs, but it's going to be across the board. Again, when you have products that resonate and value propositions that are compelling for people, you're going to see that growth.

And again, a lot of our partners are in very attractive segments. When you think about a TJX or Sam's, when you think about Lowe's, when the housing market is a little bit soft, you have things like that, that are in there. So the diversity we have in the verticals and the sales platform really kind of drives that growth. I mean there are a lot of people would like to say, I generated between 9.5 million and 10 million new accounts for first half of the year. So again, a little bit broader base, but we feel good about the acquisition of the accounts kind of coming in. And I think, again, it goes back to years where we were putting out 20 million new accounts a year, we're on that trajectory.

I think, John, you know this about our business. We've got big commercial teams that sit every day with our partners, and they work the marketing calendar. They work promotions and offers to drive that new account flow. So that's so embedded in our DNA throughout the company. That's a big important metric for us. And our partners obviously are very aligned to the deal structure in [indiscernible] to help us drive those new accounts. It's good for them. It's good for the program. Obviously, it's good for us as well.

Okay. That's helpful. And then any comments on how the Walmart -- the latest Walmart program is ramping and anything you've noticed about the behavior of that customer versus the, call it, the book you had before?

Yes. So look, we continue to be really excited about the trends that we're seeing on the Walmart program. It's our fastest-growing program. I've mentioned this before in our history across multiple metrics, it's definitely a leading-edge program from a tech perspective. So it's different in a lot of ways from what we did in the past with Walmart. Everything runs through the OnePay. They've been a great partner to us, has a very strong value prop both if you're a Walmart Plus member, but even if you're not. And so that loyalty program is much stronger in this program than it's been in the past. So there's just a lot of reasons to be excited about this. This will be a top 5 program for us. I'm certain of that. And Walmart has been incredibly supportive in terms of the digital placement and how they're supporting the program.

Yes. The one thing I'd add, John, Brian just highlighted the value proposition, particularly Walmart Plus, that was not around back in 2018 and 2019 and over half of our accounts are Walmart Plus, which are highly engaged with the brand. They're buying multiple SKUs. So those are people that are really engaged with the retailer. So those are kind of folks that, again, you expect early adopters of because they're so connected to the retailer.

Our next question comes from Mark DeVries with Deutsche Bank.

Hello, can you hear me?

We hear you now, Mark.

[indiscernible] question for Brian Doubles. Brian, can you just talk about where you see the best kind of longer-term growth opportunities, whether it's existing customers, more organic kind of TAM expansion through retail or is it [indiscernible] provided financing or inorganic? And as you think about that broader opportunity set, just talk about your confidence in getting back to kind of longer-term growth aspirations?

I'll highlight a couple of things. I mean, first, look, our strategy is largely going to be an organic growth strategy. We're pretty disciplined around M&A. I think we've demonstrated that over the last decade or so. One of the big areas where we're investing heavily is in our product suite and our capabilities. We've got a very comprehensive set of products now, I think, more than anybody else in the industry. We've got starter products like secured cards, [ SetPay ], and that allows us to graduate customers into the more traditional products, revolving PLCC co-brand, et cetera. And I feel like that strategy is winning. So as you think about the partner base, they are highly engaged in offering that multiproduct set. And it allows us to serve more of their customers, drive sales, drive loyalty, et cetera. So I think that's one big kind of pillar I would highlight.

The other one, frankly, customer experience has never been more important than it is today. I mean, customers have a lot of choices these days in terms of how they pay, how they finance for purchases and it's got to be a great experience through that life cycle, making it easy for our customers to apply for credit, use them immediately. You have to be everywhere that customer wants to be. So we've been investing and integrating into ISVs and software platforms and payment providers.

Those are as I think about the future, that's a big part of it. So we call them kind of nontraditional partners because they're not a merchant, they're not a provider. They're allowing us to serve many merchants, many providers by integrating once into a software platform or an ISP, I think that is a -- that will be a big wave of the future for us, and we're well ahead on that strategy, particularly in our Health & Wellness business. We're integrated in more ICs than anybody. And I think that is going to be really helpful as we look to drive growth into the future. It allows us to connect once and immediately get some scale.

And if you go back a decade, that was always a little bit of a challenge as you connect and integrate once and with one partner, and now you're able to do that at scale. So very excited about that as well.

And the last thing I'll just touch on quickly, I think our underwriting -- our proprietary underwriting platform PRISM is a competitive advantage. We're out there competing for new business. We've made big investments there. I think we do this better than anybody and we're hearing that feedback from prospects. We're hearing it in renewal discussions. And so that's just the third area that I would highlight in terms of excitement going forward.

Okay. Great. And just as you think about all those opportunities, just discuss your confidence in kind of getting back to the longer-term growth aspirations.

Yes. Look, I'm confident that we'll get there. I'm confident we'll get there. I think you have to remember that a little of the dampening in growth was intentional. We had a credit restricted posture. And frankly, I think our credit team did a great job. If you think about drifting above the long-term target, quickly bringing it back down below the lower end of our long-term target and dialing in and putting us in a position where we can open up a little bit to hopefully get back in that 5.5% to 6% range longer term. I think as you do that, you'll see the growth come back to where it's been historically.

We will move next with John Pancari with Evercore.

Just given the time, I'll just ask one question here. Just on the I appreciate the color around the margin and the drivers of the pressure this quarter and that it bottomed. And you expect improvement from the year. Any way to help us kind of frame that pace of improvement and possibly think of what exit NIM could look like as we take a look at '27 and how should we think about the pace of net interest income growth that goes along with that when you consider the mid-single-digit receivable expectation?

Yes. I'll try to help you again with the framework, John. We're not providing specific guidance on most certainly any quarter. But again, I would expect your net interest margin to build off of the second quarter $15.08. Again, the drivers behind it, you're going to see seasonal nature of ALR, right? So we're at peak kind of liquidity now that abates in the third quarter, the fourth quarter, more in the fourth and the third, right. The late fees, which effectively, if you have peak kind of fee charge off, you'll see a little bit of pressure. But again, it should build off here not necessarily be a drag both in the third quarter and the fourth quarter.

You'll see a little bit of continued build on the PPPCs as you move in the back half that should factor in. So you should see rising net interest margin sequentially as we move through the back half of the year as we step through again, that assumes no changes in Fed funds rates or interest rates as we move in the back half of the year.

Thanks, Brian. [indiscernible] go for it.

It was a good try, but I'm sure you'll have an opportunity to talk with Kathryn and the IR team later today, and you can continue your efforts.

Our last question comes from Moshe Orenbuch with TD Cowen.

Great. Maybe just another shot at a similar idea, not in terms of a forecast, but you -- Brian Wenzel, you did talk about the impact of lower late fees in the first half of this year. But as we go into next year, will that still be a factor? And can you also talk about the impact of what you've had in terms of '26 from the accelerating account growth can that impact on the loan yield? And will that be something that moderates in '27 and gives you better growth in net interest income versus the loan balances and other metrics?

Moshe, great question. I think if you think about '26, right, we are targeting to underwrite to a charge-off rate between 5.5% and 7% in the entry the cycle. Sometimes you may be lower than 5.5%. Sorry, 5.5% to 6% [indiscernible]. I scared myself, Moshe. I scared myself. But anyway, in that 5.5% to 6%. So again, where you see it below 5.5%, we would expect it to migrate back up. When that migrates back up, you should see a tailwind when it comes to late fees that comes through net interest margin, right, historically. So that's what I would generally expect.

I think the challenge, and you probably know this as well as anyone else, right, whenever you ship the trajectory, most certainly under -- most certainly under [indiscernible] when you think about the reserve, but when you just think about the yield side of the equation, when you shift the trajectory of growth upwards or downwards their effects that happen on NII and net interest margin. We're going from a year before where assets went down. We're not going to growth. You presume there's going to be growth next year, but that growth is going to be -- I'm not going to give you an indication, but it's going to be not dramatically different, maybe a little slightly higher than what we've seen this quarter or this year, but you're going to be in a flatter growth trajectory as you move through that.

If you're moving a point or 2 versus moving 7 points or so year-on-year, you're going to see a tailwind that comes as that net interest margin matures. So most certainly a growth profile that's more consistent number one; and two, a net charge-off rate that probably moderates a little bit up, should give you 2 tailwinds as it relates to margin for next year.

And maybe a follow-up for Brian Doubles. You did say that the key driver of growth will be kind of internal growth. But we have seen a number of your major competitors kind of pulling back in terms of their approach and their desire to expand in private label. Do you think there could be opportunities for larger portfolios, either on a de novo or take them one over from another player?

Yes, absolutely, Moshe, I mean, that's a big -- like when I think of organic, that's all part of the engine. So we're actively -- we're always looking at portfolios that come to market. We're the biggest in this space. So we pretty much every RFP comes across our desk. We take a look at it. We're obviously very disciplined around how we price those opportunities and the terms that we seek. But that's been a big part of our growth strategy over the years and will continue to be.

So when I made my reference to M&A, that was more traditional M&A, buying a company as opposed to a portfolio. The engine that we have that's actively out there in the market looking at new opportunities, de novos, but also looking at bringing on existing portfolios. It's a very active team, and we've got a really good pipeline at the moment.

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

Good morning, everybody. My name is Jeff Adelson, U.S. Consumer Finance Analyst here at Morgan Stanley, kicking off the 17th Annual Financials Conference here at Morgan Stanley is Synchrony Financial. Before we get into that, just a few stats. We have 136 participating companies this year. That's a record for us, 483 corporate attendees overall, representing $5.5 trillion of market cap.

So with that, Brian Wenzel, welcome.

Jeff, thank you and thanks for the invite and glad to be here.

Maybe we can start with some exciting data you put out this morning. You put your 8-K out. It looks like you saw a third consecutive month of positive loan growth. Delinquencies came in a little bit better than seasonality. How do these trends compare to your expectations for the year?

Yes. First of all, we're incredibly proud of the results this morning for those that didn't get up at 6 to read it. our 30-plus delinquencies is 4.2%. If you really look back at that trend over the last 12 months, it's been very consistent. When we look at it versus seasonality, it's better than seasonality. When you look back to the '17 to '19 more normalized window, net charge-offs right in line. You got to cycle adjust a couple of things when you look at it either year-over-year or sequentially, but losses came in great. So credit continues to perform. The focus of a lot of discussions, Jeff, has been around growth. So the EOP asset growth up 1.8%. When you look at it on a linked-quarter basis, particular when you look at April having Lowe's commercial kind of come in, you actually did beat seasonality in May, right? So if you think about end of first quarter, we're 42 basis points. We did add Lowe's, now we're 1.8 and we continue to be there and purchase volume continues to be strong.

So you're recently starting to see this better growth. Second quarter is seasonally important for several of these discretionary categories you have in the business, home and auto, powersports, so forth. Based on what you saw in today's data and based on what you saw around Memorial Day into June, how are the spending trends tracking for this quarter?

Yes. It's interesting for CFOs as we kind of come here because you feel like you don't -- we're all saying the same thing. The consumer has been resilient. And I know people at CNBC, maybe you don't feel that quite as much from what they say. But really, as we look at what purchase volume has done, first of all, start exiting out of 2025, it accelerated into the beginning part of the first quarter, and it's actually maintained that pace in the mid- to high single digits. So we feel good about purchase volume overall, it's kind of good.

If you drop down, you're incredibly right about how important part of our business is in the second quarter, particularly on Memorial Day when you look at it. And we have really started to see some green shoots. If I kind of look at Memorial Day, some areas where we've seen pressure were positive by a good bit over 2025. So when I think about HVAC, when I think about home improvement, when I think about furniture, we've seen strength in those categories. Even in luxury, you kind of see people out shopping maybe because there's a lot of rain here in the Northeast. So you went through that. Outdoor continues to be a little bit of a challenge on some of those bigger ticket places there, but we really saw green shoots with regard to discretionary purchases and what the consumer is willing to do. So relative strength, I'd say, from a purchase volume perspective.

That's particularly notable given what we've seen from gas prices, I think, recently. So what else are you seeing from the consumer under the hood there? Any shifts in behaviors as consumers have dealt with those higher prices? Obviously, we saw the higher tax refunds come through as well.

Yes. So let me unpack that question a little bit. I think the first thing, Jeff, is to understand how gas prices really kind of flow through to the consumer. Everyone kind of presumes you see this increase and immediately has an effect. And we've gone back a long period of time to look at gas -- significant gas price increases and what it correlates to and what it doesn't correlate to and how it works. The first, I'll say, a little bit of misnomer or urban legend is gas prices are correlated to delinquency. They're actually not.

We haven't seen any of the data in our data where it's correlated. Where you start to see -- the first thing that has to happen is you have to have a significant increase in gas, and that would be $1 to $1.25. So okay, you can check that box. It was $3 nationally in February, and it's up over $4 now. So you're there. There is a period of time it takes for it to work its way to the consumer. So people are expecting to see changes in behavior patterns after a couple of months, that's not what the data historically has told us. So it has to be much more prolonged. So I think if you look out in, call it, end of September and October, if there's not relief when it comes to gas, then I think you sit back and say, okay, is there going to be ramifications? -- as for the consumer, clearly, the consumer feels the pressure of gas price. I'd say they're in the first stage right now, which is you go to the gas pump and you're annoyed, watching the meter, if you're in a state where you actually pump gas, not like Jersey, but you go through that annoyance factor that you have, but it hasn't really changed their overall level of consumption. We do see a little bit of shift where the nondiscretionary piece is rising faster than discretionary. So clearly, it is having some effect, but it's not impacting the overall impact of spending for the consumer itself.

And as you sort of did that historical look back on delinquencies where it didn't have an impact, what maybe are the early indicators else you look at there?

Yes. So the first thing, when gas starts to weigh on the consumer, what you'll see is in the middle section, right, you'll see some of the consumers start to save maybe a little bit more money putting their checking account because they know gas is going to be a little bit higher. But overall, what you'll start to see is, okay, the consumer will begin to decrease the average transaction value but increase frequency. So they're trying to make cash go a little bit further that's there. And then you start to see it flow through. So they're making more frequent purchases, but because they're trying to stretch dollars, you'll see they may try to stretch dollars in other ways, particularly grocery, et cetera.

But then what you start to see is the first thing it begins to impact is the sales and you'll pull back and you'll have payment rates slow down, which, to be honest with you, will be somewhat helpful for asset growth. But you need those factors to kind of work its way through the system. I generally believe when you think about the unemployment market here in the United States and where unemployment strength is, you're not going to see a tip the consumer. At least that's not our belief that it tips the consumer, but it most certainly can impact spending behavioral patterns and payment behavioral patterns really in the latter part of 2026 if it's unabated from the levels that it is today.

Got it. So not seeing it yet, but something to keep an eye on the back half of the year.

Yes.

Okay. Makes sense. Maybe just switching to some of the more growth-oriented parts of the business. You took a number of credit actions. And with those largely behind you, you now have your charge-off rate at or below the historic range you target 5.5% to 6%. As you started to see this loan growth inflect and I think about 30% of your credit adjustments are now back on or reversed and those start to season, how are you thinking about the pace of incremental reopening of credit from here? And maybe longer term, how are you balancing the credit risk of returning to your long-term growth objective versus maintaining good credit discipline?

The first thing, I think for those people who invest in Synchrony, I think they appreciate the fact that we are laser-focused on risk-adjusted returns. And we're not going to bend on risk-adjusted returns and just try to grow the business for growing the business' sake. Lending businesses are the easiest businesses to grow. They are more difficult to get the credit on. And we -- our belief is we'd rather have a better ROA than try to just get growth. And so we're going to be much more disciplined when it comes to how we think about that, particularly when you think about our credit aperture and what we did in the back half of 2025, that takes about a year to season in.

So you'll start to see the effects of that in the latter part of '26 and '27. So the credit is good now, you should see a nominal increase as it relates to that, which is expected as you open the credit aperture. But you're also going to start to feel the effects of some of the new programs. Like if you think about it, Walmart only started in the fourth quarter. So you're only starting to see a couple -- a very little bit about losses today, but that will begin to come through the book in the latter part of this year, the fourth quarter into 2027.

So that will continue to kind of grow in here. Again, we feel really good about the aperture. I don't think we feel a need to do that. And I think when you hear people talk about, well, the margins, that's lower return. We're just not going to take a lower return. There's no reason for us to do that. We'd rather be consistent and more stable with our partners, merchants and providers.

And speaking of Walmart, as you look at the first year of OnePay, you're coming up on that anniversary, how meaningful has that growth -- how meaningful has that been to the growth so far? And what do you expect over the next few years?

First, Walmart is just such an iconic retailer, and it has such scale and distribution, both not only in the stores but digitally. We're very, very proud of the fact that they selected us to come back after our relationship terminated in 2019. And that really speaks to the testament of our capabilities, both digitally, our capabilities to execute whether it's in a digital channel or a physical channel and the way in which we are leaders in this space. So we're really proud of that aspect.

Let me just start it there. Obviously, because of the size and scale of this, it is probably the fastest de novo or is the fastest de novo that we've had. Now again, the first Walmart program was a de novo, and we got from 0 to $9 billion over 20 years. This is different because it's much bigger than what it was before.

I think when we look at the program itself, I think we're really proud of, one, the value proposition that really resonates with the Walmart+ consumer. So they see the 5% off and they're engaging with the brand. And that's really where you first start is, do you have a compelling value proposition to provide that and Walmart's meaningfully leaning into that Walmart+ as an important aspect for loyalty for the consumer.

So the value prop is great. We're seeing great engagement at that high end in the Walmart+. And I think if you look at the digital placement it's terrific on the site. So we're really proud about that. It's something very different than what we had back in 2018 and 2019.

I'd sit there and say the opportunity though, Jeff, as we step into the back half of this year, is how do we get a little bit more production out of the stores, right? So you got great signs in the stores, QR codes in the stores. There are certain places in the stores you can do it. How do we get into the point of sale and not disrupt the flow that's there. But we're really proud of the relationship we have with the senior Walmart team.

The OnePay team is terrific and pushes us on innovation every day. So from our standpoint, it's off to a terrific start, and there's just more opportunity to go here as we look forward. And the last thing I'd say is most certainly, you can see some of the effects that are going to be in that Diversified & Value segment. But in that segment, we also have some tremendous retailers who are doing quite well, TJX, Sam's Club, et cetera. But obviously, it's contributing, and you could feel the effects in -- slightly in the growth rate.

And hopefully, we can get to that $9 billion quicker than 20 years this time, right?

So listen, our view is it's going to be a top 10. Can it be a top 5? Obviously, it has the potential, but we'll take it day by day.

So relatedly, the pipeline, you've described that as pretty robust. You continue to add partners at a pretty healthy clip. How have your partnership priorities evolved over the past few years? And where do you see the most compelling growth opportunities near term versus long term?

Yes. Jeff, let's first start about what we've done since the pandemic, exiting the pandemic since 2021. We renewed over 300 partnership relationships, 16 of our top 20 partner relationships have been renewed in that period. All of our top 5 are '30 and beyond, 97% of interest and fee revenue from our top 25 or '28 and beyond.

So we've done a very good job, I think, of maintaining our current relationships and demonstrating value to our partners, merchants and providers. So we feel really good about that. And I think if you think about the number of wins that we've had, Yes, we have Walmart. But yes, we have Bob's, which is a top 10 furniture retailer in the United States, Restoration Hardware, Chico's, J.Crew, you go down. I mean there's some iconic brands that are in there, and it just goes back again to the capabilities that we have both digitally in that.

And I think when you think about what's important to the retailers and the merchants and the providers is a couple of things. One, we are digitally advanced, right? So whether it's -- it's the applied prequalification, the significance we have in PRISM and the innovation we have in our advanced underwriting, which recently was recognized with the Innovation of the Year award from American Banker. Those are real competitive advantages when we go to get relationships. What we focus on and priorities there is, number one, why does someone have a program?

What is it? And for us, a really successful program goes, I'm going to my most loyal customers. If you're not a loyal customer and you're just kind of going in there and you want credit, that's probably not the right product for the individual. And so first of all, do they have a focus on what they want to accomplish with the program? Is it the focus of the C-suite, right?

Are they going to push that? Or is it, okay, listen, I'm going to focus on something else either digitally or in store. So really, as it kind of goes back to, can you have people that have a loyal base? Is it important to them as they navigate their business? And then it kind of goes into, okay, are they going to grow? Or what's happening with that -- there a lot of things that we have the potential to look at and bid on.

If it's something that's not really going to grow or not really -- people are trying to monetize in a different way. It's something that we'll pass on. But again, it goes back to having multiproduct, having the digital capabilities, having the advanced underwriting -- and again, I'll just end on this. everyone, Jeff will come here and tell you their underwriting is the best, right? I would sit back and say, in any competitive process, I would tell a merchant or a partner, if you gave me a FICO score, I -- well, I shouldn't say guarantee, but I would lead to believe that we would have a better outcome on underwriting versus what they're getting today. And that's proven in past history. Maybe it's not all true every time, but I would tend to bet that we would have a better underwriting because the data in what we do.

And as you've been able to win some of these partnerships recently and since COVID, as you acknowledge the renewals there, you touched on some of this, but -- what are the priorities your partners are focused on in these discussions? And have you seen a shift or any evolution in the competitive environment around renewals and RFPs? And maybe just where is buy now, pay later coming in the equation as well.

Yes. So I've been in this business 28 years. And I think if you go back 15 years ago, it was about economics. They said, okay, great, you have the capabilities. We'll see. It's about economics. Now there's much more discussion and the discussions happen actually more advanced than they did earlier. So they start earlier, and they really want to focus on what are your capabilities. Can you deliver for me digitally is it seamless for the consumer. So I look at some of the innovations that we brought in over the last 5 years, whether it's API costs.

I mean if you're in Venmo, you cannot tell you're dealing with us versus Venmo. So can you have the digital assets to embed wherever they're kind of going to go, number one. Number two, I think with our scale is multiproduct. We can do installment lending, we can do secured, we can do private label. We can do dual card. We have the full suite. We can do that for consumer. We can do it for commercial.

So having a broad suite allows them to sit back and say, okay, if a consumer is coming whether it's digitally or in a retail format, how can I get the best product in their hands. And when you look at our base and you sit around and say, listen, with 70 million -- approximately 70 million average active customers, you have a deep customer knowledge that you can give value props that resonate.

So that's really what we say. Now when it kind of gets to buy now, pay later, their model is different, right? They are trying to -- they don't give as much credit out. They don't want to go into the bigger ticket because they don't want the line tied up there. They generally play in a smaller ticket and generally play with a smaller -- a different type of consumer. They're one that was more cash oriented, maybe a little bit lower on the credit spectrum. That's why they use the kind of purchasing power or a line as a throttle to control credit because they just can't -- they can't take exposure on the bigger tickets where we can. And so even where they're in place with our merchants or partners, we haven't really felt any true ramifications to that.

That's not to say that we don't have a healthy productive paranoia about what they're trying to do, but they're trying to get scale, number one. And number two, they realized that just having an installment offering is not something that providers necessarily want or partners. So they're trying to get a multiproduct set, but they don't really have the scale yet. So the competitive dynamics are interesting. I think when you think about true competitors we deal with, Citi shifted focus more to co-brand, I think they'll try to maintain some of their premier brands in Macy's and Depot, CAP One, I'm sure who will be here.

And they're trying to figure -- I shouldn't say they probably understand, but where they go in the retail partnership business versus Discover versus their brand. Barclays is one that's probably a little bit more aggressive and at times, I'd say, rational as they try to get scale. But again, if you don't have a lot of history, it's something they don't have a lot of levers other than price, sometimes to compete. And then, Bread, we don't really see them as much. We overlap in a small segment but I think they probably want to come closer to our some of our segments, but they just have a different scale and balance sheet than we have.

And speaking of your -- some of your larger competitors, we just got a new reproposal for the capital rules. The comment period is wrapping up here. Maybe just touch into how you're thinking about using this 125 to 150 basis points of capital relief you estimated. Could these changes in your view, maybe create some advantages for you versus your larger peers that have to deal with more burdensome requirements potentially? And any other feedback you've maybe been giving to your regulators?

Yes. So let's first start with if you're investing in Synchrony, our capital position and our ability to generate significant amount of capital is a strategic advantage, right? So you look at our current capital position at 12.7% CET1 at the end of the first quarter. Our target to 11%, our stress capital buffer is 250 until '28. So when you look at that and then look, when we showed you back in the first quarter, in the last 12 -- trailing 12 months, we generated 350 basis points of CET1.

This business because the higher return throws off a lot of capital. So start there that we had this tremendous ability with the capital we generate, but also on the capital that we produce each quarter and year. So that's a competitive strength. With regard to -- where you started the question about how do you think about the 125 to 150 basis points, we spend no time on that, Jeff, right now because there's a number of things that have to happen in advance of that.

The first thing is you have this comment period to close on this rule. But you have to get through the stress testing that will come out probably in the third quarter, rules around that and what's going to change there. And then you have the responses to this, and you'll have the rules that kind of come out at the end of the year, most likely. When you look at what Basel III says, and I'll go through it, we -- if it went in as written, we would go under the standardized approach and get that benefit of 125 to 150 basis points more likely.

The advanced approach has -- is not as favorable for us because while you get incremental RWA reduction, what it brings into is two things that are really or three elements that are really hurtful to us. Number one, it treats all open-to-buy as equal, right? A lot of our open-to-buys on one-and-done furniture accounts, high-end tickets, high FICOs -- it just doesn't put the conversion factors and peanut butters it. So it takes off quite a bit of the benefit from the RWA reduction. The second thing it introduces operational risk RWAs, which double-counts with what happens in stress. And third, it's a little bit more punitive around the DTA. So obviously, we'll comment on that. I think the industry will certainly from the card side, we'll lean into the operational risk piece a little bit. And most certainly, we'll provide our comments. And then hopefully, the rules out by the end of the year, and then we can figure out what we want to do with that capital. And I think people got to think about what the rating agencies or other people are going to think when this comes out. The good news with the rating agencies and us, we just -- we just went through our process with the rating agencies, but they look at our balance sheet and the loss absorption capacity we have at close to 25% is just -- puts us in a really good position with them. So -- but something we have to watch.

All right. And as we take it back to the conversation we had around your investments in digital engagement, launching new partners, your efficiency ratio has ticked up a little bit. As you look to return to positive operating leverage, where do you see yourselves today in your overall investment cycle? How much efficiency upside do you think exists beyond this year? And maybe how do we think about you or timing or whatever framework you would use, how do we think about you getting back down to that 32% to 33% level that you target?

Yes. The first thing, and this is interesting because the RSA have played a role in the denominator. So some of the inflation you see in the efficiency ratio is because that comes into play, which is more unique for Synchrony. I think when you think about a dollar expense base, we're generally consistent quarter-on-quarter, and that's why we kind of gave some frameworks as we move out. The investment has been relatively consistent. No matter where we are, we're looking for that longer term. So we're going to continue to focus on health and wellness, which is our -- just a strategic asset that we have in our sales platforms. We're going to continue to focus on our accelerating our customer experience in digital.

We're going to continue to invest in PRISM. We're going to continue to invest in the consumer bank. What we've picked up spending this year has been really in a couple of technology areas, right? Number one, AI and number two, cloud. So we want cloud to accelerate here and get through our journey, which we expect to be the end part of 2027.

And listen, we have to be investing in AI, both from a growth standpoint but also from a productivity standpoint. So I don't view investment is accelerating from here. I know that's a lot of fear from customers, it's going to accelerate, but I think you'll see some modest increase this year. And then in theory, as we get back to growth, we'll get that operating leverage to come back through. And most certainly, as losses come back inside the long-term target zone, I think it helps on the denominator side to bring the efficiency ratio down.

And speaking of AI, some of that tech spend is going towards agentic commerce. So as commerce does become more automated, how do you see Synchrony's role evolving maybe beyond the traditional retail card product you've historically offered? And where do you think you can maybe differentiate between the other providers in the ecosystem?

Yes. So we're working in almost every swim lane as we can because I think, Jeff, no one knows how Agentic Commerce is actually going to win and evolve here, right? I think everyone has their own view depending upon their own business model, but the consumer is not screaming I want Agentic Commerce, right? So the technology companies and others are trying to figure out what the right way for the consumer to do it and consumer preference is going to come in.

So we're focused on working through the app and where you see AI. We're focused on browsers and things like that where you have protocols that you want to kind of go through there. We're working with our merchant partners who are using Agentic Commerce as a means if you come on to their site. And then obviously, we're investing in Agentic AI as it relates to our marketplace.

So we don't know who's going to win. No one knows who's going to win. We're 3 to 5 years out with Agentic, but you have to play all the pieces. What's really important for us is how do we get our products to show up, whether it's in a ChatGPT or a Claude or Gemini. How do you have that provisioning there? How do you kind of direct it back to some of our merchant partners. It's really about making sure that we don't get this intermediated and someone else tries to create the experience.

And so you want the experience to be somewhat seamless, but we're going to have to play all the angles out here. So that's where we're focused on it. Again, we're partnering with the big AI companies as well as the big browser companies. So we're going to continue to play through, but it is a transformational period, but we can't lose sight what is the consumer preference going to be.

Okay. And as I think about Synchrony, speaking of evolution here, you've historically operated as more of a, what I would think of is behind the scenes for your retail partners. The consumer doesn't always know who you are. But you have increasingly been into proprietary co-brand. Do you see more of an opportunity over the long term to really build greater consumer affinity for your brand. And -- or do you still view your moat as kind of being that embedded partner of choice for your retail partners?

No, I think it's broader. I mean, when you think about 140 million trade lines, you think of the fact that we opened 20 million accounts last year that every application that comes through 60% to 70% of them, we've seen them or do business with them. More people actually know who Synchrony is then you give it credit for. If you go onto our platform we call [ Versatile ], you could see your accounts on there. So consumers actually do know what it is. What we have to be able to do better in a case is, how do I kind of bring more options to them, not to disintermediate what our partner business is, but how do we augment it and so I think you're seeing that.

It goes back to having partnerships and having broad-based utilities and strong value propositions that resonate with those consumers that drives you forward. So I don't think it's a dramatic shift for us. It's part of our evolution. We've been doing this for 100 years now or close to 100 years is part of an evolution where we can leverage the scale of our business.

And are there any other capabilities you think will become increasingly important for you to build or achieve even over the coming years as we sort of see this evolution in the retail ecosystem?

Yes. It's all about the customer experience. How do you make it seamless for the customer to do business with you. I think this is where you kind of -- scale matters, right? So how do you make it easy for them to apply, to buy, to service, that experience with strong value proposition is going to resonate more and then that multiproduct view that says, "Hey, listen, Synchrony will be there for whatever my financing needs are going to be to purchase a good or service."

All right. And if we fast-forward 3 years from today, what do you think investors are most underestimating about the earnings power of your business today?

Yes. The first thing, again, I'll start with some things that people don't tend to focus on, like if you go back to -- since 2021, so exiting out of the pandemic, our average growth rate 7%, our average ROA is high 2s to 3%. ROTCE is 25-plus percent. That's pretty good performance in the last several years. So I think as we look forward, our goal is, listen, how do we get back to, again, with an uncertain environment today, but hopefully, the environment becomes more certain, how do we get back to that long-term growth framework of 7% to 10%, maintain the losses?

And then through strong capital, delivering back double-digit EPS growth. That's what I think we want. The investment thesis here in the company is going to be and always has been, I want to be a higher growth, honestly at the top, but a couple of times GDP. I want to be the best-in-class ROA, right? And I want to have stability, and you see that with the RSA. That's -- couple that with strong capital generation, that's why you invest in this company. We've been around for 100 years. We continue to evolve. We have probably some of the best digital assets that will produce hopefully double-digit earnings growth.

All right. Well, with that, that's our last question. So thank you, Brian. I appreciate you joining us today.

Great. Jeff, good luck with your conference, and thanks for the invitation.

Appreciate it. Thank you.

Good morning, and welcome to the Synchrony Financial First Quarter 2026 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. [Operator Instructions]

I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin.

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 could 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 webcast 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.

Thanks, Kathryn, and good morning, everyone. Synchrony started the year with strong momentum and delivered first quarter financial results that included record first quarter purchase volume of $43 billion, reflecting the enduring appeal of Synchrony's multi-product suite.

Customers engaged across our diversified portfolio, contributing to continued sequential improvement in average active account trends, higher spend per account across all 5 platforms and 6% growth in total portfolio purchase volume compared to last year. At the platform level, diversified and value purchase volume grew 9% primarily reflecting the impact of partner expansion.

Digital platform purchase volume increased 8%, driven by strong customer response to enhanced product offerings and refresh value propositions. Purchase volume in lifestyle increased 7%, primarily driven by other apparel and goods and luxury partially offset by lower average active accounts. Health & Wellness purchase volume was 3% higher primarily reflecting growth in Pet & Audiology. And purchase volume in Home & Auto was flat, generally reflecting partner expansion in furniture and electronics offset by selective spend in home improvement and lower average active accounts.

Synchrony's co-branded credit cards, including our dual cards, accounted for 51% of our total purchase volume in the first quarter and increased 20% versus last year, driven by product upgrades, higher broad-based spend and enhanced utility across these card programs. The mix of discretionary spend within our auto partner portfolio increased during the first quarter, making the third consecutive quarter of year-on-year improvement.

Additionally, the rate of discretionary spend growth continue to accelerate, outpacing nondiscretionary spend growth also for the third consecutive quarter and even during the month of March when fuel prices began to rise. This discretionary spend strength came in particular from categories like retail, entertainment and electronics. And while spending on fuel was up significantly during March in our nondiscretionary spend, total portfolio spend per account growth remains strong as consumers navigated the higher costs.

Meanwhile, payment rate increased approximately 50 basis points compared to last year. Collectively, we believe these spend and payment trends are a testament to the efficacy of our prior credit actions and consistent credit discipline as well as resilient consumer health supported by some early benefit from increased tax refunds and lower tax withholdings.

