Q4 2024 Earnings Call Transcript

Good morning and welcome to the Synchrony Financial Fourth Quarter and Full-Year 2024 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. Currently all callers have been placed in a listen-only mode.

The call will be opened for your questions following the conclusion of the management's prepared remarks. [Operator Instructions] I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin.

Thank you and good morning, everyone. Welcome to our quarterly earnings conference call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address during our call. The press release, detailed financial schedules, and presentation are available on our website, synchronyfinancial.com.

This information can be accessed by going to the Investor Relations section of the website. Before we get started, I wanted to remind you that our comments today will include forward-looking statements. These statements are subject to risks and uncertainty, and actual results could differ materially. We list the factors that might cause actual results to differ materially in our SEC filings, which are available on our website.

During the call, we will refer to non-GAAP financial measures in discussing the company's performance. You can find a reconciliation of these measures to GAAP financial measures in our materials for today's call. Finally, Synchrony Financial is not responsible for and does not edit or guarantee the accuracy of our earnings teleconference transcripts provided by third-parties. The only authorized webcasts are located on our website.

On the call this morning are Brian Doubles, Synchrony's President and Chief Executive Officer, and Brian Wenzel, Executive Vice President and Chief Financial Officer. I will now turn the call over to Brian Doubles.

Thanks, Kathryn and good morning, everyone. I'd like to first take a moment to acknowledge all those who have been affected by the devastation of the California wildfires. Synchrony has colleagues, customers, partners, and providers that were impacted. And while we do not expect a meaningful financial impact on our business, we are monitoring the situation closely and offering support in a number of ways to all those affected.

Moving to Synchrony’s fourth quarter performance, we added 5 million new accounts, generated $48 billion in purchase volume, and grew ending loan receivables by 2%. In addition, we continued to see improvement in our portfolio's year-over-year delinquency trends. Our RSA continued to align the interests of both Synchrony and our partners, and we maintained our cost discipline to deliver fourth quarter net earnings of $774 million, or $1.91 per diluted share, a return on average assets of 2.6%, and a return on tangible common equity of 23%. These fourth quarter results enabled a strong close to 2024, during which Synchrony acquired almost 20 million new accounts and financed more than $182 billion of purchase volume.

This year marked our second highest level of purchase volume and serves as an important testament to the lasting appeal of our diverse and flexible financing solutions and compelling value propositions that we offer. Synchrony deeply understands the needs of our many stakeholders. And so even as customers became more discerning in their spending choices and the impacts of persistent inflation and our credit actions took hold as the year progressed. Synchrony leveraged our scale, our data analytics, and deep lending expertise, and our advanced digital capabilities to remain nimble and responsive in a rapidly changing environment.

As a result, Synchrony generated full-year 2024 net earnings of $3.5 billion or $8.55 per diluted share, a return on average assets of 2.9%, and a return on tangible common equity of 27.5%. The financial performance included both the positive and adverse impacts of several non-recurring events in our business, ranging from the sale of one business and the acquisition of another to the undertaking of an unprecedented, multi-phase plan to prepare for a potential regulatory change with far-reaching implications for the consumer lending industry. And yet, through all the complexities of these opportunities and amidst an ever-evolving landscape, Synchrony executed at a high level across all our key strategic priorities to optimize our business and position us for sustainable growth at strong risk-adjusted returns for the long-term.

During 2024, we added more than 45 new partners, including iconic brands like Virgin, Gibson, and BRP, as well as technology-oriented relationships like Adit Practice Management Software and ServiceTitan. Each of these additions further diversified the industries, products, and services for which Synchrony can provide flexible financing solutions, while also extending our customer reach. Synchrony also grew and expanded existing partnerships during the year with the renewal of more than 45 programs, including Verizon and Generac, and more recently two of our top five partners, Sam's Club and JCPenney.

We're excited to announce that in January we renewed and extended our more than 30-year relationship with Sam's Club, which builds upon our strong focus of delivering member-centric digital experiences and value. Synchrony's partnership with JCPenney has also evolved over nearly 25-years through both collaboration and innovation as our customers' needs have changed. Our long-term program extension and expansion will now include the introduction of Synchrony Pay Later, Our buy now pay later financing solution with six, 12 or 24 month installment payments. Customers can scan a QR code in store to complete an application on their own device.

