Synchrony Financial (SYF) — Q4 2024 Earnings Call Transcript

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. I'd like to first take a moment to acknowledge all those who have been affected by the devastation of the California wildfires. Synchrony has colleagues, customers, partners, and providers that were impacted. And while we do not expect a meaningful financial impact on our business, we are monitoring the situation closely and offering support in a number of ways to all those affected. Moving to Synchrony’s fourth quarter performance, we added 5 million new accounts, generated $48 billion in purchase volume, and grew ending loan receivables by 2%. In addition, we continued to see improvement in our portfolio's year-over-year delinquency trends. Our RSA continued to align the interests of both Synchrony and our partners, and we maintained our cost discipline to deliver fourth quarter net earnings of $774 million, or $1.91 per diluted share, a return on average assets of 2.6%, and a return on tangible common equity of 23%. These fourth quarter results enabled a strong close to 2024, during which Synchrony acquired almost 20 million new accounts and financed more than $182 billion of purchase volume. This year marked our second highest level of purchase volume and serves as an important testament to the lasting appeal of our diverse and flexible financing solutions and compelling value propositions that we offer. Synchrony deeply understands the needs of our many stakeholders. And so even as customers became more discerning in their spending choices and the impacts of persistent inflation and our credit actions took hold as the year progressed, Synchrony leveraged our scale, our data analytics, deep lending expertise, and our advanced digital capabilities to remain nimble and responsive in a rapidly changing environment. As a result, Synchrony generated full-year 2024 net earnings of $3.5 billion or $8.55 per diluted share, a return on average assets of 2.9%, and a return on tangible common equity of 27.5%. The financial performance included both the positive and adverse impacts of several non-recurring events in our business, ranging from the sale of one business and the acquisition of another to the undertaking of an unprecedented, multi-phase plan to prepare for a potential regulatory change with far-reaching implications for the consumer lending industry. Yet, through all the complexities of these opportunities, amidst an ever-evolving landscape, Synchrony executed at a high level across all our key strategic priorities to optimize our business and position us for sustainable growth with strong risk-adjusted returns for the long-term. During 2024, we added more than 45 new partners, including iconic brands like Virgin, Gibson, and BRP, as well as technology-oriented relationships like Adit Practice Management Software and ServiceTitan. Each of these additions further diversified the industries, products, and services for which Synchrony can provide flexible financing solutions while also extending our customer reach. Synchrony also grew and expanded existing partnerships during the year with the renewal of more than 45 programs, including Verizon and Generac, and more recently two of our top five partners, Sam's Club and JCPenney. We're excited to announce that in January we renewed and extended our more than 30-year relationship with Sam's Club, which builds upon our strong focus of delivering member-centric digital experiences and value. Synchrony's partnership with JCPenney has also evolved over nearly 25 years through both collaboration and innovation as our customers' needs have changed. Our long-term program extension and expansion will now include the introduction of Synchrony Pay Later, our buy now pay later financing solution with six, 12, or 24 month installment payments. Customers can scan a QR code in store to complete an application on their own device. If approved, they can select their preferred financing option and make their purchase immediately. Just as Synchrony is evolving and expanding the ways in which we deliver value through partner programs we offer, we are also focused on diversifying the programs and markets we serve and the breadth and utility of the products we offer. In 2024, we completed the acquisition of the Ally lending business and are in the process of transitioning merchants to Synchrony Pay Later. We're excited to continue further developing our multi-product capabilities and continue the expanded integration of this vertical in 2025. We also finalized the sale of Pets Best to Independence Pet Holdings, and in addition to a significant financial gain, we extended our reach in the rapidly growing pet industry through an equity interest in IPH. We're excited about the recent launch of Better Together with CareCredit and Pets Best, a patent-pending, simple, and seamless innovation that connects the two solutions by directly reimbursing insurance claims to the CareCredit Health and Wellness Card. We believe this streamlined payment process will deliver a unified experience for pet parents and support our growth in the pet care financing industry. Additionally, we launched CareCredit into wellness markets to finance fertility, nutrition, and dietitian products and services, which supported almost 15% growth in wellness-related purchase volume during 2024. In addition, Synchrony enhanced the utility of several of our private-label credit cards by broadening their acceptance and expanding their distribution channels, an evolution made possible by the delivery of our financial ecosystem through more of our merchant-acquire partners. For example, the Amazon store card can now be used at all Whole Foods locations via mobile QR code and for One Medical membership. The results have exceeded expectations and build upon our strong foundation of acceptance, including Amazon.com, Amazon Pay, and Audible. Moreover, CareCredit can now be used to pay for select health and wellness products and services across a growing list of approximately 18,000 retail acceptance locations, including Albertsons Companies, Sam's Club, Walgreens, and Walmart. In keeping with our strategy of broadening product utility, we continue to roll out our CareCredit dual card over the past year, which grew open accounts by 16%. Thanks to its strong value proposition and utility, about 60% of this product's out-of-partner spend in 2024 was outside of traditional health and wellness categories. Today, Synchrony delivers a wide variety of innovative financing products and services designed to responsibly address each customer's needs whenever and however they are looking to make a purchase, an opportunity increasingly occurring digitally, whether that's on a mobile device or at a physical point of sale through wallet apps and digital payments. Throughout the past year, Synchrony has been on a journey to bring our customer experience to life through more engaging and cohesive content across our digital footprint. From our native apps to our marketplace and website, we're expanding and deepening the role that Synchrony plays with our customers and partner relationships. We're also seeing customers engage with Synchrony more extensively, visiting our sites more often. While they're engaging longer on our properties, this engagement has contributed to incremental new accounts and sales as well as lower acquisition costs. In the case of Synchrony Bank, we've more than doubled the number of new Synchrony Bank accounts acquired through our synchrony.com website with