Synchrony continued to execute across our key strategic priorities during the first quarter, adding or renewing more than 15 partners including Indian Motorcycle, Harbor Freight and Miracle Ear. We renewed our partnership with Indian Motorcycle, America's first motorcycle companies founded in 1901 to offer flexible financing solutions through their nationwide dealer network.

We also extended our relationship with Harbor Freight, America is the #1 tool store with nearly 50 years in business and more than 1,600 locations nationwide to provide private label credit card financing with the option of 5% back or 0 interest equal payment installment loans. And our program with Miracle Ear enables patients to pay for hearing devices and related services over time, leveraging practice management software that optimizes the financing experience for both consumers and staff.

Synchrony also continued to broaden distribution of CareCredit financing during the first quarter, through our expanded strategic partnerships with Planet DDS. As the preferred patient financing solution across all Planet DDS practice management platforms, CareCredit will be integrated across more than 2,500 Cloud 9 orthodontic practices and more than 15,000 Denticon dental practices to improve patient access to treatment while also supporting practice growth operational efficiency and better patient outcomes. And we're also delivering streamlined care credit experiences for pet families through our new partnership with both Figo and Embrace Pet Insurance.

Today, consumers can use CareCredit at approximately 85% of U.S. pet locations and now approved pet insurance claims can be reimbursed directly as a credit to the consumer's CareCredit account after they pay for their pet's care using our CareCredit card. These partnerships extend CareCredit's pet insurance reimbursement ecosystem to more than 1.7 million insured pets and underscore the larger opportunity we have to our strategic partnership with Independence Pet Holdings. Together, we are making it easier for consumers to pay for and manage the cost of pet care.

And lastly, we continue to enhance the utility of care credit by broadening its acceptance for eligible health and wellness purchases on walmart.com, complementing CareCredit's long-standing acceptance in-store across Walmart and Sam's Club locations nationwide.

In addition to currently eligible health and wellness purchases, CareCredit cardholders can now use their card to make purchases across a wider selection of in-store and online product categories, including medical supplies and equipment, fitness products and sleep essentials. This expanded collaboration with Walmart will enable us to empower more consumers with financial flexibility to purchase health and wellness products and services whenever and however the need arrives.

And as we look to the remainder of the year ahead, Synchrony is positioned to drive our momentum further as we grow our existing partner programs and win new ones, diversify our programs, products and markets to reach and serve more consumers and more businesses across the country and power best-in-class experiences for all those we serve.

I am proud to say that we are doing all of this while also earning the privilege of being ranked as the #1 best company to work for in the U.S. by Fortune magazine and Great Place to Work in 2026. Together, all of our incredible people at Synchrony have built a high trust culture that makes us faster, bolder and better for the customers and partners who count on us every single day.

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

Thanks, Brian, and good morning, everyone. Synchrony's first quarter financial performance delivered record first quarter purchase volume a positive inflection in loan receivables growth, strong credit performance and higher return on average assets intangible common equity compared to last year. These results reflected Synchrony's disciplined execution as we focus on delivering consistent risk-adjusted returns amid evolving market conditions.

Turning to our performance in more detail. Synchrony generated $43 billion of purchase volume a first quarter record and a 6% increase compared to last year. Ending loan receivables were flat at $100 billion, though we did achieve a positive inflection in ending loan receivables with an increase of approximately $477 million at the end of the first quarter. This reflected the impact of higher purchase volume, generally offset by the effects of elevated payment rates.

The payment rate of 16.3% was approximately 50 basis points higher than last year and approximately 110 basis points above the pre-pandemic first quarter average, primarily reflecting shifts in portfolio and product mix as well as the impacts of new portfolio seasoning, our previous credit actions and higher average tax refunds.

Net interest income increased 4% to $4.6 billion primarily driven by the combination of higher interest and fees and lower interest expense. Interest and fees increased 2%, primarily driven by the impact of our PPPCs, partially offset by lower benchmark rates. Interest expense decreased 11%, primarily due to lower benchmark rates.

Our first quarter net interest margin increased 76 basis points versus last year to 15.5%, reflecting 3 key drivers: one, a 47 basis point increase in our loan receivables yield, which was partially driven by the impact of our PPPCs and contributed approximately 39 basis points to our net interest margin; two, a 44 basis point decline in our total interest-bearing liabilities cost which reflected the impact of lower benchmark rates and contributed approximately 35 basis points to our net interest margin; and three, a 76 basis point increase in the mix of loan receivables as a percent of interest-earning assets versus last year, which contributed approximately 14 basis points to our net interest margin.

These improvements were partially offset by a 69 basis point reduction in our liquidity portfolio yield, which reduced our net interest margin by 12 basis points. The decline was generally driven by lower benchmark rates.

Turning to the remainder of our P&L. RSAs of $1.1 billion or 4.31% of average loan receivables in the first quarter and increased $175 million versus the prior year. primarily reflecting program performance, which included lower net charge-offs and the impact of our PPPCs. Provision for credit losses decreased $156 million to $1.3 billion, primarily driven by a $242 million decrease in net charge-offs, partially offset by a $97 million reserve release in the prior year.

Other expense increased 6% to $1.3 billion, primarily driven by the costs related to technology investments and higher operational losses. The first quarter efficiency ratio was 35.6%, approximately 220 basis points higher than last year. This resulted from higher overall expenses and the impact of higher RSA as program performance improved.

To summarize Synchrony's first quarter results, we generated net earnings of $805 million or $2.27 per diluted share, a return on average assets of 2.7% and return on tangible common equity of 24.5% and an 8% increase in tangible book value per share.

Shifting focus to our key credit trends on Slide 8. Our portfolio's mix of below men payers remain well below pre-pandemic levels across all credit cohorts during the first quarter with the nonprime population outperforming relative to other credit cohorts since the end of 2023. We believe this continued trend in nonprime is reflective of our previous credit actions. We also continue to see normalization in the prime and super prime cohorts with some gradual shifting in the mix from above minimum to minimum payments.

At quarter end, both our 30-plus and 90-plus delinquency rates were generally in line with the prior year, and our net charge-off rate was 5.42% in the first quarter, a decrease of 96 basis points from 6.38% in the prior year. Collectively, efficacy of our previous credit actions and ongoing credit management strategies as well as the resilience of our customers and portfolio amid an uncertain environment.

Finally, our allowance for credit loss as a percent of loan receivables was 10.42% which increased approximately 36 basis points from 10.06% in the fourth quarter, in line with our seasonal trends and a decreased 45 basis points from 10.87% in the first quarter of 2025.

Turning to Slide 9. Synchrony's funding, capital and liquidity remain a foundational strength of our business. Synchrony grew our direct deposits by $3.1 billion and reduced broker deposits by $3.7 billion compared to last year. And during the first quarter, we issued $750 million of senior unsecured debt and our tightest 5-year credit spread to date and a final coupon of 4.95% and a $500 million 3-year secured public bond from the Synchrony Card Issuance Trust with a final coupon of 4.22%.

As of March 31, deposits represented 83% of our total funding with secured debt representing 9% and unsecured debt representing 8%. Total liquid assets decreased 4% to $22.8 billion and represented 18.8% of total assets, 72 basis points lower than last year.

Now focusing on our capital ratios. Synchrony ended the quarter with CET1 ratio of 12.7%, a Tier 1 capital ratio of 13.9% and a total capital ratio of 16%, each of which declined by approximately 50 basis points versus the prior year. And our Tier 1 capital plus reserve ratio decreased to 24.1% compared to 25.1% last year.

Synchrony returned $1 billion to shareholders during the first quarter, which included $900 million in share repurchases and $104 million in common stock dividends. In addition, our Board of Directors approved a new share repurchase program of up to $6.5 billion of the company's common stock which commenced in the second quarter of 2026 and a change from our prior share repurchase program does not have an expiration date.

The new share repurchase program replaces the company's prior program, which was scheduled to expire on June 30, 2026, and had approximately $300 million remaining. The pace and amount of share repurchases are flexible and will be executed from time to time subject to various factors, including capital levels, financial performance, market conditions, legal and regulatory requirements and in accordance with our capital plans.

Finally, I'd like to discuss our outlook on Slide 10. We continue to expect accelerated growth in purchase volume and average active accounts without any further broad-based credit refinements as we move through the year. The outcome should more than offset the impact of elevated payment rates to drive mid-single-digit growth in ending loan receivables by year-end. The rate of receivables growth should follow seasonality and accelerate as we move into the back half of the year. This will be driven by growth in our core portfolio as well as a combination of both recently launched and soon-to-be launched programs, including Walmart OnePay, Bob's Discount Furniture, RH and approximately $725 million of those commercial co-brand loan receivables, which was added in early April.

Net interest income is expected to grow in 2026 as a result of higher loan receivables the impact of PPPCs is continuing to build and as we reduce our funding liabilities costs, these trends will partially offset the lower late fee incidents. We expect delinquency and losses to follow normal seasonality through the year with net charge-offs peaking in the second quarter.

We expect our net charge-offs to be less than 5.5% for the full year, and we remain focused on our disciplined approach to underwriting our business. And as program performance strengthens due to higher net interest income and lower losses compared to last year, we continue to expect RSAs to increase but remain within our long-term range of 4% to 4.5% of average receivables.

Lastly, we remain focused on operating expense discipline while also investing in the long-term potential of our business. As a result, we continue to expect other expense growth to trend in line with loan receivables. Putting all these elements together, Synchrony remains on track to deliver between $9.10 and $9.50 in diluted earnings per share, but also executing across key strategic priorities to deliver consistent risk-adjusted growth and strong capital generation, and we are well positioned to return excess capital in aggressive but prudent way.

With that, I'll turn the call back over to Brian.

Thanks, Brian. Before I turn the call over to Q&A, I'd like to leave you with 3 key takeaways from today's discussion. First, the consumer remains resilient and the foundation of our portfolio is strong. Our consistent underwriting discipline, credit management strategies and portfolio performance have positioned us well for both the near and long term.

Second, Synchrony's investments are driving results across our business and for the millions of consumers and hundreds of thousands of small and midsized businesses we serve across the country. And third, because of the results we deliver, Synchrony is generating growth at strong risk-adjusted returns and robust capital, positioning us well to drive considerable long-term value for our stakeholders.

With that, I'll turn the call back to Kathryn to open the Q&A.

That concludes our prepared remarks. We will now begin the Q&A session. so that we can accommodate as many of you as possible, I'd like to ask the participants to please limit yourself to 1 primary and 1 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 Instructions] We'll take our first question from Terry Ma with Barclays.

Just wanted to start off with the loan growth guide of mid-single digits. Can you maybe just give a little bit more color on kind of what you're seeing in the account acquisitions and just borrower behavior to give you confidence in that second half acceleration?

Yes. Thanks for the question, Terry. As we look at the first quarter and how we exited you saw a clear acceleration of our purchase volume to a record high for the first quarter, 6% year-over-year. So we've seen that acceleration positively pay rates up from a credit perspective, up 50 basis points. Some of that in the first quarter was a result of higher income tax refunds, which impacted the quarter by 14 basis points. But we feel good about the purchase volume coming through and we feel good about some of the discretionary purchases that we see as we go through.

As you kind of step out into the quarters, again, what we're going to start to see is some of the acquisition, whether it's Walmart, OnePay, Lowe's commercial begin to build into the portfolio as we move into the back half of the year. And we saw a strong new account originations of 15% in the first quarter of this year. So we see positive momentum as we exited out of the first quarter. For the first couple of weeks in April, we've seen that to be consistent with how we exited to maybe slightly stronger from a purchase volume standpoint. So we feel good that the consumer is engaging with our products and wanting our products as we move forward.

Got it. That's helpful. And then on the payment rate of 16.3% this quarter and it being over 100 basis points above your pre-pandemic average. Has your product mix if driven a permanent resetting of that payment rate higher? If that's the case, what does that mean for your long-term loss expectations and loan growth?

Thanks, again, Terry. So I don't think it's permanently reset it. I think what you look at is 2 fundamental elements that have happened over the last couple of years, which has been driven by our credit actions. Number one, we have a higher credit quality into the portfolio, particularly into the higher super prime versus what we normally have. So nonprime has gone down, which has a higher revolve rate, number one.

Number two, you see a mix in the portfolio as people pull back on discretionary purchases in the last couple of years, particularly in the Home & Auto space and Lifestyle, when you have those larger promotional purchases, those payment rates are generally sub 10%, probably around 8% or 9%. So when you remix the portfolio and the percent of promotional financings are down, you artificially bring the payment rate up.

So that, plus the acceleration of new accounts here in the last year or so, they tend to pay off at a slightly higher level. So it's more a phenomenon of a shift inside the portfolio as it relates to credit actions and two, the return to growth.

We'll take our next question from Ryan Nash with Goldman Sachs.

Brian, maybe to start on the EPS guide of $9.10 to $9.50. Can you maybe just help us with how some of the moving pieces have shifted. It's clear credit is better with the guide below $5.50. But what else would you say has shifted, given obviously, we've seen rates moving? And where do you think we're tracking within the range after a quarter? And I have a follow-up.

Yes. Thanks, Ryan. So again, I think you started with net charge-offs. I think as we guided at the start of the year that our loss rate would be in line with our long-term target, now it's slightly below. So there's a little bit of favorability. You do have some payment rate pressure that we saw in the first quarter. But if you take a step back and you say, okay, how do you think about the range for a second and how do you move towards the higher end of the range.

There's clearly a couple of things that could play into that equation. Number one, will you see a slowing in the payment rate, which will increase revolve rate, particularly on existing accounts that will drive more revenue towards you, number one. Two, on the delinquency formation and performance of delinquencies, will that continue to improve or stay steady that improves most certainly, you have a little bit of headwind from late fees, but most certainly, you'll get potentially a reserve release and net charge-off benefits. Both of those 2 items have an RSA offset to it.

So again, we're not guiding inside the range. But clearly, there are cases where you can get to the higher end of the range. Even if the payment rate stays higher, and charge-offs stay where they are from our first quarter exit, you then see you're towards the middle or lower end of the range. So again, I think we see pathways both ways. The question you're going to have to answer is what happens in the macro environment. The consumer has been incredibly resilient both from a purchasing behavior pattern and a payment behavior pattern. So again, we'll have to watch the uncertainty as it relates to the geopolitical risk that exists today.

Got you. And then in terms of the buyback, I guess, how do we think about the pacing of the $6.5 billion, which is open ended, do you think it will be done differently than under the prior process? And I guess, maybe just touch upon what are your expectations for capital relief under the Basel proposal? And how do you think about standard versus [indiscernible], which I'm assuming is more onerous on your business, but it would be good to hear how you flesh it out.

Yes. So to parse that question, Ryan, when you think about the $6.5 billion again being open ended. We don't give quarterly cadence. What -- I'd sit back and say is, if you look back at the recent history and look at that cadence, that's probably what we'll end up doing. That's all dependent upon how the business performs macroeconomic environment, legal, regulatory or capital plans, et cetera, there are a bunch of caveats there. But again, looking back at history probably gives you a good cadence on how we step out under this plan. Again, this was designed really to align us now that we have a stress capital buffer of 250 basis points with our category for peers.

With regards to your question on the Basel III proposal, under the standardized approach, it is favorable to Synchrony. So we absolutely appreciate the Fed's thoughtfulness of reproposing the rules here and their ability and willingness to listen to industry participants with regard to that rule. So when you look at the standardized approach, we clearly get a benefit on the retail exposures or on the risk weighting of assets and only a small negative as it goes to the AOCI inclusion into that would generate -- if the rule is adopted exactly as it is with no changes, you would see our RWAs go down and our capital get relief of 125 to 150 basis points.

If you step out and look at the enhanced risk-based approach, that's a little bit more mixed. You do get more risk weighting risk rating assets benefit, but you're now going to introduce a capital charge for the open to buy in the portfolio, which treats all those open to buys the same way. You're going to introduce operating risk into the equation and then you have an impact on the DTA, which is when you combine all those effects, it's a net negative for us if the rule is adopted exactly as is.

But I think we continue to study the rule and I think we'll provide comments as well as industry participants in ways in which you can eliminate some of the double counts, particularly on the operating risk and maybe be a little bit more thoughtful on the open to buy and how that's converted to a risk-weighted asset.

We'll go next to Sanjay Sakhrani with KBW.

Maybe Brian Wenzel, if we could just follow up on the earnings guide question just in the commentary. When we look at sort of credit doing better and loan growth sort of still remaining the same. Is it that the -- an EPS remaining stable? Is it that your expectation on yield has changed in some way lower or maybe you could just put that because it would seem like there's sort of -- you're moving towards the higher end of the range with the credit coming in better.

Yes. Thanks for the question, Sanjay. And again, I think if you go back to what I said back in January, and I said kind of coming through here, our guidance was around in line with the 5.5% to 6%. Really, we're trying to give a position of stability as it relates to the charge-off guidance. I think as you look at it now being less than 5.5%, I don't think there's a material difference in the way in which we thought about credit at the end of January and the way we think about credit today. So I think you may be overweighting that change relative to our guide.

Got it. All right. And then maybe just more of an elaboration on the health of the consumer. I'm just trying to think about the geopolitical events that are happening and the impact on fuel price. You guys talked a little bit about -- I don't know, Brian Doubles, you talked about, you're seeing early benefits of tax refunds. I'm just curious if you could just sort of list how those are impacting the consumer? I mean, where are we with the tax refunds? Like is there more to come in the second quarter? Maybe you can just help us just think about the assumptions you're making and sort of where we are.

Yes, I'll start on that one, Sanjay. Look, I think the consumer is still in pretty good shape. It's been very consistent over the past few quarters. We're seeing signs of strength when you look at spending patterns, credit continues to outperform our expectations. So I think the macro environment is still pretty constructive, strong labor market, you do have the higher tax refunds when you get into that in a little bit.

And you've got some watch items. We're watching inflation very closely, higher gas prices, other factors that I think are creating some uncertainty out there with consumers, but they're really -- they really seem to be looking past at this point. We don't see it impacting spend. You saw spend for us accelerated really nicely this quarter. When you look at the platforms, D&B was up 9%. Digital is up 8%, lifestyle up 7%. That's indicative of, one, I think, our product suite, but also a pretty healthy resilient consumer.

So there's a lot of, what I would call, noise out there right now and things that we're watching and tracking really carefully. But at this point, whether you're looking at spend patterns or early stage, late stage, everything points to a pretty resilient consumer.

And I don't know if you want to add on tax refund.

Yes. Let me just add some color, both on tax and then on gas, Sanjay. So first on tax refunds, the tax refunds are slightly lower than our expectations, low end of the range for us, we thought would be around $500. They're coming in $350. And the way we've seen that -- well, it hasn't had a material effect on our book. We've seen it will certainly impact when we look at payment rate and we lag payment rates to the refunds there's about a 14 basis point impact in the quarter from higher payment rate in the quarter related to tax refunds.

You hit on a good point where in the next couple of weeks, you tend to see a little bit higher refunds of people who file closer to the April 15 deadline. So that refund amount could creep up a little bit. But we didn't see a week on week when you look at it, we did not see any real change in purchasing behavior pattern. When I look at the depository side of the business, we saw lower inflows and lower outflows, but that trend week-on-week with returns has mirrored for the last 3 years. So I think when we look at refunds, there hasn't been a material impact on to the business.

When you look at gas prices, if you look at the average transaction value for gas in March, it's up 17% sequentially February to March of this year and up 10% year-over-year, but we haven't seen any change in the frequency. It's actually up slightly, to be honest with you, year-over-year on frequency of gas purchases, and we haven't seen any pullback as it relates to gas. So at this point, I think the consumer is probably annoyed, but they haven't changed their behavioral patterns to date as it relates to that spending.

We'll go next to Darrin Peller with Wolfe Research.

Could we just start on expenses, just given it grew 8% on an adjusted basis in the first quarter and your guidance appears to imply expense growth decelerates throughout the year, even as receivables growth improves. How much of that is due to upfront investment in new program adds rolling off? Or any other color on any expense, that would be great.

Yes. Thanks, Darren. The expense, there are 2, what I'd say items I'd point you to inside the quarter. Number one is slightly higher information technology expense that goes in there. There's 2 components that are in there. Number one is the association fees that we paid to MasterCard and Visa. So on a volume basis, with volume being up, particularly in the co-brand space, we see slightly higher expense. That should continue on for the year. And then you have some information technology and investments that we're making, whether it's cloud and the like. And again, that will probably continue on.

The other item that you see is up is in the other, which relates to some operational losses, which I think is a little bit more syncratic in the first quarter and should reduce down as we move forward. So again, I think when you think about the run rate of expense dollars, there'll probably be about the same. But again, you get a step up as assets kind of come through and get some leverage in the back half of the year.

Okay. All right. That's helpful. And just for my follow-up, I want to touch on AI and Agentic for a moment. Just maybe you guys can give us more color on any incremental investments you've been making around both the AI side and the efficiencies in the business. I know your FTEs have been effectively flat since 2023. But any early signs of evidence where you might be able to create more efficiencies on that front.

And then on the Agentic side, also just incremental investments being made over the past couple of quarters to ensure that your placement on choice at the point of sale stays as high as it should be for Synchrony and its merchant partners.

Yes. It's a great question. I'll start with the second piece of that because I actually think this is the more important of the 2, which is around Agentic commerce. It's a big area of focus for us. I think we're moving very quickly here. We've got, hopefully, first mover advantage. And like you said, this is going to fundamentally change how consumers discover new products, how they research REIT reviews and ultimately purchase. It's still early. We're working with all of the top companies to ensure that as that purchasing path changes, our financing offers, our products are embedded in that experience.

So there's still a lot that is unknown here in terms of how this could play out. One scenario, which is probably the most prevalent right now is that when a consumer research is a product inside of the AI platform, to complete the purchase, it will still go back to the merchant site. We're already embedded there. So that's kind of the easier of the 2 use cases. I think the second one which is bound to happen at some point is that the purchase actually gets completed inside of the AI platform. And that's where, as you indicated, it's really important that were in there, our financing options are present in that checkout process.

The good news is our partners have a huge incentive to make sure that, that's the case. So as they're talking to all of the AI companies about how this is going to work, they're pulling us in and saying, okay, it's imperative that Synchrony's cards, our cards with them are present an option for the consumer to purchase because they want to make sure that those transactions run on our rails that the valve prop is protected, that the consumer benefits and it feels very similar to as they were purchasing on the merchant side. So that's kind of the genic piece of it.

The Gen AI or what I would call it more the productivity and efficiency piece, we've been on this for well over a year at this point, big opportunity for us. You referenced holding head count last I think the bigger benefit, frankly, in the near term is just speed to market, right? We're using this. Our coders are using it, 90% of our professional workforce is using it across all functions, across all platforms. and they're getting real economies of scale. And so I think the early returns are -- this is going to help us be a lot faster, a lot more efficient, but also free up and redeploy our resources to things that are frankly more challenging, more strategic and frankly, more fun to work on. So I'm very optimistic about how we're operating here. I think we're off and running. I think there's big benefits in the future.

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

Look, you mentioned strength in luxury strength in discretionary. You also mentioned 17% increase at the pump on a ticket basis, to follow up on Sanjay's question, can you help us understand spending and credit performance right now based on both income level and FICO score realizing that they're difference? Are you seeing divergence in the portfolio based upon sort of borrower category?

Yes. Thanks for the question, Shane. So when you go back One of the key things we talked about on this call has been payment rate. And when you look at payment rate by credit cohort -- I'm sorry, by credit -- yes, credit cohort, you see strength coming at $780, $780 plus. That is up the largest as you look at that piece of it. The next group is then the nonprime that is up. And then the middle at $650 to $720 and $720 to $780 is performing about equally.

So again, you see the top end continuing to pull up, which goes back to the mix shift I indicated earlier on the call. When you look at it by behavioral pattern inside of that, you do see a little bit of shift as it relates into in pay but that's really getting offset by -- between MinPay and Statement Pay. And when you look at it by cohort, then again, underneath that and that -- if you were paying MinPay or full pay, again, the bottom end is holding firm with regard to that MinPay and really where you see more MinPay happening is in the prime segment between $650 and $ 780.

So again, I think we see the middle moving a little bit here. But again, the high end is continuing to pull through. When we look at it generationally, again, generations in that high-end cohort are continuing to pull the spend, but slightly higher payment rates particularly at the high end of the portfolio.

We'll go next to Mihir Bhatia with UBS.

Maybe just talking about average accounts for a second. They've been declining for 6 quarters here I think some of that is just a deliberate byproduct of your previous credit restrictions. But I had a 2-part question on that. The first was just, are you seeing any shifts in consumer engagement with programs there?

And maybe relatedly, we've seen a little bit of an increase in loyalty costs. So is that like have you just readjusting programs to see that to drive a little bit more volume there? Or is it just the Walmart and some of the other co-brand programs picking up speed in the loyalty costs.

Yes. Thanks, Mihir, for the question. I'm glad you didn't change firms, by the way, as well. But on the active account, the first part of your question, that's generally just lagging the loan receivables. You should see that in Vertis we've accelerated new accounts and they begin to engage into the portfolio. So again, it trails a little bit, but you will see that inversion happen probably in the middle part of this year. So that's one.

I think when you get to the loyalty question, again, a couple of things. One, we've enhanced certain value propositions last year on some of the cards that drives a slightly higher loyalty cost. And then to a large degree, what happens when you launch some new programs, you are going to see higher loyalty costs as some of the most engaged people take up that product and they tend to spend in store, which has a higher value proposition for our partners and merchants than it does in the world. And that's just a phenomenal a byproduct of how the portfolio seasons when you add those new accounts.

Again, having 15% new account growth, again, will drive a little bit more of that in-store value proposition versus world as you launch. But again, when you look at the co-branded volume being up 20%, you are going to drive more loyalty costs, which is really a good thing. When you look at transaction frequency, it is up. So it's not -- our customers are engaging with the product and engaging in a bigger way year-over-year.

Got it. And then just a follow-up. I wanted to go back to Ryan's question about just buybacks. Can you just remind us like what's the -- what factors impact that level of buyback? Is CET1 just the binding other considerations we should be keep in mind, things like rating agencies, requirements, et cetera.

Yes. CET1 is not the binding constraint for us. Obviously, the only thing left in the capital stack that we have to fully develop is the Tier 1, so it's a little bit more preferred to do. That is not a binding constraint today for us. We still have plenty of room right relative to our targets.

There are multiple factors. Yes, you hit on one, which is radio ages and things like that, that kind of come in our regulators. But again, I think we start with how is the business performing, what's the visibility to our business performance, what do we see as RWA growth as we move through. then you start looking into factors around, okay, what is the regulatory environment? And how do you think about that? And just step through those things, that's when we set the cadence along with our capital plan and the Board with regard to do it.

We are going to be aggressive but prudent. And I think you'd have to appreciate the fact that we can't drop 100 basis points right away or go right down to the target. I think the regulators and most certainly rating agencies, our Board probably wouldn't be comfortable on that. But I think we've shown a measured discipline. You see that really on the chart that we laid out in the in the earnings deck on Page 3, where we have been accelerating capital return to shareholders.

And we'll certainly, I think when you look at the latter part of the deck, and you go back into the capital ratio page, which sits on Page 9, you see the earnings generation power of the business, generating year-over-year 350 basis points of CET1. So we are we are driving towards that target. And again, we'll use an appropriate cadence to get there and hopefully an aggressive but prudent way.

And we'll go next to Erika Najarian from UBS.

I'm glad Mihir didn't take my job. So just...

We're happy for you too, Erika.

So my first question is I know you don't love this question, but it's a fierce debate in the marketplace right now. So I have to reask it. So for -- I guess, it's 2 parts. First, based on the RSA mass, under Basel III end game that you gave us, Brian, that would essentially take your CET1 from 12.7% closer to 14%, if I'm hearing you right on the 120 basis points I guess as you think about having a higher level of CET1 relative to that 11% minimum, is that going to be biased towards buybacks or more aggressive portfolio acquisition.

And additionally, I know you don't love the question about pacing of buybacks, but that is a fierce debate right now with the investor community. Over the past 3 quarters, your buyback average has been about $900 million per quarter, which would then suggest that you would go through this current authorization in under 2 years. And thus, I guess I'm just wondering what drove that $900 million pacing? And as the receivables growth improves, is that an immediate offset to that buyback pacing?

Thanks, Erika. I won't comment whether we love or dislike the question, but let me try to -- let me try to parse it out for you a little bit as you kind of go through it. With regard to what happens ultimately with Basel III, I mean, to be honest with you, we don't know what the final rule will look like. To the extent that, that rule gets implemented the way it is today, we certainly would have a discussion with the Board with regard to our capital levels and what we do with that incremental capital. And I think we have shown over time to either invest that capital into acquisitions such as Ally Lending and Allegro and other things or we can return it back to shareholders.

But that's a decision that's going to be out. We don't -- we haven't really engaged the Board with that today. It's not something that we're working on. We're currently studying that evaluation right in that rule and seeing what are the positives and negatives and where does the need to be adjusted and where we may come on either with the industries or by ourselves. So that part of the question.

With regard to the cadence in the pacing, again, I look at a slightly longer horizon. Again, where we see opportunities and where we saw how the business perform, right, relative to the earnings power of the business and the market will lean in to the extent that, that shifts or we allocate more to RWAs, we'll adjust that pattern. So again, I'm not sure many people give a quarterly cadence. I know that's something everyone would like to do. But again, we'll be aggressive but prudent. But I think if you look back over the past history, I think you'll get a better read versus a quarter or 2.

And just my second follow-up. Just clarifying your response to Ryan and Sanjay's question, is the reserve release in the guide? Or is there only -- is the reserve release at sort of the mid- to high point of the EPS guide?

Yes. So let's make sure we're clear, Erika. I was trying to sit back and say ways in which you can get to the high end. Again, we haven't given any view on whether or not we'll be releasing reserves or not. I think if I take a step back, right, credit has been a strength for us. I think we've been a leader in the industry. I think our performance has been terrific.

Now the question becomes in the macro, we have qualitative overlays that sit there and say, okay, we're prepared to the extent that the macro environment gets worse. I think I've consistently said that where I see this if the environment continues to play out the way we think there's a little bit more of a downward bias, but I'm not necessarily sure I would plan on that today.

Again, we continue to evaluate the environment and we step out quarter by quarter. But again, we haven't provided guidance that I was only trying to give some of the previous analysts away when you think about the range of where you can end up inside the range.

We'll take our next question from Mark DeVries with Deutsche Bank.

Could you comment on how the pipeline for new program acquisitions or signs look kind of relative to recent history. And how meaningful those types of opportunities could be for growth over the next year? And if possible, comment on kind of how big of an opportunity you think the new RH program could be?

Yes. Look, we continue to have a very active pipeline, a combination of new start-up de novo programs, which we're really excited about, some existing programs I would say the existing programs that are coming to market in the next year or 2 are in kind of the midsized range, nothing really that significant in terms of portfolios we require, but we've got a great track record of buying portfolios, winning programs then driving a lot of penetration and seeing really good growth there.

So across all 5 of our platforms, it's got a very robust pipeline, I would say, in traditional programs, but also a nice pipeline of opportunities in what I would consider nontraditional opportunities, whether it's ISVs inside of Health & Wellness or Home & Auto in the more fragmented space.

So -- and the good news, too, just to add on to that, we're seeing pretty good price discipline in the market. That continues to be the case. That's been consistent for the last 2 or 3 years. There's always some pockets of rational behavior. But generally, I think the industry is pricing in the right way for this environment, and we're winning the programs that we want to win. And we're very excited about RH. It's a great franchise, and we think we'll be able to drive a lot more penetration and really grow that program.

And we'll go next to Moshe Orenbuch from TD Cowen.

Maybe to kind of follow up, 4 out of your 5 verticals all had growth, some have been pretty strong growth in purchase volume and Home & Auto was flat, although with down 6% accounts, I guess, had okay growth per account. Could you drill into that a little bit? Like what went on there from an account perspective? Are there things that you're doing to restart account growth in some of those programs? Obviously, you've got some new programs. But in other words, that existing base because that is about 30% of your receivables. So can you talk about the plans there a little bit?

Yes. Thanks, Moshe, for the question. So when you think about the Home & Auto platform, this is a large portion of our promotional financing business. So those average active accounts when consumers are engaging in those discretionary purchases have a tendency to stick. And again, as we've said, they have been a little bit more challenged, particularly in the home specialty space with regard to making those bigger ticket purchases. So that has impacted more of the more of the average account growth.

Again, what you've seen is a positive trajectory on Home receivables. But again, you have a fairly broad mix inside that sales platform everywhere from do yourself at Lowe's to home furnishings than to Furniture. And then we'll, certainly, you have Auto, which has a very different dynamic right relative to the average transaction values and frequencies of purchase. So it's more about the mix inside the Home & Auto platform than a delivered strategy that we have.

Again, we're moving into an important part of the year for that vertical as you begin to see more things around the Home, whether the Home projects and specialty will certainly do it yourself, et cetera, that again, you tend to see a little bit more of the volume acceleration. So that with the launch of a couple of new programs, both Bobs and RH and again, hopefully, that will create a little bit of a tailwind for that platform.

And maybe just as a follow-up, Brian, you had mentioned that not just the impact of tax refunds, but the benefit going forward kind of lower withholdings, I guess could you talk about that a little bit and whether that has been a driver in your -- both credit and spend outlook?

Yes. That's a great question, Moshe. And it's probably harder to discern that piece of it. You can look at the flow of dollars into the economy in a similar level relative to the refunds themselves because they're lumpy. As you begin to see this flow that comes through throughout the year, it is harder to pull that piece apart.

What I'd say is if you looked at our purchase volume going through the quarter, it has been relatively consistent. Absent the 2 storms we saw at the end of January and early February, has been pretty consistent with regard to the growth. Now that's a combination. Part of that's going to be withholding. Part of it is income tax refunds. But really, it's the consumer and some of the discretionary purchases and rotation that Brian talked about in the prepared remarks, kind of pulling through.