And if approved, select their preferred financing option and make their purchase immediately. And just as Synchrony is evolving and expanding the ways in which we deliver value through partner programs we offer, we are also focused on diversifying the programs and markets we serve and the breadth and utility of the products we offer. In 2024, we completed the acquisition of the Ally lending business and are in the process of transitioning merchants to Synchrony pay later. We're excited to continue further developing our multi-product capabilities and continue the expanded integration of this vertical in 2025. We also finalized the sale of Pets Best to Independence Pet Holdings, and in addition to a significant financial gain, we extended our reach in the rapidly growing pet industry through an equity interest in IPH.

We're excited about the recent launch of Better Together with CareCredit and Pets Best, a patent-pending, simple, and seamless innovation that connects the two solutions by directly reimbursing insurance claims to the CareCredit Health and Wellness Card. We believe this streamlined payment process will deliver a unified experience for Pet parents and support our growth in the Pet care financing industry. And we launched CareCredit into wellness markets to finance fertility, nutrition, and dietitian products and services, which supported almost 15% growth in wellness-related purchase volume during 2024. In addition, Synchrony enhanced the utility of a number of our private label credit cards by broadening their acceptance and expanding their distribution channels, an evolution made possible by the delivery of our financial ecosystem through more of our merchant-acquire partners.

For example, the Amazon store card can now be used at all Whole Foods locations via mobile QR code and for one medical membership. The results have exceeded expectations and build upon our strong foundation of acceptance, including Amazon.com, Amazon Pay, and Audible. In addition, CareCredit can now be used to pay for select health and wellness products and services across a growing list of approximately 18,000 retail acceptance locations, including Albertsons Companies, Sam's Club, Walgreens, and Walmart. And in keeping with our strategy of broadening product utility, we continue to roll out our CareCredit dual card over the past year, which grew open accounts by 16%.

Thanks to its strong value proposition and utility, about 60% of this product's out-of-partner spend in 2024 was outside of traditional health and wellness categories. Today Synchrony delivers a wide variety of innovative financing products and services that are designed to responsibly address each customer's needs whenever and however they are looking to make a purchase. An opportunity that is increasingly occurring digitally, whether that's on a mobile device or at the physical point of sale through wallet apps and digital payments. Throughout the past year, Synchrony has been on a journey to bring our customer experience to life through more engaging and cohesive content across our digital footprint.

From our native apps to our marketplace and website, we're expanding and deepening the role that Synchrony plays with our customers and partner relationships. In fact, through our efforts to expand Synchrony's digital presence, we've enhanced our cross-marketing capabilities and strengthened partner and product awareness for our customers. We're also seeing customers engage with Synchrony more extensively, visiting our sites more often. And while they're engaging longer on our properties, this engagement has contributed to incremental new accounts and sales, as well as lower acquisition costs.

In the case of Synchrony Bank, we've more than doubled the number of new Synchrony Bank accounts acquired through our synchrony.com website with almost no associated acquisition cost. And thanks to the combination of our dynamic technology platform, our advanced analytics, and our scale, with more than 140 million reported trade lines and trillions of customer and spend data points, we can leverage proprietary insights throughout our digital financial ecosystem and across the customer journey to deliver highly personalized and engaging experiences. Synchrony's marketplace is a growing part of that financial ecosystem and drives greater connectedness between our customers and partners.

Over the last year, we've launched curated campaigns and differentiated offers through our marketplace that contributed to more than 600 million impressions and 1 million referrals across participating partners. In addition, marketplace hosted almost 228 million customer visits and drove more than 17% growth in newly submitted applications within marketplace. Synchrony's digital wallet strategy also made great strides in 2024, driving stronger engagement, utility, and purchasing power for our customers. In fact, Synchrony's unique active wallet users grew 85%, compared to 2023 and contributed to more than double the digital wallet sales in 2024. This growth also supported a more than 200 basis point improvement in our dual and co-brand cards wallet penetration rate.

We should enhance the stickiness of these products and provide natural tailwinds to Synchrony's mobile wallet share as we continue to invest in this strategy. We're also excited by the opportunities we see to drive our digital penetration further in 2025. This includes our recent announcement that eligible Synchrony MasterCard holders can now choose to pay with the standard terms of their credit card or use a promotional offer that includes fixed monthly payments when checking out with Apple Pay Online and in-app on an iPhone or an iPad. This enhances the way users pay and provides them with more choice and flexibility.

