SYF - NYSE

Good morning, and welcome to the Synchrony Financial Second Quarter 2025 Earnings Conference Call. Please refer to the company's Investor Relations website for access to their earnings materials. Please be advised that today's conference call is being recorded. I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. Welcome to our quarterly earnings conference call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address during our call. The press release, detailed financial schedules and presentation are available on our website, synchronyfinancial.com. This information can be accessed by going to the Investor Relations section of the website. Before we get started, I wanted to remind you that our comments today will include forward-looking statements. These statements are subject to risks and uncertainty, and actual results could differ materially. We list the factors that might cause actual results to differ materially in our SEC filings, which are available on our website. During the call, we will refer to non-GAAP financial measures in discussing the company's performance. You can find a reconciliation of these measures to GAAP financial measures in our materials for today's call. Finally, Synchrony Financial is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. On the call this morning are Brian Doubles, Synchrony's President and Chief Executive Officer; and Brian Wenzel, Executive Vice President and Chief Financial Officer. I will now turn the call over to Brian Doubles.

Thanks, Kathryn, and good morning, everyone. Synchrony delivered 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. Outer partner spend on our Dual and co-branded cards generally continue 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 grids 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 topline 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 '24. 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 include 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 range between down 7% year-over-year in [indiscernible], reflecting discerning customer spend and [indiscernible] 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 [indiscernible] 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. [indiscernible] $992 million were 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 DSA B1 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 [indiscernible] 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 delinquentry 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 [indiscernible], 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. Ticker 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 [indiscernible] payment rate. Previously, we expect pay 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 [indiscernible] the strength and 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 growth 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 building impact of our PPPC, lower funding costs due to lower benchmark rates, partially offset by lower-yielding investment portfolio and an increasing mix of loan receivables as a percent of earning assets driven by the impact of seasonal growth and a gradual reduction of our excess liquidity. And 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 to 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 Instructions] Operator, please start the Q&A session. .

[Operator Instructions] We'll take our first question from Ryan Nash with Goldman Sachs.

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 lose 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. Sure, Ryan. Look, I think just starting with the consumer, I think they're still in pretty good shape. We're not seeing signs of weakness. I think spend is still pretty strong. I think credit is definitely performing better than we expected. We continue to be selective, but we are seeing some positive signs. If you look at our co-brand growth, that was pretty encouraging, up 5% versus the prior year. That compares to plus 2% last quarter. So that's a nice trend. We're seeing decent trends in retail, cosmetics, electronics. So there are some green shoots as we look across the portfolio, and to your point, because credit has performed better than we expected, we did start to open up selectively in the second quarter, really focused initially on our health and wellness space. But I'm optimistic that there's room to do more in the second half. So I'm still pretty optimistic around the growth [indiscernible] trade, particularly as we head into 2026 because you've got -- just look at what we announced today, you've got Walmart OnePay that's launching in the second half. You've got Pay Later launch at Amazon, what we're doing at PayPal with the physical card. And then you add all those things up. And then on top of that, you look at opening up the credit box a little bit just based on the trends that we're seeing, I'm pretty bullish. So I think we should really drive some life growth as we head into 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 like 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 [indiscernible] sort of customers.

We'll take our next question from Terry Ma with Barclays. .

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 [indiscernible] 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 [indiscernible] 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 [indiscernible] 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 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 [indiscernible]. So again, it's more the timing of when the interest rate environment normalizes. And when we fully open a credit after back to where we are and probably get back to a similar mix of assets.

We'll take our next question from Sanjay Sakhrani with KBW.

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 matter 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 [indiscernible].

Yes. Let me just add some color, Sanjay, on to that. Brian highlighted a couple of different points. Number one, as we step towards the super prime, we have more dual card in the book. So you are seeing that with where it's 5% of purchase volume or 6% on loan receivables, number one. Two, Brian highlighted that particularly on the [indiscernible] spend relative to that, we've seen positive trends over the last 4 quarters really in closing cosmetics, electronics as well as restaurants. So we are seeing those green shoots of spend as consumers are more willing to go into some of those discretionary [indiscernible] items. I'll also point you to Page 5 of the deck, where we have 3 platforms that are essentially flat. So we are seeing a turn both in digital health and wellness and diversified value as that kind of comes out. The Walmart impact -- it's going to be back half of the year. It's probably not going to be meaningful on the growth rate of the company, but we'll certainly watch you into 2026 from a bid perspective. [indiscernible] some's going to be the timing around the prescreen and when we actually get it launched both in the app as well as in the store. So there are positive momentum. The last thing I'd share with you is we look at the first 3 weeks of July or go through the 20th, we actually are seeing positive comps on total purchase volume. So we feel good about where we're starting in the quarter and albeit early, and we'll continue to launch as we move through.

