Synchrony Financial (SYF) — Q2 2025 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. Synchrony delivered a strong financial performance in the second quarter of 2025 that included net earnings of $967 million or $2.50 per diluted share, a return on average assets of 3.2% and a return on tangible common equity of 28.3%. Despite an uncertain macroeconomic backdrop, we executed at a high level across our strategic priorities to drive value for our many stakeholders. Synchrony's diversified portfolio of products and spend categories, industry-leading value propositions and expansive network of distribution channels enabled us to connect approximately 70 million Americans with a broad range of small and midsized businesses and national brands. In our continued credit discipline and previous credit actions drove better-than-expected delinquency and net charge-off performance reinforcing our ability to drive sustainable growth and strong risk-adjusted returns as we look forward. And while our credit actions, in combination with selective consumer spend behavior, have had a short-term impact on our year-over-year growth in purchase volume and receivables, we have begun to see some encouraging signs within the portfolio. Synchrony generated $46 billion of purchase volume in the second quarter. Dual and co-branded cards accounted for 45% of that purchase volume and increased 5% versus last year, primarily reflecting growth from our CareCredit Dual Card as well as broad-based growth across our other dual card programs. Our partner spend on our dual and co-branded cards generally continues to reflect a discerning customer with the mix of discretionary spend down slightly compared to last year. That said, we saw a gradual growth in the mix of discretionary spend as the quarter progressed with points of strength coming from restaurants, cosmetics and electronics. We also saw continued improvement in average transaction values during the second quarter, which were down only about 50 basis points compared to last year, a clear improvement from the 1.7% decline in the first quarter and a 2.4% decline in the fourth quarter. Customers across credit grades contributed to this trend, but particular strength came from our nonprime credit segment. Customers across credit grades continue to transact with relatively consistent frequency over the last several quarters, up about 3% in the second quarter versus last year, which partially offset the impact of lower transaction values. Overall, we feel good about the resilience we've seen in our customers thus far, and we'll continue to leverage our core strength as we navigate this operating environment. Of course, Synchrony has built a long track record of driving powerful outcomes for our customers and partners with constantly changing market conditions. This has earned us both the opportunity and privilege to be a partner of choice for hundreds of thousands of businesses across the country. And during the second quarter, we added or renewed more than 15 partners including the addition of our program with Walmart and OnePay and our renewed relationship with Amazon. We are proud to announce our partnership with OnePay, a leading consumer fintech to exclusively power a new industry-leading credit card program with Walmart, one of the most iconic and largest retailers in the world. Together, we will leverage our respective expertise to launch a general purpose card and a private label card, both featuring a seamless digital experience embedded inside the OnePay app and compelling value propositions. We expect the program to launch this fall and are excited to deliver even greater innovation and choice to better serve the millions of consumers that seek to maximize our purchasing power. Synchrony's new relationship with Amazon builds on more than 15 years of collaboration and financing innovation, which is why we are also proud to announce our recently completed launch of Synchrony Pay Later at Amazon. Our Buy Now Pay Later offering is available for all transactions of $50 or more for approved Amazon customers. Synchrony continuously seeks to evolve and enhance the customer experience and the ways in which we drive utility and choice for our customers and loyalty and sales for our partners. And in today's world, that often means providing access to flexible financing anywhere that a customer is seeking to make a purchase, whether that's online or in person. One of our offerings with PayPal called PayPal Credit has been a popular choice among consumers for many years and historically has been a digital-only product. Over the last several years, however, we've seen increasing demand for a physical PayPal credit card so that customers could utilize their favorable financing more broadly in their day-to-day lives. Together, PayPal and Synchrony sought to deliver a more innovative payment solution that would enable our customers to take PayPal Credit anywhere and still have access to 6-month promotional financing on qualifying PayPal purchases. We are currently rolling out the physical PayPal credit card to U.S. customers, which can be added to mobile wallets for fast and easy tap to pay and includes a limited time promotional offer to pay for qualifying travel purchases like flights, hotels, cruises and ride shares. As we look ahead, Synchrony is in a position of strength. We've been consistently executing across our business to reinforce our resilience amidst an ever-changing economic backdrop. We've been investing in our continued evolution to deliver the right products at the right time and for the right purchases as customer preferences and needs change. We are also driving customer loyalty, sales and lifetime value for the many small and midsized businesses, local merchants and providers and major national brands that we serve. In the last quarter alone, Synchrony launched new products with 2 of our top 5 partners and announced a new partnership with a previous top 5 partner. We also renewed one of our top line partners. With this renewal, the current exploration date of our program agreements with our 5 largest partners range from 2030 through 2035. In addition, 22 of Synchrony's 25 largest program agreements have an expiration date in 2027 or beyond, and those 22 programs represent 98% of our interest and fees attributable to the top 25 as of year-end 2024. Synchrony is clearly building upon our long track record of delivering truly differentiated outcomes for our many stakeholders and solidifying our position as the partner of choice within the heart of American commerce. 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 performance showcased the strength of our differentiated business model, which has been built to deliver resilient risk-adjusted returns through evolving market conditions. We generated $46 million of purchase volume during the second quarter, which was down 2% year-over-year and includes the effects of the credit actions we took between mid-2023 and early 2024 and continued selectivity in consumer spend behavior. Purchase line at the platform level ranges between down 7% year-over-year, reflecting discerning customer spend and uncertain macroeconomic backdrop and up 2% in digital as growth in both new accounts and spend per active was partially offset by lower average active accounts. Ending room receivables decreased 2% to $100 billion in the second quarter due to the combination of lower purchase volume and higher payment rate. The payment rate increased by approximately 30 basis points versus last year to 16.3% and was approximately 100 basis points above the pre-pandemic second quarter average. The higher payment rate primarily reflects the impact of our previous credit actions, which contributed to approximately 1.5 percentage point sequential increase in our super prime credit card mix and an almost equivalent decrease in the proportion of nonprime. Payment rate was also impacted by a reduction in the percentage of promotional financing loan receivables, which generally carry a lower payment rate. We expect the mix shift to gradually revert to the historical mean over time. Net revenue decreased 2% to $3.6 billion, primarily reflecting the impact of higher RSAs driven by program performance. Net interest income increased 3% to $4.5 million as a 10% decrease in interest expense and a 1% increase in interest and fees on loans was partially offset by lower interest income on investment securities. Our second quarter net interest margin increased 32 basis points versus last year to 14.78%. The increase was driven in part by a 53 basis point increase in our loan receivable yield, which was primarily driven by the impact of our product, pricing and