Again, if I look at the first 3 weeks of April, we continue to see that strength kind of come through. Again, I'm not sure I can isolate or anyone can really isolate the withholding piece of it. But it must have some effect inside the overall consumer spending behavioral patterns.

And the last thing I'd say, even inside of April, we saw the last 3 weekends have been 3 strongest weekends of the year, most certainly ahead of last year's pace. So we're encouraged about the consumer, the resilience and their willingness to engage with our products.

At this time, we have time for one final question. And we'll take our final question from Saul Martinez with HSBC.

Wanted to go back to expenses. I know for '26, you're expecting expenses to track loan growth. But beyond '26, is the idea -- can you just comment on your ability to deliver operating leverage as you exit '26 and into '27 and top line growth accelerates. And just kind of how do you weigh investment needs? You talked about AI and Agenetic earlier versus the ability and willingness to let revenue flow down to the bottom line.

Yes. Thanks for the question, Saul. Our intended way in which we want to run the company is we don't want to be adding head count right now. We want to be able to drive productivity through tools that Brian talked about, when you think about simpler things like engineering, but how do we drive AI for all aspects of our business to drive a flat head count environment and get leverage and drive the operating leverage when you look at NII growth relative to OpEx growth.

So again, where we want to increase our spending inside OpEx is around some of the technology that creates a differentiator for us and gives us first-mover advantage, particularly when Brian talks about things like AI. So again, I think we want to be disciplined on the core cost, bring our core operating costs down for the consumer, but then continue that investment for the medium to long term in technology, whether it's cloud or AI or other things in that nature. So again, while trying to drive that operating leverage of having NII grow faster than operating expenses.

Okay. Great. That's helpful. Then maybe just a follow-up on the consumer. It seems like there's a little bit of a divergence between really strong credit trends, high payment rates persisting -- but you also mentioned minimum payments having gone up and correct me if I get maybe details wrong, but in the super prime and the higher end of the prime market. Can you just comment on what you're seeing there? Is that just a normalization from historically low levels? Just any color there would be helpful.

Yes. I don't believe it's necessary you saw a divergence. I think it's the way customers engage with how they pay. A lot of times, you see people engage in auto payments and they set it for minimum payments versus setting it for a full statement payment and make the option to make incremental payments. So it's not really a divergence.

I think if you take it up a level, what we're clearly trying to articulate is that we see strength in the consumer from a spending behavior pattern from a payment behavior pattern and is flowing through, which has a little bit of a drag on NII but clear strength in maintaining credit now we're in April, and we have a good portion of the year now covered, that's a good base for us to continue to deliver through what is an evolving macroeconomic environment. So I think it's relatively consistent, and we're pleased with the performance of the consumer inside of our products.

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

Everyone. Thanks for being here. Our next fireside chat session is with Brian Wenzel, the CFO of Synchrony Financial. Thank you for being here, Brian.

Jon, thank you, and thank you for the invitation.

Yes. Good. I think most people know who Synchrony is, but if you could just give us a minute on introducing Synchrony, we were talking about more generalist interest in the space. So give us a 30,000-foot description.

Yes. We obviously are one of the largest credit card issuers in the United States of America. We are 1 of probably, I'd say, 2 full spectrum lenders, which means we go super high FICO, but we can also go a little bit deeper into nonprime. And our model, right, is to have a multiproduct set that we can bring to partners. And if you look at our partners, they're some of the largest and best in the world when you think about an Amazon, a Walmart, a PayPal, a TJX, a Lowe's. I mean they're just tremendous customers. And then you look at the ability to offer installment lenders, installment lending, secured or unsecured, you can do private label cards, we can do a secured card. We can do a dual card, we can do a co-branded card. We can do a business, private label card, business dual card, invoice-based. So we can bring an entire solution set.

And then the last thing I'd say is the model is different. We have a scale model with over 70 million active accounts, well over 100 million trade lines. So we have tremendous access to data that allows us to really have a unique underwriting engine to do that. But the beauty of the model is our economic arrangements with partners provide stability and returns. So it may cap the upside, but it gives you a good floor on the bottom side. So the returns in this business are incredibly resilient.

Good. I described you this morning as being in every part of the K, the intersection of the K.

Yes. No, that's a fair point. We have probably 27% that's nonprime, but we have a bunch that are super prime. So we see the consumer and every day, we have probably better than most visibility into what the entire U.S. consumer is doing and how they're generally responding to the environment.

Yes. That's a good segue to maybe the question on everybody's mind. What are you seeing in the economy? What are you seeing in terms of consumer health? There's obviously a lot going on.

Yes. It does get tough when you keep coming to these conferences. -- someone expects you to say something different. I mean I walk -- before I came down, I at CNBC on and everything is death and doom and that's the news cycle, right? But the consumer generally overall is hanging in there, right? And the narrative really hasn't changed. I think we were one of the early ones to talk about the K-shaped recovery. I'd say the lower-end consumer continues to firm. So they've kind of withstood whether it's the high inflation that they felt and affordability issues that they felt, but they've gotten wage increases.

The lower end -- I'm sorry, the higher end has pulled the economy. They feel a little bit more -- they're coming down a little bit flattening. The pressure point a little bit is that prime customer in the middle, right, who hasn't gotten as much of the wage increases but it's felt the affordability concerns that kind of comes in there. But overall, all 3 folks are generally doing well and being very consistent in their patterns.

Okay. You filed your managed portfolio 8-K this morning for February. Talk a little bit about what you're seeing in terms of the underlying spending and payment trends and receivables growth for the month.

Yes. Again, we look at the progress we're making. I said earlier this quarter, and it's continued on. It's actually accelerated. On a purchase volume standpoint, we accelerated in the 4 quarters. Last year, we're down, I think it was minus 4%, minus 2%, plus 2%, plus 3%. That's accelerated here in the first quarter from that -- from the fourth quarter. It's probably accelerated a little bit more in February than January, but both months had accelerated from the exit point in 2025. So we feel good about that.

I'd also say, even though you see that acceleration at the top of the house, you can't lose sight of what's happened underneath, right? So we actually lost $400 million of sales for the 2 weather storms that came through, primarily the East Coast, but a little bit of the South. I mean $400 million of sales took out quite a bit. And some of the sales are tougher to get. If you're in a dentist and your appointment gets canceled, it's not like I'm going to get that -- I'm going to get it eventually, but it doesn't come right back.

So even with that, the sales have been terrific. So we've continued to make progress on the inflection of receivables. I know everyone's focused on that. So we feel good about where that is. One of the things, Jon, that's a turning point for us is when we look inside the portfolio is where we're going on discretionary purchases, and we start to see really positive signs in there. So we feel good about growth and where it's heading.

What's an example of that on the discretionary side?

Yes. So think about Home & Auto. So furniture is a big one. Home specialty would be a big one. You're starting to head into the spring season. So if you look at 2 platforms inside of our business, Home & Auto and lifestyle, they were the laggards, I'd say, because that's where the bigger ticket purchase are. And you think about lifestyle, this is going to be outdoor power sports, outdoor power equipment. So your Polaris, your Briggs & Stratton and lifestyle. And then you think about home specialty, we've actually seen really positive trends regarding transaction frequency in those 2 businesses and value. So they are trending upwards.

I'd say when you looked at President's Day, we were negative a year ago on President's Day. This year, we're just about just a little bit under 10% on President's Day, and that's huge for that business because they run a lot of sales and promotions. So we feel encouraged by those results.

Okay. Anything else, any other shifts from the fourth quarter trends you want to flag? And it sounds like you're feeling confident being able to recover some of the weather-related.

Yes. That will come back. Listen, we like the trends in the portfolio. It goes back to -- we have a pretty diverse set. So I think when you think about it, we want discretionary purchases to come back. That's really where the consumer confidence kind of comes in. When the consumer is confident they're going to spend more, again, we're seeing the green shoots in the business. We see frequency our cards up, which is terrific. So again, good trends as we exited 2025. And again, through the first 60-plus days here of 2026, we're pleased.

Okay. Now that we're into March, any update on tax refunds? You've talked about that quite a bit in prior calls, but any impact on fundamentals, credit paydowns, volumes?

Yes. Volume is a little bit early, but we obviously are looking at volumes and we're looking at the payment trends, right? If you go back and just for your audience, we expect ultimately, tax refunds when you get through the season to be up somewhere between $500 and $1,000. I think they're up 11% today, which is a little over $300. But again, you're going to get some bigger refunds that roll through a little bit later. There is separation that happens with tax refunds. So the way the tax reform from last year happened, there's going to be a little bit higher benefit into that, call it, more income levels that are probably $100, $150.

So someone who makes a little bit more money, they tend to file late. You would tend to see some of those folks pay down debt or save. Right? The more moderately -- the more moderate consumer from an income level, so you think about selling $50,000 to $75,000, they're already levered. What they do is they tend to consume a little bit more, right? So they tend to kind of spend because they've been tight. Now I get the tree, now I can do certain things. So that's the separation we see. Now again, being a full spectrum lender, I got both sides of that barbell.

When I look at the early days here, and again, we're only through a couple of weeks of the tax returns, payment rate for us, if we look at -- go back for the last 5 years, and I look at how payment rates developed here in the weeks preceding tax refund filing season and what they are now, payments rates elevated just under 20 basis points. So we see a little bit of paydown that's happened versus historical average, but again, not overwhelming at this point. Again, I think you see the sales component probably is more of a March phenomenon and April phenomenon than it would be late February, early March.

It sounds like you don't have a preference for how consumers deploy their tax refunds in any way.

Jon, we ultimately want the consumer to be disciplined, right, whether that's paying down debt or consuming it because they know they can pay it off. That's what we really want the consumer to do. And what we strive to do is to be there for the consumer when they want to make those purchases. And so we'll support them in any way possible. And again, I feel really good from a credit aperture standpoint where we are. So again, whether the customer wants to pay down the debt, which gives them more line to ultimately spend or if they spend, we want to be there for them.

Okay. You commented on the negative news cycle. Do you feel like that's just disconnected from what you're seeing from a consumer spending point of view? Or how much impact does that have? We look at it every day, but -- what do you think on that?

I think there are so many data points that Jon are a little bit conflicting. So I think someone latches on to one data point and moves forward. So you look at the jobs report from like last week and suddenly, the jobs markets moved in a certain direction and something happening. You got to look at a whole dashboard of different types of metrics to lay a story out. And sometimes one metric isn't necessarily the metric. Like when we look at unemployment, yes, we look at unemployment rate. That's probably not the first thing we look at. We look at unemployment claims, but then we go back underneath it, what are the fundamentals of the employment market, which are some positive, some negative.

So is it softening? I don't know, you look at openings, firings, participation rates. You look at participation rates by categories where jobs are being added, you have to look at that whole story. And I think, unfortunately, what we see in the media and other things, people latch on to one rate and try to take that across a broad set of assumptions, which could be a little bit dangerous.

Yes. But you don't feel like it's significantly worse than it was a year ago?

No. From a year ago, it's probably a little bit better. I think inflation is probably a little bit better, but affordability is still an issue for most Americans. Most certainly now you see it with gasoline kind of going up. That just puts more pressure back on to the consumer. You just had an inflation print that wasn't the best. But again, it's one data point. But overall, the consumer has weathered this. And I think the real question becomes, does '26 look a lot like '25? Or do you start to see positive trends, particularly in the back half of the year to exit out of it? And then that's what we hope. We feel it's going to be a lot like '25, but we hope it trends out so that you're exiting out of '26 in a much better position.

Good. That's good to hear. It's a constant fight, as you know.

Yes. And again, the death of the consumer is not there. The consumer is hanging in there. And I think we just -- you need to be patient with what's going on.

Okay. Turning to the balance sheet. You're still talking about mid-single-digit receivables growth in 2026. Talk a little bit about the building blocks of that guidance, first couple of months, how do you think they've tracked? And what are you kind of broadly assuming to get you there?

Yes. So we've qualitatively, Jon, try to break it into a couple of pieces. Number one, the biggest building block for us is core growth, right? And what drives core growth is really that discretionary purchases. So areas where we've seen the consumer be a little bit more thoughtful with regard to consumption. Again, we talked about in the Home & Auto business, particularly in home specialty, those are bigger ticket items where people have pulled back mainly on confidence. We're seeing green shoots. We've seen the year-over-year Vs decline there. We've seen positive transaction frequency increasing there. So that's positive. You see it, again, in the lifestyle business.

You even see it in our health and wellness business when you think about cosmetics. So we see more Botox treatments than you're seeing actually cosmetic surgeries. People are willing to consume. They're just not as confident last year. I think that's the biggest building block is to have that consumer confidence turn -- and again, we've seen positive results here in the first couple of months of 2026.

The second building block is new programs. Obviously, our relationship with OnePay and Walmart, which is off to a terrific start. That's going to be -- help the growth rate in 2026. We also have -- we're excited about the relationship with Lowe's, who's been a partner with us for close to 50 years. But taking a commercial program from American Express and bringing that over here later in the second quarter, that's going to provide growth. And then winning Bob's Discount Furniture. That's one of the top 10 furniture retailers. So they'll begin to add growth. And again, we're launching Chico's, I want to say, in the next week or 2. We have RH, which again, is very small, but that back half of the year. So that's the second building block is kind of program launches and programs kind of coming through.

And then the third, on a much smaller basis is some of the credit aperture changes that we made in the third and fourth quarter last year that will help. So those are the 3, again, core being the larger one, then you have the new programs and then credit.

Okay. Can you talk a little bit more about the new programs that you've onboarded? And how are they doing? It feels like this is going to come later in the year, but talk a little bit about the cadence of that as well.

Yes. They're constantly going to be stepping up here. I mean we're really excited about the couple of programs that we're launching. Walmart is a tremendous retailer. We had a very long relationship with them that stopped a couple of years ago. We took a break, and now we're back, which is a testament, I think, to our capabilities and what we can kind of bring -- but again, they have such velocity of customers and such customers who are loyal to their brand, providing a valuable product to them, particularly when you think about Walmart+ and what they're trying to drive there.

So to the extent that we can maintain relativity, and again, I think today versus what we had before, we have a much better product or much better value proposition, we're appealing to a broader customer base. So there, we just got to continue to execute. We have tremendous placement digitally, both in the OnePay app, the Walmart app, the website. We'll get stores. We'll focus now on stores. We have great size there. So that's tremendous.

I think the Lowe's opportunity is another one here where we were doing the private label part of the business. Amex was doing the co-brand part of the business. When you combine that, the power of 1 plus 1 is going to be greater than the 2 programs individually because if American Express was declining someone, that customer didn't get approved. if they want a co-brand card and not eligible for it, we can give them a private label card. So we should be able to accelerate the combination of those 2 programs. And it goes back to our strength and ability to execute with Lowe's.

So we're excited about that. The capabilities we have allows us to play and win when you think about Bobs. And then you look at what we've done in the last couple of years, the Venmo relationship and the way in which we've integrated into that app is outstanding and clearly a top 10 program. We got Verizon right behind it, which has a very terrific value prop. So we continue to win with, I think, a wider range of partners, mainly based on the capabilities we've built over decades.

What does the pipeline look like? I mean, what are we going to be talking about in a year?

Yes. The good news -- let me start with us for a second. Our large partners are all 30-plus, our top 5 partners. And I want to say 97%, 98% is locked up '27 and beyond. So we feel good about where we are with our partners. I'd sit back and say there's some midsized relationships that are probably more end of '27, '28. I think there's a little bit of mull. So I think you're going to see some de novo things that are happening in the next couple of years. But these are long-cycle sales relationships. So we're talking to people about '27 and '28 now for opportunities that are in the market. And listen, I think there are going to be real questions on some of the competition of like where their focus is going to be. So we really feel well positioned to win that, and we're very competitive. We're not going to be the leaders on price, and that's okay because I think we bring tremendous value. We want to get paid for the value we bring.

Okay. You touched on competition. And I guess maybe a 2-part question here, but what would you -- how would you describe your risk appetite now? Is it -- I don't want to say looser, but it feels like you're more willing to grow? And then what's the competitive environment like in general?

Yes. Jon, this is a very interesting question. Do we have an appetite to grow? We always have an appetite to grow, right? We want to be a growth company. We want to look at a long-term framework of that 7% to 10% growth. That's where we want to be, but we're not going to do that at all costs. That's not the singular metric. We want to be efficient. We want to drive returns. I think that if you're investing in Synchrony, it's about are you getting efficient capital utilization. We want that 2.5-plus percent ROA. We want the ROTCE in the high 20s. That's what we're trying to drive. And I think just to grow and not necessarily achieve that or add accounts that don't meet our lifetime value, that doesn't make a lot of sense to us.

So we have the appetite to do it, just weather the environment, and we're not going to chase growth for no reason. So that's the purpose. And so I think now, again, we saw a couple of years ago, there was too much credit that was pumped into the system, right? When loss rates kind of went up, that was not a macroeconomic event. That was an overextension of credit event. That has rationalized since, call it, mid-'23, where I think issuers kind of pulled back. And at the same time, there's a lot of score migration. So there's a lot to work through over the past couple of years. A lot of that's behind us, not all of it's behind us, but that's why you still see certain card issuers with elevated loss rates. We tightened because it wasn't efficient for us to go back. Yes, we could have had a loss rate that's over 6% and kind of continue to grow. That's not where we wanted to do that.

So yes, I have the appetite to, but we're going to be very disciplined with regard to driving the returns being efficient. I have better uses to deploy capital than to deploy it in lower returning assets.

Okay. What -- how do you describe the BNPL competition at this point? Is it more aggressive, less aggressive? Is it a threat to some of your originations?

Yes. Listen, we always have respect for people in the business. But you got to go back to the customer that a lot of those folks are trying to get. They're trying to get people who are cash, people who aren't going to take credit anyway. So the population of people they serve is different. Yes, there's some overlap. So I can't say they're 100% unique, so they are overlap. But we've been able to do, Jon, and look at where they have been in places where we are, and we haven't seen them necessarily affect our volume. And in certain cases, there's a very clear delineation between where they play and where we play. So we tend to win -- consistently win and win at a high level on bigger ticket installment lending. So we can step in.

We have the balance sheet. We have the scale. We have the servicing capabilities. They tend to play in smaller tickets and smaller size installments. And that's where they want to play because they're trying to get velocity, they're trying to get scale. They can't take the risk on large tickets. I mean, a lot of their presentations about, hey, listen, we can get you 100% or not 100% or close to 100% approval rate. But what they do is say, okay, here's a bigger ticket, put 50% down, I'll prove the rest. I mean we'll sit back and say, I'll take the big ticket. I'll underwrite the full 100%. So it's a different type of model. I think what's interesting about their model was a lot of it was anti-credit cards, et cetera.

Now you see them saying, okay, the one product probably doesn't work. You can't get enough scale off of one product. So they're trying to create -- go to more traditional products, whether it's debit or credit in order to try to create that full spectrum. But again, they don't have the scale that we have, which is a real competitive advantage for us.

Okay. On the credit topic, you've provided your loss guidance, 5.5% to 6% for '26. Are the tightening actions fully reflected in what you're seeing today? Do you expect some tailwinds to continue in 2026? You're clearly in the range today, but how do you expect this to play out?

Yes. We had the opportunity, Jon, at a competitor conference a month ago to kind of -- I try to clarify this a little bit. When we laid out our outlook and we put the page up, we put our long-term framework up for charge-offs. People are reading that as technical guidance and your guidance is losses going up, not like that was really not the intention of it. I think the intention of it was to say we have stable credit. And again, we view that and we continue to view that credit is stable. You look at the results today, when we look at it both on a net charge-off basis for February as well as 30-plus delinquency, we're better than seasonality on both those metrics. We continue to be better than seasonality.

And again, I expect that to kind of flatten out and normalize here, but we feel really good about it. We took tightening actions in '23 and '24. Those are kind of fully seasoned in the portfolio. We took some actions, different actions where we opened the credit aperture in the third and fourth quarter of '25. They'll season out back half of this year, third, fourth quarter into the beginning part of '27. So again, you'll continue to see those effects kind of build throughout the year. So -- but we feel good about where the aperture is now.

But Jon, one of the questions that we get quite a bit is like why are you in a more restrictive type situation than maybe others. If you go -- and this is not Synchrony, just you can go to the credit bureaus, probability of default across every credit grade is up versus the pre-pandemic period. A lot of that's the liquidity and excess availability of credit that's in the system. But that's something that we watch. And you look at the macro and say, okay, inflation is still not where we want it to be. Interest rates are higher than a neutral rate, so it's a restrictive position. So we're cautious from that standpoint.

But again, we're not blind to the fact that, that probability is up. That's why we are better positioned because we control line sizes better right? We have a lower line structure so that our exposure at default is going to be less than our peers. So that's how we control the loss lever. And again, we came in saying credit will be stable in '26. And so far, the first 2 months of the year has most certainly met that standard.

You may have just answered it, but just comfortableness with the reserve level and potentially bringing it down? Is it just a lot of the factors that you just discussed?

Yes. The factors that go into the reserve, and I said back in January, and I don't think it's any different. There's more a downward bias on the reserve. Again, think about the first quarter, the rate naturally goes up based upon seasonality. But there's generally a downward bias because the loss performance has been steady. If I look at entry rate has been better than the pre-pandemic period. We see strength across pretty much all delinquency stages, except for to do right now. So we feel good about that. That's the biggest contributor to your reserve rate. And then you overlay on macroeconomic assumptions that are generally a little bit more pessimistic right now.

So as you get more comfortable with the macro and the macro is not going to deteriorate and you have this kind of continued stable performance, you should see a general -- a more downward bias on to the rate. And again, I'm not locked into CECL day 1. There's not a benchmark. Day 1 was here for about a week, it felt like in 2020 before the pandemic hit. So again, we feel comfortable that the reserve rate does come down. And we feel when you have a CET1 plus reserve rate over 25%, the balance sheet is well prepared for any economic scenario.

I want to touch on a few more things, but just quickly, am I going to be here next year? Or is it going to be a robot? How do you think about AI and job loss, obviously topical for your company?

Yes. This goes back to the way in which certain things are presented. I think when you hear companies talking about these massive job reductions in AI, I would probably use some professional skepticism with regard to that. There's a lot of probably bloated structures where people are eliminating roles more so than AI taking jobs out. That said, Jon, in theory, your job should get more efficient. I don't know exactly what you do. Hopefully, these guys know what you do. But AI should make your job more efficient. I think that's -- as we at Synchrony look at it, it's less about full job replacement versus how do you kind of make things more efficient in what you're doing and really changing the roles in which people have.

So we don't sit there and say, hey, listen, we have a person in the loop, right? So even though you deploy AI is not going to run everything. And AI is not going to kind of take over the world. It will make you more efficient. If I look inside our company and sit back and say, okay, take disputes for a second. You want to dispute a credit card transaction, you submit something via the mobile device, the web, you call in, there's an intake. There's document gathering. There's data gathering from retail partners. There's an evaluation of it. You determine it, you communicate back to the consumer, consumer comes back to you. That is an incredibly manual process today when you think about how data is gathered, whether it's -- you're getting it from restaurant, a big retailer, et cetera, how the intake form kind of comes in.

AI can streamline that and give you a better customer experience. Yes, there could be some job losses there, but you're going to have someone that ultimately reviews that and says, is the model making the right determinations for the consumers. That's the kind of thing you'll see. So I'm not 100% sure your job should be easier to some degree because some of the things that you don't want to do today.

And let me just give you another example, like engineering is a great one. Yes, AI can write code. But guess what, the engineers like writing code, what they don't like is the documentation and testing. AI can do the documentation and testing and then you can get either -- you can reduce the number of engineers or you get faster in your technology advancements. And that's how we look at it is take the things the engineers don't want to do, replace with AI. And give them the capacity to make changes at a more rapid level and you can see your services really and your capabilities advance at a faster clip.

Okay. Just on capital, you have stress test coming up. Talk a little bit about that. Talk about capital allocation. Are you thinking about returning capital to shareholders as well potentially?

Yes. We're in a position of strength when it comes to capital. We have excess capital today, and we're going to be aggressive and prudent in deploying that. We built this company around the CCAR process. We are our first year in the CCAR process. Fortunate for us that the Fed has made some changes where we now have been assigned a stress capital buffer of 2.5%. We won't get another one until '28. So -- but we feel good about where we are. We've had very constructive conversations with senior leadership at the Federal Reserve with regard to the models and how they work and how they're going to be reflected upon us. So we feel good about that.

And so we're going to have a capital plan now that we're fully CCAR, we're going to have a capital plan that's consistent with what we've done in the past. Our capital allocation priorities have not changed, right? The first one is going to be organic growth. And we look at the opportunities we have in our health and wellness platform, our digital platform, some of the programs we have, we want to allocate capital there first. We obviously want to maintain and grow our dividend. And then it comes back to the balance because we generate so much capital on an annual basis and we have the excess capital, again, we'll either be aggressively but prudent with regard to share repurchases or look at inorganic opportunities.

But those inorganic opportunities are not going to be huge. They're going to be more of the bolt-on things that we've done, whether it was Ally Lending, Pets Best a couple of years ago, Allegro, which was audiology and health and wellness. We're going to do things like that, that are real bolt-ons, a real attractive one we just did was Versatile Credit. So we'll focus there. But again, organic dividends, then share repurchases or some inorganic growth.

Okay. So to sum it up, you feel fine about growth despite the noise, you feel fine about the credit guide despite the noise. feel good about capital return. Anything else you want to flag?

No, listen, I think the model is working where we'd like. The RSA is a good buffer. As the program performance increases, RSA is going to go up, but it's providing the resiliency in this business. So you're seeing the turn back to growth. Credit is well contained. I'd argue, probably best in the industry. And again, we're leaning into the places where we can make a competitive difference. So we're excited about where '26 is, but we're obviously closely watching the macro.

Okay. Good. Thank you, Brian.

Thank you, Jon.

All right, everybody. So continuing on to our consumer finance team. We have the best of the bunch in the middle. Synchrony Financial's CFO, is joining me, Brian Wenzel. Thank you, Brian, for coming.

Erika, thank you for the invitation. I guess that [ nice is going to mean you're going ] to ask me tougher questions and both Christoph...

Block and bridge...

Block and bridge.

So let's start off with a top-of-the-house question. So a lot has happened since we were last on the stage from both a macro and a policy standpoint. So the first thing I really want to do is double-click on the health of the Synchrony consumer and how it may have evolved over the past year given all the moving pieces in the background?

Yes. Great question, Erika. I feel like when I get asked this question, you feel like you're saying what everyone else is saying about the stability of the consumer. And I think if you go back a couple of years ago, as one of probably only 2 full spectrum lenders in the United States, I think we were one of the first ones, I think, to say about there's a K-shaped recovery here, and we felt more pressure at the lower end. The high end was doing really well.

I think if you look at what happened in the last year, you've seen that low end be really stable, that nonprime customer have been stable. Yes, there are some maybe noise in auto, subprime, et cetera. But that consumer is doing fairly well, relatively speaking, very stable. The high end has come down a little bit. It feels a little bit more pressure. Maybe they're spending a little bit more, but that high end has a little pressure. Where you're feeling more of the pressure, what's developed in the last year is that prime customer right in the middle. So think about someone that's in that 660 if you using FICO or 650 or is Vantage, to 720, they are feeling the effects of, number one, their wage growth hasn't been as strong as others.

And number two, affordability, when you think about real affordability around groceries and gasoline and housing utilities and insurance and health care, that's weighing on that middle consumer a little bit more. So they have a little bit less disposable income. And we see that in some of the purchasing trends as well as a little bit of the credit, but not in a bad way. So it's not concerning, but you do see divergence again from that case, shape really into now in the middle.

So that's interesting because we've long been talking with investors about what shot for the vulnerable middle. -- because it feels like to your credit, you've talked about this case shape for a while, but you've also started talking earlier about the stability in the lower end of the K, starting to take place?

Yes. The one thing about that consumer, that nonproduct consumer, they understand how to get by, right? And they've demonstrated that over time. They're the ones that are going to take multiple jobs. They're the ones that go into greater economy. They're the ones who can make $1 go further. It's that middle person who is maybe making $80,000 a year, $100,000 a year, but they don't -- they haven't had to struggle.

So when they have to struggle and go a little bit harder, it's not necessarily muscle built up over time.

So to begin the year, investors were super excited on finance names like your company, given what they thought to be or seeing a tailwind from the big beautiful bill. I know you've taken this into account your outlook, but maybe unpack what you think the impact could be and maybe sort of separate purchase volume and payment?

Yes. So if you go back and just make sure we work rounded an average refund is probably mid-3,000 -- so between 3,000 and 4,000 depending upon where it is -- when you look at the elements inside of the tax reform that happened last year, a lot of those benefits when you think about it accrue to some people who are probably going to make a little bit higher end on the spectrum.

So you think about someone who's making $100,000 to $150,000, they're going to feel some of the more soft deduction benefits, et cetera, that are going to kind of flow through to them. you then add in the combination at the withholding tables and '25 haven't been updated, right? So when we look at what's going to happen, we view that the average refund amount is going to go up $1,000 a little bit more to, I'd say, that higher income, right? $100,000, $150,000 less to the more moderate income.

When we then pull that apart, what we sit back and say is that $100,000 to $150,000 person who's now going to get a benefit of 26 withholding tables and that extra refund, more likely than not those 2 things, either, a, they pay down debt or be they save, right? When you go to someone who's more moderately income price, they've been kind of getting by, they get a little extra dollars and what they want to do is consume, right? So you're going to see what we think is more purchase volume oriented activity from them.

And I think you'll also see with the holding tables getting updated in '26 more velocity at that lower end consumer more moderately income consumer. So again, when you think about our full spectrum, we have the tail 2 cities. We're going to see some may pay down debt, and we're going to see some that are going to spend more.

So I think it's net-net, there's probably a little bit upward bias to the payment rate, but it will be a little bit more neutral for us. other people who maybe hear higher on our full spectrum, I think, will have greater pressure rate relative to pay down of existing balances.

So generally speaking, you could see both upward pressure in the purchase volume and up payment rate, but relatively neutral to your financials?

That's the way we're thinking about it is relatively neutral. But again, we'll see, I mean, 55% of tax returns historically come by mid-March 85 or so by mid-May. So you'll begin to see some of the effects in the latter part of February kind of play through here a little bit. again, it depends upon the IRS staffing, which has been a little bit more challenging. So they may be a little slower than history, but that's when you'll start to see the effects of it.

So just to contextualize this, and given how you frame the refund benefit and tailwind. Do you have an update for where your medium annual household income is or ranges that could be helpful for investors?

We don't really break that out externally. What I said back in say we are a full spectrum. -- everyone kind of thinks about our business as being a little bit more non-prime. We're 27% nine-prime. So less than where we were in 2019, less than some of our peers who play that full spectrum piece. But we also have a significant portion of the portfolio that sits in super prime 760 plus and part of the dynamic and maybe just hit on a topic here related to the composition of the portfolio Erika, people talking about the payment rate, what's driving pain rate we talk about promotional financing being lower, and we talk about the mix.

And I generally have led people to -- we have less nonprime, which revolves and probably a 10% rate or I'm sorry, pain rates 10% versus a group that's probably more in the high teens, which is your prime customers. If I pull that apart even further, -- we haven't really talked about this, but we've seen about a 700 basis point increase in super prime, which carries a payment rate of about 31%. That's come at the expense of, again, of having less nonprime and less of that middle piece. That is also a byproduct of the credit actions that we've taken in order to get credit and control.

And that's the mix. But we have a good -- a very significant percentage of the portfolio that is super prime. That's an area. And that's why, again, you look at the value propositions that we have, we do have top of looped -- when you look at someone going into Amazon getting 5% off going at the lows and get 5% off going into Sam's our One Pay Walmart card has a very good value prop. So you're going to track that customer in as well.

We definitely want to talk about Walmart OnePay. But maybe just staying at a higher level, you talked about both average transaction value and average transaction frequency increasing throughout the year. What are the signs of building consumer confident are you looking for in your book?

Yes. So let me just go back and we see very good trends when we look at average transaction frequency. And we cut it 2 different ways, Erika's. We look at it both from a credit rate perspective and then we look at it generationally. So is there a cohort that feels like it's struggling either way. When I look at average transaction frequency, it's kind of up across all those -- so look at it generationally or I look at it on the critical words they are trending in the same way. The slope is actually pretty much the same, too.

So there's not a segment demographically or credit-wise that we're concerned about. When I look at average transaction values, again, what you see is that nonprime and the super prime are advancing an average transaction value, the prime customer is down, I want to say 20 basis points, so essentially flat. -- but that's where you see the pressure. So we see good momentum there.

I think what we started to see in the latter part of 2025 is some areas more into discretionary. When you think about electronic you think about other things that are not necessarily everyday purchases. That's what we're looking for. I was a little bit surprised about the consumer confidence that came out a couple of weeks ago because we've seen some green shoots in the portfolio.

Home specialty has been significantly impacted over the last 12 months or so because that's a big ticket discretionary when you're thinking about generators, roofing, windows, large ticket purchases, -- but we've seen that get less negative each quarter in 2025. So the view is hopefully that the consumer feels good enough and when they have the confidence to step into really what's a spring holiday season in home improvement, into those projects.

So we've actually seen positive momentum, at least quarter-on-quarter inside home specialty. And we've seen a little bit of green shoots in cosmetic in the health and wellness business. That's 1 where people have delayed procedures. -- but a transaction value down I'm going to get, say, a BOTOX procedure versus another one. But we've seen strength in audiology, which are bigger ticket -- so again, for us, it's a big ticket.

And that's what you see when you go to the sales platforms, our home and auto platform or lifestyle, those are bigger ticket discretionary. That's the biggest thing that we're looking for. That's the one that holds us back a little bit. is that person want to go out and say, "Okay, I have the confidence to invest in my home or invest in something in outdoors, let's say, in lifestyle.

I mean you have pretty great partnerships, Lowe's, RH, [ BOP ] discount furniture -- so it sounds like you don't have much acceleration in your outlook in terms of some of this big ticket stuff that it could be upside if some of this turns?