almost no associated acquisition cost. Thanks to the combination of our dynamic technology platform, our advanced analytics, and our scale, with more than 140 million reported trade lines and trillions of customer and spend data points, we can leverage proprietary insights throughout our digital financial ecosystem and across the customer journey to deliver highly personalized and engaging experiences. Synchrony's marketplace is a growing part of that financial ecosystem and drives greater connectedness between our customers and partners. Over the last year, we've launched curated campaigns and differentiated offers through our marketplace that contributed to more than 600 million impressions and 1 million referrals across participating partners. Additionally, the marketplace hosted almost 228 million customer visits and drove more than 17% growth in newly submitted applications within the marketplace. Synchrony's digital wallet strategy also made great strides in 2024, driving stronger engagement, utility, and purchasing power for our customers. In fact, Synchrony's unique active wallet users grew by 85% compared to 2023 and contributed to more than double the digital wallet sales in 2024. This growth also supported a more than 200 basis point improvement in our dual and co-brand cards wallet penetration rate. We 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. We're excited by the opportunities we see to drive our digital penetration further in 2025. This includes our recent announcement that eligible Synchrony MasterCard holders can now choose to pay with the standard terms of their credit card or use a promotional offer that includes fixed monthly payments when checking out with Apple Pay Online and in-app on an iPhone or iPad. This enhances the way users pay and provides them with more choice and flexibility. We plan to expand on this Apple Pay integration even further later this year by bringing users the ability to view and redeem rewards from eligible Synchrony-issued cards. Synchrony also plans to work with our Apple Pay-enabled partners to expand this capability across our portfolio. If Synchrony continues to innovate and drive still greater financing experience and value for all those we serve, we’re maintaining our discipline and leveraging our core strengths to sustainably grow and deepen our leadership position. Our sophisticated approach to customer lifetime value is driving incremental and deeper connections between approximately 70 million customers and hundreds of thousands of partners, providers, and small and mid-sized businesses that we serve. Our diversified portfolio of products, programs, and spend categories is empowering our customers with financing flexibility in whatever moment of life they're in. Our expansive distribution channels and omni-channel capabilities are increasingly delivering our financial ecosystem anywhere a purchase can be made. Our differentiated approach to underwriting and credit management is driving the stability of our portfolios post-pandemic credit performance compared to most other lenders in the industry. All of this is made possible with an incredible team of people, and culture that earned Synchrony the honor of being ranked fifth among the best companies to work for in the U.S. by Fortune magazine and great places to work in 2024. So as we look to 2025 and beyond, Synchrony is operating from a position of strength. We're executing across our key strategic priorities, empowering strong outcomes for the many stakeholders we serve. We're deepening our role within the heart of American commerce and priming our business for profitable growth for years to come. And we're driving considerable long-term value for our shareholders. 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 performance reflected the inherent resilience that comes from our diversified portfolio products and spend categories, our balanced approach to underwriting and credit management, and our sophisticated technology platform. This differentiated combination of strengths enables our business to swiftly adapt to the evolving landscape. During the fourth quarter, customers continued to seek out our flexible financing solutions, and the strong value proposition and broad utility of our product offerings generate lasting value against a persistently inflationary environment. As a result, we added 5 million new accounts, maintained approximately 70 million active accounts, and generated $48 billion of purchase volume despite the continued impact of the credit actions we took between mid-2023 and early 2024. Ending receivables grew 2% to $105 billion as payment rates continued to moderate down approximately 10 basis points, compared to last year. Purchase volume and receivables at the platform level reflected the continuation of the trends we discussed over the course of the year as customers remain selective in their spending behavior and generally prioritize non-discretionary and seasonal holiday items. Platform purchase volume growth ranged between down 1% and down 6% year-over-year, generally reflecting the lower spend per account as customers moderate both bigger ticket and discretionary spend, particularly in categories like furniture, electronics, cosmetics, and outdoor, along with the impact of Synchrony’s credit actions. Receivable growth across the platforms ranged from flat to 6% higher year-over-year, primarily driven by slower purchase volume growth and payment rate moderation. Dual and co-branded cards accounted for 44% of total purchase volume for the quarter and increased 1%, reflecting the benefit of these products' broad-based utility offset by the combined impacts of selective customer spending and Synchrony’s credit actions. Net revenue grew 4% to $3.8 billion, resulting from higher interest and fees and higher other income, partially offset by higher RSAs and interest expense. Net interest income increased 3% to $4.6 billion as interest and fees grew 3%, primarily reflecting higher interest and fees on loans, partially offset by an increase in interest expense from higher interest-bearing liabilities. Our loan receivables yield grew 8 basis points, primarily driven by our pricing actions, including the impact of our product pricing and policy changes, or PPPCs, as well as the lower payment rate, partially offset by higher reversals and a lower late fee incidence. Total interest-bearing liabilities cost was 4.58%, an increase of 3 basis points versus last year. RSAs of $919 million were 3.57% of average loan receivables in the fourth quarter, and increased $41 million versus the prior year, primarily reflecting program performance, which includes the impact of our PPPCs. Other income increased $128 million, primarily related to the impact of our PPPC-related fees, which were partially offset by the impact of our Pets Best disposition. Provision for credit losses decreased to $1.6 billion, primarily reflecting a $100 million reserve release in the fourth quarter, compared to a reserve build of $402 million in the prior year, partially offset by higher net charge-offs. Other expenses decreased 4% to $1.3 billion, primarily driven by the prior-year restructuring costs and other notable expenses outlined in the earnings presentation, along with lower operational losses in the current year. These decreases were partially offset by costs related to the Ally lending acquisition and technology investments. The efficiency ratio was 33.3% for the fourth quarter, an improvement of approximately 270 basis points versus last year, reflecting