policy changes or PPPC and partially offset by lower benchmark rates and lower SaaS late fees. This contributed to approximately 43 basis points of our net interest margin. Total interest-bearing liabilities cost decreased 45 basis points versus last year and contributed approximately 38 basis points to our net interest margin. Our liquidity portfolio yield declined 95 basis points, generally reflecting the impact of lower benchmark rates and reduced our net interest margin by 16 basis points. In our loan receivables mix, as a percentage of interest earning assets decreased by 194 basis points, which reduced our net interest margin by approximately 33 basis points. Net charge-offs were $992 million or 4.1% of average loan receivables in the second quarter and increased $182 million versus the prior year, primarily reflecting program performance which included lower net charge-offs and the impact of our PPPs and other income increased 1% year-over-year to $118 million, driven by the impact of our PPPC related fees and partially offset by the $51 million gain from the DSAB1 share exchange in the prior year. Excluding the impact of this gain, other income would have increased 79% versus last year. Provision for credit losses decreased $545 million to $1.1 billion, driven by a $265 million reserve release in the second quarter compared to the prior year reserve build of $70 million and a $210 million decrease in net charge-offs. Including the reserve relief is $12 million relating to the movement of approximately $200 million in loan receivables to held for sale. Other expenses increased 6% to $1.2 billion, generally reflecting higher employee costs, partially offset by lower operational losses and preparatory expenses related to the late reporting in the prior year. The second quarter efficiency ratio was 34.1%, approximately 240 basis points higher than last year, driven by the higher expenses and the impact of higher RSAs on net revenue as credit performance improved. Taken together, Synchrony generated net earnings of $967 million or $2.50 per diluted share and delivered a return on average assets of 3.2% and return on tangible common equity of 28.3% and an 18% 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 4.18%, a decrease of 29 basis points from the 4.47% in the prior year and 10 basis points below our historical average from the second quarter of 2017 to 2019. Our 90-plus delinquency was 2.06%, a decrease of 13 basis points from 2.19% in the prior year and 5 basis points above our historical average from the second quarter of 2017 to 2018. Our net charge-off rate was 5.7% in the second quarter, a decrease of 72 basis points from 6.42% in the prior year and 10 basis points below our historical average for the second quarter of 2017 to 2019. Net charge-off dollars were down 11% sequentially. This compares favorably to the 2017 to 2019 average sequential trend of essentially flat. And as highlighted on Slide 3 of our presentation, Synchrony sequential net charge-off trends have generally outperformed our quarterly average sequential movement between 2017 and 2019. When evaluating credit performance, our portfolio delinquency and net charge-offs reflect both the efficacy of our credit actions and the power of our disciplined underwriting and credit management and reinforce our confidence in the portfolio's credit positioning as we move forward. Finally, our allowance for credit losses as a percent of loan receivables was 10.59% which decreased approximately 28 basis points from the 10.87% in the first quarter. Turning to Slide 9. Synchrony's funding, capital and liquidity continue to provide a strong foundation for our business. During the second quarter, Synchrony's deposits decreased by approximately $310 million and brokered deposits declined by $863 million. At quarter end, deposits represented 84% of our total funding, with both secured and unsecured debt, each representing 8%. Total liquid assets increased 9% to $21.8 million and represented 18.1% of total assets, 145 basis points higher than last year. Moving to our capital ratios. Synchrony ended the second quarter with a CET1 ratio of 13.6%, 100 basis points higher than last year's 12.6%. Our Tier 1 capital ratio was 14.8%, 100 basis points above last year. Our total capital ratio increased 110 basis points to 16.9%. In our Tier 1 capital plus reserves ratio increased to 25.2% compared to 23.9% last year. During the second quarter, Synchrony returned $614 million to shareholders, consisting of $500 million in share repurchases and $114 million in common stock dividends. The company 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 assumption for the full year outlook now includes the minor modifications we expect to make to our PPPC this year as well as the impact of the launch of a Walmart OnePay program in the fall and exclude any potential impact from the deteriorating macroeconomic environment or from the implementation of tariffs or potential retaliatory cash as their effects remain unknown. Turning to our outlook in more detail. Our current expectation is that ending loan receivables will be flat versus last year. This expectation includes the continued impact of selective consumer spend and the ongoing effects of our past credit actions on purchase volume and payment rate. Previously, we expected payment rates to generally remain flat relative to 2024. However, we now expect to be elevated in 2025, reflecting the credit and promotional finance mix shift discussed earlier. While our past credit actions may have impacted our growth trajectory over the short term, they have strengthened the trajectory of our portfolio's delinquency and net charge-off performance. We now expect our loss rate to be between 5.6% and 5.8%, which is comfortably within our long-term underwriting target of 5.5% to 6%. This improved credit outlook will contribute to higher RSAs as partner program performance further improves. As a result, we now expect RSA as a percent of average receivables to be between 3.95% and 4.1% and which will also shift our net revenue outlook for the full year to be between $15 billion and $15.3 billion. Net interest income for the year will be impacted by lower receivables, but still expected to follow seasonal trends associated with credit performance and liquidity. We expect our net interest margin to increase to an average 15.6% in the second half of 2025, reflecting improving loan receivable yield related to credit seasonality and the impact of our product pricing and policy changes, 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 seasonal growth and a gradual reduction of our excess liquidity. Lastly, we're updating our efficiency ratio expectation to be between 32% and 33%, primarily reflecting the updated net revenue outlook as well as higher expenses associated with the launch of the Walmart OnePay program. We expect other expenses to increase approximately 3% on a dollar basis for the full year. In summary, Synchrony's difference in business model is expected to deliver net interest margin expansion, lower net charge-offs and continued performance alignment to RSA this year. This will drive higher risk-adjusted return and a 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 Q&A, I'd like to leave you with 3 key takeaways from today's discussion. First, Synchrony's credit trends have outperformed relative to the industry, which is underscored by our current year outlook. Our portfolio's credit position will provide a strong foundation on which we can grow and deliver strong risk-adjusted returns. While we have begun to selectively unwind some of our credit actions on the margin, we are closely monitoring the environment in our portfolio and are evaluating further actions as we gain more clarity. Second, Synchrony's unique business model delivers industry-leading value propositions, a diverse product suite and advanced digital solutions, empowering customers with financial flexibility and driving loyalty and sales for businesses, and our interests are closely aligned when our customers thrive so do our partners. And third, Synchrony is the nationwide leader in the private label and co-brand industry. It is positioned to deliver market-leading returns for our shareholders. We consistently earn and win new and existing partners including more than 25 partners in the first half of 2025 alone. And we have built a long track record of execution through our intense focus on delivering outstanding outcomes for our customers and partners. This is what drives deep, long-lasting relationships and meaningful long-term value for all. 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, please start the Q&A session.