Some of it's going to be based on the core. Like if you look at the biggest part of our growth going from, call it, down 1 to mid-single digits is the core. And there is a good turn that's in there for some of that discretionary Bob's was really excited about getting another top 10 furniture dealer here in the United States. RH is a great brand. They're going to be small impacts this year because they're second half. They're not big. They're more what I'd say is 26 oriented.

And listen, Lowe's is a tremendous partner. They've been with us over 4 decades and they continue to win in the space and do-it-yourself base as well as the Pro space. So we're excited about that. But that's going to be some of the momentum and then how do we reinvigorate the growth in health and wellness that probably was more impacted from some of the credit yes.

We have to touch on Walmart One Pay and you mentioned during the call that it is one of, is not the most successful program launch and company has what's different this time versus your previous partnership? And what's resonating with consumers in terms of the current offering that's just driven this strong start.

Yes. First of all, we are excited. Walmart is one of the most iconic retailers in the United States.

Trillionaire.

Yes. it's just a fabulous company. And obviously, we have some history with them. We had a long 20-year relationship with them, and we built a program from 0 to $9 million. Now a lot of things happen in 2018, 2019 that I'm not sure we're going to go back and revisit. But when they came back to us, we, first of all, thought it was a testament to our capabilities that we did separate in 2019. And now they're back. So we're excited for it, and they're confident in our abilities to deliver for their customers.

When you go back to it fundamentally, the product back in 2018 was a more private label led product -- the value proposition was probably not as strong. And Walmart at the time was very focused on everyday low price and it was trying to price down the card. So there wasn't as much economic pool in there to kind of drive it. So what that resulted in was a higher loss content portfolio, a high recurring content portfolio, but higher risk.

I think if you look at that -- the product set today, it's a much richer value prop. -- they tied it in with their Walmart Plus where you get 5% in store, if you're a Walmart Plus. That is a very attractive segment for Walmart to grow. So we fit right into their corporate strategy, they're pushing it. But the value proposition of the card is number one. Number two, the pricing on the card for us provides a greater revenue pool to kind of support the activities around that.

And those 2 things will give us a lower loss content than what we have before. I mean the content that we had before was close to 10% losses. This will be above our company average but nowhere near what it was before. So you get a better risk-adjusted return that kind of comes through that. So that's number one, the product construct and to tie it to their strategy. Two is it is one of the more technologically advanced programs. So if you go into the one-pay app, the API tech stack that One Pay has and our call-outs and how we integrate. -- totally stainless to the consumer. And some of our large investors who happen to cardholders was very impressed with the way in which it's very quick. It's very seamless consumer.

Even when you apply for a card, auto provision into the one pay app as well as our Walmart app. So technologically, it's much more -- so -- and then you just kind of put it in, you have a retailer that just has so much traffic, whether it's digitally or through the stores kind of coming through every day. It's just exciting. And given that capacity -- it's off to a strong start, and we look forward to it.

We did one of the largest prescreens we've ever done, probably the largest in the fourth quarter. So we're optimistic of how that will turn out here in the first part of the year.

Great. And before we tie this all back to the overall company growth outlook, you have been fielding many questions on Synchrony Pay Later clearly less profitable than a line of credit option. How do you use this offering in order to expand the relationships with the customers that you meet through Pay Later? Or should we just think about this as a product that you're offering for merchants to enhance sales?

Yes. So let me unpack that a little bit, Erika, because the premise of the question is, is a Pay Later product fundamentally price to a lower return?

Yes.

If you want to talk about a Pay in 4 product, clearly, it is because the merchant doesn't want to pay that cost. It's very expensive. We do very little payer for because economically, the merchant doesn't want to pay it. We're not going to just take a loss leader. We do it when we feel it's opportunistic. A lot of our pay leader happens in the 6, 12 months, primarily 18, 24, and then we go longer.

In our business, what's really important with Pay Later is that you have a set of products that I can walk into a merchant partner and say, I can give you an installment loan, I can give you a secured card, I can give you a private label card. I can give you a dual card. I can give you a commercial [indiscernible] card, I can give you a commercial to a card. So I can meet the needs of your consumer where you want to do, and it depends on certain products. an installment product may work better for a certain consumer than another one.

And when we offer multiproduct, though, what we do with our partners and the way we structure economics is 1 product not disadvantaged, generally speaking, than others, right? We try to sit back and say, you as a merchant shouldn't be advantaged to say, "I want 1 product, and I should be any, I want another product, right? We try to align those economics. And that makes more sense.

And you got to take a step back the Pay Later product, while it was branded in the last couple of years and kind of exploded here. I think as a name in the endemic period. we've been doing Pay Later, essentially equal-pay promos for decades inside our revolving account.

So the technology already exists. It's just the consumer experience, which is terrific on the front -- you can argue that the back-end experience is probably not as great for the consumer, given multiple payments each month, not understanding what your balance maybe, but our strategy has to be part of a multiproduct and not to have a loss leader, but do that.

And the final piece around Pay Later is what we'd like to be able to do is how do I take that relationship with [indiscernible] out a 6- or 12-month installment loan? And can I migrate that person to another product inside -- that's really the -- it's just the cost of acquisition.

So let's now take it to your outlook. You talked on the call that your mid-single-digit loan receivables guide contemplated credit shifts that you took in late '25. You published your monthly data earlier this morning. The loan growth down 50 basis points year-over-year. It's the best we've seen since February 25, maybe contextualize what you're to start the year?

Yes. Let me say again, you look to ask the multipart question. So I'm going to unpack this. So let's talk first about the loan growth. It was just under 50 basis points down I think I shared with you just before I came on one of the interesting things.

And again, when we talked in our January call in the fourth quarter earnings, we had seen purchase volume accelerate off of what we saw in the fourth quarter, which is 3%. So it meaningfully accelerated into January. That acceleration happened until we had this wonderful snow norm, which I know you love being in New York, snowstorm and ice storm across a vast majority of our country.

When we look at the subsequent 4 days after that storm, the first 2 days after that storm, we were down everywhere other than the West, which didn't feel the effect of anywhere from 30% to 50% in purchase volume year-over-year. And then the next 2 days, we were down mid-single digits to low double digits. That took out do the math however you want, probably between $300 million and $500 million of sales. So the loan receivable probably look a little different at the end, but we can't control weather. I sound like a retailer, can't control the weather. But we feel good about sales.

When you look at credit, credit, we're happy with. Delinquencies, again, outperformed seasonality for us when I look at it versus '17 to '19 were 7 basis points better. than what we would normally say is seasonality. So that early stage delinquencies continues to perform. The loss rate being sub-5%, you have to cycle adjusted because we only had 25 cycles, but we felt good about that.

And so as we entered the year, you could have sat back and look at our 90-plus delinquency, and this was somewhat telegraphed with regard to that. The question is where do you go forward? Now again, we did a lot of the actions changing some of that credit mix in the third and fourth quarter. That will take about a year to season. So some of that will come into the back half of the year.

But we're pleased with where we're heading that way. I think what we're going to continue to look at is has the portfolio continue to perform inside delinquency. And then two, what's happening with the macro. And I think the macro feels more stable than it has probably in the last year, if I say that, but a little bit more stable.

Yellow, greenish?

I'd say more stable I'm not going to put a color on it, right? So I think the tariff effects have not been as punitive. I think some of it has been more noise in the press that has been reality. I think your tariff rates are still in the low teens or mid-teens.

I think when you look at our unemployment, there are just natural barriers to the unemployment rate moving up even though we use Moody's and then Moody's has it risen to [indiscernible] at least at the end of last year. We'll see where they come out with next month, but unemployment remains in check and inflation is going to be tough to get to 2, so it's probably going to wobble here a little bit throughout 2026, which probably puts much of the administrations this may probably put pressure on continued lower interest rates.

So on your outlook slide, you indicated that net interest income should grow in '26, but didn't quantify. How should we think about net interest income growth relative to that receivables growth expectation?

Yes, -- this was a tough one because we used to provide guidance down on all the line items and try to get people to the right place. And I think the unfortunate thing -- while we have some as like yourself, we are very good, there's some analyst had more difficult time taking that and getting to the right outcome.

So we decided to maybe pivot just get you to the EPS. EPS at the end of the test. -- and say, listen, you guys can get there in different ways. So we're not providing specific guidance on the net interest margin or NII. But what I tip back and say, it's fair to assume that NII should grow right? When you look at the framework that's in there, we try to outline it, you're still going to see positive benefits of the pricing actions we took over the last couple of years in the portfolio. I think interest rates are going to kind of largely be neutral, right? So any effects that you get off of the reduction in interest-bearing liabilities come off investment yield and then comes off of prime rate on -- so they'll generally wash out.

Depending upon how you think about credit, you're going to have lay fees move 1 way or the other way with reversals. So there's a lot of gives and takes. And then you have the growth math of accelerating growth that puts a little bit of headwind into NII, but it should grow year-over-year if you're growing your assets in that mid-single digits.

Just a follow-up question there. I think half of your NIM expansion in 2025 was triple PC impact. Maybe frame it and how much more impact is left? If we -- if it's 100%, are we 80% through?

Yes. So if you think about when we put that in, we said 50% gets priced in the first 12, 75 in 2, and then there's a tail that kind of goes down. So if you think about where you exited out of, if you just straight-lined it, just do that math for a second. You're in the 60%-ish range. So you sit back and say, okay, it's going to not be as incrementally large in '26 as it was in '25, but still it's a positive effect on it. Again, you're going to get prime rate and some other things on line. But again, net interest margin should expand as well, maybe not as significantly as 25%, but it should go up because those tailwinds continue to bake into the portfolio.

Again, I think there is a little bit of a transitory year here in '26 because when you go from a position -- and when we always talk about growth math, the biggest part of growth math is reserves. -- that is far away. But when you change and you're putting assets on that are lower yielding assets for a period of 12 to 18 months, and you go from minus 1% to mid-single digit, that creates a headwind the same way you get a headwind if you're mid-single digits and going to low double digits. It works the same other way. When you have people who are growing very fast and they slow the growth rate down, there's a big tailwind that should happen on NII. Again, we're going into the wind right now, but NII and NIM should increase in '26 versus '25.

And just a follow-up here. You are sitting in a bunch of excess liquidity, which is about 11 basis points -- how should we think about -- are you continuing to sit on this cash as the growth comes in? Or are there other ways to redeploy this?

Yes. We first like to redeploy it through growth -- that's the first priority in our equation. When I look at the equation, it's -- and this is where you had to take us the back. We're kind of caught into this metric and focuses on NIM, and it could be a headwind to NIM, but if I'm raising money at 3.5% in high-yield savings, and I'm getting north of that from the Federal Reserve to have cash there -- it's economically okay. It may screw up the metric.

And maybe the right way to think about it is to take bearing liability cost minus the investment portfolio yield and just strip it out of the margin and then you get the noise away. But again, we're not going to try to run off the liquidity because we want those relationships with the customers. If you got very negative, then I think we think about it differently. But we want to grow and we want to put the money to work. It's not necessarily for us, we're intentionally trying to build liquidity or trying to hold excess liquidity.

So taking all of this into account and just reminding investors that expense growth in line with receivables growth as part of this framework. Your RSA is expected to increase in '26 versus '25, can you grow PPNR in '26?

Yes. If you just went through the equation that I had, you should be able to grow PPNR. I know there's a lot of focus on OpEx. And I think when we got to mid-single digits, we're saying, okay, we put a notable stage in the back, and I try to be transparent. If you strip out the negative notables that we're in '25 and grow off of that, it's growing generally in line with our receivable growth.

Now again, there are a couple of things that are happening. It's out there that at times as a business, we feel we have -- we want to invest in that are good investments for us one is around growth. Now a lot of people said, "Okay, is that Walmart? No, Walmart is in '25. But you're launching Lowe's, you are going to launch 2 other programs in the back half of the year.

And then there were some strategic investments that we want to do on the technology side that we felt really were -- it was important for us to make sure we did not fall behind and we stay leading in some of our capabilities. So we decided to invest a little bit more. And we kind of said that because I think it's important for investors to understand whether it's through the growth in these programs that, again, create a little bit of a headwind this year. With its investments in technology. That is going to be the best thing.

So as you look to 27%, you get back to with hopefully double-digit EPS growth and maintain or accelerate growth as you go forward?

Let's double-click on those investments that you just mentioned. What are your top 3 investment initiatives in '26? Of course, I have to ask you the AI question right? How could that potentially impact the productivity at Synchrony or program profitability for your merchants?

Yes. So the #1 strategic investment that we continue to lean into because it's the area that is the most attractive to us is growth in health and wellness, right? We're expanding the products that they are leaning harder into the dual card that we have with CareCredit, provides incredible economics for us.

I think we're continuing to look at ways in which we have a tremendous network, whether it's dental or events, but there are dental practices, we're getting 3 applications month. How do I get that to be more productive. We put new products in there. We -- a couple of years ago we bought Allegro, which brought us an installment product, installment has taken off. So we allows us to get into the bigger ticket side of that business.

So we're investing both on the product side and through distribution through the providers that there. And we're also investing in ISVs in other ways where consumers are going to shop are not going I've got to pay their medical bills, et cetera. So that investment health and wellness is #1.

I think number 2 is the customer experience. We launched a refreshed marketplace that we're trying to drive. We're trying to drive more capabilities around the consumer, the experience with the consumer. We had multiple apps. We're trying to consolidate it and make it easier to do business. And how do I get from having 1.6 products per customer to a greater multiple of that.

And then third area, I'd say I'm going to give you for AI and cloud. Cloud will be a cloud for up with that at the bottom. -- we'll be about halfway through our journey a little over halfway through our journey in cloud. AI is 1 where we're leaning in. And there's -- think about 3 elements here as you think about the benefits there's capacity, there's productivity and there's growth, and we're leaning into all 3. So we have a foundational element. So we have a Synchrony GPT that allows people to do things easier in their job.

We're bringing AI to financial analysis and other things inside the company think about some things in HR, those are foundational elements. They're creating capacity to do things better, where we look at it from a productivity standpoint, if you think about our business, to take a couple of what I'll call claims-type management. So you think about a dispute, you can go to complaints or fraud next, but take disputes.

You have to take a dispute, you have to gather any information from the customer go to the merchant, you get the media, you compare it, you analyze your decision and you tell the customer. That's a very labor-intensive process. So we're creating agents in a process by which we can automate that and have a decision by the machine versus having some and have to do a bunch of that work. That can be a significant amount of productivity. You've then rolled that out to complaints and then ultimately to fraud, which also create customer friction for that. That's a great productivity type example.

On the growth side, we're leaning into Gen to commerce. [indiscernible] commerce is probably 3 to 5 years out. So as much as people think it's here, there's a lot that has to get done, whether it's just even how you authenticate, who wants rises the transaction, how do you make sure that is. But we are working with the apps when you think about the -- how do you get to the chat PTs, the class, the Gemini, where it's going to happen in an app, how do you get the browsers where to happen.

You got your merchants and providers who are trying to get agentic agents on their site. We're creating a genetic agent on our site to go along with Joy hunt, which sits inside our marketplace. So if you want a Seattle support Seahawks theme in, you can put that in there. It will bring you back products from our merchant base that has that. Now how do you get the agentic agent to go buy that. So we're going to introduce it there.

We're bedding across all the different lanes because we don't know who -- and I think you're going to see a curve where it's going to be commodities first before some almost sit back and say, whether it's a dress her, et cetera. So leading across whether it's growth, productivity or foundational elements inside a company.

I just want to point out, we have less than 10 minutes left and we're just getting to the credit quality...

That's a good thing.

It's a good thing. It's a very good thing. Of course, your monthly metrics came out delinquent continues to improve, down 10 basis points year-over-year and net charge-offs are down 150 basis points year-over-year. Where are we in terms of the rate of improvement and the impact from your credit actions when do you think we're going to start seeing stabilization in those credit metrics?

Yes. So I think you are seeing stabilization. I think we are tracking probably in line to slightly better than seasonality. Now I think you're kind of at that point. We're going to on that product. So outside that, I would say we probably manage credit better than almost everyone in the industry.

And just wanted to also just clarify the comments on the call on the reserve. Should we expect there to be continued reserve release in '26.

Yes. When you're growing mid-single digits, the question becomes -- and I hate to be cute on the answer. Are you talking a reserve release on a rate basis or dollar basis? I think it's tough when you're growing mid-single digits [indiscernible] an absolute dollar release. What you may see is more posting dollars being partially offset by rate.

Ratio yes, to some ratio.

Yes. So that's what you would hope. But that gives you confidence, right, back to credit that your next 12-month outlook and losses look good and the macro looks good.

So stress capital buffer reserve rose for the current participants. What does that mean for you? This is supposed to be the year for you to be a participant, right?

As you say, Erika, we are a little bit more unique -- so this was our first time officially into the CCAR process. The good news or bad news, I don't know how you want to look at it, but we are delayed from getting our stress capital buffer in theory until 2028. We have the ability to opt in, in 2027, but that's not something we don't have to decide today. And we are set under the rules today at the initial stress capital buffer of 250 basis points.

So again, we'll participate in the process and go through that, but we won't really get another stress capital buffer until '28. The 1 thing I'd say is, in part of this goes back into, I think with the Federal Reserve is it's actually very smart. The people have been very open into listening to questions and issues around the stress testing models.

They have been very accommodative to date. I think that what they did want to do is run a 26 that would give if they're trying to reform the process, give the wrong answer and then turn around a year from now. So I think what they do is smart. We appreciate the partnership with them around that. And again, we're part of the run, but expect $250 million is the stress capital buffer?

Regardless of what your stress capital buffer is going to be a ton of capital and you return 13% market cap in '25. How should your investors think about how you're approaching buybacks in '26?

Yes. And I want to delink a little bit from CCAR because we always run stress test anyway? We reassess that anyway. So our target level is always informed by how we think the business performs under scenarios that the Fed run, but we also run our own punitive type of scenarios that are custom done. So that really guides us in our principles. And listen, the strength of this business model is we generate a ton of capital.

We are probably one of the higher returning return businesses in the asset class. So we generate a ton of capital. We have a bunch of excess capital. Even when I change the growth ratio of the business and going to mid-single digits, we have a lot of capacity to do that. So regardless of the CCAR process, we want to be aggressive but prudent to get that down. Is it going to happen in 6 months? The answer is no. But again, we're going to be aggressive with the capital return because it is strength for us really to drive value for shareholders.

So just before I ask my last question, I just want to remind the audience that if you scan the QR code, you can type in your question, and I could ask tough question for Brian, for you or we have mics in the room, and you can ask the question in the old-fashioned way.

So finally, I do feel like sometimes, particularly -- in the beginning of the year, there can be a lot of message lost, right, and let's try to unpack the guidance -- so what do you think are the key takeaways that you want to reemphasize as you think about 2026 that you think got lost a little bit in the call.

Yes. So I already hit on the one big one, Erika. People say, well, it's credit deteriorating? What are you trying to do credit stable -- and if I go back and change that slide, I sit there and say credit stable on this slide. But that's what we're trying to convey. And I think people try to overread that. That's number one.

I think number two, when we talked about significant investments, what we tried to bring back to people and convey is -- when you look at EPS in '25 versus 26 and what's happening, you have a big reserve swing year-over-year, which is a big part of the investments in growing the portfolio, number one.

We had a bunch of expenses up relating to the One Pay Walmart launch in '25, we got different expenses for Lowe's and some other things in 26 plus we're excelling technology. That creates an investment in the business that we sit back and say that is the right investment for the medium and long term because, again, we're looking to next year to be in '27 to be double-digit EPS growth, again, maintaining to expand the growth on the receivable level as forward.

So those are great investments for us. I think people are trying to discern whether that was Walmart. Do you have to pay more for -- to get the growth. This is about things that we really want to do for the business and make a ton of sense -- so no, we don't have to spend more. Our model because we have such a low-cost acquisition. We don't have to spend a ton of money on kind of doing marketing to the consumer. That's where we have leverage. But at times, you're going to want to invest in the business. So those are the 2 big things we don't want to spend more for growth and credit is really stable.

Great. 30 seconds. Any final questions for Brian from the audience. All right. Brian, thank you very much for joining us.

Thank you.

Good morning, and welcome to the Synchrony Financial Fourth 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 is being recorded. [Operator Instructions]

I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin.

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

Thanks, Kathryn, and good morning, everyone. Synchrony ended the year with a strong fourth quarter performance, highlighted by net earnings of $751 million or $2.04 per diluted share, which included a $0.14 restructuring charge related to a voluntary employee early retirement program, a return on average assets of 2.5% and a return on tangible common equity of 21.8%.

During the quarter, we culminated nearly 70 million customers to our partners and generated more than $49 billion of purchase volume, a fourth quarter record and a year-over-year increase of 3% and as average active account and spend trends continue to sequentially strengthen across almost all of our platforms. Purchase volume across our digital platform increased 6%, driven by higher spend per account and strong customer response to enhanced product offerings and refresh value propositions.

Diversified and value purchase volume grew 4%, primarily reflecting the impact of partner expansion this year. Purchase volume in Health & Wellness also grew 4%, reflecting growth in pet and audiology, partially offset by lower spending cosmetics. In addition, higher spend per account exceeded the impact of lower average active accounts.

Purchase volume in our lifestyle platform increased 3%, reflecting higher broad-based spend per account, partially offset by lower average active accounts. And purchase volume in home and auto was down 2%, generally reflecting selective spend in home improvement and lower average active accounts, partially offset by strong growth in spend per account.

Synchrony dual and co-branded cards accounted for 50% of our total purchase volume in the fourth quarter and increased 16% versus last year, driven by product upgrades, higher broad-based spend and expanded utility across these card brands. We also continue to see year-over-year improvement in the mix of discretionary spend within our out-of-partner purchase volume with strength coming from categories like electronics, entertainment and travel. In addition, both average transaction values and average transaction frequency continue to grow across the portfolio. Average transaction values rose about 30 basis points compared to last year, reflecting growth from nonprime and super prime customers.

Average transaction frequency increased across all credit cohorts, up about 3.7% versus last year. Collectively, these strengthening core trends across our portfolio are a reflection of Synchrony's focus and disciplined execution throughout the year. We delivered strong credit results while also advancing our key strategic priorities to enhance the value and utility of our financing solutions, broaden our reach and deliver more powerful experiences for our customers and partners alike. And as a result, Synchrony added more than 20 million new accounts drove engagement with nearly 70 million existing customers and generated more than $182 billion of sales for our partners, merchants and providers in 2025. This is the kind of proven success that has established Synchrony as a trusted partner.

In the fourth quarter, we added or renewed more than 25 partners, including Bob's Discount Furniture, RH and Polaris. We're excited to announce our exclusive multiyear agreement with Bob's Discount Furniture to offer short- and long-term promotional financing options to customers at more than 200 Bob's locations. This partnership is expected to launch midyear and strengthens Synchrony's leadership in the home furnishings industry with partnerships across more than half of furniture today's top 100 retailers.

In addition, our renewed partnership with Polaris, a leading manufacturer of off-road vehicles built on a nearly 2-decade-long relationship of collaboration to provide financing for vehicles, parts, accessories, gear as well as vehicle service and protection products through customized promotional financing and loan options. Throughout the past year, Synchrony expanded our portfolio across both national and local businesses, bringing our total added or renewed partners to more than 75, including 2 of our top 5 partners and 7 of our top 20. Approximately 97% of our total interest in fees from our top 25 partners are renewed through 2028, and our top 5 partners are renewed through 2030 and beyond, reflecting the deep trust our partners have in Synchrony and our ability to deliver for their businesses.

Synchrony also continued to diversify our programs, products and markets over the past year, providing greater flexibility and broader access for our customers and partners as their needs evolve and priority shift. We entered into more than 10 merchant and practice management platform partnerships, including Weave, one of the largest patient relationship management software providers in the health and wellness space that supports over 35,000 small- and medium-sized practices across dental, cosmetic, vision. Together, we're focused on eliminating the friction between patient communication and payment experiences and empowering customers with access and financial flexibility, so we're excited to develop a best-in-class patient engagement and payment solution that will seamlessly integrate CareCredit across critical moments that matter in the patient journey from appointment scheduling and reminders to bill pay.

Synchrony now partners with over 50 merchant and practice management platforms like Weave in both the health and wellness and home and auto markets so that we can enable seamless access to our financing solutions suite while converting more sales for hundreds of thousands of small and mid-sized businesses that utilize these technology platforms to operate their businesses.

Similarly, our acquisition of Versatile is expected to accelerate our multisource financing strategy, reaching and empowering more customers with smarter financing options across online, in-store and mobile point of sale while driving seamless integrations, higher approval rates, and detailed reporting to drive sales across home, auto and elective medical merchants and providers. And our continued launch of new products across our portfolio is delivering enhanced utility and value for our customers, while driving loyalty and sales for our partners. For example, Synchrony pay later is now offered through more than 6,200 merchants. And thus far, our data shows that when we offer a pay later in revolving products together, we experienced an at least 10% average increase in sales, pointing to the expansive purchase power Synchrony can deliver through our multiproduct strategy.

And in today's world, where purchases are often decided and financing approved before checkout, Synchrony is increasingly wherever our customer is on the product page in search results and digital shopping carts and even in their inbox, providing effortless access to flexible financing options. The investments we've been making are driving these and other innovations at Synchrony as we seek to expand and deepen the role we play across the consumer finance and payments ecosystem.

Over the last year, we have enriched the experiences we deliver while empowering our customers with more dynamic access and choice through the combination of Synchrony's Marketplace, which features our AI search capability called Joy Hunt and Synchrony's website and native app. Together, the enhancements we made across these channels contributed to an 18% increase in total visits and 17% more in sales in 2025.

Our digital wallet strategy also continued to accelerate, having more than doubled the number of unique provisioned accounts and digital wallet sales compared to last year. This growth also supported a 400 basis point gain in our dual and co-branded cards wallet penetration rate, which should enhance the stickiness of these products and provide natural tailwinds to Synchrony's mobile wallet share as we continue to invest in this strategy and aim to ensure that our products are anywhere our customers want them to be.

So no matter how our customers come to Synchrony, with the hundreds of thousands of partners, providers in small and midsized businesses we serve. Our digital ecosystem is designed to connect them with the compelling value propositions, broad utility and flexible payment structures that best align with their needs in that moment. By almost any account, we believe the ways in which Synchrony has executed throughout 2025, have positioned us well for the future. We have invested in our products and digital capabilities to drive greater reach, deeper penetration and broader utility, and we have built enduring relationships with a diverse range of partners who are primed to deliver strong risk-adjusted growth as conditions allow.

And with that, I'll turn the call over to Brian to discuss our financial performance in greater detail.

Thanks, Brian, and good morning, everyone. Synchrony's fourth quarter and full year financial performance delivered strong risk-adjusted returns amidst evolving market conditions. The combination of our underwriting discipline and the efficacy of our prior credit actions enabled the return of our full year net charge-off rate to within our long-term target range of 5.5% to 6%. We achieved strong new account and purchase line growth across the portfolio despite maintaining our net credit restricted position. And despite the associated effects of an elevated payment rate, ending loan receivables grew across 3 of our 5 platforms, and net interest income increased, reflecting the building impact of our product, pricing and policy changes or PPPCs and the reduction of our funding liabilities cost. The combination of these trends drove enhanced program performance, which was shared through our RSAs, maintaining economic alignment with our partners, enabling them to reinvest in our mutual customers and drive loyalty amidst a backdrop of more discerning spend behavior.

To summarize Synchrony's fourth quarter results, we generated net earnings of $751 million or $2.04 per diluted share, which included the impact of a $0.14 restructuring charge related to a voluntary employee early retirement program, a return on average assets of 2.5%, a return on tangible common equity of 21.8% and a 9% increase in tangible book value per share. And for the full year, Synchrony delivered net earnings of $3.6 billion or $9.28 per diluted share, a return on average assets of 3.0% and a return on tangible common equity of 25.8%. We look forward to building on this momentum across our business in both the short and medium term.

Focusing on our fourth quarter results in more detail. We generated $49 billion of purchase volume a fourth quarter record and a 3% year-over-year increase despite the ongoing effects of net credit restrictive actions we took between mid-2023 and early 2024 and continued selectivity in customer spend behavior. Ending loan receivables decreased 1% to $104 million in the fourth quarter, reflecting the combination of higher payment rates, lower average active accounts and the effects of lower purchase volume in the first half of this year. The payment rate increased by approximately 45 basis points versus last year to 16.3% and was approximately 155 basis points above the pre-pandemic fourth quarter average.

Net revenue of $3.8 billion was flat versus last year, and higher net interest income was offset by higher RSAs driven by program performance. Net interest income increased 4% to $4.8 billion, primarily driven by higher loan receivables yield and the impact of our PPPC and lower interest-bearing liabilities cost associated with lower benchmark rates, partially offset by lower liquidity portfolio yield.

Our fourth quarter net interest margin increased 82 basis points versus last year to 15.83%, reflecting 3 key drivers: one, a 53 basis point increase in our loan receivables yield, which contributed approximately 44 basis points to our net interest margin. This increase was primarily driven by the impacts of our PPPCs, partially offset by lower benchmark rates and lower assessed late fees; two, a 51 basis point decline in our total interest-bearing liabilities cost versus last year, which contributed approximately 41 basis points to our net interest margin; and three, a 46 basis point increase in the mix of loan receivables as a percent of interest-earning assets which increased our net interest margin by approximately 8 basis points. These improvements were partially offset by a 73 basis point reduction in our liquidity portfolio yield, which reduced our net interest margin by 11 basis points. The decline generally reflected the impact of lower benchmark rates.

Moving on. RSAs of $1.1 billion or 4.30% of average loan receivables in the fourth quarter and increased $175 million versus the prior year, primarily reflecting program performance, which included lower net charge-offs and impact of our PPPCs. Provision for credit losses decreased $119 million to $1.4 billion, driven by a $294 million decrease in net charge-offs and partially offset by a reserve build of $76 million versus a $100 million release in the prior year. Other expense increased 10% to $1.4 billion, generally reflecting higher employee cost and technology investments. Employee cost increase primarily due to a $67 million restructuring charge associated with the voluntary employee early retirement program as well as a shift in headcount mix.

The fourth quarter efficiency ratio was 36.9%, approximately 360 basis points higher than last year. This resulted from higher overall expenses and the impact of higher RSA on net revenue as program performance improved. Excluding the impacts of the restructuring charge, the fourth quarter efficiency ratio would have been approximately 180 basis points lower.

Shifting focus to our key credit trends on Slide 9, which shows that our 30-plus and 90-plus delinquency rates as well as our net charge-off rate are all below our historical average for the fourth quarters of 2017 to 2019. At quarter end, our 30-plus delinquency rate was 4.49%, a decrease of 21 basis points from 4.70% in the prior year. Our 90-plus delinquency rate was 2.17%, a decrease of 23 basis points from 2.40% in the prior year. Our net charge-off rate was 5.37% in the fourth quarter, a decrease of 108 basis points from 6.45% in the prior year. 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 prior 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 10.06%, which decreased approximately 29 basis points from 10.35% in the third quarter and declined 38 basis points from the 10.44% in the fourth quarter of 2024.

Turning to Slide 10. Synchrony's funding, capital and liquidity continue to provide a strong foundation for our business as we exited 2025. Synchrony grew our direct deposits by $2.9 billion versus last year as we reduced broker deposits by $3.8 billion. Also during the fourth quarter, we issued a $750 million 3-year secured public bond from the Synchrony Card Issuance Trust with the tightest benchmark adjusted spread we've had in the past 7 years and a final coupon of 4.06%.

At December 31, deposits represented 84% of our total funding with secured debt representing 9% and unsecured debt representing 7%. Total liquid assets decreased 3% to $16.6 billion and represented 13.9% of total assets, 45 basis points lower than last year.

Moving to our capital ratios. Synchrony ended the quarter with a CET1 ratio of 12.6%, a Tier 1 capital ratio of 13.8% and a total capital ratio of 15.8%, each declined approximately 70 basis points versus prior year. In our Tier 1 capital plus reserves ratio decreased to 23.7% compared to 24.3% last year. During the fourth quarter, Synchrony returned $1.1 billion to shareholders, consisting of $952 million in share repurchases and $106 million in common stock dividends, and for the full year, we returned $3.3 billion, including $2.9 billion in share repurchases and $427 million in common stock dividends. Synchrony remains well positioned to return capital to shareholders subject to our business performance, market conditions, regulatory restrictions or expectations and our capital plan.

Turning to our outlook for 2026 on Slide 11. Synchrony's high-level execution throughout the past year, coupled with our ongoing investments, has positioned us well to grow our portfolio in a prudent risk-adjusted manner should conditions allow. Our baseline assumptions include no regulatory or legislative changes, a stable macroeconomic environment with no significant reduction in inflation rates, full year GDP growth of 2% and a year-end unemployment rate of 4.8%, a year-end Fed funds rate of 3.25% and full year deposit betas of approximately 65%.

For 2026, we expect average active account and purchase volume growth to drive mid-single-digit ending receivables growth even while payment rates remain elevated. The rate of receivables growth should follow seasonality and accelerate as we move into the back half of the year as recently launched programs grow and the Lowe's commercial co-brand credit card program transfers to our portfolio in the second quarter. This growth outlook also assumes no additional broad-based credit refinements.

We currently also expect our portfolio net charge-off rate to be in line with our long-term target of 5.5% to 6%. We will continue to monitor our portfolio performance and the broader macroeconomic conditions closely. To the extent we see notable changes in the portfolio trends or macroeconomic conditions, we will consider making further adjustments to our credit positioning. We expect net interest income to continue to grow in 2026 as the impact of PPPCs continue to build and as we reduce our funding liabilities costs. These trends will be partially offset by lower late fee incidents and the yield dilutive effect of accelerating new account growth. RSAs are expected to increase, reflecting stronger program performance but remain within our target of 4.0% to 4.5% of average receivables.