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, 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. [indiscernible]

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.

We'll go next to Moshe Orenbuch with TD Cowen.

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 '25 or '26?

Yes. I think the 2 biggest ones we talked a little bit about with the Pay Later launch at Amazon, we're very excited about that. First, we're excited about the renewal and the long-term extension. If you look at our top 5 relationships now, the expiration dates are between 2030 and 2035. So we feel really good about that profile. It gives us -- it allows us to really focus on innovating and growing inside of those programs. At Amazon Now, we've got 3 products. We've got the private label card. We've got the secured card and now Pay Later. And I think that really speaks to the power of the multiproduct strategy. We've been talking about this for a while now, and we love a program where we have multiple products, where we can cater those products, both the type of customer and the type of purchase that they're making. And we think that, that choice is really important. We also love the strategy of being able to start someone in maybe a secured card, migrate them to private label and then to multiple products within the suite. So I feel great about our product suite and our ability to compete. I think for Pay Later at Amazon and what we're doing with PayPal with the physical card, I think you'll see those primarily again bleed in through 2026 and impact the growth there. We'll get -- we'll clearly get a little bit of benefit in '25, but I don't think you'll see it necessarily show up in the full year guidance.

Okay. And to follow up kind of on Sanjay's questions about capital return. I guess, in the quarter, you had a -- you had 28% return on tangible equity and commented that you expected loan growth to actually slow. So you're generating more capital and kind of needing it a little bit less than you would have thought perhaps 3 months ago. I guess, what other signs do you need to see to actually step up that repurchase? I guess that's the -- it seems like almost as if you would want to be doing that to just demonstrate that, yes, we've got a little lower loan growth, but capital position is still very, very strong.

Yes. Thanks much for the question. Again, I point you back to my comments earlier. Sometimes within quarters, though our situations where we were prohibited from repurchasing on certain information. Well, certainly, when you think about announcing a relationship with Walmart and Amazon, most certainly 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.

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

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 time 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'll, certainly, you'll 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, do you respect that? Or do you give them a little bit more room?

Yes. Look, Rick, this has always been -- it's our and science, right? We're -- everything we do is in the context of our long-term NCO guidance of 5.5% to 6%. And targeting areas in the portfolio where we have really strong risk-adjusted returns, which is why when we started to open up in the second quarter, we started with our health and wellness business. We like the return profile there. We like everything we were seeing in terms of the credit trends, and we looked at that in combination with PPPC, and we said, okay, we have an opportunity to open up a little bit. And now we're looking as you get in the second half here, there are other places in the portfolio where we have the opportunity to do that. And so we'll -- look, it's -- if I take a step all the way back, when we saw credit starting to go where it was going, just given what the industry had done for a couple of years and the shared consumer, we said, it's prudent to dial back a little bit around the margins and we did that. And frankly, I think our credit teams did a fantastic job navigating that fairly uncertain environment. Now we've got credit comfortably within our long-term guidance, and we see some pockets of opportunity to drive some growth with a very manageable loss rate and strong returns. And so that's what we're doing.

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 with regard to 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 [indiscernible] close 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.

Got it. It's very helpful. And the last answer -- the last part is something I hadn't actually thought about before.

We'll go next to John Hecht with Jefferies.

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?

Yes. Thanks, John. Look, I think health and wellness is clearly one of our strongest platforms. It's an area where we've been investing heavily for the last 3 years. You've seen the growth outperform the rest of the business. We are -- we have a great competitive position there. We've got a great brand. We've got great digital assets that our provider base uses we're innovating new products and launching new products in that space every day. And I feel really good about how we're positioned in health and wellness. We did dial back a little bit in terms of credit. Over the last 12 months, we started to open back up. So I'm actually fairly optimistic that we're going to return to above average growth in health and wellness going forward. And it isn't one industry or segment. We're very strong in dental that cosmetic -- it's -- and we see great growth opportunities across the board. So we're not targeting one or another, but we see really strong opportunities as we look across all those verticals.

Okay. That's helpful. And then -- but maybe just on credit -- touching on credit. I know it's a little early to be getting, I guess, a definitive look at '24, but what are the early looks at the '24 vintage and how that compares to maybe pre-pandemic? And if those trends continue, what do we think about the ALL level over time?

Yes. Thanks, John. So if I work backwards, John, albeit very early. The '25 vintage is performing incredibly well. It has a fully seasoned effects of the credit actions -- when I say that, I'm really comparing back to 2018 vintage. The 2024 vintage splitting in the first half and second half, again, that's performing better than our 2018 vintages. So again, where we had the credit actions probably fully in play, most certainly for the back half of the year of almost for most of the first half of the year, performing better than that 2018. And again, '22 and '23 vintages, they're performing slightly worse than the 2018 vintage, which is why we took those actions. But again, we feel comfortable that what we're originating in '25 and '24 is it seasoning out is better than 2018.