So Brian, you noted that you're seeing some encouraging signs in the portfolio and you talked about selectively unwinding some of the credit actions. Maybe just talk about what some of those encouraging signs are and actions that you've taken to loosen some credit to drive growth. And then I guess, second, we're clearly running below where you've historically targeted that 7% plus level. Maybe just talk about just with Walmart coming on board, renewing Amazon and stabilizing consumer. Maybe just talk about do you see a path back towards that mid- to high single-digit growth level.

Yes, Ryan. Starting with the consumer, they appear to be in good shape, and we're not noticing any signs of weakness. Spending remains strong, and credit performance has exceeded our expectations. We're being selective but are observing some positive indicators. Our co-brand growth increased by 5% compared to last year, which is an improvement from the 2% growth last quarter. Retail, cosmetics, and electronics are showing decent trends as well, indicating some positive developments across our portfolio. Because credit has performed better than anticipated, we began to open up selectively in the second quarter, focusing initially on health and wellness. I'm optimistic there's potential for further growth in the second half. Overall, I feel positive about our growth trajectory as we approach 2026, especially with initiatives like Walmart OnePay launching later this year and the Pay Later program at Amazon, alongside our efforts with PayPal's physical card. When you combine all these factors and consider the potential for expanding the credit box based on current trends, I'm quite confident that we can achieve significant growth as we move towards 2026.