a combination of Synchrony's cost discipline and revenue growth. Taken together, Synchrony generated net earnings of $774 million or $1.91 per diluted share and delivered a return on average assets of 2.6%, a return on tangible common equity of 23%, and a 23% increase in tangible book value per share. Next, I'll cover our key credit trends. At quarter end, our 30-plus delinquency rate was 4.70%, a decline of 4 basis points from 4.74% in the prior year, and 8 basis points above our historical average from the fourth quarters of 2017 to 2019. Our 90-plus delinquency rate was 2.40%, an increase of 12 basis points from 2.28% in the prior year and 16 basis points above our historical average from the fourth quarters of 2017 to 2019. Our net charge-off rate was 6.45% in the fourth quarter, an increase of 87 basis points from 5.58% in the prior year and 96 basis points above our historical average from the fourth quarters of 2017 to 2019. Our allowance for credit losses as a percent of loan receivables was 10.44%, which decreased approximately 35 basis points from 10.79% in the third quarter. The credit actions we've taken from mid-2023 through early 2024 are improving our delinquency formation as the rate of year-over-year growth in both 30-plus and 90-plus delinquency rates continue to decelerate. These trends give us confidence in our ability to return to our long-term net charge-off target. Furthermore, Synchrony's funding, capital, and liquidity position continues to provide a strong foundation for our business. During the fourth quarter, we grew our direct deposits by approximately $716 million and reduced our broker deposits by $938 million. At quarter end, deposits represented 84% of our total funding, with secured and unsecured debt each representing 8% of total funding respectively. Total liquid assets and undrawn credit facilities were $19.8 billion, essentially flat versus last year, and represented 16.6% of total assets, a 26 basis point decrease from last year. Focusing on our capital ratios, as a reminder, we elected to take the benefit of the CECL transition rules issued by the joint federal banking agencies. We anticipate making a final transition adjustment to our regulatory capital metrics of approximately 50 basis points in January 2025, reflecting the fully phased-in effects of CECL. The impact of CECL has already been recognized in our income statement and balance sheet. Under the CECL transition rules, we ended the fourth quarter with a CET1 ratio of 13.3%, 110 basis points higher than last year's 12.2%. Our Tier 1 capital ratio was 14.5%, 160 basis points above last year. Our total capital ratio increased by 160 basis points to 16.5%. Our Tier 1 capital plus reserves ratio, on a fully phased-in basis, increased to 24.3%, compared to 22.1% last year. Synchrony returned $197 million to shareholders during the fourth quarter, consisting of $100 million in share repurchases and $97 million in common stock dividends, totaling $1.4 billion of capital returned during the full-year 2024. At year-end, we had $600 million remaining in our share repurchase authorization for the period ending June 30, 2025. Synchrony remains well positioned to return capital to shareholders as guided by our business performance, market conditions, regulatory restrictions, and subject to our capital plan. Turning to our outlook for 2025, our baseline assumptions include a stable macroeconomic environment, full-year GDP growth of 2.2%, a year-end employment rate of 4.1%, a year-end fed funds rate of 4.25%, and full-year deposit betas of approximately 60%. In addition, given the uncertainty regarding the litigation process and the political landscape surrounding the late fee rule, our outlook assumes no impact from the potential late fee rule change, but does include the impact of our PPPCs. If the late fee rule were to go into effect, this outlook would no longer be applicable. Starting with ending loan receivables, we expect purchase volume and new account growth to continue reflecting the impacts of our credit actions and selective customer spending behavior. We also expect payment rates in 2025 to generally remain flat with 2024 levels as a result of our past credit actions, which have stabilized the mix of customer payment behaviors. As a result, we expect low-single-digit growth in ending loan receivables for the full-year 2025. We expect net revenue for the full-year to be between $15.2 and $15.7 billion and to follow seasonal trends. We anticipate year-over-year growth in both interest income and other income as the impact of our PPPCs builds, partially offset by the flow-through of lower average prime rates on our variable rate receivables, lower late fees as delinquency performance improves, and lower yielding investment portfolio due to lower benchmark rates, along with finance charge and late fee reversals associated with the seasonality of our credit performance. Lower average benchmark rates should also contribute to lower funding costs as our CD maturities reprice, although this will be influenced by competitive deposit beta trends in response to any additional rate cuts that may occur. In addition, we generally expect to maintain higher levels of liquidity of approximately 17% for the next few quarters, given our desire to prioritize our deposit-customer relationships and pre-fund future growth. Finally, RSA as a percentage of average loan receivables should be between 3.60% and 3.85%, driven by improving program performance as net charge-offs decline and the impact of our PPPCs increase. We expect our portfolio net charge-off rate for the full-year to be between 5.8% and 6.1%, primarily reflecting the benefit of our prior credit actions and our differentiated approach to underwriting and credit management. We expect our efficiency ratio to be between 31.5% and 32.5% as Synchrony remains focused on driving operating leverage in our business. Before I turn the call over to Q&A, I'd like to leave you with three key takeaways from today's discussion. First, Synchrony is well positioned to reaccelerate our growth. The investments we've made and credit actions we've taken were designed to prioritize sustainable, profitable growth through evolving market conditions. Our performance since exiting the pandemic in 2021 demonstrates our discipline with average ending loan receivables growth of approximately 9%, delivering an average return on assets of approximately 3%, and an average return on tangible common equity of approximately 25%. Second, the outperformance of our portfolio's credit trends relative to the industry has enabled this track record, and our recent delinquency formation trends give us confidence in both our credit outlook and our ability to reaccelerate profitable growth. We are monitoring for continued stability in the macro environment, more confident consumer spending behavior, and continued improvement in our delinquency performance to support the gradual reversal of our credit restrictions. Third, Synchrony's robust capital position is a clear strength that will enable our growth while also supporting greater capital returns to our shareholders in the years ahead. In summary, Synchrony's high-level execution in 2024 has positioned us well for 2025 and beyond as we drive progress towards our long-term financial targets. 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 one primary and one follow-up question. If you have additional questions, the Investor Relations team will be available after the call. Operator, please start the Q&A session.