Other expenses, excluding the impact of the $98 million of notable items in 2025 should grow in line with loan receivables reflecting continued investment in our growth and innovation as we look to drive our momentum forward. We remain focused on delivering operating leverage in our business while balancing the opportunities we see to power leading-edge experiences and portfolio expansion.

Altogether, these financial drivers are expected to deliver net earnings per diluted share between $9.10 and $9.50 for the full year 2026. This range includes the impact of growth-related initiatives like Walmart OnePay, Lowe's commercial co-brand and versatile credit as well as investments in other key technology initiatives. These combined investments will impact loan receivables yield, provision for credit losses, other income and other expenses to varying degrees.

Synchrony's model is designed to generate double-digit earnings per share growth on average over time and through cycles. This reflects our disciplined approach to underwriting and credit management as well as our expense base and economic alignment we achieved through our RSAs. I look to 2026 and beyond, these core drivers have set the stage as conditions allow, for Synchrony to drive strong earnings and continued progress towards our long-term financial targets while generating incremental excess capital.

With that, I'll turn the call back to Brian.

Thanks, Brian. Before I turn the call over to Q&A, I'd like to look you with 3 key takeaways from today's discussion. First, 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. And we are doing this while also earning the honor of being ranked second among the top best companies to work for in the U.S. by Fortune Magazine Great Places to Work in 2025. And I am incredibly proud of the great work we are doing together and the great strides we are making as we seek to solidify Synchrony at the heart of American Commerce.

Second, Synchrony's past present future are grounded in our ability to drive sustainable growth at appropriate risk-adjusted returns through cycles and the evolving consumer landscape. Our expertise, discipline and consistent innovation have made this possible, allowing us to deliver products and experiences with enduring appeal and compelling value for both our customers and partners like, since exiting the pandemic in 2021, Synchrony has added or renewed more than 300 partners, including 16 of our top 20 while also growing ending receivables at an average rate of approximately 7% and delivering an average return on assets of approximately 3% and an average return on tangible common equity of approximately 25%. And third, Synchrony's robust capital generation capacity positions us well to continue to invest in business and growth opportunities while also returning capital as conditions allow. So as we look to 2026 and beyond, we are confident in the momentum we've built to drive considerable long-term value for our many stakeholders.

And with that, I'll turn the call back to Kathryn to open the Q&A.

That concludes our prepared remarks. We will now begin the Q&A session. [Operator Instructions] If you have additional questions, the Investor Relations team will be available after the call. Operator, please start the Q&A session. .

[Operator Instructions] We'll go first question from Sanjay Sakhrani with KBW.

Good job on 2025. I know you guys had a lot to deal with. Maybe just starting on the mid-single-digit growth guide for receivables growth. I think that's quite encouraging. Brians, can you just talk about sort of the building blocks for that? I saw the co-brand volume growth accelerate, is that partly due to Walmart? Or how are the early views of Walmart looking? And then Brian Wenzel, you talked a little bit about not necessarily assuming any changes to the underwriting stance for the year, but is that something you're considering inside the guide?

Yes, Sanjay, why don't I start on that. So look, I think overall, we're pretty encouraged by what we're seeing in terms of the consumer. I think the consumer has been resilient all year, I think better than we expected. We're not really seeing any signs of weakness. We're actually seeing strength as we look at the spending patterns and credit continues to outperform our expectations, as you mentioned. So I think the macro environment is still pretty constructive. Bigger tax runs refunds could potentially help us a little bit here in the short term as well.

But if you look at our business more specifically, I think purchase volume turned the corner, nice trajectory, up 3% versus last year. We've got 4 out of 5 platforms improving sequentially. We're seeing really nice growth in co-brand purchase volume up 16% versus prior year, as you mentioned. So we're kind of firing on all cylinders, and we feel pretty good about that mid-single-digit loan guide.

If you look at the components, Walmart is obviously a big part of that. We launched in September. It's the fastest-growing program we've ever launched. So we feel great about that. We're making continued investments in health and wellness, that's a platform that continues to outperform, and we expect it to continue to outperform next year. So this commercial program, there's just a lot of things as you take down the list that we're really optimistic about, and we look forward to '26. I don't know, Brian, if you want to add to that?

Yes. Sanjay. So a couple of things I'd just add on to what Brian said. I mean first, look at the trajectory as you step through 2025, where minus 4, minus 2 and you get through the end part of 2025 year or plus 3 on purchase volume. If you take that and extrapolate that into the first several weeks of 2026, we have accelerated the purchase line beyond that rate. Now again, we'll see what happens this weekend after the slow summer, so came through, but we were encouraged by that increased spending. Even when you look at the holiday inside of the fourth quarter, our holiday partners, which make up about 2/3 of our portfolio grew above a 4% rate -- it's really the nonhouse, which you get with about 1/3 was growing significantly less than that with how you got to the 3. And even you see green shoots in the portfolio, one of the biggest things that you think about that guide, Sanjay, is where is consumer confidence. You saw a tick up. Most certainly, that trend a lot of times what we're starting to see in our portfolio. And if you look at like home specialty, here's something that was comping down every quarter was kind of flattish in the fourth. So if you can get that bigger ticket to turn and consumer confidence to turn, I think that gives you momentum.

I think if you pull up for a second, the growth rate as you think about it for moving forward, we were just slightly down 1 to mid-single digits is really put in 3 buckets, right? Number one, the core book, which we just talked about, some of the momentum, you highlighted co-brand. The other things we're seeing in some of the green shoots and the consumer confidence. 2 goes into the credit aperture changes we made in 2025 that will contribute into the portfolio, we don't have incremental credit aperture changes in the guide here. That's obviously at our discretion depending on how credit performs. And then third, it's really Walmart and Lowe's as they kind of come into the portfolio. And again, the opportunity with Walmart is obviously significant given their customer path. So I think there's many different levers. And even when you look at the consumer behavior, both on frequency and average transaction value basis, we're showing improvement in both of those as we exit out of 2025. So really, I think, strong performance by the consumer in uncertain environment.

Just my follow-up question is on the news on the 10% APR cap. I'm just curious if you got -- obviously, your views on it, but -- but if you guys have any chances to talk to some of your partners about how they're thinking about it because it definitely affects both you and them as well. So just curious to hear your views and your feedback.

Yes. Sure, Sanjay. So look, I think the administration is focused on affordability, which we completely agree is important for consumers and the economy. And as you know, like we pride ourselves on offering credit to a very broad cross-section of the U.S. consumer. We approved more customers at that low to mid-income level than many other issuers. And I think that availability of credit is critical to the economy. As you know, this is a highly competitive industry. And credit cards are one of the most competitive spaces in banking. Our products have to be competitively priced. And we also have to offer significant value to the consumer. .

So any price controls like an APR cap would not make credit more affordable. It would eliminate credit for those that need it. Cap would require issuers to significantly reduce the amount of credit they're able to provide. And again, that disproportionately impacts the consumers at the lower income levels. And you mentioned our partners, I mean, this is very bad for merchants that depend on those credit programs. We support 400,000 small- to medium-sized businesses who depend on those credit programs. In some cases, we can be over 40% of their sales. So this would be a huge hit for them.

So when you look at what the severe impact on both the consumers and businesses, there's no question this would be very bad for the economy. And we're out there talking to our partners every day. The big partners, small to medium-sized businesses, and they're very concerned when they think about what this would do to their businesses.

Our next question comes from Ryan Nash with Goldman Sachs.

Maybe just start on credit. The guide, I think, would imply losses increasing slightly at the midpoint despite strong delinquency performance. And if I'm doing the math correct, if I use the '17 to '19 seasonality, that would put losses on the low end, although, I guess, losses were rising in '17, so that overstates the seasonality. So maybe can you unpack the credit guide a bit. Do you expect to be at the low end of that or potentially lower? And maybe just talk about a benefit that is baked in from the elevated tax refunds.

Yes. Let me unpack that a little bit, Ryan. Thanks for the question. First, based on the performance, right, where delinquency is as we enter into 2026. I mean, obviously, when you look at net charge-offs of 5.37% for the fourth quarter and how that kind of steps out and the favorability that you have versus the historical loss rate in '17 and '19 to 12 basis points better obviously, 30-plus being 13 basis points better than that historical period and a little now we're on 90 plus at 217, but 7 basis points better. So the formation as we enter into 2026 is strong, right, number one.

The full year, obviously, for this year was 5.65%. The way to think about it, Ryan, a little bit is you had a strong foundation of bringing you into the year, but you're also bringing into it a new portfolio, we talked quite a bit about Walmart kind of coming in, you have early losses associated with that. So there's an upward bias right relative to the OnePay Walmart program. You also have a little bit upward bias right relative to, I'd say, the credit aperture changes that we made during the middle part to fourth quarter of this year, they begin to bleed in the back half of the year. So they do factor into losses to some degree as you kind of come through here. So there are some moving pieces here. We don't really kind of give you a point within the guide. Obviously, the biggest thing is going to be as the macro developed. And in our models, as you saw for reserves, we have unemployment rising a little bit in the back half of the year from a model standpoint that obviously produces higher charge-offs. So to the extent that, that unemployment remains in a check position, I think you're going to have some favorability as it comes to that. So we're going to have to see how it plays out as we step through the year again. I think we're really proud of the efficacy of what we've done. It sets us up nicely for the for the year.

Got you. Maybe as my follow-up, Brian, can you maybe just talk about what kind of net interest margin is embedded within the guidance? Should we assume continued improvement given the PPPCs and the benefits from lower rates? Or are there other headwinds that we should be considering?

Yes. Obviously, we refer on the outlook basis, you should see NII increase, right? And I think there's probably a greater bias for the margin to increase. I think when you look at the pieces, Ryan, there's probably different gives and takes, right? So number one, when you think about the interest and fee line, clearly, that's going to continue to benefit, albeit at a slower pace as you kind of move through 2026 from the PPPCs as they continue to build both on the APR piece and then as the line pricing piece kind of comes in. So that's actually favorable.

If you kind of think about that line again, you're going to have part of the interest rate environment kind of coming down, so you're going to have prime rate going down against that as you step through, depending upon where you come out on losses, you obviously have a late fee impact that's going to either be neutral or higher or lower depending upon where you sit charge-offs in your model.

I think then when you kind of continue on and think about the different pieces, interest rates obviously will be favorable year-over-year again. That should be offset by both prime rate, number one, the investment portfolio yield, #2 and the MDR [ North II ]. So that should probably be a little bit more neutral as you kind of step through it. So as you kind of look at it, the biggest thing is going to be obviously payment rate, and we have payment rate to remain elevated here, which is a combination of the credit mix of the portfolio being one of its best periods of time, number one, and then number two, having a lower percentage of promotional financing assets, which carry a lower payment rate. To the extent that we get some of that big ticket that I talked about and some of the bigger items, that will effectively slow down the payment rate as well as the credit mix can slow down the pain rate to give you an upward bias. So I think when you put the piece again, NII should go up, NIM should go up, but again, how you factor those different moving parts together.

Our next question comes from Terry Ma with Barclays.

Maybe just a follow-up on PPPCs. Can you maybe just talk about how those are kind of tracking relative to your expectation? I think you had indicated about 75% should be kind of priced in by June of this year. And then kind of going forward, like how much more lift can we expect through NIM kind of after 2026?

Yes, thanks for the question. I think when you take a step back to the -- and look at the PPPCs, I think is what we've said is we're slightly ahead of the burn in of the APR changes to date because of the fact that the payment rate has been elevated. So the protected balances paid down a little bit quicker. So again, you're probably a little bit ahead of that pace towards the 75% in the middle part of this year. Again, the back end of that curve, it's not as steep right? So the growth -- but we'll continue to bleed through.

So I think that's developed other than coming in a little bit quicker, it's developed as we thought, right, relative to the various assumptions on attrition rates, et cetera. So we feel good about the PPPCs on the APR line. When you think about on the paper statement fee line, I think that has settled in and to some degree has been relatively flat. And I think the combination of that is even as you see the average actives pick up in the fourth quarter, it's the really growth in our eBill percentage of people electing digitally, which I think is a better thing for us as a company, not only for them to avoid the fee but engage with us digitally. So we're seeing the benefit that's going to come through the expense line there. So when I look at that in combination, most certainly, I think we're pleased with the way the PPPCs have performed and is generally in line with our expectations.

Got it. Helpful. And then as my follow-up on the expense growth guide, that's in line with receivables. Maybe just talk about what sort of investments related to growth you're making? And then after 2026, should we kind of expect kind of more positive operating leverage going forward?

Yes. So let me pull up and maybe address one broader point here, which is really the significant investments in what we kind of highlighted here, which affect all the lines really in P&L. The largest line when we talk about significant investments is going to be on the reserve line, right, really for the asset growth as you think about growing not only the Walmart portfolio, but obviously, Lowe's that comes in, in the first half. But also the new programs, when you think about Bob's and RH, et cetera, they're kind of coming in. But the biggest piece is reserves.

I think you think about the expense component of that, right? There's a couple of things that happen, right? You have launch costs associated with new programs you invest in some of the early month on book and marketing programs associated with kind of getting a lot of new accounts up and running and engaged as you think about that. So there's the launch cost, there's the conversion costs for certain portfolios then you have most certainly the investment in marketing.

Also from an expense standpoint, you really want to make sure you're investing and we have to have the staffing and ahead of this more on a nonexempt standpoint, to take the calls that come with it. All in all, those are really positive investments for growth, and we'll certainly will pay back and you'll get that operating leverage.

The one thing I'd say is we have increased our capital spend a bit, and that's really around, I'd say, 3 key areas. Number one, it's around increased investment in AI and driving AI in various areas of the business, not only to drive productivity but also drive for us, which is our focus, and we can certainly chat about that more.

The second area is around our cloud journey on accelerating expenditures related to getting that done a little bit faster so we can get the productivity and efficiency benefits that come to that. And then third, Brian's talked quite a bit about our desire to continue to grow health and wellness at a faster pace. So investments in that health and wellness business. Those are the big pieces. But again, if I go back to where I started on the significant investments, the biggest piece is reserves. But again, as you think about all the lines in the P&L, they're going to be impacted by growth, you're going to have so think about the J curve, you're going to have assets in there at a lower yielding as they go to maturity and seasoning. You're going to see it on the other income line when it comes into loyalty, maybe in advance of again some of the income going off the assets and then the expense line.

When I think about the various pieces on the individual lines, they're less than 10 basis points, but they're on each of the lines. So that's why we kind of try to call it out as you guys model it. Again, these are all investments that we believe across the business really set us up for the longer term to be a much better company.

Our next question comes from Moshe Orenbuch with TD Cowen.

Great. Going back to kind of loan growth and opportunities. You mentioned adding the pay later gives you a lift. Can you talk a little bit about are there other areas, whether they're verticals or partners? And how much of the portfolio kind of could that impact over the course of '26?

Yes. I think I'll start just talk a little bit about the multiproduct strategy because I think this has been very successful, I think, over the last couple of years. And pay later is an important part of that. It's resonating with our partners. We now have it at some of our largest partners, Lowe's, Amazon, Penneys, Belk, Sleep Number. And the accounts that we're seeing come through on that product are incremental. And I think that's great news, right?

So we still have kind of the same flow of new customers coming into private label, co-brand and the pay later customers are incremental, which means our partners are getting incremental sales. So they love that, obviously. So our partners are not looking at this as like an either/or. They're really now seeing the power of having these products kind of work in concert with one another.

And given customers have different financing needs, sometimes we're evolving products the right product for them. Some may prefer fixed payments or installment product and the strength of our franchises we offer all of the above. So we really like how this is working. Like I said, it's resonating with our partners. It's helping us win new programs as well. And we can show them that kind of migration strategy. So we might be starting off a customer with a pay later account getting comfortable with them and their payment behavior and then upgrading them to a private label card, ultimately, a co-brand card with a larger line. So that's, like I said, really resonating with our partners, and we think that's the right strategy for the long term.

Great. And maybe -- I mean, Brian, you did just reference kind of new programs. Can you talk a little bit about state of play. I mean there are some start-ups that are in the space, but I think a lot of others have kind of pulled back. What are the areas you think that are most ripe kind of for new programs? And talk a little bit about what you're seeing in the market?

Yes. Look, we've got a great pipeline across all of our platforms. We -- if you just look at last year, we added or renewed 75 partners. We renewed 7 of our top 20. I think -- and it's broad. It's across every industry, both existing programs, start-up programs. So we feel really good about our ability to compete. We're winning the deals that we want to win. I think this is back to a little bit of what Brian talked about, the investments that we're making are helping us stay ahead of the competition. Every RFP that we go into, we're told that our tech is best in the industry, our ability to integrate, our -- the investments we've made in our proprietary underwriting model PRISM those are all helping us win and compete in business.

We are never going to be the low-cost provider. We're very clear on that upfront. We've made big investments in the business and the platform. And and we need to earn a return commensurate with that. And we think that we're the best in the partner-based financing business. And we're proving that out every day with the deals that we're renewing, the partner base that we have and and where we're adding new partnerships.

We will move next with Mihir Bhatia with Bank of America.

Maybe just first to start on the reserve rate. You're approaching Devon CECL levels here. So just wondering, I mean, I know obviously, you've tightened credit as it's gotten better. But just how are you thinking about the reserve rate level from here? Any thoughts into 2026 or how that would trend as you widen the credit aperture again?

Yes. Thanks, Mihir. Obviously, as we look at the reserve rate, clearly, it's come down and most certainly has come down relative to the loss rate we've experienced. As you think -- as you look out into 2026, most certainly, we've given you the guide where we see unemployment rate rising here towards the end of the year, which is really the Moody's forecast, and we'll certainly, we maintained the qualitative overlays where you have an employment rate consistent with past quarters. So we have not eased off of that.

I think as you look forward, the question becomes, if you believe the macro environment becomes stable, at what point can the qualitative reserves kind of come down, which would end up giving you a little bit of a -- on a rate basis, a downward bias to the reserve rate. When that actually happens, it's a little bit unclear. I think we're the closest we've been to day 1, not that that's necessarily the greatest anchor, but it's most certainly the first mile marker you look at of where your REIT should be.

So I think we're encouraged around that. But obviously, a lot is going to depend upon how our -- number one, how our delinquency formation develops and then number two, the macro environment. So again, I would assume we're a little more downward bias on a rate basis. Obviously, as I talked about the significant investments you're going to see on a dollar basis increase with the growth going back to the mid-single digits.

Got it. And then maybe just going back to the pay later conversation that you're just having. Can you just comment like on how the progress has been? I think you gave presales about 10% increase where it's offered side by side. Is that across all your platforms? And just maybe just comment, if you would, on Lowe's, Amazon, some of the big ones, any learnings from those rollouts that you can share on where you are with that process currently?

Yes. I think look, generally, we're very pleased with the performance so far across all of the partners where we've launched it. I think going back to the multiproduct strategy, we believe that that's the right one. We're anchored in that strategy. The one question for us, as we started to roll this down, I think the question for our partners, what was -- would there be any cannibalization of the private label card and the dual card and co-brand cards that we offer. And the good news is there hasn't been.

So we track that very closely across all of our partners where we have the multiproduct strategy in place. And we can clearly see that the volume flowing through private label and co-brand is very consistent and that the pay later accounts that we're getting are net new. And I think that's great news. That allows us to attract a new customer base that ultimately, we want to offer other products to. And so that was -- as we embarked on this a number of years ago, that was kind of a question that we were getting from our partners. We were pretty confident that this was going to attract a new customer base, and that's been the case so far. So we're very pleased across the board.

Our next question comes from Erika Najarian with UBS.

Just wanted to clarify your response to Mihir's question. So within the $9.10 to $9.50, we should assume that the ALLL ratio is going to come down due to qualitative reserves coming down and that offsets perhaps the higher reserve from Walmart growth?

Erika, so again, I was more giving the trajectory of the reserve. We haven't given guidance or what you actually should think about relative to -- or any of the comments to be honest with you relative to the $9.10 to $9.50. It's over time that you have a downward bias to it. Again, on a dollar basis, certainly, we would hope that the rate comes down to offset some of the growth, but we'll have to see how that plays out. But again, we have a very stable outlook here, which I think, as you think about the reserve, I was just more talking about the trajectory over time, if you believe that the environment gets better, which again, we haven't on the assumptions we put on our outlook side haven't -- aren't getting better. They're staying the same, Erika.

Got it. And just as a follow-up, you talked about the tax refund as a potential tailwind for purchase volume. I'm wondering, as we think about the inflection point in growth, and your assumption that one of your peers have talked about the tax refund in context more of better credit rather than better spend. And I'm wondering how have you sort of thought about the different scenarios in terms of how the tax refund dynamic could impact the payment rate?

Yes. It's a great question. It's going to be interesting to see how it plays out. And most certainly, I think this tax refund season will be the one of the largest, if not the largest that we've seen that's really a factor of the retroactive nature of some of the benefits that were passed in legislation in the middle of last year, number one.

And number two, withholding rates which were not adjusted for 2025, we'll produce. Some people say between $500 and $1,000 incremental refunds off of an average fund of call it, between $3,000 and $4,000 so a significant amount of cash that flows in. That cash generally flows in, if you look at historical refunds, 50% to 60% comes by mid-March, 80% to 90% come by May. So you're going to see a large influx of cash into the economy.

I think when you take a step back, Erika, and you look at where the benefits associated with tax law changes, who do they affect when you think about whether it's a soft deduction, the childcare deduction, things like that, they're going to affect a certain part of the population that probably income skews a little bit higher.

So when you think about a little bit higher, the higher people generally will sit back and say, okay, let me either save that or pay down debt. When you think about more moderate income consumer, that consumer problem is either going to spend that money as it kind of comes through or not. So -- or on the payment rates really kind of goes back to our view on the consumer and what they're going to do. We're going to obviously track it very closely, but there's going to be a large influx of cash again in that end part of the first quarter into the second quarter that we'll look to see what it's doing.

And I think the good news, both of those are positive outcomes for us. You go back to a few years, the stimulus payment some consumers spent and we saw an increase in purchase line, some paid down debt, and we saw record low losses. So any kind of boost like that, is a good result for us and will drive a little tailwind as we get into next year. .

We will move next with Rick Shane with JPMorgan.

Look, you're calling for mid-single-digit loan growth and some degree of NII growth in 2026. Midpoint of EPS is flat despite the expectations of continued buybacks. And again, we're -- this is sort of revisiting Terry's question. RSA is up pretty significantly. It basically takes you back to prepandemic levels, which is consistent with prepandemic credit expectations. Implication is obviously that the efficiency ratio was higher in 2026. I'm trying to understand, I think part is the RSA a function of sort of a pull forward, pay it forward on the new programs, and should we revert -- start to reverse a normalized efficiency ratios in 2027 as that sort of pull forward anniversaries, how do we look at this going forward?

Yes. Thanks for the question, Rick. I think as you look at the model, as you try to put the pieces together, this is why we kind of called out some of the significant investments because what you are seeing is some of the early growth in some of the programs where you have the heavy reserve rate when you have assets that are not yielding as much because they're just in the early stage of the J curve. It's just the nature of the businesses when you think about these vintages.

And when you go from a flat growth rate to an accelerating growth rate, you see that, that vintage slowed down from some of the lines. The RSA moving to a large degree, we have newer programs, they're not necessarily an RSA perspective, right, because of the early J-curve dynamics. So I think that ultimately normalizes. I think as you step out, and what we expect as we go beyond 2026, obviously, we'd be moving closer back to the long-term framework on all the lines, we hope. And we'll certainly -- our goal is to grow the business at a double-digit EPS. I think the investments this year in moving from a flattish to down 1% to mid-single digits gives you an EPS for a while this year that's a little bit different. But again, we think that sets us up nicely for the medium to long term, and that's what our focus is on creating that value.

Got it. Brian, that's helpful. And so I think what you're steering me to understand is, hey, yes, it's a little bit RSA, but it's really the timing differential associated in part with the CECL reserving of the loan growth. Is that the best way to distill it?

Yes, I mean -- yes, Rick, I don't want to get into my tirade around my views on CECL and whether or not that's good accounting or bad accounting, I think will take up another hour. But well, certainly, when you have to book that those losses upfront, before you get any earnings off the asset to me is not necessarily the right way to look at the business per se. That's why we kind of look at things without reserves first and then with reserves, obviously, because it's a GAAP basis. So -- but yes, CECL does work the reality a little bit.

Brian, it could be tirade. You'd be preaching to the quire on that one.

We will move next with Rob Wildhack with Autonomos Research.

One more on the pay later discussion. You sound quite positive on the uptake and conversion there. But I guess what I'm wondering is, is the translation from the top of the funnel and pay later to loan growth in any way different than the more legacy Synchrony product? I'm thinking that maybe pay later might be more of a onetime purchase versus a larger open to buy amount, maybe a smaller ticket on a per transaction basis. Any early indications you can share there?

Yes. Look, I would say that it does tend to be a little bit more onetime, although we're seeing good repeat usage in pay later across the partners where we have it, which is encouraging. Ultimately, our goal and kind of where our partners want to be is to get them into that revolving product because I think that allows you to do cycle marketing, push promotions, push offers. But we like -- look, the customers that are -- that take out of pay later loan, we're going to be front and center with them, offering another pay later loan to buy whatever it is they're buying next. So it's not that you can't do the life cycle marketing. It's just a little bit more natural in terms of how our partners think about it in the PLCC and co-brand space. But -- we like all 3 products. They're working really well in concert together. That was the thesis we were trying to prove out and so far, we've proven it. .

Yes. The one thing, Rob, let me just add a little bit of a financial dimension to it, right? If you look at our entire portfolio, our entire portfolio turns just under 2, right? $100-plus billion of receivables on the purchase volume. I think when you tear that apart into pieces, obviously, the dual card and co-branded turned faster, private turns a little bit slower. When you think about the pay leader that we originate, we generally originate a majority in the 6 to 12 months you go really is probably the biggest part. You then see 18 to 24 months. So the turn is a little bit more consistent with, I'd say, private label. We do not do a lot of volume and don't really push anything below 6 months. We just -- it's hard to make money. It's really impossible to make money, most certainly in the pay-for and stuff like that. But -- but think about it is going to be something more similar to a private label when you think about that type of duration. But again, we do pay later longer than that, but the book is going to be in the 6- to 12-month variety of installments.

Our next question comes from Jeff Adelson with Morgan Stanley.

Maybe just a follow-up on the credit actions or refinements, can you maybe just update us on your current posture at this point? Are you kind of continuing to lift off the prior tightening actions as you go along? Has that trend accelerated or maybe slowed it off from where you were earlier last year. And then Brian Wenzel, you mentioned the guide doesn't really include the additional broad-based credit refinements and that this would really depend on credit performance as it comes through. I guess, my question is, what maybe holds you back from opening up a bit more given that you're already within that historical charge offering, you range you target, you're perhaps getting a little bit of a positive bias in short order with tax refunds? Is this maybe just some conservatism you prefer to see the delinquency improvement continue to come through before you maybe make a more definitive commitment there on the credit actions?

Yes. Thanks for the question, Jeff. Let me unpack the head a little bit. First, let me remind you, the credit actions that we took in '23 and '24 were around very specific types of items. So you think about student loans, think about personal loans, things like that, that we thought about ability to pay. So some of the actions that we've taken in 2025 in the third and fourth quarter, we're not necessarily lifting of those because we think those are good strategies to have in place. But there are other strategies that have had the effect of adding sales or expanding your credit aperture. So I wouldn't necessary we're just unwinding those because I think those do stay.

The reason why we haven't done incremental just to be clear on guide the actions that we took in the end part of '25 are in the guide. No incremental broad-based changes are assumed for 2026 as we enter the year. The reason why -- if you're asking me why aren't we taking on more because we have 5.65 loss rate delinquency looks good. I think when you look across the credit cohort, the one thing that you'd see across all those -- is in the Synchrony issue, probability of default across credit grades is higher than historical norms. So we benefit a little bit more because of our line structures and our ability to maintain a lower line structure and control that exposure at the fall. But most certainly, we're continuing to watch that probability to fall again across all the crack rates. It's not into one part. So it's how it normalizes. And most certainly, there's a focus, we've been tighter at the bottom end, which you've seen a little bit led to nonprime is in that kind of right at the prime level. So that kind of advantage 650 to 700 in and see what that customer who is feeling the effects of for a number of years. So we're watching the our ability to fall across not only us but across the industry.

Okay. Great. And as my follow-up, it's nice to hear of the success you're having in pay later, and I think you mentioned that [ 6,200 merchants ]. So I guess maybe a different way of asking some of the other questions that have been asked. Is there a way to think about how you're -- how material that pay later offering can be for your forward loan growth, either the mid-single-digit growth you're looking for in the near term or the 7% to 10% long term you talk about. Is that something that could be 100 basis points or more of a pickup? And maybe just -- we've gotten some questions on progress of the pay leader offering at Amazon, you launched earlier last year. I think we did notice that it's not available at the checkout anymore. Is there maybe just an update on how that frame is going?

Yes, sure, Jeff. Look, we can't get specific on any of our individual programs, but I would again just say we're very happy with the results on the product so far across all of our partners, we're seeing really strong growth in new accounts. Obviously, that's included in the loan guide. Again, it's a little bit about what pay later can deliver, but it's also that vehicle to bring in new customers and then migrate them over time. So it's obviously a big part of the strategy is included in the mid-single digits and I don't know, Brian, if you want to give a little more color?

Yes. I think one thing, Jeff, to understand about that product and about itself is the average ticket size and what that product is meant to do, and this is where Brian highlights the multiproduct strategy. The product fits a certain purchase payment a certain thing. You do not see as much a large ticket going into that 6- and 12-month but installment on a closed and you generally see a smaller tick size.

So when you see a smaller ticket size, the relative contribution when I think about a company that's got over $100 million of receivable, it's not going to be as a meaningful driver to move the company's overall growth rate, but an important part for us to continue to expand penetration at our partners. So it's important to have that today, we have a bigger ticket offering right relative to equal pay installments, it just sits inside a revolving account, which is what you see primarily in our home and auto business or a little bit our lifestyle business and health and wellness. So again, from a growth rate standpoint and given the denominator, I sit back and say the smaller ticket doesn't move the growth rate as fast right now. Again, it's important to have it as part of a holistic offering to our partners.

Our next question comes from Brian Foran with Truist.

You've kind of touched on this throughout your comments, but just the decision on the guide to move from kind of the -- and I know there's no standard the way you've done it, but generally, over time, you've given line items and now you're giving an EPS range with a little bit less line item detail. Is the conclusion you're happy with where consensus is on an EPS basis, but you're flagging some of the line items might need to change as people think through these investments for growth? Or I don't want to leave the witness, maybe you could just say why switch to an EPS range this year?

Yes. Brian, thanks for the question. This is an interesting -- it's an interesting question on how we try to help analysts understand the results of our company. And I think largely, Brian, to be honest with you, with a large number of analysts, there's quite a diversity and even though we provided line item guidance, the outcomes on line items relative to the guidance how people built their model. So effectively, we said, listen, the best way for you to understand and value our company, ultimately, at the end of the day was to provide as I sometimes call it the cheat code on the test, which is what we think the EPS amount will be on the different line items. So it was more a factor of how do we try to get people to the the best way to think about the performance of the company for 2026 than trying to get 5 line items right.

That's helpful. And I think you mentioned the mid-single-digit loan growth is going to be a little bit more evident in the back half of the year. If that's right, what would you say are the 1 or 2 key markers we should watch for in the front half of the year that would show whether you're on track, above or below -- tracking above or below that kind of trajectory?

Yes. It's a great question, Brian. I think the first thing you have to look at is what's purchase volume and what's the flow of volume that's coming into the system, number one. I think number two, you got to watch your average actives and whether or not you see average active growth and you think about sequential, whether it's purchase volume for average active, et cetera. So you can kind of step through and say, does the growth makes sense, right? Again, we're optimistic about what we saw here in the first 3 weeks of January. But those are the kind of 2 big mile markers that I would be looking at as you kind of come through. I mean the payment rate will manifest itself [indiscernible] of the portfolio and the receivables. But that's really -- you won't really see that until the end of the period. Again, each of the monthly delinquency reporting credit, you'll get a snapshot of what average loan to do and then most certainly what end of period is.

If I could sneak in one last one, just on the tax refund thing. So is the conclusion that your best guess of the impact is included in the guide? Or to the extent there are benefits to business from elevated tax refunds that would be incremental to the guide?

Brian, I'm going to let you deal with for going up beyond one extra question, but it is included in the guidance.

And we have time for one more question. That question comes from Don Fandetti with Wells Fargo.

Can you maybe just dig in a little bit on the Walmart partnership. I mean obviously, that's going very well. Is this going to be just a steady ramp-up in loan growth? Are there any milestones or can you just maybe talk about how the rollout is going?

Yes. Look, John, it's going incredibly well. The program is fully launched in market, really strong early results. I mentioned fastest growth we've ever seen in the de novo program. There's a couple of things that I would highlight as you think about it. First, it is a leading-edge program from a tech perspective. So we're fully leveraging the OnePay app, which is a great app. We're leveraging our API stack. So we're completely embedded with a digital experience, the entire experience is inside the application all the way through when you apply for credit, all the way through servicing.

The second thing I'd highlight is, it's got a very strong valve prop on the card. So Walmart Plus members get unlimited 5% cash back at Walmart, 1.5% cash back everywhere else. That's a big improvement and a big lift compared to how we're running the program when we last had it. And we're seeing it convert a lot of Walmart Plus members, which is really great.

We've got really good digital in-store placement. You'll see that if you're on walmart.com, you'll see it if you're in the stores. And overall, I'd say we just have really good alignment, line through the deal structure, we're both incented to grow the program. So we couldn't be off to a better start, and we're really encouraged about what this is going to do for growth, not just in '26 but in the future.

Thank you. And this concludes our Q&A session as well as Synchrony's earnings conference call. You may disconnect your line at this time, and have a wonderful day.