Great. Maybe a follow-up for Brian Wenzel. On the outlook, you highlighted minor modifications to the PPPC. Brian, maybe can you just touch upon how the discussions have gone with partners? Are you done with the conversations and the modifications you're making? And maybe just give us some examples of what type of modifications that you guys have made?

Yes. Brian, why don't I start on this one and then turn it over to Brian Wenzel. Look, as I mentioned previously, any potential rollbacks are going to happen partner by partner. There's no big rollback plan that's in the works. And frankly, there's not a lot of discussion happening right now with our partners. We had one partner that wanted to make a change to one element of their program. We're going to do that in the second half. We had one other change in the fragmented space related to the promotional fee in some of our verticals and when you add all those up, it's less than $50 million in net revenue and a go-forward impact. So pretty small overall. And I think, look, any potential discussions in the future. And I think the way you should think about this and the way that we're actually approaching it is this is now like normal course, right? These are normal course pricing discussions that we've always had with our partners. We're always looking at pricing in conjunction with the credit that we're providing and the value proposition on the card. And we'll continue to do that. We'll have those conversations, and we'll do it with an eye towards driving sales for our partners and growth for the program at attractive returns. I don't know, Brian, if you want to add anything to that.

Yes, Ryan, the only 2 points again, I'd emphasize again, it's less than $50 million in net revenue that was impacted particularly when you think about, Brian highlighted before, as we engage with some of our partners, it was really around looking at the programs and making sure that there are benefits coming through. One of the things that we have seen well certainly in the bigger ticket space in home and auto and lifestyle, we've seen some duration shortening on promotional financings as merchants trying to manage the cost of the program. So as we engage with discussions around the promo fee, we've also engaged them around lengthening back out some of those promotional financings, which provide a better benefit for us over the longer term. So again, I think it's a thoughtful way in which we engage the partners in order to try to drive growth into the portfolio as well as support sort of customers.

I wanted to ask about the NIM guide in the second half of 15.6%. That's a material step up from your first half NIM. Can you maybe just expand on the drivers that get you there? And maybe talk about your level of confidence in achieving that second half NIM? And then as we kind of look forward, you guys kind of averaged 16% NIM kind of pre-pandemic. Can you still get back there?

Yes. Terry, you think about the sequential movement into the back half of the year, what you're going to feel as you step quarter-on-quarter is the reduction of liquidity and an increase really in our average loan receivables as a percent of our interest-earning assets. That is a meaningful position. Again, we probably held deposit rates a little bit higher for longer, which gave us more liquidity, you see that relative to the percent of AOR in the last quarter. So that is, first of all, the biggest driver as you step into Q3 and then step further into Q4 as you have the seasonal run-up of receivables, that's number one. Number two, which you're also going to feel, is the impact of the PPPC, which you see in loan yield continue to drive up the portfolio into the back half of the year as you step through with the seasonal increases. And then finally, what you're going to see is a little bit of benefit in particularly in the third quarter as our CD book reprices will get more interest expense on benefit as we lower the cost for interest-bearing liabilities. That said, you're also going to have less reversals in the back half. So with that, hopefully, we have a pretty good line of sight. It's really going to come down to how much the liquidity burns off in the third quarter and fourth quarter.

Got it. And then, I guess, in the pre-pandemic NIM, the average of 16%. Do you believe you can kind of get back there longer term?