And we plan to expand on this Apple Pay integration even further later this year by bringing users the ability to view and redeem rewards from eligible Synchrony issue cards. Synchrony also plans to work with our Apple Pay enabled partners to expand this capability across our portfolio. And if Synchrony continues to innovate and drive still greater financing experience and value for all those we serve, we're maintaining our discipline and leveraging our core strengths to sustainably grow and deepen our leadership position. Our sophisticated approach to customer lifetime value is driving incremental and deeper connections between approximately 70 million customers and hundreds of thousands of partners, providers, and small and mid-sized businesses that we serve.

Our diversified portfolio of products, programs, and spend categories is empowering our customers with financing flexibility in whatever moment of life they're in. Our expansive distribution channels and omni-channel capabilities are increasingly delivering our financial ecosystem anywhere a purchase can be made. And our differentiated approach to underwriting and credit management is driving the stability of our portfolios post-pandemic credit performance compared to most other lenders in the industry. All of this is that made possible with an incredible team of people and culture that earned Synchrony the honor of being ranked fifth among best companies to work for in the U.S. by Fortune magazine and great places to work in 2024. So as we look to 2025 and beyond, Synchrony is operating from a position of strength.

We're executing across our key strategic priorities, empowering strong outcomes for the many stakeholders we serve. We're deepening our role within the heart of American commerce and priming our business for profitable growth for years to come. And we're driving considerable long-term value for our shareholders. With that, I'll turn the call over to Brian to discuss our financial performance in greater detail.

Thanks, Brian, and good morning, everyone. Synchrony’s fourth quarter performance reflected the inherent resilience that comes from our diversified portfolio products and spend categories, our balanced approach to underwriting and credit management, and our sophisticated technology platform. This differentiated combination of strengths enable our business to swiftly adapt to the evolving landscape. During the fourth quarter, customers continue to seek out our flexible financing solutions, has a strong value proposition, and broad utility of our product offerings generate lasting value against a persistently inflationary environment.

As a result, we added 5 million new accounts, maintained approximately 70 million active accounts, and generated $48 billion of purchase volume despite the continued impact of the credit actions we took between mid-2023 and early 2024. Any receivables grew 2% to $105 billion as payment rates continued to moderate down approximately 10 basis points, compared to last year. Purchase volume and receivables at the platform level reflected the continuation of the trends we discussed over the course of the year as customers remain selective in their spending behavior and generally prioritize non-discretionary and seasonal holiday items.

Platform purchase volume growth ranged between down 1% and down 6% year-over-year, generally reflecting the lower spend per account as customers moderate both bigger ticket and discretionary spend, particularly in categories like furniture, electronics, cosmetic, and outdoor, as well as the impact of Synchrony’s credit actions. Receivable growth across the platforms range from flat to 6% higher year-over-year, primarily due to slower purchase volume growth and payment rate moderation. Dual and co-branded cards accounted for 44% of total purchase volume for the quarter and increased 1%, reflecting the benefit of these products' broad-based utility offset by the combined impacts of selective customer spend and Synchrony’s credit actions.

Net revenue grew 4% to $3.8 billion, resulting from higher interest and fees and higher other income, partially offset by higher RSA and interest expense. Net interest income increased 3% to $4.6 billion as interest and fees grew 3%, primarily reflecting higher interest and fees on loans, partially offset by an increase in interest expense from higher interest-bearing liabilities. Our loan receivables yield grew 8 basis points, primarily driven by our pricing actions, including the impact of our product, pricing, and policy changes, or PPPCs, as well as the lower payment rate, partially offset by higher reversals and a lower lay fee incidence.

Total interest-bearing liabilities cost was 4.58%, an increase of 3 basis points versus last year. RSAs of $919 million were 3.57% of average loan receivables in the fourth quarter, and increased $41 million versus the prior year, primarily reflecting program performance, which includes the impact of our PPPCs. Other income increased $128 million, primarily related to the impact of our PPPC-related fees, which were partially offset by the impact of our Pets Best disposition. Provision for credit losses decreased to $1.6 billion, primarily reflecting a $100 million reserve lease in the fourth quarter, compared to a reserve build of $402 million in the prior year, partially offset by higher net charge-offs.