All right. I want to thank everybody for coming, kicking off the conference for the fourth straight year. We're excited to once again have Synchrony Financial joining us. So Synchrony had another strong year, winning back a major partner, managed credit better than most and has bought back a ton of stock to help drive earnings growth. Here to share their insights on how the momentum is going to continue into '26. CEO, Brian Doubles; and CFO, Brian Wenzel. Today's presentation is going to be a fireside chat.

So Brian, let's kick it off. Despite a lot of noise in the macro, it's been another successful year for the company. You renewed over 40 partners, including bringing back Walmart. Credit continues to be strong, returned a lot of capital. So given that backdrop, maybe just talk about how you think the position is positioned into '26. And really what are the key things that you're focused on?

Yes, Ryan. First, thanks for having us. Excited to be here. I think the -- I'm really proud of how the team executed in '25. I think we're set up well as we head into 2026. You mentioned a lot of the things that we executed. I feel really good about credit. I feel really good about the return to growth. We launched Walmart OnePay, Amazon Pay Later, physical card with PayPal. So there's a lot to be excited about. And most of those are very early days as we sit here in '25, but we'll pay some big dividends, I think, as we get into '26 and beyond.

If you look at the platforms, I feel really good about Health & Wellness and the investments that we're making there. Those are certainly paying off. We're trying to deepen the moat that we have around that business. Digital is performing well. Just given the partner mix there, we should continue to see probably outsized growth there as you get into '26. D&V will be bolstered by, obviously, Walmart OnePay. We're thrilled with the early results there. It is still very early, but fastest-growing program in our history, and we feel great about how that's positioned.

And so everywhere you look inside the business, I feel really good heading into '26. And then the other thing that we talked about when we did third quarter earnings was we still have the ability to open up a little bit more on credit. So very proud of how the team performed and how they were able to dial in credit in '25 and get it back at or a little bit below our target range. That gives us some opportunity to open up a little bit. Assuming the consumer continues to be as resilient as they've been, that will provide another little tailwind as we get into '26.

So speaking of the consumer, let's spend a minute or 2 talking about the health of the consumer. You talked about loan growth has been slow, but it sounds like there's signs that it could improve. Spend volume turned positive in 3Q due to both average transaction volume and frequency, both have been improving. Maybe just talk about what you're seeing from the consumer and maybe just talk a little bit about the difference between the prime and subprime cohorts.

Yes, sure. So look, third quarter, plus 2% on purchase volume. It was nice to see that inflection point. I think that bodes well as we get into the fourth quarter and into 2026. You mentioned ATV and ATF, both improving, and they're improving across all credit segments. We're seeing a little bit more improvement in the non-prime segment, just given we're lapping some of the credit actions that we took, remix that segment a little bit. Prime is performing pretty well, and then we're seeing outsized growth as I think everybody is in the super prime segment. I mean they're being -- that segment, in particular, they're being bolstered by the stock market gains, better consumer confidence at that level. And so I think that will continue into 2026 as well.

Maybe just narrowing on the near term. Maybe as a follow-up, maybe talk about what you're seeing in terms of spend in 4Q. Any noticeable trends that are noticing in terms of spend patterns around the holidays?

Look, I think fourth quarter, so I would say a couple of things. First, the momentum that we saw in the third quarter has continued as we get into October, November. So November was a little bit better than October. I think that gives us some confidence. I think BW can talk a little bit about specifically holiday and what we're seeing there. But the trends that we highlighted in the third quarter seem to be continuing as we get into the fourth. And I think that provides a pretty good setup as we get into 2026. I don't know if there's anything you want to touch on holiday.

Yes. First of all, Ryan, thank you for being here. Thanks for inviting us. But when you think about holiday, I want to first kind of define holiday, right? Because I think you're going to hear this term a lot today and tomorrow. Holiday for us, we define it is really November 1 through call it, the Christmas time frame, number one. Number two, we look at holiday for retailers that are really impacted by holiday. So that's about 2/3 of our sales, about 1/3 of it is non-holiday related. So when we look at that -- with that definition for a second, we look at holiday, I'd say November 1 through the, call it, the Black Friday or Thanksgiving week was actually very strong. So there was a pull forward of sales.

There was some promotional activity that drove that. So we saw really good growth. That moderated a bit really during the Thanksgiving week and the week after. But then again, you look at this weekend, this weekend was again really strong. So kind of windows that are really being driven by, I'd say, some promotional activity. If I go down deeper and I look at that holiday mix by platform, that curve that I just talked about is consistent across all the platforms. So it's not idiosyncratic. It's not any outside influences. It is consistent across that.

So that is what we see. And I think when we look at external data, relative to that period, I think we generally were positive to that or consistent with that at worst. So I think we're in a good place. And listen, a lot of -- anecdotally, a lot of our partners, we actually gained penetration so far during this period. So we feel good about holiday, and Brian talked about the trajectory of sales being improving throughout the year, which is a really good exit point for us as we close out 2025.

And maybe while we're talking about near-term dynamics, you released your 8-K this morning, which I was in the office for and showed credit trends continuing to outperform seasonality. And I think on a positive note, loan growth is showing signs of improving, which I think was very encouraging. So maybe just talk a little bit about what you released this morning. Maybe any other pieces of 4Q guidance that you wanted to comment on as we sit here today.

First of all, Ryan, you know this, we actually don't do inter-quarter guidance changes really. But we were really pleased -- Brian talked about, we're really pleased with credit. You think about delinquencies being at 4.5%, both 30-plus and really 90-plus. We don't disclose that better than seasonality. So the credit actions that we deployed for a very purposeful reason have performed. And so I look at that, which is a great setup for 2026. You look at charge-off rates consistent with what we've seen.

So when you look at it, it's better than seasonality. Loan growth, as you said, down 1% versus down 2%. Again, payment rates higher than we normally have, but that's really a result of taking out some of the nonprime and a little bit more super prime and a little bit of mix into the portfolio of core versus promotional. So it's as intended. And so I think as we go out, credit really is demonstrated here, I think, performed well. The growth performed well versus our expectations. So we feel good about the exit point of '25 and '26.

Maybe to shift gears a little bit, talk a little bit about the platforms and loan growth, Brian, you touched upon these in your opening remarks. Maybe just spend a little time digging a little deeper in terms of where you're seeing strength. You talked about Digital, Health & Wellness. What type of transactions are still underperforming? And how do you think this positions the business into next year?

Yes. So I would probably start with the 2 that I would expect to have continued outsized growth relative to the others are Digital and Health & Wellness. and with diversified value being a close third. And starting with Digital, I think just given the partner mix, what we've launched with Amazon Pay Later, physical card at PayPal, I think we're feeling really good momentum there as we head into 2026, the massive user base that we can tap into huge markets that those partners serve and just gaining a tiny bit of penetration and getting a little bit of scale is worth a lot at the top of the house. So I feel really good about digital.

Health & Wellness, as you know, that's a business that we've been investing heavily in for the last 5 years. We're the industry leader there. We continue to try and build out that moat. We're integrated into 40 different ISVs across dental and veterinary, and that gives us some confidence that we're every day just trying to make it easier to finance elective health care procedures because as we all know, insurance is covering less and less. We've got a market-leading position in an enormous market where financing, frankly, is really underpenetrated. If you look at the amount of those elective procedures that get financed, it's still very small. Most of it actually gets done by the provider themselves. And so that's a huge opportunity. And again, competitively, we're really well positioned there.

Then stepping into diversifying value, this is where I think you're going to see that platform do very well in the coming years on the back largely of Walmart OnePay. We've been thrilled with the early results. It's a great program. Obviously, we're tapping into a massive sales opportunity when you look at the size and scale of Walmart, great program, technologically very advanced. We're very excited about the early returns. I mentioned it's the fastest-growing program that we've ever launched that I've ever been around, and I've been in the business for 20 years. So a lot to be excited there, and I think that will buoy the D&V platform.

Lifestyle has come back a little bit. Lifestyle and Home & Auto, I'd say, because they're bigger ticket and largely elective, those are businesses that will continue to improve, but probably just not at the same pace as the other 3. Lifestyle has come back and improved sequentially, so has Home & Auto. If you think about Home & Auto, there was a massive pull forward coming out of the pandemic. Everybody remodeled their houses. They bought all the furniture and redid home offices and did all that stuff. So I think that business has been lagging a little bit the other 4 platforms. I do think that will come back as consumer confidence comes back. I think the consumer right now, bigger ticket purchases, they're being more thoughtful. And I think that's actually -- that's a great thing from a credit perspective, by the way. We don't want our consumers to be -- to overextend and buy things that they don't necessarily need right now. But I think as we get into '26, I would expect those platforms to continue to improve as well.

So you brought up Walmart a couple of times. I guess in the second quarter, you announced that you'd agreed to bring them back as a partner. Maybe just talk about why this made sense for you, what you're doing differently? And what is the path to this becoming a top 5 to top 10 partner that you've talked about?

Yes. Well, I have to remind everybody, we always had Sam's Club. So we were still -- we still have a big presence in Bentonville and Sam's Club is a fantastic program for us. And I think we continue to execute that very well during the time that we didn't have Walmart, which helped us obviously win the Walmart program back. It will be a different program. It is a different program for a number of reasons. First, it's very technologically advanced. So very tech forward. It kind of mirrors what we do with PayPal and Venmo in the sense that it's completely integrated in the OnePay app. That's a fantastic app, by the way, for those that haven't seen it, seamless customer experience. You apply for the card all the way through to servicing you can do inside of the app.

So I think that's going to be really attractive. And it helps us drive those new accounts. Like we want to keep everybody in that app experience. And so that's one thing I would highlight. The placement that we're getting across Walmart is fantastic. It is fantastic. And I think that's a differentiator. So whether you're on walmart.com, whether you're in the store, in the checkout, QR codes, you just see it very prominently. And we know -- we've been in this business forever. We know that, that is one of, if not the most important things to drive new accounts. And I think that's a big part of how we're driving best ever new account growth in the de novo program.

The last thing I'd just highlight is the val prop is really terrific, right? So for Walmart+ customers, and we are getting -- we are over-indexing in Walmart+ customers applying for the card, which is what we want. So they save 5% unlimited cash back. If you're just -- if you're not a Walmart+, you get 3% cash back. So a really attractive val prop, which I think for -- in this kind of environment, in particular, people are looking for a deal and they're looking to maximize those dollars and how far they go.

And maybe just one quick follow-up. I think you noted several times that this is the strongest launch ever. What should we be watching to assure that things are on track with this partner?

Well, look, we're going to talk about it every quarter. Anecdotally, we're never going to give you program-specific details. You know that. But I would continue to watch the D&V performance, and then we're going to give you some insight every quarter as we go out. And if you're a Walmart shopper, you'll see it hopefully very prominently across their properties in-store and digital. That's it from Walmart+.

So you talked a little bit before about the credit actions that has been taken. I believe recently, you talked about unwinding some, I think, about 30% with a focus on Health & Wellness and Digital. Talk a little bit about the changes you've made? And then second, I think you talked about unwinding in 3 phases over the next period of time around 2 years. What will be the next 2 phases entail? And what are you watching to determine whether or not you could actually move those up?

Yes. So the credit action after changes we made really in the fourth quarter this year were stemmed around a couple of different areas. They're really centered around people that we knew, right? So during this period of time, we actually restricted credit line increases. We weren't doing proactive ones. We're doing reactive ones. So if you called in and asked for it. Now we're actually doing proactive ones. The customers that we knew that had good behavior with us, we're increasing that. And those are great growth programs. We know the customers. We have the account already. So it drives faster growth. But that's not the reason why we did it just because it was a safer way to step out, number one.

Number two, being the fact that we have a private label and dual card, we down sold a little bit more into private label. So some of the upsell into dual card. So we're doing more upgrades from the private label program into dual card, and we're originating more back into dual cards, a little bit more origination oriented there. That will give us a good boost around people that we know. And there are some account management things where we're doing credit line decreases. We're doing the decreases, but we're not ratcheting it hard down. So I think there are safe ways for us to step out here, so that, yes, we're going to be inside our long-term framework this year. We want to be inside our long-term framework. And given the delinquency, we certainly should be, and we'll back in January to talk about that in more depth.

So we're maintaining that discipline to be really efficient. As you kind of step into Phase II or Phase III, even though we don't necessarily talk about that in the company, I think what you're going to start to see is more on the origination side of the equation, taking a little bit more risk there. Again, we want to make sure that industry participants are not being super aggressive. You see at the high end, but you don't want that middle to kind of overextend which what we saw really in '21 and '22. So I think you'll see a little bit more around origination. I think the focus had been around Health & Wellness and Digital. I think it broadens out a little bit into the other platforms. So I think you see that. So it will be over the course of the next year plus, I think until we're back to a credit aperture that's similar to what we did back in '22.

So sort of to bring together all the comments on loan growth, it feels like unwinding the curtailment, the strength of Walmart, a relatively stable economy, it feels like we're pretty poised to have improving growth over the medium term. I think you made a comment just now that you see us heading back to the long-term framework. Maybe just talk about -- I know we'll get guidance in January, how you're thinking broad strokes about '26. And over the medium term, what will it take us to get back to that, call it, 7% to 10% growth that you guys historically targeted?

Yes. Brian mentioned Walmart. Walmart will clearly be a strong tailwind to growth, right, just given the velocity of people that go through, whether it's the online properties or the physical properties, that will be a tailwind. The credit aperture change, again, we haven't -- we'll step out. As we kind of did our '26 plan, we kind of focused on this first phase. That will provide a little bit of tailwind. And then what you're naturally seeing is that consumer being more willing -- given the portfolio of customers we have, more willing to engage in the spend. So we see strength. Brian talked about it in his opening comments. We're seeing strength in discretionary spending across cohorts. That has continued into November. It has been great for us, given the portfolio mix that we have today.

So we continue to see that. Even in Home & Auto, right, which has been probably our most challenged sales platform because of the bigger ticket. We actually see in furniture it's actually doing well, right? Where you're seeing more pressure is the bigger ticket home specialty when you're -- whether it's generators, windows, roofing, et cetera, that's where people aren't putting the money. So I think we see green shoots across the core, if I call it that, that will also be a tailwind. So I think we've kind of turned the corner. No one wants to be in a low growth mode. But Ryan, really, this year, we took out majority of the sales and the decline was our actions because we wanted credit to be in the right place. We think that's a competitive strength moving forward.

So Brian, I wanted to spend a minute on the organic pipeline. So you highlighted Walmart. You won a portion of Lowe's, SOS Pay later at Amazon, a handful of others. Maybe just talk about what the environment looks like for new business wins, whether it's startups or portfolios from competitors and talk a little bit about where the pipeline is skewed towards.

Yes. Look, the business development team is very busy as they always are. There's a pretty good pipeline of de novo opportunities of programs that have existing portfolios that we're involved in. I would say the thing that's changed over the last couple of years, though, is what I would call a nontraditional business development opportunity. So this is where we're really working to expand distribution of our products, right? So this could be through ISVs, multisource financing platforms, e-cards, et cetera. These aren't -- you have a merchant or a provider and we're providing financing, this is really how are they running their businesses. In the case of Health & Wellness, we're integrated in 40 different ISVs, right?

And that makes it easy for those providers to offer our financing. It's not a separate step. It's kind of integrated in everything they do. So our business development teams are spending as much time on those types of opportunities. Last year, we launched a partnership with ServiceTitan in Home & Auto. That will be great for us, right? That's a way to, again, expand distribution of our products and make them easy to access for consumers. So when we think about our organic pipeline, it's really changed in the last couple of years to be the traditional stuff that we always talk about new programs like Walmart, expanding products inside of an existing partner like we did with Amazon with Pay Later, but this whole other category now, which is really expanding distribution.

And that will -- as Agentic commerce expands and grows, that will provide additional opportunities for us. It's going to change the purchasing path. We have to have our financing products integrated in whatever that eventually becomes. But that's a different mindset. That's not you're partnering with a traditional merchant who's selling goods. You're trying to get inside of that purchasing path and make sure our financing products are front and center as consumers are making that decision to buy.

Just one other thing because you talked about competition. I think the competition, fortunately, is still pretty rational. It's been that way for 3 or 4 years. And I think some of the uncertainty over the last 2 or 3 years on credit and some of the uncertainty around the economy, I think it tends to have that effect on the competition on other issuers where they're like, okay, nobody is getting too crazy on price. you're not seeing a lot of terms that are way out of whack. And look, at the end of the day, I feel great about our ability to compete. We're winning the deals we should win, and we're winning for the right reasons, right? We're winning based on our products, our capabilities, the multiproduct suite that we have, proven is our underwriting platform is a huge differentiator. So I feel really good about how we're competitively positioned in this environment.

And speaking of competition, you could see it in the stats. I think many of your largest partners are renewed until 2030, '22 of '25 through '27 or later, 97% of balances, not a lot of risk of losing partners. But maybe just speak about recent trends in renewals, where is the pendulum swinging? And how do things like PPPCs factor in?

Yes. We're thrilled we were able to put together such a great renewal cycle, and most of those were done well ahead of the contractual date. There's always things in the program that either the partner wants to change or maybe we want to change. And frankly, if it's working, right, if the program is successful and we're delivering for the partner and we're happy and they're happy, there's no reason not to renew and extend. And with that said, it can be a distraction, too.

You're spending a lot of time working on the renewal and not necessarily on growing the program. So I do think that was -- it's a qualitative kind of concept, but we definitely felt some of that. So it's great to have that big renewal wave behind us. And you mentioned PPPCs. That was kind of like an if then statement as we were going through some of the negotiations. If it happens, we'll do this. If it doesn't happen, we'll do this. But I wouldn't say it played a big role. It didn't play a big role.

I guess maybe just as a follow-up to that, maybe for Brian Wenzel. There was a couple of tweaks to the PPPCs. I think it was you mentioned last quarter. How are you thinking about these over the longer term? Do you expect them to be competed away or spread around the partners and consumers over time? What is sort of the long-term trajectory of these?

Yes. Listen, I think we made some adjustments to it really was around one major partner and some small tweaks around it. We're not really in any discussions to adjust it with partners, which I think people feel comfortable. We really haven't seen in the data any negative reaction, right, relative to the PPPCs. I think as you look at '26 and beyond, the question for us that we'll face is, to some degree, would we want to reinvest any of that back into value propositions or potentially given the margin expansion that inherently comes with it, would you change the credit after a little bit? That's something we haven't made any decisions on. We'll see what happens in '26. But for now, that they're sticking, and we feel comfortable with that.

But listen, and we've seen some really positive trends in the business. When you think about the statement, we've seen significant adoption of E. That's a great thing for us when you engage someone more digitally into the program. So they're here. As far as competing away, and this is one where I think people say, well, it's all come in and they'll bid down the price or whatever. Most of these programs come with change in control and FMV. So it's not easy to just kind of come in and say, okay, I'm going to bid down the price because they're going to have to pay us a big FMV, which they're going to have to amortize.

So in theory, it doesn't create an advantage for someone to say, listen, I'll come in and just take a lower price because they're going to have to pay us, which is indifferent to some degree. So it's something with our partners. We'll continue to engage with them the same way we did when we put the actions in place around what makes the most sense for the consumers in that program itself.

I think the good news is that it's not -- it won't be -- there's no event, right? This is now just like normal course, right? It will be program by program. And by the way, our teams are looking at this and have always looked at this, like where do we want -- if we make a tweak over here on price, what kind of growth do we get, right? If we want to go -- if we've got a little bit more margin and we go deeper, like we do that already today, what kind of growth will it drive? So I think there's -- now this is just kind of in the business and the runway and every one of those will be kind of adjudicated separately in terms of if we do something over here, what's the return on that investment?

Let's -- we touched upon it earlier, but let's talk a little bit about credit. You guys have performed in line or better than most peers in terms of credit performance. Brian wants me to say better than everybody. I guess, first...

That's actually true.

Try to be modest. First, maybe just talk about what has driven this outperformance. And then second, again, I'm sure we'll get guidance in January, but you've been running at sort of the low end of your targeted range. You've obviously been in a restrictive credit stance in the past few years. What do you think all this means for credit over the medium term?

Yes, we've been restrictive, but this year, we're opening over 20 million accounts. which I want to say is a streak for us that if you look at the last 20 years, I want to say other than 1 or 2 years, we've opened more than 20 million accounts. So we're continuing to do that. Credit for us was important. We wanted to maintain discipline around accounts that we originate at the right margin. We don't need growth for growth's sake. I think most people look at our company don't buy us for growth, they buy us for return. And I think we were disciplined relative to return. We're going to be disciplined relative to return. I think as you look at the actions, whether it's Phase 1, 2 or 3, we're going to maintain that discipline so that we maintain the right risk-adjusted margin.

And the great news is we have a ton of capital to do that through the course. So credit for us is going to be a strength. And I think we took actions faster than others. Others said, listen, we're going to take more risk at the margin, they're willing to take a lower return. We just said that's not our model, and we're comfortable with the growth profile. The great news is we've kind of bottomed out and we're returning to growth. And I think as the more rational credit actions across the industry take place and we work through the oversupply of credit, it's going to be a tailwind to us with regard to growth. So I think we're incredibly well positioned in '26 and beyond, both from a growth perspective as well as a credit perspective.

And then sort of as a follow-up, because of the strong credit performance, we've obviously seen the allowance come down. I think you mentioned it's likely to continue to have a downward bias. I know a big part of this is mechanical, but how do you balance bringing down the reserve to reflect improved credit, but obviously, there continues to be uncertainty in the macro?

Listen, there should be a downward bias because of the credit posture. The biggest question for us on the reserve is going to be the macro and when do we have -- I probably said this for the last 4 years, when do we have clarity relative to the macro, right? I think as a company, we don't believe we're going into a recession, but there is increased pressure right now. And so we're probably a little bit more negative on the macro relative to the reserve. I think as that clears, number one, I think the credit actions and our reliance more on data and PRISM, as Brian talked about, the advanced underwriting system, there will be a downward bias to reserve. And I think that actually helps us because you potentially can get some rate decreases as you're growing into it. So some of the unfortunate consequences of CECL offset each other as you kind of go into that growth mode. So that's what we hope is that the coverage continues to come down as a rate perspective, albeit dollars are going to go up because of loan growth.

Let's spend just a minute or so talking about the net interest margin. You had a ton of success this year, bringing the margin up driven by a handful of things, PPPCs lower liquidity. You did a great job optimizing the funding. And it feels like the rate environment is becoming more conducive for your balance sheet. So maybe just talk about the path back to at or above 16% margin? And what are sort of the key drivers to getting there?

The biggest variable for us, obviously, is liquidity, right? And to a large degree, we've been able to expand deposits. If you go back 5 years ago, we used to take in deposits at 1%, 1.5%, and we get back 10 basis points from the Fed. Now we're taking in deposits at 3.65%, 3.80%. We're getting 4% back or 3.90% from the Fed. So it's a positive economic trend. So we're going to continue to take deposits. That depresses NIM a little bit. That will ultimately get deployed into loan receivables, which is an upward bias to NIM.

I think as you look forward, maturation of the PPPCs tailwind, to a large degree, you're going to see some of the compression we saw on the fixed side of the book because the promos, which are fixed versus our funding stack, which resets a little bit quicker. I think that becomes a tailwind, that compression over time, the next 2 years kind of unwinds. At the end of the day, interest expense, prime and investment portfolio yield will kind of offset each other. So there are more, I'd say, tailwinds to NIM. The couple of headwinds that you have is, number one, late fees are going to go down, right, as credits come into the box. And two, on a NIM basis, because your average balance is going up, there's a little bit of a bias. So I think we feel good about NIM. It just takes time given the compression in the interest rates where we are.

Two last questions to get through here in the last 2 minutes. So first, let's just shift to talk about capital. CET1 stands at over 13.5%. You recently upped the buyback by $1 billion to $3.5 billion. If my calculus is correct, when you finish this allotment, you should still have about 13% CET1, obviously, that's subject to the pace of loan growth, and that's still well in excess of your 11% target. Maybe just talk about the path and time frame to getting closer to the 11%. And can we continue to see this pace of buyback even with improving loan growth?

Yes. Listen, we're going to be aggressive but prudent. We realize that capital is a strength, but it's not necessarily something we want to keep on the balance sheet for us. We generate a ton of capital. I think when you look at it, we'll generate over 300 basis points of CET1. So going forward, the good news is we don't have to do the CECL transition that's behind us. Even with the RWA growth that we have, maybe look at expanding the dividend a little bit, we can kind of continue on this pace. But we want to get down. We understand that where we are is not necessarily the most efficient. But listen, this year, RWAs are a little bit lighter than expectations. Earnings, you can argue maybe a little bit better. So we'll use that as a strength for us as we move forward.

So Brian, I think for the last couple of years, we've always ended on the same question. Last year, we said [indiscernible] said it was best performing stock in the coverage. And this year had another outstanding year of performance. I guess when you look ahead, obviously, stock has done much better. What do you think is still left for investors here?

I think it's all the stuff we talked about. I mean we're -- I think we're incredibly well positioned. I think we made all the right investments in the business. And you look across the platforms, we talked about Health & Wellness and Digital, there's so many green shoots, and it's still very early days on some of the most impactful things that we're executing. It's very early on Walmart. It's very early on Amazon Pay Later. We've got this huge wave of renewals behind us now, which is great just from the standpoint that, okay, we're not thinking about that. We're spending time with our partners focused on growth.

I think the technology investments we're making, whether it's how we integrate into ISVs, the investments we're making to get out in front of Agentic commerce and the investments we're making in Gen AI, the investments made in PRISM, which are providing a great tailwind and help that outperformance. I know I'm running the clock down on it, but those are all reasons to be really excited for the next handful of years.

Awesome. Well, with that, please join me in thanking the team.

Thanks, Ryan.

All right. I'm going to keep us on time. Joining us next is Brian Wenzel, CFO of Synchrony. Brian has over 25 years at Synchrony and its predecessor, GE Capital. Prior to becoming CFO in 2019, he held key roles, including Deputy CFO and CFO of the Retail Card business. So thank you, Brian, for joining us today.

Sanjay, thanks for the invitation. Great to be here.

So I saw your monthly data this morning, and it looks like the consumer continues to be resilient in the back of this choppy macro backdrop. Maybe you could just talk a little bit about what you're seeing in the portfolio and just in the back of -- like we get a lot of mixed signals on the economy. How is your consumer holding up so well?

Yes. Listen, we were pleased, obviously, with the results this morning. When you think about credit -- and to go back to that story, Sanjay, in mid-2023 and into 2024, we took credit actions, right, because we did not want to be in a situation where our losses were outside of our target underwriting zone. It's not a good use of capital for us. It's not efficient. And we generally are not going to chase growth. So we put credit actions in place. I think if you look at those trends and how those trends have performed, it's done remarkably well and arguably probably better than some of our expectations.

And if you look at 30-plus better year-over-year on a seasonal basis, you look at month-on-month, it's better on a seasonal basis. Same thing on net charge-offs, [ inferred ] same thing on 90-plus. So when you look at that trend from a seasonality perspective, it's continuing to take hold. It's slowing a little bit, right, because we realized a bunch of the credit action effectiveness has been flowed through. So from that standpoint, the roles in the performance is great. Entry rate continues to be better than the pre-pandemic period back to that '18, '19 window. So that's great. And we don't see things inside delinquency that's troublesome. We don't see a greater percentage of nonprime coming through. We don't see anything related to student loans. We don't see different attributes that are in there. So it looks actually pretty good from our perspective.

That's great. And then when we think about the reserve, obviously, the reserve rate has been coming down, but there's still more to give relative to CECL day 1. Can you just talk about how we should think about that -- the path of the reserve rate, particularly as you might start growing a little bit as we move into next year?

Yes. So obviously, we don't guide towards reserve rate. So I won't give you specific guidance. But I think as you think about our framework, right, we're back inside the target operating zone, but we have qualitatives, all right, and different scenarios that sit back and say, if the macroeconomic environment were to get worse, what could that outcome be? So clearly, I think ourselves, I think most issuers are in a situation where we have a little bit of -- when you look at those models, a little bit of conservatism in those models to sit back and say, okay, even though we don't view a recession coming, there are indicators that say, hey, listen, not everything is perfect So we have those.

As we get greater clarity in that macroeconomic environment, and we continue to see stabilization in delinquency performance, there is a downward bias on to the rate. You'll see some downward bias naturally, and I said this in our third quarter call in October. There's going to be some downward bias, obviously, because of seasonal growth here in the in the fourth quarter. But again, I wouldn't expect anything in the short term because I don't think we're going to see anything in the macro in the next 2 months, given the fact that there's not a lot of data out there, but there is a downward bias towards that reserve.

Can I just follow up a little bit on this? Like when we see deterioration across some of these cohorts, what do you think is driving that? Is it because those areas were growing and maybe those lenders kind of went further than they should have? I'm just curious, as you look at it, you're not seeing anything in your portfolio, but you obviously have insight across the economy.

So Sanjay, we talked quite a bit about PRISM, our advanced underwriting tool. We talked about the fact that we have migrated quite a bit away from just being score only. We have massive amounts of data. So when we do underwriting, I think we have probably a little bit more unique insight into the customers, whether it's data coming from our partners, whether it's data coming from unique sources, yes, we do pull a Vanta score, fraud score, bankruptcy score. We have our own proprietary scores that we put on it. So I think -- first of all, we have, I think, a competitive advantage when it comes to that data and the underwriting because of the nature of our business, number one. I think two -- when we look at some lenders, I think they are -- their models are a little bit more rigid, number one.

And I think number two, I think everyone is in this war now they're try to grow and maybe that credit aperture is off a little bit in an environment where scores may be not necessarily the best indicator.

Got it. Okay. So maybe we start talking about other encouraging trends. Obviously, spending has been showing some green shoots, both average transaction frequency and average transaction value showed some growth acceleration. Are you seeing any noticeable differences between the industry vertical mix, consumer segment mix that help you sort of think about the path forward and how those trends might manifest themselves in the future?

Yes. When we look at -- if I start really top and then come to ATV and ATF. When you think about our purchase volume, we're down 4% first quarter, down 2% second quarter, plus 2% third quarter. So you could see that trend building and the momentum. When you specifically look at average transaction value and average transaction frequency in the data that we talked about and we showed in our third quarter earnings, we had 4 consecutive quarters of positive trends, right, kind of moving up on both ATV and ATF. I think as we look at October, that trend continued, to be honest with you.

If you look at it underneath, right, when I think about average transaction frequency for a second, all the kind of cohorts when we think about nonprime, prime and super prime all trended up. When I think about average transaction values, it's really nonprime and super prime that kind of had that. So where everyone -- I know there's a lot of this fear around the nonprime consumer, particularly in autos, you're feeling some of the pressure, and that's probably a little bit more unique to the class and some underwriting. But we're seeing nonprime hang in there. And part of it is the credit action. So our nonprime is a stronger group because we've, in theory, eliminated out some of the, I'd say, is the tougher credits in there.

Got it. And you've talked a little bit about unwinding some of the prior credit tightening by the end of the year. Are those -- any specific risk or product tiers? Maybe you could just help us dimensionalize what that means for growth in the future.

Yes. So I'm going to break it into 2 pieces, Sanjay. I'm going to bring you back a little bit to what we talked about in July. So in July, we said we were making some selective adjustments. Those selective adjustments were really into, I would say, our health and wellness platform and then I'd say our digital sales platform. When you think about health and wellness, some of the things that we were doing there was really around ticket size and things like that. So one of the ways you control credit is, I may not do a $15,000 or $25,000 dental implant. I may scale it back a little bit. We started to go back and do some of those things. So taking a little bit more exposure to the consumer just through ticket growth as went there.

The 30%, as we talked about, again, we're trying to dimensionalize it for people. When I think about the actions that we were doing or beginning to do here in the fourth quarter, the first is around credit line increases, right? We weren't doing really any credit line increases proactively if someone asked, we would do them, but we probably were more conservative. So we started to address some of that. So people who are eligible, it's great that we send you an offer and say, Sanjay, thank you for being a loyal customer. Your credit line goes from A to B. And a lot of times, merchant offer comes in there, it's a very good growth tool as it kind of steps in. And it gives the consumer confidence that we believe in them. So we started to see things like that. That is across the board. So that's not necessarily limited to any one particular sales platforms. We're seeing that.

We're leaning into -- as we tighten credit, we put more people on to the private label product versus Dual Card, even though they were potentially eligible to control that exposure. We're now going through a campaign where we're offering those customers to go to the Dual Card, again, with an offer so that they can upsize and you're going to get hopefully bigger balances off of that. You'll see some other new accounts that kind of go in there. So there's targeted things like that.

On the account management side, Sanjay, again, these are pretty much across the board. When we do credit line decrease strategies, you decrease someone to a percentage over the balance. As you pay down, we continue to ratchet you down to take the exposure down. We've slowed down the ratchet. We're still going to credit line decrease, but we may not continue to go down there. So we're being a little thoughtful. All the actions though, that we're taking here in the fourth quarter are on existing customers, right? So they're not net new customers. They are customers we know, they are customers that have experience. So we feel confident in what it will do to the loss rate, but really on a growth perspective.

And so I think the number you guys have put out there is 30% of the prior credit tightening is what you're easing or unwinding, right? So as we think about the remaining 70%, how quickly do you unwind the remaining 70%?

Yes. If you go back to April this year, I talked about it almost 3 phases. That's not necessarily how we do it inside the company, but almost 3 phases. You're going to have an initial phase, then you're probably going to have a further step out and then you have kind of a final phase. So I think we're on target for that. I think if you look at what we did here in the back half of 2025, that's kind of I would call Phase 1. I think it's fair to say we would come back probably think about getting through the first quarter and that would be kind of Phase 2 and then the latter part of '26 into '27 where you'd kind of be back to a nonrestrictive credit aperture, if I put it that way.

Again, the actions we're taking didn't unwind some of the things we did in '23 and '24. So if we were concerned about you taking a personal loan, we're not unwinding that. We're just doing different things and say, okay, I'm kind of swap in and swap out from a credit standpoint, but the effect on sales will be neutralized once you kind of get through those 3 phases.

