The paragraph is an introduction to Synchrony Financial's First Quarter 2025 Earnings Conference Call. The operator welcomes participants and notes the call is recorded and in listen-only mode until the Q&A session. Kathryn Miller, Senior Vice President of Investor Relations, begins the call, mentioning the availability of earnings materials on the company's website. She highlights the inclusion of forward-looking statements subject to risks, discusses the use of non-GAAP financial measures, and clarifies that the company does not guarantee the accuracy of third-party transcripts. Key company executives, Brian Doubles and Brian Wenzel, are present for the call.

In the first quarter of 2025, Synchrony achieved strong financial results with net earnings of $757 million, or $1.89 per diluted share, a 2.5% return on average assets, and a 22.4% return on tangible common equity. This performance was driven by the company's ability to provide financial flexibility and value to customers, enhancing loyalty and sales for its partners and small businesses. Synchrony engaged with about 70 million customers, generating $41 billion in purchase volume. Dual and co-branded cards contributed to 45% of this volume and saw a 2% increase, thanks to the successful launch of the CareCredit dual card. However, overall purchase volume was down 1% to 9% year-over-year, reflecting cautious consumer spending amidst economic challenges. Weekly purchase volume remained stable, even as news of government layoffs and tariffs emerged in March.

The paragraph discusses Synchrony's financial and customer behavior insights during the quarter. Sales remained stable across generations, and credit management led to a 2% year-over-year decrease in receivables. Payment rates were steady, showing a modest sequential increase, with more customers making above-minimum payments, improving overall payment behavior from pre-pandemic averages. Synchrony closely monitors customer behavior through various data points and believes customers are managing spending and payments well despite economic challenges. Synchrony's robust data utilization, product offerings, and customer loyalty initiatives bolster its reputation as a preferred financial partner, contributing to a strong partner pipeline.

In the first quarter, Synchrony added or renewed over 10 partnerships, including with Texas A&M Veterinary Hospital, Ashley, Discount Tire, and American Eagle. The company is focused on expanding access to flexible financing in various spending categories. A new co-brand program with Sun Country Airlines will offer rewards for flights across the U.S., Mexico, Central America, Canada, and the Caribbean. Synchrony is expanding CareCredit acceptance in the veterinary field and has become a preferred financing partner for Texas A&M University's Veterinary Medical Teaching Hospital, marking acceptance at all public veterinary university hospitals in the U.S. The partnership with Ashley has been renewed to support retail growth, while the renewal with Discount Tire will give cardholders expanded utility through the Synchrony Car Care network for automotive needs.

The paragraph highlights Synchrony’s ongoing partnership with American Eagle Outfitters, celebrating the extension of their collaboration and the recognition of their loyalty program and credit card offerings. Synchrony’s strategic focus remains on delivering exceptional customer experiences and driving growth, backed by a strong corporate culture and dedicated team. The company is proud to have been named the second-best company to work for in the U.S. and continues to prioritize innovation, flexible financing access, and stakeholder value. The discussion will now shift to Synchrony’s financial performance, handled by Brian.

In the first quarter, Synchrony experienced a 4% year-over-year decrease in purchase volume to $41 billion due to factors like previous credit actions, selective customer spending, and one less day in the quarter. Loan receivables dropped 2% to $100 billion, while the portfolio payment rate remained stable at 15.8%. Net revenue fell 23% to $3.7 billion, mainly due to the previous year's Pets Best gain on sale, but excluding this, it was steady as lower interest expenses and increased other income were offset by higher RSA. Net interest income grew 1% to $4.5 billion despite decreased interest income, as costs for interest-bearing liabilities decreased, improving the net interest margin by 19 basis points to 14.74%. The loan receivable yield rose by 24 basis points, aided by product, pricing, and policy changes.

In the first quarter, Synchrony experienced a decline in liquidity portfolio yield and net interest margin due to lower benchmark rates and changes in asset mix. The RSA stood at $895 million, showing an increase from the previous year largely due to program performance impacts, including PPPCs. Despite a year-over-year decrease in other income because of a prior Pets Best gain, it improved by 69% when excluding that gain, driven by PPPC-related fees. The provision for credit losses declined to $1.5 billion due to a reserve release, contrasting with the prior year's reserve build. Other expenses rose by 3%, primarily because of technology investments and associated costs, although the rise was only 1% when excluding certain contributions and restructuring charges. Synchrony's efficiency ratio increased slightly. Overall, the company achieved $757 million in net earnings, translating to $1.89 per diluted share, with a strong return on assets, return on equity, and a 15% growth in tangible book value per share.