Hey, good morning, everyone.

Hey, Ryan.

Good morning, Ryan.

So maybe to start off on the net revenue guide, Brian, you talked about growth in both fees and NII. Can we maybe just dig in on some of the moving pieces on net interest income? And I guess, first, how do we think about the impact from rates? I know you're targeting 4.25% in terms of Fed funds. The balance sheet should benefit as rates come down? And then second, how is the impact of the PPPCs coming through on your guide? How much of the full benefit that you were anticipating is already incorporated into the run rate for this year? And then I have a follow-up.

Yes, great. Let me try to unpack a little bit of that, Ryan. When you think about net revenue guidance, and I'll bridge to NII, you're going to see a significant increase related to the PPP fees running through net revenue. You'll also get a lift from growth and revolver rate coming through here. But there are two fairly large offsets that are coming back. One is RSAs, which has the effect not only from a lower net charge-off rate in 2025, but also has the effect of the PPPCs that are flowing through there. And you have a fairly significant drop in late fee revenue that comes through there as well as your charge-offs decline. So those are the general moving pieces. You will see a more pronounced NII growth because obviously that strips out the RSA impact, but the same late fee dynamic, the revolver rate, all those kind of flow through. On net funding, it's slightly negative for the full year. It's more a timing of when we have the rate cut kind of coming through. Prime rate is already starting to drop in the beginning part of this year. So it's more of timing, to be honest with you, when you think about prime rate decline, the investment portfolio, which resets fairly quickly, and then the funding piece again depending upon when the CD maturities restack. So again, more pronounced NII growth, and the PPPCs, you know, I'll get ahead of the question, are performing generally in line with our financial expectations. We have said there's a little bit of mix where we're getting stronger retention, stronger yield on the interest side and a little bit lighter on the paper statement fees, mainly due to people adopting E-Bill. So that's how I kind of think about the framework for both net revenue and NII.