We'll take our next question from Don Fandetti with Wells Fargo.

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 come 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 One Pay 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. .

And we'll take our next question from Jeff Adelson with Morgan Stanley.

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 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 pay 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. And just a quick follow-up on the Pay Later launch. And I know you've been rolling that out at different returns. I guess just -- how meaningful do you think that can be for you over time? And is there any sort of shift in economics we need to be aware of there? I mean I know some of the terms you highlighted on Amazon are still a 20% APR there, but just sort of curious if there's any sort of shift in the economics we need to be aware of as we think about that going forward?

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 what we've been able to demonstrate with them is the power of the multiproduct strategy. So being able to offer 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.

We'll take our next question from Erika Najarian with UBS.

I just wanted to follow up on a couple of line items just to make sure that we're taking away the right message from the call. So you often talked about how the impact of your previous credit action sort of had a long tail, and we're seeing that in the growth. As we think about I think, Brian, you mentioned stepping out quarter-by-quarter. Is the message really here is that sort of -- we're now fully lapping the impact of those previous credit actions on growth? And as we think about 2026, -- and I think Brian Doubles mentioned, first half of the year, you're going to start seeing growth. As we start thinking about 2026, you can have the impact of the credit actions in reverse and also Walmart. Just wanted to make sure that we're taking away from this call what the expected cadence of growth is beyond this year?

Yes. Thanks, Erika for the question. 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 [indiscernible] 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 -- or through the credit actions at that point 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.

And then lastly, is it possible at all to unpack the impact of the higher APRs for the second half margin? So I try to isolate that from seasonality. I guess I'm just thinking about other than rate actions by the Fed, what the launch point is that is maybe more permanent and perhaps that sort of a second follow-up, are these sort of -- are these PPPCs that are flowing through APR a little bit more permanent and not considered for modification.

I think as you step through, remember, the guidance that we gave was about 50% of the balance is probably a little bit more so would have been baked in through the second quarter of this year. You got about 75% next year. So that -- you should continue to see that build through the portfolio, obviously, adjusted for seasonal. So you should see the yield -- the interest yield continued to increase even through some of those seasonal trends that you see in the 3Q into the 4Q. So again, we're not breaking out the PPPCs directly, but you will see loan yield increase in both those quarters.

And we have time for one last question. Our final question comes from Mihir Bhatia with Bank of America.

Maybe the first question I wanted to ask was just about the Walmart program. Can you just talk a little bit about what's different this time? How OnePays involvement changes things? Any metrics or guidepost you can discuss that can help investors understand how that program will ramp?

Yes. So look, I do think this is a different program than what has been historically. And I think that is largely because of OnePay, but also as I mentioned, this will be one of the most technologically advanced programs that we have in the business. So completely embedded digital experience. The entire process application through servicing is going to be done through the OnePay app. From a product standpoint, we're going to have both the general purpose card with world utility. We'll have a private label card that's really exclusive for Walmart purchases. We'll have a strong now prop. I think the deal structure from our perspective has a strong financial profile. I think we've also got really good alignment with both Walmart and OnePay in terms of what we're trying to achieve here. We've got nice commitment from all the parties. So I think we'll have really good placement across the digital properties to drive apps and new accounts. So I'm very excited about it. I mean there's no question that this should be a top 5 program just given Walmart's size and scale.

[indiscernible]

[indiscernible] the value proposition will be significantly stronger. And number one. Number two, the loss content of the portfolio will be significantly less than the 10% we ran last time, which I think will drive good behavior we hold inside the program. So yes, that's the one benefit of coming with the de novo book versus inheriting a back book.

Got it. That's helpful, especially the point on losses. I think my final question, maybe just to put a ribbon on the call a little bit, has loan growth dropped, right? I mean you highlighted a few -- quite a few levers that you have to pull. I understand macro is a bit of a wildcard, but are you willing to say loan growth has dropped here? .

[indiscernible] has troughed. I mean, the way to think about them here is if we're 2% negative, we're trying to say get to flat at the end of the year, you should see loan growth in theory, increase albeit you're heading into the seasonal holiday nature of it. But again, I think there's probably -- I think we covered a number of times, there's probably more green shoots and positive data points as we step into the back half of the year that we're going to continue to evaluate and [indiscernible] as we move forward.

Yes, I think, I mean, not to go back through the list of things that are in the pipeline, but if you look at new program launches, new product launches, you look at the opportunities we have to open up around credit, where we see strong risk-adjusted returns. -- that all gives us some confidence that a lot of things are within our control. It will take a little bit of time. But as we look into 2026, we think we get back to seeing some pretty good growth in the portfolio.