The paragraph discusses Symphony's credit trends and financial performance. It highlights a decline in 30-plus and 90-plus delinquency rates compared to the prior year and historical averages. The net charge-off rate increased slightly but was more favorable compared to historical trends. Credit loss allowances rose to 10.87%, and there was a growth in direct deposits by $1.7 billion, along with a reduction in broker deposits. Symphony issued secured and unsecured bonds with favorable terms, supporting its strong funding, capital, and liquidity foundation. Additionally, the company received a credit rating upgrade from Fitch to BBB with a stable outlook.

The paragraph highlights Synchrony's strong financial performance and strategic capital management decisions. It notes that deposits make up the majority of its funding, with secured and unsecured debt representing smaller portions. Liquid assets have increased, enhancing the company's asset base. Synchrony has fully phased in the effects of CECL to its capital metrics, with overall capital ratios showing significant improvements from the previous year. In the first quarter, the company completed its share repurchase program, returning $697 million to shareholders, and has announced a new $2.5 billion share repurchase authorization through June 2026. Additionally, it will increase its quarterly dividend by 20% starting in the second quarter of 2025, reflecting its strong capital position and commitment to returning value to shareholders.

The paragraph discusses Synchrony's outlook for 2025, highlighting the impact of a recent court decision on its plans and assessing future adjustments to its Prepaid Product Claims (PPPCs). The baseline forecast does not factor in potential changes due to economic conditions or tariffs, and it anticipates that purchase volume growth will be influenced by past credit actions and customer spending behavior, with payment rates similar to 2024 levels. The company expects low single-digit growth in loan receivables and projects net revenue between $15.2 million and $15.7 billion. Net interest income will be shaped by growth, credit performance, and external factors like benchmark rates, with potential lower funding costs influenced by competitive trends and rate cuts.

In the paragraph, the company anticipates higher liquidity levels in the second quarter to prioritize customer relationships and prepare for future growth. They plan to gradually reduce excess liquidity as growth builds later in the year, maintaining liquid assets at about 17% of total assets for the year, which is higher than historical averages. They expect the RSA to be between 3.70% and 3.85%, with improved net charge-offs projected between 5.8% and 6.0%. The full-year net charge-offs are expected within the company's long-term framework of 5.5% to 6%, due to effective credit management strategies. An efficiency ratio of 31.5% to 32.5% is anticipated. Key takeaways include stable customer relationships, outperforming credit trends, and strong capital positioning, with long-term resilience expected despite short-term growth impacts.

The paragraph discusses Synchrony's confidence in its strategic direction and invites questions following their prepared remarks. During the Q&A session, Ryan Nash from Goldman Sachs asks about credit concerns and Synchrony's lowered guidance range. Brian Doubles responds, expressing confidence in consumer trends and praising the credit team's performance and their PRISM underwriting system. He notes improvements in delinquency rates, with 30-plus days and 90-plus days delinquencies both decreasing. Despite these improvements, he mentions that the overall guidance hasn't changed much.

The paragraph discusses the company's positive outlook on credit performance and delinquency trends. Despite softer than expected receivables, credit is trending better than anticipated. Brian Wenzel highlights that credit formation at the end of the first quarter has improved compared to previous years, and delinquency trends are showing strength. The company has taken effective credit actions in 2023 and 2024, leading to outperforming vintages compared to 2019. Overall, they are comfortable with their current underwriting and feel confident in meeting their long-term target of 5.5% to 6% for the year.

The paragraph discusses the financial reserves, mentioning a release of $97 million and a post upfront acquisition of $5 million, with a net reserve release of $100 million. While the quantitative reserve decreased based on performance, the qualitative reserve was increased by over $200 million due to macroeconomic considerations, specifically a 5.3% unemployment rate. Ryan Nash inquires about the clarity and future plans regarding PPPCs, to which Brian Doubles responds that the rule has been vacated and is unlikely to return. Consequently, there are no current plans to reverse changes already implemented, though they will consult with partners and assess various factors and behaviors before making further decisions.