Got it. And maybe as a follow-up on capital, so you're sitting over 200 bps above the target, especially in a seasonally low quarter, and I think you brought back $100 billion of stock. Can you maybe just talk about the plan for capital return, particularly why it was a little bit depressed in the quarter? And maybe just toggle between, are you seeing more opportunities to deploy it inorganically, or I know you mentioned twice in your last remarks, Brian, about the re-acceleration of growth. Are you holding back a little bit in terms of anticipating the return of long growth? Just trying to understand the thought process on the lower near-term buyback and what it means for deploying capital over the next few quarters?

Yes, thanks for that question, Ryan. I know a lot of people are going to try to make a read through into what we did and the cadence for the quarter. I just want to be clear, the cadence for the quarter being lower than some of the prior quarters was more our kind of view on the market and what was going to be potentially a more volatile market given the presidential election and the aftermath of whichever administration kind of came through and the flow-through effects. So we predetermined that that wasn't a quarter that we were going to be heavily leaning in from a buyback perspective. I would not read through that. The $600 million that we have remaining on the current authorization, our intention is to complete that. And right now we're in the process of completing our 2025 capital plan, running our loss stress tests for there. Again, we understand that capital is a strength for us. It does provide us the opportunity to do things organically. I want to be clear, we didn't build capital or the lower repurchases, but not due to waiting for additional growth, organic or inorganic. It was just more our kind of view of the markets may be a little bit more disrupted or disjointed in the fourth quarter. We remain committed to bringing capital back down closer to our target.

Thanks for the color.

Thanks, Ryan. Have a good day.

Thank you. Good morning. Brian Wenzel, maybe just to drill into that PPPC impact a little bit more. Is it fair to assume that by the end of this year, you'd still sort of have that full run rate of what you anticipated putting in as mitigation in the numbers? And I guess, like, you know, how should we think about if late-fee regulation doesn't happen? How would it impact the ROA? I'm just trying to think about, you know, sort of normalize your long-term ROA and when you anticipate getting there? And I would have thought that mitigation takes that higher and sort of when we might get there? Thank you.

Yes. Thanks for the question, Sanjay. Good morning. As I think about how you exit out of 2025 on the PPPCs, if I look at a couple of different components, they're still not going to be fully there on the financial charges. If you recall, we said, you know, you're roughly half, you know, one-year out, you're about 35% two years out. So there's going to be incremental growth on the interest line as you exit out of '25 and get closer into '26. That's number one. Paper statements should reach, I'd say, a steady state level, but then will grow rate relative to our average active accounts and how that grows depending upon mix and when not all the accounts have that paper statement. Potentially there could be a little bit of headwind if more people choose e-bill and then you're going to get the benefit down on the expense line versus the other income line. The last thing I'd say is on the promotional fees, that should build throughout 2025 because that's something I want to affect a little bit later in 2024 as promotional volume picks up. It's been a little bit below our historical amounts, just on a buying perspective. That should pick up and advertise over time. So I think as you exit out of '25, there is still room to grow on both the interest line from promo fees and interest income, and a little bit on the paper statement fees.

Okay. And then as far as ROAs, any thoughts there?

You know, we're obviously not, we're not tying to an ROA, but if you look at the construct of the outlook, in theory, coming from a place where you need to strip out this year's components, it's really important to strip out the Pets Best gain and the Visa B gain. In theory, the PPPCs without a late fee offset or lower late fees, you generally should have something that would drive the ROA incrementally higher.

Okay. Okay. Just one follow-up for Brian Doubles. Maybe you could talk about the deal environment. I know there's a couple of RFPs out there? There's a lot of chatter around those. Maybe you just talk about how it's looking for you, and then, you know, the loan growth still remains weak. The purchase volume remains weak. I mean, anything that can help drive that? Are you guys being conservative there? Thanks.