Other expenses decreased 4% to $1.3 billion, primarily driven by the prior year restructuring costs and other notable expenses as outlined on slide 17 of earnings presentation and lower operational losses in the current year. These decreases were partially offset by costs related to the Ally lending acquisition and technology investments. The efficiency ratio was 33.3% for the fourth quarter, an improvement of approximately 270 basis points versus last year, reflecting a combination of Synchrony's cost discipline and revenue growth. Taken together, Synchrony generated net earnings of $774 million or $1.91 per diluted share and delivered a return on average assets of 2.6%, a return on tangible common equity of 23%, and a 23% increase in tangible book value per share.

Next, I'll cover our key credit trends on slide 11. At quarter end, our 30-plus delinquency rate was 4.70%, a decline of 4 basis points from 4.74% in the prior year, and 8 basis points above our historical average from the fourth quarters of 2017 to 2019. Our 90-plus delinquency rate was 2.40%, an increase of 12 basis points from 2.28% in the prior year and 16 basis points above our historical average from the fourth quarters of 2017 to 2019. And our net charge off rate was 6.45% in the fourth quarter, an increase of 87 basis points from 5.58% in the prior year and 96 basis points above our historical average from the fourth quarters of 2017 to 2019. Our allowance for credit losses as a percent of loan receivables was 10.44%, which decreased approximately 35 basis points from the 10.79% in the third quarter.

As shown on slide 12, the credit actions we've taken from mid-2023 through early 2024 are improving our delinquency formation as the rate of year-over-year growth in both 30-plus and 90-plus delinquency rates continue to decelerate. These trends give us confidence in our ability to return to our long-term net charge-off target. Turning to slide 13, Synchrony's funding, capital, and liquidity continue to provide a strong foundation for our business. During the fourth quarter, Synchrony grew our direct deposits by approximately $716 million and reduced our broker deposits by $938 million.

At quarter end, deposits represented 84% of our total funding, with secured and unsecured debt, each representing 8% of total funding respectively. Total liquid assets and undrawn credit facilities were $19.8 billion, essentially flat versus last year, and represented 16.6% of total assets, a 26 basis point decrease from last year. Focusing on our capital ratios, as a reminder, we elected to take the benefit of the CECL transition rules issued by the joint federal banking agencies. I think we will make a final transition adjustment to our regulatory capital metrics of approximately 50 basis points in January 2025, which will reflect the fully phased-in effects of CECL.

The impact of CECL has already been recognized in our income statement and balance sheet. Under the CECL transition rules, we ended the fourth quarter with a CET1 ratio of 13.3%, 110 basis points higher than last year's 12.2%. Our Tier 1 capital ratio was 14.5%, 160 basis points above last year. Our total capital ratio increased 160 basis points to 16.5%.

In our Tier 1 capital plus reserves ratio, on a fully phased-in basis increased to 24.3%, compared to 22.1% last year. Synchrony returned $197 million to shareholders during the fourth quarter, consisting of $100 million in share repurchases and $97 million in common stock dividends, totaling $1.4 billion of capital returned during the full-year 2024. At year-end, we had $600 million remaining in our share of purchase authorization for the period ending June 30, 2025. Synchrony remains well positioned to return capital to shareholders as guided by our business performance, market conditions, regulatory restrictions, and subject to our capital plan.

Turning to our outlook for 2025 on slide 14. Our baseline assumptions include a stable macroeconomic environment, full-year GDP growth of 2.2%, a year-end employment rate of 4.1%, a year-end fed funds rate of 4.25%, full-year deposit betas of approximately 60%. In addition, given the uncertainty with regard to the litigation process and the political landscape surrounding the late fee rule, our outlook assumes no impact in the potential late fee rule change, but does include the impact of our PPPCs. If the late fee rule were to go into effect, this outlook would no longer be applicable. Starting with ending loan receivables, we expect purchase volume and new account growth to continue to reflect the impacts of our credit actions and selective customer spend behavior.