Yes, I don't think we see things structurally. I mean most certainly, what we've seen in the first half of this year is a little bit less promotional financing in the book, which actually should drive up your yield because the promotional financings carry a lower yield. So that's one. I think ultimately what you're going to get back to, Terry, are 2 things. One, we're advancing now a little bit more into the super prime components we've tightened our credit aperture. As that begins to re-normalize and go back to normal levels, you'll begin to see a better revolve rate, which should continue to push up your NIM interest margin, number one. Number two, you also have an environment where you're at a 4.5% Fed funds rate where the guidance of 16% was at 2.5%. So you should get as you move closer back to that norm, you should be able to get a lift. And then most certainly, you have the PPPC that should stack upon that. So again, it's more the timing of when the interest rate environment normalizes. And when we fully open a credit back to where we are and probably get back to a similar mix of assets.

I wanted to go back to Ryan's first question on loan growth. Brian Doubles, I know you're bullish on loan growth. Is it fair to assume that you guys haven't necessarily baked in some of the growth expansion coming from the loosening of credit standards? And I guess, like how does the guidance factor in Walmart, is there a contribution this year? And just one final related question, sorry. Just you talked about tariffs and that's obviously a moving target. But you and your partners have had time to sort of digest their impacts for the year? Like how would that play out if there were higher tariffs for the year?

Yes, Sanjay, let me start and I'll turn it over to Brian. Look, I think the thing that is important to appreciate, we started to loosen up a little bit around the margin starting in the second quarter. I think there's more we can do in the second half. But it does take time for those credit actions to kind of work their way into the growth metrics. So I would think about most of those things, including Walmart OnePay, Pay Later, some of those things, leaving into the balance sheet in the first half of 2026, so really benefiting full year '26. So it does take a little bit of time, but we are optimistic that not only do we have a good pipeline of growth opportunities, things that are launched and things that will be launched, but also the opportunity around opening up on credit. So we see plenty of positive dynamics as we think about 2026, but it will take a little bit of time to materialize.

Yes, let me elaborate on that. Brian mentioned a few key points. Firstly, as we move towards the super prime segment, we have an increasing number of dual cards in our portfolio, which represent 5% of purchase volume and 6% of loan receivables. Secondly, Brian noted that we've experienced positive trends in discretionary spending over the last four quarters, especially in categories such as cosmetics, electronics, and restaurants. Consumers seem more inclined to spend in these discretionary areas. I would also like to highlight that on Page 5 of our presentation, we show three platforms that are stable, indicating a turnaround in both digital health and wellness and diversified value. Regarding the impact from Walmart, we expect to see effects in the latter half of the year, though it may not significantly affect the company's growth rate. We will be monitoring developments as we approach 2026, particularly related to the timing of our prescreen initiative and its launch in both the app and stores. There is positive momentum overall. Lastly, looking at the first three weeks of July up to the 20th, we are observing positive comparisons on total purchase volume, which gives us confidence about the start of the quarter, even though it is still early. We will continue to drive initiatives as the quarter progresses.

Great color. Just a follow-up, capital management. Obviously, you guys are solidly capitalized at this point. I'm just trying to think through uses of that excess capital as we look forward in the second half into next year. Maybe you can also address the pipeline of any acquisitions, so if there are any?

Yes. Why don't I take the first part and then let Brian talk a little bit about the pipeline. Sanjay, obviously, we have $2 million remaining on the existing share repurchase program. We're fully committed to bring capital back to shareholders. I caution people when we try to think about the cadence as you step through versus our business performance, which I think when you look at the net income and delivering $2.50 per share this quarter, we're strong positioned there. I think also, you have to recognize there are certain times during the quarter where we may be limited on our ability to repurchase for nonpublic information, which can hinder you at times. But as we step through the first piece is going to be funding our RWA growth which, again, we hope to have an increase here in the back half of the year. We've shown the increase in the dividend up to $0.30 again for this quarter and then we get into share repurchases and inorganic and again, we're going to continue to be very disciplined when it comes to pricing. I'll let Brian talk about the pipeline in a second. But again, as long as the market is there, we understand we're in a position of real strength at a 13.6% CET1. And to the extent that we have an opportunity to potentially increase our share repurchases, we'll look at it. But again, it's going to be guided by business performance and our capital plan.

Yes. I would just also reiterate that we are laser-focused on returning capital to shareholders. I think we've got a great track record demonstrating that. We bought back half the shares over the last 10 years. So it's not lost on us that we have excess capital today, and we are actively looking to deploy it. Brian walked through the priorities. The only one I'll touch on briefly is the pipeline. I think we've got a strong pipeline if you look across the different verticals in the business. That continues to be the case. I think competition is rational right now, and I feel really good about our position to win. If you look at what we announced this quarter with Walmart OnePay, renewal on Amazon, I feel great about our ability to compete for what's sitting in the pipeline. So that is a very attractive use of capital from our perspective. But we also look selectively at M&A. We're very disciplined around that. But again, not lost on us, but we're sitting with excess capital today, and we're actively looking to deploy it.