The paragraph discusses the financial impact of potential changes in program pricing for a company and examines competitive pricing and consumer benefits due to decreased prime rates. It highlights the complexity of partner discussions and the time it will take to address potential program changes. The conversation includes potential strategies such as adding value to offerings through promotions and possibly approving more marginal customers. The discussion emphasizes that each partner views the situation differently and is currently focused on other priorities due to economic uncertainties. Additionally, Terry Ma from Barclays inquires about the company's growth outlook, noting a reaffirmation of the year-end receivables guide despite declines in purchase volumes, loan growth, and account growth compared to the previous year.

In the paragraph, Brian Wenzel discusses the factors contributing to the return to positive growth by year-end, highlighting that despite a year-over-year decline in purchase volume, sales have remained consistent without generational shifts. He notes that the consumer is resilient and expected to improve as inflation decreases. The company's credit actions have posed a slight challenge, but overall, they expect an increase in volume, especially in the latter half of the year, aligning with seasonal trends. Wenzel expresses optimism about achieving low single-digit receivable growth, as the first quarter performance met expectations.

The paragraph involves a discussion between several individuals about the impact of loan growth on PPPCs (presumably a financial product or strategy) and how changes in purchase volume could affect their deployment. Terry Ma raises a question about how lower-than-expected loan growth could affect the phase-in of PPPCs, particularly the APR section. Brian Wenzel explains that while a decrease in purchase volume could lead to faster phase-in and effectiveness of PPPCs due to the increasing APR, it may also create challenges in terms of active accounts and income related to severances. Moshe Orenbuch asks Brian Doubles about leveraging PPPCs to add value and grow through enhancing consumer propositions or exploring deeper underwriting with certain merchant categories, aiming for growth in 2025.

The paragraph discusses the ongoing strategies and discussions within the investment community regarding pricing changes and card programs. It highlights that partners are focusing on incentivizing consumers to increase spending for growth and value enhancement, particularly during uncertain times. The efforts include promotions, marketing, and possibly approving more customers with changes in APR, always ensuring strong risk-adjusted returns. Additionally, there's a mention of share repurchase strategies, with the suggestion that the company is being cautious, possibly waiting for market volatility, as it navigates through CECL implementation and currently stable loan growth, resulting in excess capital generation.

Brian Wenzel discusses the company's capital allocation strategy. With an excess of capital, the priority is organic RWA growth, despite being below historical norms. The second priority is dividends, which have been increased by 20% to $0.30 per share quarterly. Share repurchases and inorganic opportunities come next, focusing on financially attractive additions to the portfolio. Although the $2.5 billion share repurchase is significant, there's flexibility to increase it if growth isn't met, allowing the company to strategically manage capital for short- and long-term goals. Brian Doubles emphasizes their long-term commitment to returning capital to shareholders.

In this segment of the conversation, Mihir Bhatia from Bank of America asks about the impact of potential tariffs and recent economic trends, specifically concerning consumer behavior and spending data. Brian Doubles responds by acknowledging the market uncertainty and its effect on consumer confidence. However, he mentions that actual consumer spending remains strong, with credit performance meeting or exceeding expectations. He notes that while consumers, particularly those with lower incomes, have adjusted their spending habits due to inflation, higher-income consumers continue to maintain healthy spending levels. Overall, he suggests the consumer market is resilient despite economic challenges.

The paragraph discusses the state of the client segment's sales, noting a 1% growth with increased purchase frequency but slightly lower average spending per transaction. This pattern is viewed positively, as it suggests consumers are managing their credit responsibly. The company remains optimistic about current trends aligning with expectations. However, uncertainties around tariffs are affecting some partners more than others, prompting changes in inventory management, supply chain strategies, and marketing efforts to boost sales. Despite these challenges, the weekly sales data has remained stable. During uncertain times, partners often rely more heavily on credit programs to support their best customers. Brian Wenzel adds that, despite no signs of macroeconomic decline or the effects of tariffs yet, slowing payment rates are typically observed in recessionary environments, offering a framework for understanding industry dynamics.