We also expect payment rates in 2025 to generally remain flat with 2024 levels as a result of our past credit actions, which have stabilized the mix of customer payment behaviors. As a result, we expect low-single-digit growth ending loan receivables for the full-year 2025. We expect net revenue for the full-year to be between $15.2 and $15.7 billion and to follow seasonal trends. We expect year-over-year growth in both interest income and other income as the impact of our PPPC's build, partially offset by the flow through of lower average prime rate on our variable rate receivables, lower late fees as delinquency performance improves, lower yielding investment portfolio due to lower benchmark rates, and finance charge and late fee reversals associated with the seasonality of our credit performance.

Lower average benchmark rates should also contribute to lower funding costs as our CD maturities reprice, although this will be influenced by competitive deposit beta trends in response to any additional rate cuts that may occur. In addition, we generally expect to maintain higher levels of liquidity of approximately 17% for the next few quarters, given our desire to prioritize our deposit-customer relationships and pre-fund future growth. Finally, RSA as a percentage of average loan receivables should be between 3.60% and 3.85%, driven by improving program performance as net charge-offs decline and the impact of our PPPCs increase.

We expect our portfolio net charge-off rate for the full-year to be between 5.8% and 6.1%, primarily reflecting the benefit of our prior credit actions and our differentiated approach to underwriting and credit management. And we expect our efficiency ratio to be between 31.5% and 32.5% as Synchrony remains focused on driving operating leverage in our business. Before I turn the call over to Q&A, I'd like to leave you with three key takeaways from today's discussion. First, Synchrony is well positioned to reaccelerate our growth.

Our investments we've made and credit actions we've taken were designed to prioritize sustainable, profitable growth through evolving market conditions. Our performance since exiting the pandemic in 2021 demonstrates our discipline with average ending loan receivables growth of approximately 9%, while delivering an average return on assets of approximately 3%, an average return on tangible common equity of approximately 25%. Second, the outperformance of our portfolio's credit trends relative to the industry has enabled this track record, and our recent delinquency formation trends give us confidence in both our credit outlook and our ability to reaccelerate profitable growth.

We are watching for continued stability in the macro environment, more confident consumer spend behavior, and continued improvement in our delinquency performance to support the gradual reversal of our credit restrictions. And third, Synchrony's robust capital position is a clear strength. It will enable our growth while also supporting greater capital returns to our shareholders in the years ahead. In summary, Synchrony's high-level execution in 2024 has positioned us well for 2025 and beyond as we drive progress towards our long-term financial targets.

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

That concludes our prepared remarks. We will now begin the Q&A session. So that we can accommodate as many of you as possible, I'd like to ask the participants to please limit yourself to one primary and one follow-up question. If you have additional questions, the Investor Relations team will be available after the call. Operator, please start the Q&A session.

[Operator Instructions] And we will take our first question from Ryan Nash with Goldman Sachs. Please go ahead.

Hey, good morning, everyone.

Hey, Ryan.

Good morning, Ryan.

So maybe to start off on the net revenue guide, Brian, you talked about growth in both fees and NII. Can we maybe just dig in on some of the moving pieces on net interest income? And I guess, first, how do we think about the impact from rates? I know you're targeting 4.25% in terms of Fed funds.

The balance sheet should benefit as rates come down? And then second, how is the impact of the PPPCs coming through on your guide? How much of the full benefit that you were anticipating is already incorporated into the run rate for this year? And then I have a follow-up.

Yes, great. Let me try to unpack a little bit of that, Ryan. So I think when you think about net revenue guide and I'll bridge you a little bit to NII, when you think about the net revenue guy, you're going to get a significant increase related to the PPP fees running through net revenue. You'll also get a lift coming from growth and revolver rate coming through here.

But there are two fairly large offsets that are coming back. One, is RSAs, which has the effect not only from a lower net charge-off rate in 2025, but also has the effect of the PPPCs that are flowing through there. And you have a fairly significant drop in late fee revenue that comes through there as well as your charge-offs decline. So those are the general moving pieces.

You will see a more pronounced NII growth, because obviously that strips out the RSA impact, but the same weight fee dynamic, the revolve rate, all those kind of flow through. On net funding, it's slightly negative for the full-year. It's more a timing of when we have the rate cut kind of coming through. Prime rate already starting to drop this beginning part of this year.