I was hoping that you could talk a little bit about the comments that you made on new products with your existing largest customers and maybe talk about how those can contribute to growth? It would seem that you probably have a shorter start-up period for things like that. Maybe just a little more detail about the plans and how much that could contribute to growth, whether it's in 2025 or 2026?

Yes, I think the two main topics we discussed regarding the Pay Later launch at Amazon are very exciting for us. We're pleased with the renewal and the long-term extension. If we examine our top five relationships, their expiration dates range from 2030 to 2035, which gives us confidence in that outlook. It allows us to concentrate on innovating and expanding within those programs. At Amazon, we now offer three products: the private label card, the secured card, and Pay Later. This really highlights the strength of our multiproduct strategy, which we have been emphasizing for some time. We appreciate having multiple products that can be tailored to different customer types and purchasing needs, as we believe that choice is essential. We also value the strategy of starting a customer with a secured card, then transitioning them to a private label card, and ultimately to multiple products within our suite. I feel very positive about our product offerings and our competitiveness. With the introduction of Pay Later at Amazon and our initiatives with PayPal for the physical card, we expect to see these primarily influence our growth into 2026. There may be some benefits in 2025, but I don't anticipate a significant impact reflected in the full year guidance.

Okay. To follow up on Sanjay's questions regarding capital return, in the quarter you had a 28% return on tangible equity and mentioned that you anticipated a slowdown in loan growth. This suggests you are generating more capital while needing it less than expected a few months ago. What additional indicators do you require to increase the pace of your repurchase? It seems like you would want to do this to show that despite lower loan growth, your capital position remains very strong.

Yes. Thanks much for the question. Again, I point you back to my comments earlier. Sometimes within quarters, there are situations where we are prohibited from repurchasing on certain information. Well, certainly, when you think about announcing a relationship with Walmart and Amazon, that can influence the timing of when we're able to purchase. Again, subject to market conditions, we're going to continue to be prudent but yet aggressive, but I understand we do have certain restrictions at times. But that should not influence or affect our confidence level in returning capital. and even evaluating whether or not we want to increase that share repurchase with our Board at some later point during the year.

Look portfolio construction is about sort of dynamically balancing higher ROA and higher volatility riskier borrowers against lower ROA and lower vol higher-quality borrowers. I'm kind of curious, does the stickiness of PPPC enhance the ROA of prime borrowers in a way that they become even more attractive for you going forward? And does that change the model a little bit?

Yes. Thanks for the question, Rick. Yes, well certainly, I think where you see the potential to have a greater impact is in that prime segment. So when you think about a Vantage 650-plus into the low 700s to the extent that you can introduce a higher margin on that customer, that's going to give you a better ROA at the high end, the super prime segment, again, their payment rate is fairly high by itself. So I don't think you're going to move that ROA yield substantially. And then we will certainly get some benefit in the non-prime customers, but really, it's in that prime segment where you can become actually more capital efficient and drive a higher return on assets.

Got it. Okay. Look, obviously, the pushback on the quarter is going to be the debate between the credit quality and the loan growth. To me, handing out money is the easy part, getting it back is the hard part. As you think about the second half and widening the aperture, how do you balance that? I mean do you see your borrowers behaving in a more disciplined way? Or do you give them a little bit more room?

Yes. This has always been a combination of art and science for us. Everything we do aligns with our long-term NCO guidance of 5.5% to 6%. We focus on areas in our portfolio that offer strong risk-adjusted returns, which is why we began to expand in the second quarter starting with our health and wellness business. We appreciated the return profile and credit trends there, combined with PPPC, leading us to see an opportunity to open up a bit. As we move into the second half, we are identifying other areas in our portfolio where we can do the same. Reflecting back, when we noticed credit trends shifting due to industry dynamics and consumer behavior, we decided it was wise to tighten margins, and we did. Our credit teams managed that uncertain environment exceptionally well. Now, credit is comfortably within our long-term guidance, and we are spotting opportunities for growth with a manageable loss rate and strong returns. That is our current focus.

The one thing I'd add, Rick, if you take a step back, other general purpose issuers had the luxury of dialing back now by adjusting a little bit more on the fly. With our partners and merchants, we need to be consistent or want to be consistent with them regarding that credit aperture. So again, we try not to adjust as quickly on the downside as well as on the upside. Again, the most important part here now is what's going to happen with the economy and potentially a power situation. So I think we're going to prudently step through that in order not to make sure that we're not going to be putting our merchants in a situation where we're opening too quickly and closing it a little bit. So I think we're just stepping out quarter-by-quarter, making sure we have good visibility into how the environment is playing out.