Yes, sure. Look, I would say generally we like the operating environment right now. You know, I'll start with your second question, which is just around growth. I think the consumer is in pretty good shape. We like the environment right now. We did take some credit actions. You're seeing those work exactly as designed. You saw 30-plus delinquency rates turn the corner. The setup for next year is really good. So we feel great about the environment. I'll tell you on the competitive side, there's still pretty good discipline in the market. We're looking at a lot of new opportunities as we always do. We have a robust pipeline. At this point, there's still pretty good discipline. I think some of that is coming out of, you know, last year was a little bit uncertain in terms of, you know, the economy, the effects of inflation, the election. It seems to create pretty good discipline around pricing new opportunities, and we're seeing that. As you know, we're a disciplined bidder. We're always focused on a good risk-adjusted return. We look for programs where we have really strong alignment between us and the partner. Those things are critical. Those are absolutely non-negotiables for us. We continue to win new business. So I feel, again, I feel good about the environment. I feel really good about how we’re competing for new business.

Yes, Sanjay, if I could just add one point of clarity for what Brian said. When you look at the purchase line growth in the fourth quarter, a significant portion of that was credit action driven. That was us trying to focus to get credit into the position in 2025 where we're getting back into our long-term target range. That's really important. I know we’ll get the credit at some point, but it's also helping us get back on a trajectory faster than our peers. The purchase volume is by design. The new accounts were by design to kind of set us up on the credit side.

Thank you.

Thanks, Sanjay. Have a good day.

Thank you for taking my questions. I actually wanted to go back to the question around just the net revenue and some of the components there? Maybe just talk about some of the assumptions embedded in terms of just how much of your portfolio is resized heading into 2025? What do you expect heading out of 2025? Does that imply like, you know even more upside on net revenue in 2026? Thank you.

Yes, again, we haven't really changed or provided any incremental color here other than we talked about how much of the book should reprice in the first 12 months and in the next 12 months. I'd say we're slightly ahead of that schedule as we stand now. Obviously, we're also going into a period where prime rates are going to have a little bit of an influence here in the first half, given the changes that happened in the latter part of 2024. So again, there's no change to the guides that we add with regard to how much of the book is going to be on the new APRs.

Got it. Thank you. And then maybe just like you mentioned credit, so let's turn to that. Your outlook does suggest meaningful improvement, and we see that in the delinquencies. But I was curious about how you would carry, but your purchase volumes are still pressured. I understand some of it is driven by your own actions and pulling back on tightening underwriting. So I guess a couple of questions there is just, are you done with tightening underwriting for now? How do you feel about the environment currently? What are you seeing from the consumer? Some others have mentioned an increase in people paying minimum balances, some commentary around how many people are at their full credit limits. What are you seeing in your book? How do you feel about the consumer? And where are you from underwriting, posture standpoint? Thank you.

Yes. Let me try to unpack that one here. First, I want people to focus on the fact that we were later in the credit normalization than others. We reached what, you know, if you could say a peak or a trend where our 30-plus has now turned positive, whether you think about it sequentially to the third quarter or year-over-year in the fourth quarter, where a lot of other people are doing it. So we didn't go with high, and ours was much more compressed, largely due to the credit actions that we've taken, and we're pleased with how they're performing. The broad-based actions that we took really, I'd say, seized back in the second quarter of 2024. So the actions that we continue to take are the standard idiosyncratic type refinements that we look at partners, channels, as we look at the risk return of those channels and products. As we enter into 2025, I think when you look at that credit trajectory, we've outperformed seasonality now for five months on a 17 to 19 basis. I think we feel optimistic where we are going with credit and the performance of those actions, which gives us a guide down again to that 5.8% to 6.10% range. Some of that is going to be more dependent upon the denominator. When you go underneath the hood and you start thinking about the consumer for a second, overall line utilization has not really changed. We don't see consumers at max in line. So that's not an issue in our portfolio or segments of our portfolio. When we look at payment behavioral patterns, we see movements generally across all credit grades. So it's not centered around non-prime. We see probably a little bit more in the upper prime category than the low prime, which means they're kind of coming back from some place where they had excess liquidity. But we don't see anything that's really different. If you look at our payment composition relative to 2019, people who are making the minimum payment is up significantly from 2019 across all credit grades. That includes those in the 780 plus range. They're up probably a little over 400 basis points. Every other credit grade, whether it's prime or non-prime, we're up in similar ranges. It's not materially different. Part of that is structural, right, as we put more installment lending in and promotional financing. All those payments go into exact NIM pay. So that's kind of structural. We don’t see cracks in the consumer design. I've talked about payment behavior patterns and line utilization patterns. We continue to believe that a lot of loss pressure across the industry was too much credit being extended to certain cohorts and their ability to really handle that credit. We don’t see things that are troubling. As we step through the first half of the year, I think we'll reassess at what point we want to potentially lift some of the credit restrictions that are in place. There could be a scenario where you do some of that in the back half of this year. I wouldn't say there's a scenario where we reverse everything. But there could be a reason for us to sit back and say the actions have largely fulfilled what they needed to do in order to get the book in the right place. So that's how I think about credit and some of the performance of the book today.