The paragraph discusses the financial impacts of a recessionary period on consumer behavior and financial institutions. In the short term, institutions may see increased interest income and higher late fees, followed by net charge-offs. During a recession, as unemployment rises, consumers may face financial difficulties, leading to increased delinquency and charge-offs projected around 2026. The article highlights the importance of considering future unemployment rates when assessing reserve outlooks. Additionally, consumer behavior changes, such as reduced purchase volumes or payment rates, may impact sales and revolve rates, but thus far, no significant changes have been observed in unemployment or consumer behavior due to tariffs. The paragraph concludes by noting a seasonal increase in sales in one platform during the spring, specifically weeks 12-13 versus week 15.

The paragraph discusses the competitive environment and strategy around onboarding new partners and managing existing partnerships within the retail program. Despite some market uncertainties, the company feels the competition is stable and manageable. They continue to maintain pricing discipline and risk management. The company is open to onboarding new programs and has successfully signed new agreements and renewed existing ones this quarter. Their partner base is diverse, ranging from small to medium-sized businesses to very large partners.

The paragraph discusses the renewal strategies and financial disclosures of a company regarding its agreements with partners like Sam's Club and JCPenney. The company aims to renew contracts early, especially for longer agreements, to address any changes or improvements, and extends their duration. Brian Wenzel mentions that financial disclosures have been updated to reflect expectations for revenue beyond 2027, which is now estimated to be in the high 80s (percentiles), and emphasizes the ongoing need to earn contract renewals by delivering value in an uncertain environment. Additionally, Rob Wildhack from Autonomous Research inquires about the company's liquidity strategy in light of the current macroeconomic uncertainty, to which Brian Wenzel responds, indicating there is a dual approach to their liquidity position as they move forward.

The paragraph discusses a strategy regarding liquidity management and growth expectations for a financial institution. Despite a slower growth environment than usual, the institution anticipates returning to growth, particularly in the digital banking sector. They are not overly concerned about having excess liquidity, as borrowing at 4% and earning 4.5% from the Federal Reserve is a positive economic move. This excess liquidity also aids in managing costs related to maturing certificates of deposit (CDEs). They plan to maintain high liquidity in the first half of the year and utilize it more in the latter half and into the following year. Additionally, the discussion touches on the performance of dual card and co-brand offerings, noting better volume and loan growth compared to the overall portfolio. They view these offerings as a potential counterbalance to previous tightening measures and are evaluating future growth between private label offerings and dual card co-brands.

The paragraph discusses the company's focus on expanding its dual card offerings, particularly in the health and wellness sector through its CareCredit business. This initiative has been a significant growth factor, allowing customers flexibility across various services and specialties. The strategy involves leveraging a dual card private label to enhance brand loyalty and increase the through-door population, ultimately improving dual card approval rates. The paragraph also highlights the importance of the company's multiproduct strategy, which involves starting customers with secured cards or private labels and gradually upgrading them as they demonstrate creditworthiness. This approach has been vital in securing new partnerships and renewing existing ones, often by adding new products to these programs.

The paragraph is part of a discussion about credit quality between Sanjay Sakhrani and Brian Doubles, with input from Brian Wenzel. Sanjay seeks clarification on the trajectory of delinquency and charge-off rates, noting that they've shown improvement. Brian Doubles responds by expressing satisfaction with recent credit trends, attributing this to measures taken in mid-2023 and investments made, including in PRISM. He highlights the company's superior performance relative to the industry benchmark of 2019. Doubles mentions the potential for strategic expansion later in the year by gradually increasing spending power for existing high-return customers and possibly adjusting approval rates. He then hands over to Brian Wenzel for further details on charge-off guidance.

The paragraph discusses multiple factors contributing to the company's positive financial performance, particularly concerning credit actions and strategies surrounding transaction approvals, collections, and recoveries. Changes in collections strategies and the in-sourcing of recovery operations have been particularly beneficial, allowing the company to maintain a competitive net charge-off rate. Additionally, the conversation touches on the company's interest in acquiring larger portfolios, with a disciplined approach to evaluating such opportunities.