So it's more of timing, to be honest with you, when you think about prime rate decline, the investment portfolio, which resets fairly quickly, and then the funding piece again depending upon when the CD maturities restack. So again, more pronounced NII growth and the PPPCs, you know, I'll get ahead of the question, are performing generally in line with financially our expectations. You know, we have said there's a little bit of mix where we're getting stronger retention, stronger yield on the interest side and a little bit lighter on the paper statement fees, mainly due to people adopting E-Bill.

So that's how I kind of think about the framework for both net revenue and NII.

Got it. And maybe as a follow-up on capital, so you're sitting over 200 bps above the target, especially in a seasonally low quarter, and I think you brought back $100 billion of stock. Can you maybe just talk about the plan for capital return, particularly why it was a little bit depressed in the quarter? And maybe just toggle between, are you seeing more opportunities to deploy it inorganically, or I know you mentioned twice in your last remarks, Brian, about the re-acceleration of growth.

Are you holding back a little bit in terms of anticipating the return of long growth? Just trying to understand the thought process on the lower near-term buyback and what it means for deploying capital over the next few quarters?

Yes, thanks for that question, Ryan. I know a lot of people are going to try to make a read through into what we did and the cadence for the quarter. I just want to be clear, the cadence for the quarter being lower than some of the prior quarters was more our kind of view on the market and what was going to be potentially a more volatile market given the presidential election and the aftermath of whichever an administration kind of came through and the flow through effects. So we kind of predetermined that, that wasn't a quarter that we were going to be heavily leaning in from a buyback perspective.

I would not read through that. You know, the $600 million that we have remaining on the current authorization, our intention is to complete that. And right now we're in the process of completing our 2025 capital plan, running our loss stress tests for there. And again, we understand that capital is a strength for us.

It does provide us the opportunity to do things integrally, but I want to be clear, we didn't build capital or the lower repurchases, but not due to waiting for additional growth, AV and organic. It was just more, you know, our kind of view of the markets may be a little bit more disrupted or disjointed in the fourth quarter. And we remain committed to bring capital back down, you know, closer to our target.

Thanks for the color.

Thanks, Ryan. Have a good day.

Thank you. And we will take our next question from Sanjay Sakhrani with KBW. Please go ahead.

Thank you. Good morning. Brian Wenzel, maybe just to drill into that PPPC impact a little bit more. Is it fair to assume that by the end of this year you'd still sort of have that full run rate of what you anticipated putting in as mitigation in the numbers?

And I guess, like, you know, how should we think about if late-fee regulation doesn't happen? How would it impact the ROA? I'm just trying to think about, you know, sort of normalize your long-term ROA and when you anticipate getting there? And I would have thought that mitigation takes that higher and sort of when we might get there?

Thank you.

Yes. Thanks for the question, Sanjay. Good morning. As I think about how you exit out of 2025 on the PPPCs, if I look at a couple of different components, they're still not going to be fully there on the financial charges.

If you recall, we said, you know, you're roughly, you know, half, you know, one year out, you're about 35% two years out. So there's going to be incremental one rate to go on the interest line as you exit out of ‘25 and get closer into ’26, that's number one. Paper statements should reach, I'd say, a steady or state level, but then will grow rate relative to our average active accounts and how that grows depending upon mix and when not all the accounts have that paper statement. So, you know, potentially there could be a little bit of headwind if more people choose e-bill and then you're going to get the benefit down on the expense line versus the other income line.

And the last thing I'd say is on the promotional fees, that should build throughout 2025, because that's something I want to affect a little bit later in 2024 as promotional volume picks up. It's been a little bit below our historical amounts, right, just on a buying perspective. That should pick up and advertise in over time. So I think as you exit out of ‘25, there still is room to grow up, you know, grow both on the interest line from promo fees and interest income, interest from the interest charges, and a little bit on the paper statement fees.

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

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

Okay. Okay. Just one follow-up for Brian Doubles. Maybe you could talk about the deal environment.

I know there's a couple of RFPs out there? There's a lot of chatter around those. Maybe you just talk about how it's looking for you, and then, you know, the loan growth still remains weak. The purchase volume remains weak.

I mean, anything that can help drive that? Are you guys being conservative there? Thanks.

Yes, sure. Look, I would say generally we like the operating environment right now. You know, I'll start with your second question, which is just around growth. I think with the consumer is in pretty good shape.

We like the environment right now. We did take some credit actions. You're seeing those work exactly as designed. So you saw 30-plus turn the corner.