So with the credit actions unwinding, the Walmart portfolio coming on, it seems like you're well positioned to sort of reinvigorate growth in some capacity. I think if I was to pick up one thing in the monthly data, that might be one area that was still a little bit weak, but we still got a couple of months to go. So maybe you could just dimensionalize for us sort of how we should think about that long-term target you have of 7% to 10% and sort of how -- where you fall into the range next year?

Yes. So that's a very unique way to try to give me guidance for 2026 that, of course, I won't do.

I try. I got to try.

I would say come back in January. We'll have a great conversation about that. Listen, there's nothing structurally in our portfolio that says that, that medium-term target or longer-term target of 7% to 10% is not achievable. Right now, we're in a restrictive credit capture mode. And listen, we've been very clear that the sales decline that you're feeling and the growth we're feeling now, a majority of that is credit actions oriented. And Sanjay, you know better than I do, is a lending and a credit card business is the easiest business to grow. So there's no real, I think, structural impediment.

And I think when you look at the underlying portfolio for a second, you look at some of the areas where we're leaning in more to, right, Health and wellness. We have a tremendous franchise value there. It's very fragmented. We have the ability to continue to drive that. There's verticals in which we don't have. You think about digital platform, which has just tremendous partners when you think about an Amazon or a PayPal and folks like that. Now you put Walmart in there. We had a very good relationship for a number of decades, and we're excited about where that program can go. But I think also, if you think about -- so -- and I'm sure you'll probably unpack Walmart a little bit later. But you think about Walmart coming in, we have Lowe's Commercial going to come into the portfolio in the first half of 2026.

So when you think about those types of items, you think about the tailwinds from the credit action rewind, that's going to, in theory, give you solid momentum. I think even when we go back to what we're seeing today, there's this view on the consumer that the consumer is really pulling back. I look at our October data and discretionary spend on our Dual Card. So world sales on Dual Card, discretionary is up 9%, nondiscretionary is up 6%. That says the consumer is willing to spend. The consumer is confident to spend if they have a reason to spend.

Very interesting. I guess when we think about Walmart, maybe we can unpack that a little bit more, as you said. it's obviously coming back. And it probably is going to come back in a little bit of a different capacity than it was there before as you guys have talked about it. Maybe you can just talk a little bit about that.

Yes. First of all, we're excited with the relationship with Walmart. It is just an iconic brand. You think about the number of consumers that just shop, whether it's in a Walmart physical location online now, and they've really built that and invested in that property. They've really transformed the business. So we're excited about the relationship. I think we take a lot of pride in the fact that they came back to us because they realize our capabilities, and we take that as a win. Most certainly, we said to them, we don't need to. We have a great relationship with Sam's and -- but if you wanted to do it and you want to do it quickly, we can do it because we know how the system works.

I think when you look at that program, to stand up that program as quickly, it is one of the more technologically advanced programs. If you look at the placement and the way in which it sits inside the OnePay app and that API tech stack, it is really seamless to the consumer. When you apply for the card, it automatically gets digitally presented inside either the OnePay app or the Walmart app. So when you think about those capabilities on how the consumer can do it, and the consumer can use a QR code throughout the store.

Back when we had the program in 2018, if you wanted an account in store, you're going really to the front-end associate, a lot of which are folks who were not credit eligible themselves. And so now you can do QR codes inside the store, you can do it yourself. You have tremendous access. I think if you now look at the placement, if you went to the Walmart homepage, product page, et cetera, it is right there for you. So I think the way in which a consumer can get the card is fundamentally different number one. Number two, there's a much stronger value proposition that's on the card today. So if you think about Walmart+, which is a big initiative for Walmart, getting 5% off purchase there and then 1.5% in the world. If you're not a Walmart+ getting 3% purchases in Walmart versus 1.5% in the world, that's much richer than it was under the prior program.

What that does is give you a better credit quality and more consumers that are willing to kind of go into the program. So you look at that thing. Then you look at the alignment between Walmart, OnePay and ourselves, I think the senior leadership of Walmart is much more engaged relative to that. So when you think about better placement, better digital placement, stronger value proposition, we have actually better revenue generation off the product. And then you kind of get into the engagement. It's just -- we're excited about the launch and the potential. And again, to remind people, this was a top 5 program for us. There's no reason it can't be a top 10 and then potentially most certainly a top 5 program over time. It just -- it has tremendous scale.

And I mean, are there any early signs that you're seeing? I mean, how should we think about sort of the sequencing of the growth maybe just over the next 6 months or so?

Yes. Listen, it was really important for us to get it up for holiday. A lot of folks use Walmart, walmart.com to provide for their families in holiday. So really important to kind of get us up. The way I'd characterize it, Sanjay, is when I look at other fast-growing de novo programs that were really big brands, this is far outpacing on a per account production on a weekly basis. It's just -- it goes to speak to the relevance and the importance of Walmarts in a lot of people's lives. So we're seeing really good new account traction here. Again, you know that there is a spending curve, but having it out and trying to get the engagement early. We're also going through probably our largest prescreen we've ever done for any program that's currently underway.

So we're going to touch a lot of people and try to see how many cards we can get because if we can get them in holiday, it really is going to spend pretty well. The final thing I'd say about it, what makes the program, I think, really attractive, we have a high percentage of people who are Walmart+ members, right? When you're paying a monthly fee to have that product, you're sticker, you're more loyal to that brand. So getting the credit card pairing the value, which Walmart really appreciates it because now it's more value on that program, that's going to create stickiness with those customers. They're going to be more willing to utilize the card and potentially get it to top of wallet for some.

Great. Well, it sounds encouraging, but the setup seems encouraging.

Come back in January for discussion on setup.

Wonderful. So maybe we shift gears and talk about the NIM. You've talked about tailwinds in the fourth quarter and you get the benefits from lower funding costs, maybe some -- and some offsets from lower-yielding investments in the portfolio. So how should we think about the NIM to progress in 2026?

Yes. Again, you're trying to drag me into 2026...

Or just the progression of the NIM...

Here's -- the biggest wildcard that comes in, I'd say, quarter-on-quarter is the percentage of loan receivables to average earning assets, right? And if you kind of go back to the 2019, 2020 days, we're borrowing money at 1%, 2%, I'm getting 8 basis points, 9 basis points for that. It was a terrible economic trade. So you're really closely managed. Today, I'm getting, call it, 4-ish percent yield and I'm borrowing at like 3.80%. So it's a positive economic trade. So again, we're not going to chase that metric, right? Because if we can gather deposits, as we talked about growth, you're going to need them. So that's the first wildcard. Again, I think we're probably a little bit higher from a liquidity standpoint. So I think there's room for that to come down, which provides a tailwind on NIM.

I think when you start looking inside of the components of NIM, when I think about interest income, you got a couple of things going on. Number one, you're going to continue to see year-on-year growth as it relates to our PPPCs and how they kind of come in. So that creates a tailwind for you. You have a little bit of a headwind as rates come down here with prime rate for the cards that are variable that come down. You have a little bit of, I'd say, a headwind when it comes to merchant discount, which is, again, based off of market level pricing on interest costs. And then you have interest costs themselves, right? And that should create a tailwind for you. Again, I think betas are a little bit lagging from what they were on the way up at this point. I think people are trying to watch the market. We'll see. It's really a toss-up what the Fed here does in December.

I don't think -- even if the Fed did something, I don't think you'll see a lot of people move rates in the fourth quarter because people are trying to gather deposits because they have seasonal growth. It's not just us. But I think you'll then say, okay, how does that roll through and betas kind of come up from what's now in the 50% range up to that 75% range on what we had on a rate hiking cycle. The last thing I'd sit back and say the one thing we try to do a little bit more next year than this year. This year, we had a lot of front-ended maturities on CDs. We're trying to -- we thought we're going to move a little sooner from the Fed. They didn't, so we didn't quite get as much. Next year, we're much more level. So I think we'll be able to kind of -- as rates come down, you get a little quicker reset on the portfolio. So there's generally a mix between headwinds and tailwinds. I generally say there's more tailwinds than headwinds.

Yes. Sounds like it. And maybe you could just drill down a little bit on the PPPCs and how much of that sort of in the run rate now? And any risk that it sort of becomes a smaller tailwind at some point?

Yes. So the way -- if I kind of break it into, I'll call it, 3 buckets, right, they are the more meaningful buckets. Bucket 1 was APR, Bucket 2 is paper statement fees, Bucket 3 is kind of default pricing or penalty pricing. So if you go to bucket 1, we talked about the fact that about 50% of the portfolio would have reset to the new rates in June of this year. You're going to be at 75% June of next year. We're slightly ahead of that schedule. So you get a magnitude of there's ways to go not only in '26, but in '27. It's a declining number as far as year-on-year growth. But on an absolute dollar basis, it grows in those particular years. When you think about the paper statement fees, that's kind of in for the most part.

And you really have 2 dynamics that are going on there. Number one, as I grow new accounts, I pick up more paper statement fees. But I have more people migrating into e-bill servicing. So I'm getting the cost benefit. So on the revenue side, it probably treads water to a little bit, but it's fully in. Now it's how much more can we get people to kind of go to e-servicing because it has greater benefits for us there. And default pricing has a longer tail. So it's not quite as big, but that will kind of come, but it's not going to move the numbers significantly.

So we view they stick. We talked about that there are some small modifications that we made. We're not really in discussions now to change that. Again, I think having the incremental price gives us the ability to make very strategic discussions with our partners, either about a different value proposition in the card or two, given the incremental revenue, kind of take a little bit more credit loss exposure on the margin in order to do that. Those are conversations we may have in 2026, but we're not -- right now, we're focused on executing for holiday for merchants and cardholders.

Okay. Maybe we can talk about capital. You guys ended the quarter with 13.1% CET1 ratio. You announced a $1 billion share repurchase authorization, strong. It seems like there's a decent amount of excess capital. Can you just talk about how you guys are thinking about capital allocation going forward outside of the $1 billion?

Yes. Listen, I think the Board's confidence in the business, the Board's confidence in our continued ability to generate capital at a very high level. And I think given the RWA position, they were very comfortable adding $1 billion on. So I think as we exited the third quarter, I think the total amount that we had left through June of 2026 was $2.1 billion. You think about that number, it's, I call it, 8% or so of kind of market cap. So very strong. And even if we do that, we have a significant amount more to go. And we're going to be aggressive but prudent. We understand running at a high level. And given the capital generation is not necessarily where we want to be. So I think we're going to continue to look at that. We'll continue to look at the dividend and be what I'd say, aggressive but prudent at the same level.

I think about the priorities, it has not shifted at all, right? The first one is organic RWA growth. And you have things like Walmart, probably the other ones. You got Lowe's commercial kind of come in. How do we kind of get books that are now ours, we have agreements with how does that continue to grow? And as you talked about moving back towards that 7% to 10% growth. So that's priority #1.

Priority #2 is around the dividend and how do I have the right level of dividend, both when you look at it on a yield perspective, but also really as what percentage of net income are we allocating to the dividend. Those 2 are our first 2 priorities. Then you get into a discussion around share repurchase versus inorganic. The great news about our company is we generate such a high level of capital each year. I think if you go back to the third quarter, the chart we showed, I think we generated 310 basis points of CET1 in trailing 12 months. So we can generate a lot of capital quickly if we need to. So we don't need to hold on to it. So if there's a portfolio that comes out, most certainly, if it's a very large portfolio, we can generate capital enough quickly in order to do that.

If it's a small portfolio, we have so much excess now, it's not a big deal. I don't think you'd see us do large-scale M&A, to be honest with you, even though there's a lot of talk about bank M&A. You'll see us do what we had done in the past, something like a Pets Best, something like Allegro. If you look back in October, our Versatile acquisition, which is a really terrific capability where we can bring to our partners and certainly our fragmented base. So we'll do things like that, not capital intensive, but those are the things that we'll kind of continue to evaluate in combination.

And then in terms of like large -- not bank portfolios, but large portfolios out there, I mean, are there any that you think are relevant in terms of -- in the pipeline?

Yes. Yes. I'd sit back and say there are some that are coming up. I'd sit there and say a lot of folks are spending more time. Brian's talked about this, Brian Doubles has talked about this quite a bit is you really have seen a shift with regard to merchants and partners about capabilities first. It's not only about economics, about capabilities and how do you really help me grow sales, maintain sales and really maintain customer loyalty. That is a richer discussion. You rather have that discussion than how much money can I get off this program and how does that fund a value prop, et cetera. So you see that kind of occurring. What that does, though, it lengthens out the process. We're having conversations now of partners that may be, hey, listen, it's a 27, but there are some attractive names that are out there.

I think a lot of it stems from some of these other portfolios that are looking to move around they're not necessarily happy with the capabilities they get today. And I think when we can point to a Venmo experience, you can point to a Walmart OnePay experience where you can see it is absolutely seamless to the consumer. You think about Amazon, I think digitally, we can really execute. And then most certainly, I would arguably say we have the best in-store execution of anyone in the space.

Okay. Great. You've obviously renewed a number of your large partners recently. I'm just curious sort of how the -- I mean, you talked about the capabilities. Maybe when you think about economics, these things go hot and cold over cycles. I'm just curious sort of what the temperature is right now of the conversations do you have? Do they respect the capabilities and therefore, are willing to pay a commensurate price for it?

Yes. I would sit back and say we -- the discussions we've had with partners have not been -- the main part of the discussion has not been economics, which I think is great. It's really about capabilities, really how you're investing. It's how we can bring, you'll say, a versatile piece to the equation. How do we bring other pieces of technology? What are you doing from an AI perspective? What are you doing in order to help bring me different types of sales? How do we wrap Pay Later in and that's an important part, right? When you think about we have Pay Later now at Amazon, Lowe's, Penney, Belk, Sleep Number, I think. So you think about that product, how do I bring you that multiproduct to you, that's where a lot of the discussion is about and about the value prop and refreshing the value prop versus the economics.

So that said, I do think, generally speaking, if you go back to a number of years ago, I think there's probably -- the pendulum has come back a little bit towards the issuer from the merchants. You never like it really swung one way or the other way because it's going to move. You'd rather have people be rational in that. And I'd say the large players in the space have generally been rational on price.

Okay. So I've got a couple more, and then we can see if the audience has any. But 2 pretty loaded topics. One is buy now, pay later. Many players in the market continue to grow at a pretty decent clip. Maybe you could just talk about philosophically -- and you guys obviously have your own product and notched a pretty big win with Amazon of late. So maybe you could just talk about philosophically how you think about the buy now, pay later competition, how they're growing? Is it taking share from you guys? Should we expect you to step up your strategies around it? Maybe you can unpack all of that.

Yes. So let me first start with the evolution of buy now, pay later and how it really has taken off. The buy now, pay later product, first of all, I go back to 1932 when we financed our first refrigerator was buy now, pay later. So it's an interesting phrase, but it really speaks to a product that's been in the marketplace for a long period of time. The fundamental difference that you saw really started in the pandemic for the most part, where it took off was going shorter duration, these Pay in 4s, number one. Number two, it was around a very good customer experience, at least on the front end, the customer experience, applying for, et cetera. Maybe not so on the back end, but that experience.

So that product is relevant and that product is going to have wherewithal in a financing solution for consumers. So if you kind of put that aside, our strategy, and we believe this and invested in this is you have to be multiproduct to deal with merchants. So you can't be one product. I can't just be an installment lender. I can't just be a private label issuer. You have to be able to say, okay, I can do an installment loan, I can do a secured card. I can do a private label card, I can do a Dual Card. I potentially can do it on a consumer, I can do it on a commercial. So you have a whole product suite that you can kind of go to a merchant and say, I have the right capabilities for your consumer. It depends on the product, depends on the ticket size and you can deploy it. That's number one part of our strategy.

I think the second thing is to say, okay, if I originate a Pay Later loan, right, what do you do with that relationship once the closed-end installment stops, right? Traditional buy now, pay later are dragging people around trying to just open new loans at different merchants in order to try to get their business to grow. We sit around and say, okay, can we go ahead and originate you and then figure out how to market to you and convert you into a longer relationship and a private label card or a Dual Card in that. But there are certain consumers that may want that product. There are certain consumers who actually have both of our products because for this one, they wanted to have that separate installment loan. So I think that piece is here as well to say, it's important to have a multiproduct strategy in our view. And I think you see other people trying to migrate towards that, but I think it's going to be tougher given their scale.

The other part of your question you asked is, are we feeling pain when it comes to -- there's a lot of folks who are taking out these loans, Sanjay, who don't really -- are not going to take our product. right? They are generally cash people. There's someone who says, listen, it's free money, I'm going to do that. They're not going to look for a private label card. So we have not felt necessarily the impact of it directly on our business in a material way. I'm sure some people would choose a product. That's why it was really important for us to have Amazon, which is an incredible brand to have it right there sitting in the stack. It's a competitor product. So it makes a lot of sense to have it. And we just got to use it in the strategy.

The final thing I'd say about it is we are not -- we have the capability to do Pay in 4 or Pay in 6. We don't do a lot of that business. That's not really great. It's not a really profitable business, so we don't do a lot. We're generally doing Pay Later loans, durations starting at 6 months going out to 36 or 42.

You don't feel like it affects your lead generation like that those people might otherwise be private label cardholders.

They're not there today, right? But they're going to be there in the future. Like I know the previous speakers on here, we have a lot of millennials, Gen Zs in our portfolio. There's a point in time in which they enter into the product. There's a point in time where people like this product. There could be people are in trouble. Listen, that landscape is also going to change once you finally get to a situation where things are reported at the credit bureau level, and it actually impacts the credit score. However, they determine how the credit score is going to work. Right now, it's seamless to the consumer. So it's a great option. But it's going to face headwinds when it comes to that and it comes -- it gets reported. So listen, the industry has staying power. The question is whether or not people can get to scale having a singular type product.

Cool. My final topic is Agentic commerce. That's one that we're talking quite a bit about at this conference because it's very early days. I'm just curious what -- and I know Brian Doubles talked a little bit about it on the earnings call, but maybe you guys -- maybe you could just sort of rehash what you guys are doing and how you think it transforms the commerce journey and how it affects Synchrony.

Yes. We are focused on it today. We have teams focused on it. We have teams building certain things around it. Agentic commerce is coming. The question really is the time horizon where it's meaningful. If you said to me, is Agenta commerce going to be meaningful in the 3- to 5-year horizon, Probably, yes. Is it going to be meaningful next year? No, I don't believe so. So we're focused on a couple of different things. Number one, when you think about it, there's different avenues. Agentic commerce is either going to happen through individual apps, think about ChatGPT, et cetera. It's going to happen in browsers, right? It's going to happen at particularly at partner sites. And then you're going to have fintechs that are kind of doing. Everyone is going to kind of create it.

So the most important part for us is how do we kind of get embedded across all the swim lanes because you don't know yet, and I don't think anyone knows yet who the winners or losers are going to be or how that market gets divided. So whether it's working with AI providers like OpenAI, Perplexity, et cetera, how are you embedding there? But it all starts with we're working with our clients and our partners about what's your Agentic strategy because they have to protect their own sales. So they are very focused on what their strategy is. So again, we flex those partners. So we're working with the partners. We're working then with these AI providers. We're also creating our own Agentic shopper. When you look at our marketplace, we did AI search. So if you said, hey, listen, Sanjay, you're a New York Knicks fan, you want to say, I want to do New York Knicks theme [indiscernible], right?

It will go out to our partners and pull a whole bunch of products in for you and say, here's a selection of products. Now we want to be able to create an Agentic shopping agent that also works in that marketplace that can complete the sale for you. So we're going to -- we're working on that as our own. So whether it's the browser, whether it's the AI providers, whether it's our clients or ourselves, we're going down to multiple swim lanes in order to do that.

And lastly, I'd say is given we are technology leading, it was announced that we helped and participated with Google with regard to the protocols on how this -- on how Agentic commerce can work. So I think we're at that leading edge of trying to be involved, but most certainly trying to be diverse on the swim lanes in which it can develop.

Cool. So we have like 1 minute left, and I was wondering if there's any pressing questions from the audience. One right there. Mark?

Maybe just with regards to that last comment around Agentic commerce and your integration with Google and others, but is there a way that the agent will effectively see the benefits of some of these, whether it's private label or store cards and the value prop and sort of be incented to use the Synchrony-based card relative to other cards that may have a different metric around rewards or value?

Yes. Most certainly, Mark, when you think about the position of the private label industry, we have a unique position relative to others. So I think having a value prop wrapping around it. The other part I left out a little bit is the proliferation of digital wallets and how it plays in there because they're going to want to have commerce there. And we're working on how do we get private label cards into digital wallets, whether it's broader base wallets or smaller wallets that are maybe merchant run. So private label and enhanced benefits, I think, will come through it and make a stronger value proposition to the consumer ultimately.

Wonderful. I think we're out of time. Thank you, guys. Appreciate it.

Great. Thanks, Sanjay.

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. [Operator Instructions] I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin.

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 could 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.

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 plus 2% as trends across our 5 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 refresh value propositions. Diversified 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 and purchase volume in our lifestyle platform was down 3%, reflecting lower spend in Outdoor & 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 plus 8% versus last year, driven by higher broad-based spend across these card programs and Synchrony's branded general purpose card.

Out to 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. And as highlighted on Slide 3 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 4 quarters. This trend occurred across all credit grades and generations within our portfolio, with particular strength coming from nonprime, pointing to the efficacy of our credit actions as we strengthen the mix of that cohort.

Customers of [indiscernible] credit grades and generations also increased their spend frequency during the third quarter, up about 3.4%. Collectively Synchrony's portfolio spend trends suggest that the utility and value we offer for a 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 midsized 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. And given how our credit actions have outperformed our expectations, we've begun 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 to deliver a variety of our promotional financing options to their extensive network of independent dealers across the outdoor environment solution space. Our multiyear renewal with Regency Furniture provides access to Synchrony financing across more than 95 furniture stores across the Northeast under the brand names of Regency, Marlow, Value City of New Jersey and Ashley. And Synchrony is also proud to build on our more than 45-year relationship with Lowe's by enhancing our existing commercial program and acquiring our 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 health care software solution partnerships designed to strengthen patient provider relationships and enhance practice operations through innovative technology. Our new seamless integration was done to our credit financing options, including hair credit 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 midsized businesses across the country. Versatile is a leading multisource 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 point of sale. They're 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 we'll 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. And 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.

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 5 sales platforms and all generations. We generated $46 billion of purchase volume during the third quarter, which was up 2% year-over-year and continue 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 as 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 2 key drivers of this net interest margin improvement. One, a 58 basis point decline in our total interest and liabilities costs versus last year, which contributed approximately 49 basis points to our net interest margin; and 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 PPPs, partially offset by lower benchmark rates and lower SaaS late fees. These improvements were partially offset by another 2 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; and 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 6 basis points.

Moving on. RSEs 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 include the impact of PPPC related fees. Provision for credit losses decreased $451 million to $1.1 billion driven by $255 million 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 lowest commercial 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% or 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 8. At quarter end, our 30-plus 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 quarter of 2017 to 2019. Our [indiscernible] plus 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 quarter of 2017 to 2019 and 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 7 basis points above our historical average for the third quarter 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 provides 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 9. 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%, [indiscernible] 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%. And our Tier 1 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 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 One Pay 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 and now also included the acquisition of Versal 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 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 been traded 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[indiscernible] of our long-term underwriting tort of 5.5% to 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 and reflecting lower funding costs due to lower benchmark rates, partially offset by lower-yielding investment portfolio and an increasing mix of loan receivables as a percent of earning assets, driven by the impact of seasonal growth and a continued reduction of our excess liquidity.

And 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.

Thanks, Brian. Before I turn the call over to key [indiscernible] 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. And 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. And 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 Catherine to open the Q&A.

That concludes our prepared remarks. We will now begin the Q&A session. So that we can accommodate as many of you as possible, I'd like to ask the participants to please limit yourself to 1 primary and 1 follow-up question. I you have additional questions, the Investor Relations team will be available after the call. Operator, please start the Q&A session.

[Operator Instructions] We'll go first this morning to Terry Ma with Barclays.

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. So just curious, what was kind of incremental throughout the quarter that led you to lower it?

Yes. Terry. When you think about the net revenue guide, you have a couple of moving pieces in there. One is the positive nature of the PPPC that are going into place that drive revenue. I think 2 things that counterbalance that a little bit, Terry, -- number one, the continued improvement in delinquencies. If you look at the rate 4.3% of the quarter, which is better than the pre-pandemic period of '17 to '19 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. And then obviously, the payment rate is elevated because we have lower subprime. Again, thats 80 basis points down year-over-year on non-prime flat quarter-on-quarter. But it's really the fact that the payment rates elevated a little bit lower late the incidents, but you have positivities right, relative to PPPCs that are in there.

Got it. Maybe just a follow-up on the PPPC modifications. You had disclosed, I think, last quarter and even on stage with me a month ago that you wrote back APRs for 1 partner. I did also recently noticed an updated T.J. Maxx agreement with a lower APR. So I just wanted to confirm that is, in fact, the retailer you cited before, and it's not a new rollback and then to the extent possible, any color you can provide on whether or not there are additional conversations happening?

Yes. Let me take that first. We're not going to comment on programs. But 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. And frankly, there's not a lot of discussions happening with our partners right now. As I mentioned last quarter, we did have 1 partner that wanted to make a change to 1 element on their program, which we've already done. We had 1 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.

So any other potential discussions in the future are going to happen partner by partner I would think of them kind of normal course. We're always looking at pricing in conjunction with credit, the value proposition on the card, where the competition's price where other partner programs are priced and again, with the goal of leveraging price to drive sales for our partners and grow for the program at good returns.

We go back now to Ryan Nash with Goldman Sachs.

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

Yes. Sure, Ryan. Look, we still think the consumer is 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.

So we're pretty optimistic in terms of the trends we're seeing across the portfolio. Purchase volume turned positive this quarter, up 2%. All 5 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%. So I think there's definitely a reason to be optimistic. And inside of those numbers, there really isn't much lift from opening up the credit box. So we have plans to add back about 30% of the sales from the credit actions that we took earlier. And that leaves another 70% that we'll evaluate over the next couple of quarters. So all else being equal, we should get a little more lift towards year-end and as we head into next year. So we're pretty optimistic in terms of everything we're seeing from the consumer at this point.

Got you. And 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 and you made some positive comments there. Maybe just talk about the path back to, call it, mid-single-digit growth that I know you guys have talked about, maybe talk about in terms of Walmart versus everything else and do you see as the key drivers there? Obviously, the 70% unwind would be a big part of that. But maybe just help contextualize that for us.

Yes. 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. So out of the gate, this is one of the fastest de novo programs that I can remember. We've also got the Paylater launch at Amazon. We're seeing really good results there out of the gate. That should benefit us as we head into '26. Last quarter, we announced the PayPal physical card launch. It's very early, but we like what we're seeing there. And then 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. but we're going to continue to evaluate that as we get through the end of this year and into '26.

So there's a lot of really positive momentum in different dynamics when you look at product launch and value props and things that we think will really benefit us as we get into '26.

We go next now to John Pancari with Evercore.

Just back to the broader consumer, it's encouraging to hear that you're not yet seeing broader signs of weakness and the consumer is 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?

Great. John, thanks for the question. When we look at what I'd say, 2 specific areas. When you first think about spending for a second, we showed the chart on -- in the presentation this morning about average transaction value and average transaction frequency -- when you look at it on a credit tier basis, the nonprime 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 removed probably the lower end of that subprime population. So I think we're seeing stronger behavior patterns, whether it's on a transaction value basis or a frequency basis. So their willingness to engage their willingness to use the card, their willingness to engage with the products has been than the other cohorts, simply by the fact of what we've done right, relative to the credit actions.

Again, I want to reinforce the fact that our nonprime 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 on prime. And when I look at it, John, the implications of the benefit, you're seeing more people that are paying in pay in the nonprime population, but where the shift is coming from is really from below midday players.

So the way to interpret that is we have lower delinquency in some of those, but they are paying in pay. So I think when we look at the payment strength of non-prime borrowers when we look at the payment engagement was values or frequency, they are performing better than some of the other cohorts. So performing extremely well. Again, we're probably better positioned because we took those broader-based actions that over '23 and '24.

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. So we're not taking what I would view as incremental risk exposure but rather we're taking you can term more thoughtful itself. We're not just lowering credit scores and taking greater risk.

Got it. Okay. Great. And then 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 with the increase you have the $2.1 billion authorization, can you maybe help us frame the -- 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?

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 9 of our deck over the last year, we generated over 350 basis points of incremental CET1 just from the earnings of the business. So strong capital generation and the ability to deploy that, right? So the Board felt really confident when they looked at the resiliency of the business, that capital generation and where we work to add that $1 billion. Now it leaves us with $2.1 billion over the next 3 quarters. We don't really provide guidance for that, but obviously, 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. But obviously, we're focused on reducing the CET1 and 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.

So again, we'll be aggressive but prudent to the rest of this capital plan. And 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.

We'll go next now to Mihir Bhatia of Bank of America.

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? And then as we think about 4Q should we expect the typical seasonal step down? Or was some of that already incorporated in this quarter?

Yes. Thanks for the question. So 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 is driven by our credit performance, not only the delinquency formation, but the performance of how it rolled through. We continue to see tremendously strong entry rate into delinquency below the prepandemic period. We saw a stabilization really in early stage delinquencies. So think about that 2% to 4% and then 4 plus, we saw some strengthening. That continued trend that we saw which hopefully -- or it led to us narrowing our range down to 5.6% to 5.7% for the year, that credit performance is a big driver in the rate reduction that you saw I'd also say we use the Moody's baseline. And if you looked at that baseline August to May, it was actually a little bit better than that.

So there's a little bit of macro improvement in the base model. What I'd say is the macroeconomic QA overlay that we had on their stay consistent from a deterioration standpoint from from the second quarter to the third quarter. So it really was the base performance of the business that drove that. As you think 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 rate 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. So I would expect the 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 feet, 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, again, the base model before you overlay any macro has a 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 as we move forward, that potentially can offset future growth-related builds.

Got it. No, that makes sense. If I could just go back to growth and the discussion about the unwinding of credit actions in the 30% and the 70%. I guess maybe to tie that a little bit to like account average accounts are still down year-over-year, obviously, transaction frequency and values. It sounded like some of the unwinding you're doing is much more related to your existing accounts.

So I guess, what do we need to see for average accounts to start trending 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. That 30% sounded like very much focused on internal accounts like existing upgrades, et cetera. And I'm trying to think of like account growth and just increasing the number of consumers, what's going to drive that?

I think the way to think about the active accounts here, we had been in a restricted position. We continue to remain in a restricted 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 is also acquisition related. So 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 and year-over-year is up 10%. So again, we're starting to see the consumer more willing to not only applied but also our ability to improve them. So I think that's a turning point. And I think when you look at average active sequentially, they didn't inflect in the third quarter.

So we would expect it to go back up again, you hope in the fourth quarter, given the product where you have people, especially that you are in active today, reengage with the product for holiday, we'd expect to see a lift. And most certainly, Brian highlighted a couple of places where we're adding, whether it's Walmart Pay later to Amazon and really, the PayPal modifications we made should also add to average active account increase as we move forward.

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

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

Yes. And 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, why people focus on the unemployment rate, when you look down our net choles, when you think about both the demand side and supply side of the employment market and wage gains. There are some mixed message in there clearly softening but mixed messages.

So clearly, we would like to see the macro environment clear. We've seen consistency in the performance in our book to the extent that it continues to perform well. That's a good indicator of how we could potentially remove some of those restrictions and we'll open that after a little bit more. And if our credit continues to improve, and we've seen a trajectory when you look at the sequential benefit year-over-year is widening out. It's been winding out for the last several quarters on 30-plus delinquencies. So you said those things happen. So it is a combination clearly of the macro environment and clearly in the ones behavioral patterns that we have in here.

I think it's probably fair to say also that we were just myopically looking at the performance of our own book, we would probably open up a little bit more than we are, that there is some, as Brian said, mixed signals in the macro that give us a little bit of pause, not concerned. But 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.

Helpful. And maybe on NII and the NIM, we can back into the fourth quarter numbers implied by the guidance. What are sort of 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?

Yes. 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 ILR versus AA, right? You're going to 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 their -- when I think about loan yield for a second, you got factors that go a little bit both ways.

Number one, we're going to get a PPPC lift sequentially and on a dollar basis that will flow through. You'll get a little bit of compression from Prime that kind of comes through there. And then you'll have a little bit of denominator impact that kind of comes through. So again, that's the benefit of the PPPC roll through, but again, there are some offsets and then 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, again, 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. So that should be a benefit and a step up of the net interest margin as we as we close out the fourth quarter. I appreciate the question on 26, but obviously, as the PPPs 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 more specific color on how NIM develops.

We will go next now to Mark DeVries at Deutsche Bank.

Yes. 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? And 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?

Yes. Sure, Mark. So there's a couple of things I'd highlight. I think first, this is a leading-edge program from a tech perspective. We're leveraging the One Pay app. 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 1 payout this is definitely 1 of our most technologically advanced programs.

So that's the first thing I would highlight. Second, your point, we have a very strong ballprop on the card. The Walmarts numbers, they get unlimited 5% cash back at Walmart. They get 1.5% cash back everywhere else. And even if you're not a Walmart Plus member, you still save 3% at Walmart, 1.5% everywhere else.

So very attractive ballprop on the part. And 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. We have -- I mentioned earlier, I think really strong digital and in-store placement. So a nice commitment from all parties to grow the program, Walmart's investments in e-com, they give us a great platform, really to drive new accounts. And if you go online and you see walmart.com, you can see the placement across the digital properties is really strong. The signage in the store is very prevalent allows customers they can easily just scan a QR code and apply for the card anywhere in the store.

So I think it's a combination of all those things that gets us frankly really excited about this program and the opportunities ahead. I mean it can clearly be a top 5 program at some point in the future, and we're excited about the growth that this could drive for both us and for Walmart.