The paragraph discusses the importance of having strong alignment and a fair deal structure in long-term partnerships, especially for large programs that span over a decade. Key elements include financial due diligence and stress testing to ensure the deal remains beneficial for both parties over time. The opportunities must meet rigorous standards and offer attractive risk-adjusted returns, competing with other capital uses like share repurchases. Sanjay Sakhrani asks about the timing of specific opportunities, but Brian Doubles does not disclose details, while Rick Shane from JPMorgan wants to explore dual card growth further.

In this discussion, Brian Wenzel explains the differences in credit profiles between dual cards and private label cards. Dual cards generally have higher credit quality and higher spending and payment rates than private label cards, which typically have lower credit profiles and higher incident rates but lower severity rates. In economic downturns, credit actions are taken to prevent overextension. The utility of being able to use a dual card in multiple places rather than a single location impacts consumer payment behaviors, although each individual makes payment decisions based on their circumstances.

The paragraph discusses consumer behavior regarding card usage, emphasizing that people often choose cards based on brand association rather than just utility. It mentions that some private label cards, like those from PayPal and Amazon, have wide utility, especially when integrated with services like Apple Pay. The text highlights the importance of broad-based utility for cardholders and how it meets consumer needs, with specific examples from home and car care segments. The conversation shifts to macroeconomic assumptions, with John Pancari asking about how incorporating a recessionary outlook might affect charge-off expectations, hinting at potential impacts in 2025 or 2026.

In the discussion, John Pancari asks about the potential impact of a stressed charge-off level for Synchrony, considering its current business mix and credit tightening measures, compared to the 5.8% to 6% level expected for this year. Brian Wenzel explains that the impact of economic downturns on charge-offs can be delayed, typically taking 9 to 12 months to manifest. He notes that the severity of the macroeconomic event plays a role, and historical patterns suggest less immediate impact on charge-off rates unless there are rapid settlements. Wenzel refrains from commenting on projections for 2026 in a recessionary scenario, as the situation is not yet clear or predicted.

The paragraph involves a discussion about evaluating potential credit actions to accelerate growth. Brian Doubles mentions the possibility of widening the credit box, primarily for existing customers with a solid credit history, as a way to increase spending power and drive growth. Any actions will be undertaken methodically, keeping the long-term net charge-off rate within the range of 5.5% to 6%. The conversation then shifts to capital levels, with Mark DeVries questioning whether the current CET1 capital ratio target of 10% to 11% is still appropriate, noting that it currently sits at 13.2%.

In the paragraph, Brian Wenzel discusses the company's goal to reach an 11% CET1 capital ratio, emphasizing a consistent pace towards this target. He mentions that the company's capital peaked at 18% CET1, and the company has significantly reduced its shares since 2016 to achieve a more efficient balance sheet. The current capital position of $2.5 billion is seen as favorable relative to earnings power and capital generation. Mark DeVries asks if the latest authorization was designed for flexibility in growth, indicating that the company could potentially outperform or consider additional stock repurchases. Wenzel acknowledges these considerations but reiterates the focus on reaching the 11% target.

The paragraph discusses a company's recent capital plan and financial outlook, as presented by Brian Wenzel and Brian Doubles. They have proposed a $2.5 billion capital authorization plan, including an increased dividend of $0.30. The plan includes several scenarios to demonstrate financial resilience, though further adjustments may be discussed with the Board if necessary. Despite their market capitalization being lower than its true value, they're pleased with the plan. Don Fandetti of Wells Fargo inquires about the growth and performance of CareCredit, a part of the company's health and wellness platform. Brian Doubles highlights CareCredit's leadership, stability, and strong customer satisfaction scores, noting its potential for continued growth.

The paragraph discusses Synchrony's optimism about the growth potential of its CareCredit Dual Card in the dental and veterinary markets, despite recent minor slowdowns. Brian Wenzel mentions strategies for future growth and highlights that credit performance is generally in line with the rest of the business. The company is confident in its ability to underwrite at attractive risk-adjusted returns due to some favorable margins. The paragraph ends with acknowledgments and the conclusion of Synchrony's earnings conference call.

This summary was generated with AI and may contain some inaccuracies.