You mentioned health and wellness. I know that's been a relative to the overall business has had higher growth historically. Maybe can you just give us an update on health and wellness, what the kind of product categories are and where you're seeing the opportunities there?

Thank you, John. I believe health and wellness is one of our strongest platforms, and we've heavily invested in this area over the past three years. The growth has outpaced the overall business, and we hold a strong competitive position there. We have a well-regarded brand and excellent digital assets utilized by our provider base. We are continually innovating and launching new products in this space, and I feel confident about our positioning in health and wellness. We did reduce our reliance on credit a bit, but over the past year, we have started to reopen, which makes me optimistic about returning to above-average growth in this sector. Our strength isn't limited to one industry or segment; we excel in dental and cosmetic areas, and there are substantial growth opportunities across the board. We are not focusing on one specific area but see strong opportunities across all these verticals.

Okay. That's helpful. But maybe just on credit, it's a bit early to get a clear picture for 2024. What are the initial impressions of the 2024 vintage, and how do they compare to pre-pandemic levels? If those trends persist, what are our thoughts on the ALL level over time?

Yes, thanks, John. If I reflect on the performance, it's quite early, but the 2025 vintage is doing exceptionally well. It has fully benefited from the recent credit adjustments, especially when compared to the 2018 vintage. The 2024 vintage, which we’re looking at in two halves, is also outperforming the 2018 vintages. This is particularly evident in the second half of the year and largely for most of the first half too. In contrast, the 2022 and 2023 vintages are slightly underperforming compared to 2018, which prompted us to take those credit actions. However, we are confident that the originations for 2024 and 2025 will continue to show better performance as they mature compared to 2018.

On the July purchase volume improvement, can you talk a little bit more about if that's broad-based, low and high end across verticals? If I layer that in with your average ticket coming and the improvement in the low end? It sounds like pretty constructive, almost like a mini acceleration type environment.

Yes. Thank you, Don, for your question. I think where you're seeing it is in the 3 platforms that have experienced better purchase volume performance. So think about health and wellness, diversified value in digital, you're really seeing the acceleration there. Again, we're seeing a little bit in home and auto and lifestyle, but again, those are bigger ticket purchases. We also hope by trying to get the shift out in some of the promotional terms in the back half of the year can help those verticals. But it's really in the 3 core sales platforms that are experiencing a little bit more sign of life.

Got it. Okay. And then can you just give us an update on your technology investment, whether it's AI and other initiatives. Clearly, you're doing well relative to peers on digital engagement.

Yes, sure. So let me start on that one. I think just because you mentioned GenAI, I mean, that's a big opportunity for us as it is for most others. We're investing in a number of areas right now. I think about it in a few big buckets. Obviously, big efficiency opportunity across the company. We can improve speed to market. We can drive costs down. We've developed and launched an internal, what we call Synchrony GPT, really gives access to all employees in terms of being able to leverage GenAI in their day-to-day jobs. So we're excited about that. I think there's a big opportunity in customer service, creating GenAI tools that will help our contacts and our associates help the customer solve their problems more quickly. And then lastly, we're using it to drive the top line as well. So we launched some GenAI capabilities in our marketplace that allow you to search for, say, furniture with a certain theme or from a certain decade, which is pretty cool, and then it brings back results from our partner base. So we love that because it's bringing sales to our partners. And so we see so many use cases there that this is clearly an area that we're going to invest. And then outside of GenAI, we continue to invest in our products, our capabilities. We're investing in the point of sale. We talked about Walmart OnePay, that's going to be one of the most technologically advanced programs that we have. We're super excited about it. We're going to be completely embedded in the OnePay app, very seamless integration, leveraging our API stack. So many areas across the business, but this is how we're competing. If I had to pick one or 2 things in terms of when we go in and compete for new business, it's the technology investments that we've made and our credit underwriting. Frankly, that's how we're differentiating ourselves right now. So those investments, we're getting a fantastic return on.

Just to add some color. I know there's a focus on expenses, both for the quarter of the year. I think when we look at expenses for the total year being up 3%. But our compensation line, what we are seeing is we've increased our exempt headcounts about 5%, and that's 3/4 of that is coming from IT and strategic investments. with a corresponding decrease in nonexempt as we buy and adjust. So we are continuing to invest in that short to medium term because that's the right thing for our business, even though growth slowed down a little bit. If we don't continue to invest in the areas Brian talked about, we can fall behind competition. So there is some mix there, but we are continuing to invest while maintaining expense discipline of being up our view about 3% for the full year.