Thank you.

Thank you. Have a good day.

Hey, thank you. Good morning. Maybe as a follow-up to credit, your delinquency rate was down 4 basis points year-over-year. Do you have any sense for how much additional room there could be for improvement on a year-over-year basis as we progress through the rest of the year?

Yes, thank you and good morning, Terry. We don't forecast 30-plus, 90-plus externally. What I'd sit back and give you maybe color on is some of the trends that we see in credit, which obviously informs not only the charge-off rate but where we go from a reserving standpoint. We continue to see entry rate favorability that again, accelerated a little bit more in the fourth quarter for some actions we've taken on pre-collections. We've seen good performance relative to our two flows to charge-off. Our late-stage collections have improved. As you look at that, it gives us confidence as we think about getting the charge-off rate down year-over-year and back into our target underwriting zone. If you think about the short-term nature here, there's generally a seasonal lift that you see particularly in the first quarter. We will not see as much of a seasonal lift to traditionally it's been around 50 basis points. We will not experience that in the first quarter of 2025, or belief mainly for two things: One, is that performance I talked about particularly late-stage improvement across some of those later delinquency stages, number one, and two the timing of certain recovery actions we have will mean recoveries are going to be, on par with how you think of 2024, just the timing that plays through. So a little bit better seasonally in the first half. First quarter, excuse me. We feel good based on that delinquency formation flow.

Got it. That's helpful. And then maybe as a follow-up on the allowance ratio, if you put all that together, what does that mean for the allowance ratio as we kind of progress through the rest of this year? I think this quarter ended up a little bit higher than what you had guided to earlier in the year. So maybe any color on the delta between the guide versus the realized? And then how we should think about the allowance ratio?

Yes, thanks for that question. So let me try to address a little bit of the ending point in 2024. I think there's really two factors that kind of have gone into that ending point being. Maybe higher than other people expected or generally we said it'd be fairly in line with our exit point in 2023. Number one, the denominator clearly had some influence being slightly higher on a rate basis, so that's part of it. The second piece of it probably is a little bit of what I would say conservatism, how we think about the credit actions inside the quantitative part of the model as we enter 2025. If you take a step back while we're not providing guidance on the reserve, think about the components here. If you continue to believe or believe that the net charge-off rate comes back down closer to that or inside of the net charge-off long-term guide that part of the model, which is the quantitative part, you should be able to get a rate benefit coming off of that. The second piece of it is your qualitative overlays and whether you get clarity on the macroeconomic environment, which today continues to be, you know, an ebbs and flows on how inflation is trending and how interest rates are flooding. But those two are the pieces that we're going to have to watch. Inherently, I think if you think about a charge-off rate for declining and if you think of a macroeconomic environment that improves and you have greater clarity, there would be a downward bias as you move into 2025 and exit out of 2025 on the reserve rate. Again, you'll be subject to a little bit of the seasonality throughout the year, but there should be a downward bias under that type of scenario or framework.

Great. Thanks. Brian Doubles, you mentioned that part of the JCPenney renewal was the addition of the Synchrony Pay Later. Could you talk about any other new aspects to the renewals for those two large programs and just talk a little bit about how we should think about the economics of those renewals? Thank you.

Yes, Moshe. Look, I would say first we're thrilled to have renewed JCPenney and Sam's Club. We've been with both partners for decades at this point, so we're extremely happy to have them renewed. We're excited to launch Pay Later with JCPenney. I think it's a real testament to the multi-product ecosystem that we've built, starting with Lowe's, now JCPenney. It's really resonating with our partners, both frankly on the renewal side, but also as we go out and compete for new business. I think it's different than it was probably two or three years ago where you had partners leveraging FinTechs, looking for buy now, pay later solutions. They were basically doing anything they could to generate and drive sales. Now they've kind of taken a step back and they said, hey, we want a product that can be a starter product, a way to bring in new customers, and then over time, graduate them to a revolving product, a co-brand card. When you look at the economic model associated with that, it's really compelling. It’s great for us, it’s great for the partners, because some of the starter products in buy now, pay later don't exactly meet our return threshold, but when you look at the lifetime value of that customer, it absolutely does. Like I said, it benefits us and the partner. In terms of the two renewals on economics, we don't get into that. We're extremely happy with both the economics and the terms of both agreements. We've got great alignment on both. I talk about that a lot because it's absolutely critical to have a successful program. These are long-term agreements and you want to ensure that the interests between us and the partner are perfectly aligned, and in both cases I think they are.

Got it, thanks. And maybe just as a follow-up, you talked a little bit about the potential for some degree of reversal of some of the tightening’s, perhaps, by the second half of the year. Just talk a little bit more granularly about whether there are certain types of, maybe not names of partners, but types of partners that you'd likely see that first or any other kind of signs that we should be looking forward to, you know, to see that that's going on?