Okay. That's helpful. And then just a follow-up question on your delinquency trends. It looks like they continue to trend more favorable than normal seasonality. Is that your perception? And also, if so, kind of what are the implications for trends for DQs and charge-offs as we look out kind of 6 to 12 months?

Yes. Thanks, Mark. Yes, they have spectator analysis that they have been performing better. So as Brian highlighted, that's why we adjusted a credit aperture both in the third quarter now where we're going to do in the fourth quarter, again, unwinding that roughly 30%. Again, different items, but by adding back some of the restrictions 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. But again, we've seen that improvement. And I think it goes as a testament related 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.

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

We'll go next now to Don Fandetti at Wells Fargo.

Can you talk about any potential portfolio acquisitions that you might be looking at? And then I guess on the versatile acquisition is that sort of a one-off? Or do you feel like you need -- we'll see more of these bolt-on technology acquisitions?

Yes, 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. So 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 base stack, what we're doing around data, our underwriting engine with Prism.

So 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. But generally, I feel really good about the pipeline. And then on versatile, it's going to be a great acquisition for us. They've built a really strong business. We've been partnering with them for 20 years.

So we know each other really well. We've got a great relationship, really strong cultural fit. And look, at the end of the day, all of our partners are looking to leverage credit to drive more sales and enhance loyalty, right? And the versatile platform is going to allow us to approve more customers -- that's great for our partner base. It's great for our customers. And so we'll drive a higher approval rate. And we'll do that either by doing the lending ourselves or through other institutions. And for those loans that we don't underwrite won't earn a fee. So it benefits us and helps us drive some non-lending revenues.

So 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.

Yes. I'd just add on, when you think about [indiscernible] for necessarily material to all Synchrony, but when you look at whether it's the IR or ROIC, it's very attractive, which goes back to some of the pricing discipline and in how we look at these acquisitions and a very reasonable payback on tangible book value.

We'll go next now to John Hecht at Jefferies.

I know you first question, 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 digital mix or versus in-store or anything like that? Is there any way for us to think about the growth from that perspective?

Yes. I think, 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.

So regardless of what platform you're in for a second, just think about it, if it is, it is a priority of the CEOs and the executive leadership team of 1 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. And in order to do that, both parties have to be all in, yet to have really good alignment in the contract, really good alignment through the RSA. And if it's a priority for them and you have all of those other building blocks great technology integration, a seamless customer experience, strong NPS, all of those things will result in really good growth. And so it's a combination of a lot of different building blocks, but 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 improve their sales to drive loyalty in our customer base.

Yes. The 1 thing as you kind of go through the platforms, John, you think about -- let me just point out the areas where we probably see more pressure, right? In 1 in auto, you see pressure in the home specialty/hme 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. So you think about that bigger ticket or 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 trends where we think about diversifying value, we have some real value-oriented players in there, that as a retailer, are growing fairly significantly.

So we're maintaining or expanding penetration as you think about that. And then obviously, in the digital, there's a lot of broad-based partners in there who are expanding it significant eclipse again, we're maintaining that penetration in those segments. So again, 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 in verticals we have there.

So again, 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.

Okay. Super helpful color. And then second question, Brian, you mentioned payment rates, 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 a variety of income levels? And can you tell how much of that might be like debt consolidation?

Yes. So let me bifurcate that a little bit, John. If I go up to 10,000 seats, you really have -- 2 big drivers on why pay rate is elevated when you look at an absolute rate basis. Number 1 is the credit actions we've done, which has been more restrictive into the nonprime area.

So when you go and look at nonprime as a percent of total, we're better 80 basis points year-over-year and really where it's coming out, it's the top end, which you see a higher period that really top end versus the nonprime.

So that's number one. And 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 now promo balances have a payment rate of call it 9% to 10%, your core balances have a payment rate of 19% to 20%. So that mix 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 the -- to it by credit grade, John, what we're seeing here is actually strength in the nonprime in payment rate. because, again, we took out some of that bottom into the non-prime through our credit action.

So when I look at it just on a cohort across the entire book with regard to payment rate it's really the strengthening it brings you back to the credit actions in and of itself, even when we look at it generationally, generationally, it's kind of moving in parallel given the characteristics of each of those cohorts.

So 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.

Ladies and gentlemen, we do have time for 1 more question this morning. We'll take that now from Jeff Adelson of Morgan Stanley.

Just as a follow-up on the payment rate question. One topic that's come up more recently is there's been some more prepayment out there more in the installment world of the lending spectrum and some of that may be coming from increased competition or private credit demand to originate new loans.

Now I know credit card is a different animal here, more of a revolving product, but just curious if you're maybe noticing any of that competitive dynamics flowing in and maybe keeping the payment rate a little bit more elevated here?

Thanks for the question, Jeff. When I look at it, I'm going to cut it 2 different ways. When we look at whether installment is impacting our business, when we look at application flow, where maybe so much could be a different payment option. We have not seen application flow negatively decline. Actually, in fact, we've seen application flow increase throughout the portfolio.

So I don't think we see competitive dynamics where an installment product is disintermediating us right, relative to that or causing and then back to the question that John Heck, I apologize we're not necessarily answering it and maybe where you're heading a little bit when you think about people consolidating debt into an same-type loan or some type of personal loan, I'd say this, we did different types of analysis, right, relative to that one where we looked at a cohort of test portfolio and said, okay, look at accounts that were revolvers for 6 consecutive months and then paid off has zero, that balance shifted and has not shifted materially, we'll 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 have taken out personal loans, number one. And then number two, for some of the heavy revolvers have we seen any of the payment behavioral changes reimpose those that have taken out a personal loan. And the answer is we have not seen that.

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

Got it. That's helpful. And as my follow-up, just piggybacking off the commentary on the success of Paylater and 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 to that opportunity going forward? Should we be expecting a continuous kind of launch of this multiproduct strategy going forward at every partner you have. And 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 are giving them?

Yes, sure. Look, I think we've been able to demonstrate the power of being able to offer multiple products inside a program 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 Bill, sleepnumber. And our partners aren't really seeing the products as an either/or, they really do see the value of the multiproduct strategy. I think that's a real opportunity. They fully appreciate that customers have different financing needs.

In some cases, revolving product is right for some purchases, others prefer fixed payments of a buy now pay later product. But we're anchored in that multiproduct strategy and based on our conversations with our partners, that's really resonating with them. So that's the strategy going forward. We're excited to continue to roll it out to the partner base.

Ladies and gentlemen, this will bring us to the conclusion of today's Synchrony Financial's 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.

All right. Good morning, everyone. Thank you for joining first presentation of the day. My name is Terry Ma. I cover consumer finance here at Barclays. I'm very pleased to have on stage Brian Wenzel, CFO of Synchrony Financial. So welcome, Brian.

Terry, thank you. Glad to be here today.

Great. Let's jump right into it. Maybe we'll start off with an update on the third quarter. How has the consumer spend been trending so far this quarter? You had noted improving momentum in the second quarter on purchase volumes. Has that persisted? And what sales platforms are you seeing the best growth in right now?

Yes. Thanks for the question, Terry. So when we look at what we said back in July, right, we saw some green shoots really in certain categories when I thought about world spend on our card really in cosmetics, electronics, clothing. So we saw some positive. The sales trend in the first couple of weeks of July was positive year-over-year, which you'd expect a little bit from the lapping of some of the credit actions.

As we have stepped through the quarter, let me give you some perspective, we've continued to see that momentum as we move through, right, so -- which is positive. When you think about the transactions that are happening, our ATVs are actually up versus the first half of the year. Our average transaction frequency, which was up in the first half of the year is up a little bit more here in the third quarter. So on an ATV perspective and ATF perspective, we're seeing some positive movement. When you kind of go down deeper, when you think about the 5 sales platforms, if you go back to the second quarter, right, we had 3 sales platforms that essentially were flat to slightly positive, right? When you think about the digital platform, the diversified values platform. And then when you think about Health & Wellness, they were flat to up. And really where you saw the pressure being down more significantly was in the Home & Auto and Lifestyle, which are bigger ticket type businesses.

I think what you'd expect to see here in the third quarter is that same type of profile where -- but I think the 3 platforms that were flat to positive will be more positive from that perspective. So I think they're gaining traction. And I think in the areas where we had negative comps in Home & Auto and Lifestyle, they will be reduced as far as their performance from a year-over-year perspective. So I think you're seeing that trend really kind of come through.

Again, I think the one thing to kind of continue to think about for us is the mix of the portfolio, right? Because what you are seeing is a little bit more super prime. Most certainly, the higher income individuals are pulling a little bit more than I'd say some of the non-prime and prime segment. So they are leading the kind of spend charge. And given the mix from the credit actions, we increased our super prime percentage 150 basis points, decreased our non-prime 150 basis points.

So that has -- as we said in third quarter, that will indicate really a more elevated payment rate given that and the shift a little bit out of the promo from coming out of those 2 segments. So that has continued to persist really the payment rate being elevated, which, again, we highlighted back in July as our expectations for the remainder of the year. So all in all, from a sales perspective, we actually are encouraged with what we see and really positive for our business.

Got it. That's helpful color. So if we kind of take a step back, how would you characterize the health of the consumer? And any noticeable differences that you can maybe call out between the lower and the higher income consumer?

Yes. The consumer has been remarkably resilient. I think that's a term I'm sure -- I haven't read all the transcripts. I'm sure that's a term that everyone has used where they're going about their lives, whether it's smaller increases from tariffs flowing through a slight increase in unemployment, which really hasn't had any effect whatsoever. So they're being relatively consistent with regard to that.

Payment rates, as we look at it, again, what we're encouraged by is that non-prime payment rate is actually improving, which is really part of the credit actions that we see where we've kind of taken the position to try to control the net charge-off rate. So I think we're encouraged by that. I think we're encouraged by the spending behavior pattern. I think they're spending where they are. They're spending a little bit more, I'd say, in some of those discretionary bigger ticket purchases. Again, I think you're lapping some periods where we had probably a little bit more falloff. So again, the consumer is hanging in there and fairly resilient. And across both generational and I'd say, income lines.

Got it. Maybe just briefly update any trends you're seeing in consumers with student loans?

Yes. Terry, as we talked about before, we have done a lot of work with the bureaus with regard to how do you look at student loans, who has student loans. All student loans aren't reported to the bureaus, whether it's delinquent or not. So we really look at the balance, we look at the trends. And when we take a step back and pull out consumers that have student loans and the cardholders that do not have student loans. When you look at those populations, we compare them to like population with regard to credit attributes. When we look at that, the continued performance at least through the early part of the quarter had been consistent with the regular portfolio. So we're not seeing anything in our portfolio that indicates those that have student loans are performing worse than others. And I just want to clarify when I say earlier in the quarter, we just haven't gotten the data yet for August. But again, this has been a consistent trend throughout the year. So I would not expect it based upon its performance to shift. But again, it's something that we watch closely, but it hasn't been an impact on our cardholders.

Got it. That's encouraging. Well, maybe we'll turn to credit. You obviously published a monthly update this morning.

You're welcome.

Yes, as usual.

Thank you for pulling it up for us.

Yes. Delinquencies continue to trend down year-over-year. I think it's 9 consecutive months now, charge-offs, obviously following that. Where do we stand on credit? And how much longer can we see the delinquency rate improve year-over-year?

Yes. So this morning, we reported, I'd say, what looks to be kind of flat delinquency rate. If you went out another digit, we're probably 5 basis points different. So again, delinquency stabilized. And I think what we said is what you should expect from delinquency should really be more seasonal trends, I think, as they come through.

When I think about delinquency in and of itself, when I go back to 30-plus and 90-plus, 30-plus is still performing again better than that '17 to '19 historical average. I'd say, low teens with regard to basis points improvement. And I think when you look at 90-plus, even though we didn't report that today, you're generally in the low single digits, negative to flat. So again, I think we're back to that period of time, '17 to '19, delinquencies are fairly consistent. The loss rate, again, given where delinquency were, I think we're somewhat predictable with regard to where we're going to be. And again, we've made the very conscious choice to restrict credit, which has impacted sales, as majority of our sales decline has been credit-oriented in order to get the loss rate to get back into the more efficient 5.5% to 6% long-term target through the cycle.

So we feel good about credit. We feel good about the performance. And again, what we've now done is really kind of turned a little bit about how do we think about opening up a little bit and changing that credit aperture as we move forward.

Got it. And the guide for this year is 5.6% to 5.8% net charge-offs, which is well within your target underwriting range of 5.5% to 6%. So obviously, the guide looks good to me. How do you feel about that? And what does that mean for the reserve rate going forward?

Yes. The way I think about credit, you have 8 months in, you only have 5 months left. So -- and the 5 months left are generally in delinquency. And if you look at delinquency rate, it actually sets up fairly nicely. So I'd say mathematically, people can do the math and try to figure out where you're going to be relative to that guide. What gives me confidence, Terry, is I look at a couple of things. One, the credit actions have had the desired effect. It's created a shift in the book where we have a little bit more subprime, a little bit less non-prime. So I think we're positive about that. When I look at delinquency, entering into delinquency is still better than that pre-pandemic period. So that's positive. When I think about early-stage collections, so 2 to 4 and then late-stage collections 5 to 7 before write-off. 2 to 4 is fairly consistent, though it's not deteriorating, maybe improving slightly, but I call it consistent. When I look at the late-stage collections, that is improving, which I think is a positive trend.

So I think when we look at positive entry rate and really pretty good factors inside the roles of delinquency, I think we feel good about how credit is. I think when you take a step back, the first thing when you bring up reserves, we're still in this really uncertain period of time, right? You have a lot of noise relative to the employment market, even though we don't see it. And to be honest with you, we think about more unemployment at a neutral rate of 4.5%. So whether you move from 4.2% to 4.3% or 4.1% or 4.2%, it doesn't really have a discernible impact. But there is a little bit of a pressure in that market, most certainly given the current state of affairs relative to immigration policy, relative to what we're doing on certain workers here in the United States.

So that noise is out there. You have the tariffs, which are partially in some of the prices that are in, but there's probably more to go depending upon what merchants and producers are going to do with those tariffs and whether or not -- where they actually ultimately settle. There's a lot of legal ambiguity around that. So you have that hanging out there.

And then clearly, you have a ton of geopolitical risk. I mean, you wake up this morning with regard to what happened between Russia and Poland. There's just a lot of uncertainty. So I think as we think about it, we're not necessarily in the clear, I think, yet. We're not overly concerned about it, but I think it's one that's clear. I say that because as you think about the reserve, it really is going to have the indication to go lower, right? As the loss rate has come down, I think you'd see the reserve coverage come down, right? And especially as we kind of set up into 2026 and what that loss rate will be.

So I expect it to have a negative being a downward bias relative to the rate that would occur here in the back half of the year, the time in which we have to just see how the macro environment plays out. But again, I would expect it to come down on a rate basis if credit continues to perform the way it is.

Got it. That's helpful. So everything you just laid out with credit sounds pretty encouraging to me. You mentioned you may open up the aperture a little bit. Maybe just expand on how you're thinking about underwriting. It seems like you laid the groundwork for growth with the Amazon renewal and obviously, the Walmart partnership, the launch expected to occur later this year. Can you maybe just walk through your thinking on kind of underwriting loan growth?

Yes. Let me unpack that question a little bit. If you think about our credit posture for a second, I think we've always indicated you're not going to see some big aperture change overnight. I think we'd step into -- I talked about 3 phases. That's something more structurally how we think about it stepping in incrementally. Back in July, we talked about we did step into some credit changes, right, with regard to the portfolio, particularly in our Health & Wellness business and one of our other more digital-oriented portfolios that the loss rate could sustain a wider credit aperture. So we did that.

We're going through some analysis now. I expect us to do similar things in certain other pockets of the portfolio as we move forward to kind of step in. Both the actions that we took in the early part of July and these actions won't really have an effect on 2025. They're more setting up for 2026 from a growth perspective. So I think we're going to be positive. Again, I think as you look out to '26, even though we're not giving guidance, think about there's going to be incremental changes. And I'm not sure exactly when we can target, we'll be back to the pre-tightening levels, but we feel good about where we are from a credit standpoint.

Well, certainly, we're happy from a new account standpoint. Active accounts are improving, so they're less negative but improving. So I think we feel good about where we are in credit and what we can do in front of us in order to optimize return, most certainly given some of the pricing actions that I think we can take some more relief on credit.

We're excited about what we're doing, both with Amazon and Walmart. Amazon, if I stop there, the renewal itself is, again, part of what we do every day, trying to deliver value for the Amazon consumers and really provide the right product suite from them. Again, our launch of pay later there, I think, is pretty neat when you think about how it's in the checkout flow and most certainly will, over time, add to the growth as the consumer can choose either our private label product or the installment product. And again, I want to just be clear, our installment product is not paying for. They are 6 months and longer type of pay later installment loans. So good profile there.

We worked a very long period of time with Amazon, so we know how that works. And then Walmart, we are in the actual beginning phases of that launch, and we're excited about that. I think the one opportunity we have here, and I'm sure you'll probably delve a little bit deeper into Walmart maybe in your questions. But the opportunity here is we're actually starting with a clean sheet of paper. So we set the credit aperture there.

So what's good about that from a credit standpoint is number one, that there's a value proposition that is strong and resonates which generally gives you a better consumer that's willing to take that card, adopt that card, bring that card topper close to the top -- closer to the top of the wallet. And then number two, the placement, both in the fleet of stores as well as digitally and in the OnePay app, most certainly will drive better credit. So we're anticipating that.

Got it. Maybe just deeper a little bit on Walmart, obviously, not the first time you guys have issued a Walmart card. I mean you talked a little bit about what you're doing differently this time. I think the launch is expected to occur later this year. First time you had the Walmart portfolio, it was $10 billion. How should investors think about the growth and sizing of the program over time along with any kind of financial metrics that you can give us?

Yes. First of all, we are really excited to partner with Walmart. I think a lot of folks would question that. But it is just an iconic retailer that has a tremendous place. We're excited to really work with OnePay. They've done some innovative stuff inside the app, which I think will make for just a really great customer experience and have done a lot with Walmart with regard to placement of where that card and how that card is accepted and used. So we're excited about the parties.

I mean, Walmart even on their last earnings call talked about the credit card, which tells you a little bit about the focus. So I think about what's different between 2018 and now, right? Number one, I'll start with where handed. The C-suite engagement of Walmart, not only just talking about the earnings call, but being involved in driving this as a value proposition to their loyal customers, number one, when you have that type of engagement, it generally resonates in performance throughout the organization.

Number two, the value proposition is stronger. So I think it attracts a broader array of customers, most certainly, customers higher on the credit spectrum, which I think helps us.

Number three, the revenue of the card looks different than it did before. So most certainly, it produces a greater revenue stream in which you can provide that value proposition and deliver value to the consumers.

Four, I think about the tie-in with Walmart+, which is a big initiative inside their company, but allows consumers to really take that plus program and accelerate the value that, that kind of comes from it.

And then lastly, we talked about credit and credit when you start with a clean sheet of paper, I would expect that you'd see as a portfolio matures, most certainly a lower loss content portfolio than the 10% loss content that we had pre-pandemic. So I think it sets up nicely.

We're excited to work with both OnePay and Walmart on this. We have begun the early stages. When you think about a de novo program, it just doesn't -- your don't turn the light switch on. Well, certainly, there's a lot of consumers that go through Walmart every day or walmart.com every day. So we are in the ramp phases. So if you haven't been to Walmart, they actually are in the process of putting signage up. The signage is terrific and placement inside the retailer is terrific, both in the aisles in the parking lot on the end cap. So really great, not in all stores yet, but ramping.

We're ramping digitally with them. So we're very encouraged about the progress and how it's rolling out. And again, we would expect and hope that we'd be at a full rollout before the end of the year. So exciting news.

Your question about how big this could be. I mean, most certainly, I think I've said before, given the size and scale of Walmart, given the engagement, given the placement digitally in the store, clearly, I think we expect this could be a top 10 program. And most certainly, given that, given just the sheer volume that Walmart does, this again could be a top 5 program. But let us get launched and let us get moving on it. That said, Terry, I know there's a lot of speculation. We are in ramp mode. I would not expect any meaningful impact on the growth rates in 2025 just because it's so late. I mean if you think about $100 billion portfolio, you're not going to move the growth that significantly. We'll be back and I think provide a greater financial dimension in 2026, but one would expect that you would have a more meaningful impact in '26 and '27 with regard to how that program begins to mature.

Got it. That's helpful. Maybe one follow-up. You mentioned the revenue stream or revenue yield is higher. What's actually driving that this time around?

First of all, the way the product construct works, we're actually leading with dual card. But the APR structure is fundamentally different. I think in the prior program back in '18, there was always a view that you want lower rates as you're trying to drive value every day to kind of fit into the brand. I think now with OnePay involved and others involved, there's a more -- there's a broader perspective with regard to the rate you could charge, but delivering value back to the consumer through the value proposition. So I think it's really the construct of the revenue pool itself is a little different to really afford a more generous value proposition, which, again, should drive a better consumer.

And then when you're in the right placement digitally, when it's easier for the consumer to apply for the card, use the card, and this is where OnePay excels, we're trying to help us do that and then Walmart do that, that's really where you can kind of get the acceleration and the good portfolio growth that we both desire.

Got it. That makes sense. Maybe just touch on the competitive environment for partnerships. Can you remind us of some of your major partnerships, how long they're tied up for? And then where are some of the areas you're seeing additional opportunities right now?

Yes. Listen, I think competition continues to be consistent with the past, which has been a little bit more aggressive. We see people who are continuing to stay in this market. It's a very attractive market in the retail space. But we continue to compete. And I think what we do is we went on our digital capabilities, our ability to demonstrate in this retail setting, how we can execute through any cycle. And that resonates with merchant partners who want people who are there consistently whether times are good or times are bad. And most certainly, digitally, we think our tools are best-in-class, right, relative to the peers.

That said, when we lose, we generally lose on price. And I think we're pretty open when we -- particularly with new partners, when we talk about it, we're not going to be the lowest priced option when it comes to some of the competition because we do believe we bring a broader suite, both of products. We can bring you anything from a secured card to pay later to private label to dual card. We can do a consumer, we can do commercial. So we bring a broader array of things.

So in theory, the value that we bring. And then when you think about our advanced underwriting with PRISM, we just think that, that package deserves a different price. So we feel really good about that. When you think about our existing partnerships, I think we said back in July, 98% of our top 25 relationships are locked up between '27 and beyond. So I think that we have a pretty good runway. And I think you think of our top 5 are beyond 2030 at this point.

So we feel good about where we are. That said, we never take it for granted, and we continue to serve those partners, those merchants, those providers every day to continue to earn their business and deliver really value for the consumers. But the competitive market is consistent, and we look to compete both on our capabilities and what we can provide them.

Got it. Maybe we'll shift to loan growth. You touched on it a little bit already. You had revised your full year guide from low single digits to flat year-over-year. Obviously, you have Walmart coming online, more of a contribution in '26, but still some -- the guide might strike some as being slightly conservative. What factors should we be mindful of regarding the guide?

Yes. Again, I think when you look at purchase volume in the first part, we're negative 4% first quarter, negative 2% second quarter. Again, I think we've indicated that you should see a turn here in the back half of the year. So that's the first piece is how did credit sales perform -- purchase volume perform in throughout the year. The second thing, which has been and we highlighted in the guide an elevated payment rate. And that's really 2 factors driving that.

Number one, the credit actions have shifted the credit composition of the portfolio where you see more super prime, which has a higher payment rate, a little bit less non-prime, number one. And then number two, the mix in the portfolio, when you think about Home & Auto and Lifestyle, right, are really installment and promotional financing businesses. Those 2 have shrunk in assets about $2 billion because of that discretionary purchase. When you -- that has a generally lower payment rate. So when you take that out, the mix shift is up. So you have a higher payment rate. We expect that to be elevated throughout the year.

So again, we don't necessarily view it differently. It's just really more of the credit composition of the portfolio is a little bit better. So a little bit less growth, but I think you're going to see a little bit better credit when it comes to that. I think as we begin to open that credit aperture, I think things will start to normalize a little bit. I don't think it was intentional for us to sit back and say, we want 150 basis points higher super prime. It was just more controlling through this period, the loss content of the portfolio. So again, it's more payment rate oriented and not necessarily anything that I'd say is structural or something that we're concerned about. Obviously, we want to grow, but we want to grow in a prudent manner.

Got it. And when we think about your long-term guide, you had put out a 7% to 10% receivables growth guide. What are some of the puts and takes there? And any kind of time frame to kind of get back there?

Yes. We historically have been in that mid- to high single-digit growth rate. If you look at the pandemic years, we were double digits, but I think that was more a reaction of what happened in 2020. When I think about getting back there, it's number one, you have to adjust the [ craft ] back to where we were prepandemic, which, again, I think we'll get to over time. It's just really how the market certainty kind of comes through.

I think when you think about the way in which you can get back to that 7%, if you have GDP kind of going at 2 to 3x, we're going to grow with the retailers. We're going to do those things. So growing 2x GDP, which we've historically done, has not been much of a -- shouldn't be that much of a challenge. So you think about something that's now in the mid-single digits, and then you start to add penetration increases. And this is where we go back to where we're investing strategically, most certainly Health & Wellness. We're in a lot of different verticals. We have a lot more that we can do in that space, whether it's in different verticals like fertility or other things or just continuing to engage with providers who only provide us limited volume, right? So that's number one.

When you think about areas in which we're trying to engage more fulsomely to capture volume, I'll highlight again in the Health & Wellness business getting involved in the practice management software. So our CareCredit card is accepted more broadly is a way in which you do that across the -- both Health & Wellness, Home & Auto and Lifestyle, what we're doing in the multisource finance. So we kind of get more into that waterfall. We launched that last year with the program. I think you'll continue to see us engage more aggressively in that waterfall technology. So we control the point of sale and where that competition is going.

So we can be the lender of choice primary or if we can't fulfill the sale, how do we fulfill the sale for our merchants and providers through secondary or tertiary lenders. So I think that ability to kind of drive those types of things and investments really around that. And then lastly, I think our strategic investment around our customer experience and broadening out, can we take some of our partners and say, hey, listen, can we offer a CareCredit card, does it compete with them? So I think there's things around our strategic initiatives that will -- that have the potential to accelerate the growth rate. The horizon which we get back there, Terry, to be honest with you, is going to be a little bit determined about how the overall macroeconomic just settles down.

I mean we're at what we believe to be a slightly inflated interest rate environment, which is impacting consumers. You do have inflation that is impacting some. You have tariffs. Once that noise settles down, I think we can begin to get back to normal. But I don't think there's anything in the portfolio that says we can't. And again, the 2 leading platforms for us are Health & Wellness and Digital just have tremendous opportunity with regard to market share.

Okay. That's helpful color. Maybe let's switch gears. You guided second half NIM to be approximately 15.6% that compares to a first half NIM of sub-15%. You had indicated some of the drivers were of improving margins were seasonality, growing PPPC impact, CD book repricing. I guess first question is how do you feel about that second half NIM guide today? And then maybe just any color you can give us on how to kind of quantify how much benefit each of those components actually drives the NIM?

Yes. We obviously were impacted in the first half of the year from a couple of different things. If delinquencies get better and losses get better, late fees kind of come down. You still had slightly higher charge-offs first half, what you're going to see in the second half in order to kind of get to the guide. So some of the reversals were higher. And then you think about it, we had a large amount of CDs that repriced really in the first half and mainly in the second quarter that you're going to see in the back half of the year.

So I think structurally, there's not necessarily as much a change in behavior patterns versus adjusting to where we are. I think we're in an environment where we talked about delinquency being more seasonally based now. So I think your late fee component of NIM is going to be relatively consistent. We continue to build the interest side of the PPPCs. We said we were about 50% through the way as far as the second quarter of this year, that goes to 75%. So that's going to continue to grow.

I think you get the benefit of that CD repricing, we were pricing things that had a high 4% interest rate in the second quarter. Again, you're probably 4.5% here in the third quarter, repricing down to something that's low 4s. So I think that gives you a benefit with regard to it. And then we had a lot of excess liquidity. We weren't going to restrict the deposit growth in order to manage net interest margin, mainly because of the fact that I was putting deposits out at 4% or less and getting 4.40% from the Fed. So it made EPS sense, maybe hurt margin, but we had excess liquidity. We don't really run the company carrying such high liquidity. That market has most really been competitive.

So as that trails down and we start to grow here, I think you use some of that liquidity, which helps the percentage of ALR versus average earning assets. All those combined should give us that ability to produce in the back half of the year, 15%, 15.6% plus. So again, you'll see it on the interest yield line. You'll see it on the interest-bearing liability line really kind of coming through and then as well the ALR mix should be positive in order to get us there.

Got it. As we look forward to '26, any reason why NIM can't continue to expand?

Listen, Terry, I appreciate the question going to '26. I'd like to get through the last 2 quarters of '25. But again, structurally, what we said, if you kind of go back to a long-term framework where we said 16%, that was predicated on a Fed funds rate probably around 2.5%. It was a more normalized payment rate. So you need those 2 to get back to the base. And then in theory, you have the accelerant of the PPPCs, which were put in place. So we feel good about that. Some of it's going to be timing. But again, PPPCs are going to come in either way, how quickly the Fed fund rate and where it ultimately settles, whether it's 2.5% or is it going to be north, is to be determined. So again, we'll be back in January to give you '26 in more color. So...

Okay. Fair enough. So you called out some modifications at the PPPCs on the last earnings call. I think in aggregate had a $50 million negative impact to revenue. Maybe just discuss why you rolled that back? And then how are other PPPC discussions with partners progressing?

Yes. The adjustment to our PPPCs were fairly, I'd say, narrow, right? They were in 2 buckets. In the promotional financing business, there were two changes we made, one, which was to add a promotional financing fee. And that was not uncommon in the business, but we increased it more significantly in contemplation of the late fee rule going in. When you think about bigger ticket purchases, when you're charging an incremental 2% of the total value, we didn't want to dissuade customers in most certainly some of the industry had moved with us. So we thought that it would be prudent to roll that back.

And as we did that, what we did is we went to our partners in those spaces and said, hey, listen, in contemplation of doing this, we'd like you to change the portfolio mix, change duration, et cetera, which they're always managing from a cost perspective being the [ type of promo ]. And then there was an activation fee that was somewhat nonmaterial that we adjusted back to where it was at the start. And then one partner from a brand perspective said, listen, we understand the impact from an RSA perspective. We understand that it hasn't really driven negative connotations, but we just prefer not to be in that situation. So from a brand perspective, so we're going to roll back that APR for that partner. Other than that, I think as we said, Terry, we're not really in significant discussions with anyone to adjust that.

I think what you may see a little bit in '26, again, as we continue to have dialogues with people, there could be some value prop refreshes and other things that we invest in growth given that the margin of the portfolio is better. But most certainly, I think where we stand on the PPPCs is it's been generally positive for the company, positive for our partners who are sharing and most certainly given tariffs and other things that kind of helps them on the other side. So again, nothing more coming, I think, this year, we expect. And then again, we'll revisit a little bit in '26 maybe with regard to some value propositions and other things. But again, it shouldn't be material.

Got it. That's helpful. Just moving to capital. Your CET1 ratio is about 13.6%, improved year-over-year by about 100 basis points. How are you thinking about capital allocation going forward, particularly as you start to grow the business again?

Yes. First, Terry, we are -- we have been consistent most certainly in my tenure and for my tenure, the capital priorities of the company have not changed, right? Organic RWA, the dividend growth and then you get into either share repurchases or inorganic opportunities. I think where we are from a capital standpoint today is really the result of a slightly lower RWA growth, which we talked about a little bit of length here. And then second, the earnings performance of the company being highly profitable and the returns being high 2s an ROA perspective, that threw off a lot of capital. That's the beauty of this business. It throws off a lot of capital each year to our dividend 20%. We had $2 billion.

We had $2 billion left at the end of the second quarter. And we're going to continue to execute to bring down capital. We realize we have surplus capital. It's a strength for us. I want to be clear that the capital has not been in anticipation of anything inorganic, has not been anticipation of anything happening in the environment. That's why we run stress test. It's just more a factor of RWA growth and the income profile of the business. And we always said we can revisit it if we wanted to accelerate more repurchases given the performance of the business.

The great thing about our business, I'll just end on this point, is it generates a lot of capital each year. So even if we were to do something big, we can mostly generate more capital. So we're not afraid to bring the rate down. It's just been a little bit more circumstances around that. So we would anticipate, again, trying to bring that capital ratio down closer to our target.

Got it. Helpful. There's about 2 or 3 minutes left. I'll open it up to the audience for any Q&A. One question here.

There is a bit of a disconnect right now between the unemployment situation and credit quality, certainly for you and also your peers, right? Employment is feeling weak and yet when it comes to credit metrics, you're killing it. How do you account for that disconnect?

Yes. I mentioned earlier, so a neutral unemployment rate is probably around -- in our view, around 4.5%. So I would not expect movements below 4.5%, whether it's, again, 4.2% to 4.3%, 4.1% to 4.3%, it's not going to have any meaningful impact on our portfolio. I can't comment for others, but I assume it's probably similar to be honest with you. And you have to get underneath with regard to unemployment, what's the drivers on employment, whether it's people actually losing their job, people coming out of the workforce participation rate. So getting to that unemployment rate is really important when you look at the subcomponents and the subcomponents are generally positive. They're not negative. It's not like there's mass layoffs and people are losing their jobs. And so that's number one. Number two, it does take time. If people lost their job, they go through severance, they go through unemployment, then they go through the struggle. So there's always a lag with regard to unemployment and unemployment claims.

Once you get above 4.5%, I think there's a potential to have a greater impact on -- or have an impact on portfolios. And again, if you go from 4.5% to 4.6%, I'm not sure it's that significant, but you begin -- we'll begin to see if it's 4.5% or north.

Okay. I think we're pretty much at time. And I'll wrap it up there.

Terry, thank you for the opportunity today and look forward to our conversation with investors.

Yes. Thank you for coming.