Just wanted to ask again about expenses. You talked about how the OnePay launch did drive up expenses this quarter. You had a little bit more variable comp expense this quarter. Are we largely past those at this point? Or is there anything else left to be aware of for the rest of the year or going forward? And just as we think about you may be opening up the credit box a little bit here. Is there an opportunity for you to maybe lean a little bit more on the marketing side, which I think has seen a little bit more moderate growth in the past year?

Jeff, let me unpack that a little bit. First of all, the expenses related to the Walmart launch will primarily be back half of the year probably split between third quarter and fourth quarter, again, depending upon one of our large marketing campaigns. But that's kind of more back end probably pretty equal between 3Q and 4Q, number one. Number two, there are some timing issues in the quarter. We do in order to try to help our nonexempt employees. We paid an inflation bonus, which we paid in the fourth quarter last year. We accelerated that to the second quarter in order to help that population of people. So that, again, will show some favorability in the fourth but negative during the second. And then some of the other compensation-related items, we're really marking some of the comp plans based upon the share performance, the plan. So again, I've highlighted, Jeff, I think the 3% for the full year. There are some more one-timers that I think were in this quarter than others and some swings within the quarters. But again, the OnePay Walmart will be equally split between the third quarter and the fourth quarter. And probably the bigger impact to the year, to be honest with you, would be probably be more related to reserves to the extent that the asset builds as you go into the holiday season.

Okay. Great. I have a quick follow-up regarding the Pay Later launch. I understand that you've been implementing it at different returns. How significant do you anticipate this will be for you in the future? Additionally, is there any change in the economics we should consider? I know some of the terms you mentioned on Amazon still involve a 20% APR, but I'm curious if there are any changes in the economics we need to be aware of as we look ahead.

Yes. Look, I'd say first, we're super excited about it. I think the Pay Later is going to be a meaningful part of the business for years to come. It's clearly a product that consumers want. I think what our product team has built is great. We're super excited to have it launched at Amazon. We've got it at a number of our big partners now. We've got it at Amazon, Lowe's, JCPenney, Bell, Fleet Number. So there's been really good partner adoption. And I think we've been able to demonstrate with them the power of the multiproduct strategy. So being able to offer a Pay Later loan for one customer, depending on what they're purchasing or a private label card or a dual card or a co-brand card. And us having access to the consumer, looking at how they spend, when they spend, what they're purchasing and offering the right product at the right time is really powerful. And if I go back 3 or 4 years, that didn't really exist because there was no one that could offer that broad suite of products. Now we can. And so actually I feel great about that, and I think it will be a meaningful part of our growth going forward.

I wanted to clarify a few points to ensure we're all aligned on the key takeaways from the call. You've mentioned the lasting effects of your previous credit actions, which we're seeing reflected in the growth. Brian, you noted the importance of analyzing performance quarter-by-quarter. Is the main takeaway that we are now fully accounting for the effects of those earlier credit actions on growth? As we look ahead to 2026 and considering Brian's earlier comments, we should start to see growth in the first half of the year. I just want to confirm that we're understanding the expected growth trajectory beyond this year.

Yes. At this point in time, as you move to the back half of the year, we have lapped the credit actions, number one. I think number two, if you go back to a year ago, I think around the same time on this call, we talked a little bit about the consumer being a little bit more discerning that started in the latter part of June into the back half of the year, particularly in those bigger ticket platforms like home, auto and lifestyle. So I think from that perspective, you should see the comps kind of come through. As you move into 2026, clearly, you'll have the last quarter probably of those credit actions as we evaluate potentially opening that aperture up, you'll see some of the benefits of that begin to flow through as you step through 2026. And then obviously, Walmart, there's a lot of opportunity here. So it's really about our execution, both through the app and the placement as well as through the store. So those can provide tailwinds as we step into 2026.

Is it possible to discuss the effects of the higher APRs on the margin for the second half? I want to separate that from seasonality. I'm curious about what the starting point might be, aside from the Fed's rate changes, that could have a more lasting impact. Additionally, are these PPPCs reflected in the APR more permanent and not subject to alteration?

I think as you go through the details, keep in mind that our guidance indicated that about 50% of the balance was likely factored in during the second quarter of this year, with around 75% expected for next year. You should continue to see this growth throughout the portfolio, keeping in mind seasonal adjustments. The interest yield should keep increasing despite the seasonal trends you typically observe in the third quarter into the fourth quarter. While we are not breaking out the PPPCs specifically, you can expect to see an increase in loan yield in both of those quarters.