Yes. Great question, Moshe. I think what you're going to start to see is in a couple of areas, right? We'll see an acceleration potentially of dual cards. So that we’re having dual cards as you potentially think about where we may be down selling a little bit more in a private label today, we would go through and do more upgrades from the private label product into the dual-card products, that's one. I think in two, an area you'll see is where we have probably been more restrictive on credit line increases and potentially credit line decreases, and you'll see probably a little bit more credit line increase activity and decrease activity, and that generally will happen in some of the larger balance type platforms that we have. Initially, you start to see some expansion into growth areas, some improvement on our approval rate in new accounts that then begin to flow through on the purchase activity. Again, I think centered in a little bit of the larger balance platforms. I think another big component here is going to be when the consumer has enough confidence; we watch consumer confidence closely. They need to have enough confidence to make more discretionary purchases, because that's what we're seeing across the board. When you think about it in health and wellness, in cosmetic or Lasik procedures, potentially in home and auto, some mattresses and furniture deferrals. Those should create nice tailwinds when the consumer gets some confidence as we step through their non-credit-oriented purchases, but we'll be there to help them. I'd do think it's broader on some of the actions that we would take or begin to unwind under that potential scenario.

Great. Thanks so much.

Thanks, Moshe. Have a good day.

Yes, hi. I have one last question regarding growth. When I spoke with your investors around the time of your conference presentation in December, the main topic was your growth trajectory. I want to make sure we understand the messages you shared today. It's clear that much of the slowdown in growth resulted from your proactive credit actions. You've stated that the consumer is doing well, but their confidence isn’t great. I’d like to explore what your customer base looks like in terms of spending behavior, especially since the data we've seen across various cohorts this earnings season has been strong and the outlook appears positive. Additionally, I want to address the issue of late fees. If we don’t receive late fees, does it really matter if it's accretive to ROE if it hampers growth? For instance, a purchase APR of 32% might discourage growth. These are important considerations for investors as we evaluate Synchrony's growth potential, particularly given that the consumer may be healthier than we had anticipated for 2025.

Yes. Let me start on the consumer. We do feel good about the consumer. I think no matter what you're looking at, if you're looking at how they're spending, the fact that they're being disciplined, they're managing to a budget. We've seen a pullback in the lower-income cohort, and I think that's pretty consistent across the industry. That's where they're feeling the effects of inflation. For the higher-income customer, they're pulling back a little bit, but I think still very healthy. That's good for, from a credit perspective; people are disciplined. They're not overextending, which is a good thing. I think it's a combination of that and what we did on credit. We're pleased with how the actions we took are performing, getting credit in line with the long-term guidance. We're willing to sacrifice a little bit of growth here in the short-term to deliver that.

Yes, Erika, if I can add a couple of other points here. When you look at the overall consumer, when we look at that higher-end consumer, that higher-income consumer for us was flat for the quarter. It does trail, but it wasn't net negative, where we see more of the negativity down on the lower non-prime segment, which is the segment that attracted more of the credit actions. So again, when you unpack the pieces of it, we don't feel really bad about it. When you get to the PPPC, you bring up the concept around the APR. A couple of things I'd just add to that. Number one, for all the programs in which we executed PPPC, we have a test first control. We can see purchase volume per active. We can see the realization rate. We can see whether there is attrition, solid attrition or changes in revolver or transactor behaviors. There's not a significant difference between the ones that are in the control group versus the ones that received the terms and conditions. It gives us some level of comfort that the sales decline is not necessarily driven off of the PPPC. We have a couple of holdouts that we have. So we may have agreed to the terms but didn't put them in place until the injunction went into place. In those situations, they're seeing some of the same declines that we're seeing across the board. Another data point that this isn't necessarily driven off of the PPPC. Finally, what people point to the APR, you have to look at the value proposition that these cards generally have a higher value proposition all in when you're looking at 5% discount in certain retailers or you're looking at 10% off and things like that. A higher value proposition, which is a bulk of the RSAs. The gap is a great example of why you could have a thing kind of priced. That’s why someone can charge several hundred dollars for an annual fee in a card; because someone has believed that the value proposition is strong enough to support it. You got to take a step back and look at all the elements around the pricing of the product and the value proposition before you draw conclusions.

And that analysis is back to the point I made earlier; that's exactly what we sit down and go through with our partners. We say, okay, here's the test. Here's the control. Here's what we think will happen if you move APRs up or down and what the trade-offs are. Obviously, our partners are very interested in that because they're impacted, both on the growth side, as well as their interests aligned through the RSA.

Thanks. I think that was really helpful color for investors in terms of the control group anecdotes. So I appreciated that.

Great. Thank you, Erika. Have a good day.