The setup for next year is really good. So we feel great about the environment. I'll tell you on the competitive side, there's still pretty good discipline in the market. We're looking at a lot of new opportunities as we always do.

We have a robust pipeline. And at this point, there's still pretty good discipline. I think some of that is coming out of, you know, last year was a little bit uncertain in terms of, you know, the economy, the effects of inflation, the election. And I think when you're in periods like that, you tend to see pretty good discipline around pricing new opportunities, and we're seeing that.

So as you know, we're a disciplined bidder. We're always focused on a good risk-adjusted return. We look for programs where we have really strong alignment between us and the partner. Like those things are critical.

Those are absolutely non-negotiables for us. And we continue to win new business. So I feel, again, I feel good about the environment. I feel really good about how we're competing for new business.

And you actually saw that with a couple big renewals that we did this past quarter with Sam's and JCPenney.

Yes, Sanjay, if could just add one point of clarity for what Brian said. You know, when you look at the purchase line growth in the fourth quarter, I know people are focused on that. A significant portion of that was credit action driven. That was us really trying to focus to get credit into the position in 2025 where we're getting back into our longer term, long-term target range.

And that's really important. And I know we'll get the credit at some point, but it's also helping us get back on a trajectory faster than our peers. But the purchase volume is by design. The new accounts were by design to kind of set us up, you know, really on the credit side.

Thank you.

Thanks, Sanjay. Have a good day.

Thank you. And we will take our next question from Mihir Bhatia with Bank of America. Please go ahead.

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

Does that imply like, you know even more upside on net revenue in 2026? Thank you.

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

Got it. Thank you. And then maybe just like you mentioned credit, so let's turn to that. Your outlook does suggest meaningful improvement, and we see that in the delinquencies.

But I was curious about how you would carry, but your purchase volumes are still pressured. I understand some of it is driven by your own actions and pulling back on tightening underwriting. So I guess a couple of questions there is just, are you done with tightening underwriting for now? How do you feel about the environment currently?

What are you seeing from the consumer? Some others have mentioned an increase in people paying minimum balances, some commentary around how many people are at their full credit limits. What are you seeing in your book? How do you feel about the consumer?

And where are you from underwriting, posture standpoint? Thank you.

Yes. Let me try to unpack that one here. You know, the first thing, you know, I want people to focus on the fact that we were later in the credit normalization than others. We reached what, you know, if you could say a peak or a trend where our 30-plus has now turned positive, whether you think about it sequentially to the third quarter or year-over-year in the fourth quarter, where a lot of other people are doing it.

So we didn't go with high, and ours was much more compressed, largely due to the credit actions that we've taken, and we're pleased with how they're performing. The broad-based actions that we took really, I'd say, seized back in the second quarter of 2024. So the actions that we continue to take are the standard idiosyncratic type refinements that we look at partners, channels, as we look at the risk return of those channels and products. As we enter into 2025, I think when you look at that credit trajectory, and we've outperformed seasonality now for five months on a 17 to 19 basis, I think we feel optimistic where we are going with credit and the performance of those actions, which gives us a guide down again to that 5.8% to 6.10% range.

Some of that is going to be more dependent upon the denominator. When you go underneath the hood and you start thinking about the consumer for a second, overall line utilization has not really changed. So we don't see consumers at max in line. So that's not an issue that we see in our portfolio or segments of our portfolio.

When we look at payment behavioral patterns, when we see movements, we are seeing movements generally across all credit grades. So it's not centered around non-prime. We see probably a little bit more in the upper prime category than the low prime, which means they're kind of coming back from some place where they had excess liquidity. But we don't see anything that's really different.

You know, if you look at our payment composition, right, relative to 2019, people who are making the minimum payment is up significantly from 2019 across all credit grades. And so you look at the, you know, 780 plus, they're up probably a little over 400 basis points. Every other credit grade, whether it's the prime, the non-prime, we're up 3s. It's not materially different.

Part of that is structural, right, as we put more installment lending in and promotional financing. All those payments go into exact NIM pay. So that's kind of structural. So we don't see cracks in the consumer design.

I talked about payment behavior patterns, line utilization patterns. We continue to believe that a lot of loss pressure across the industry was too much credit being put out for certain cohorts and their ability to really handle that credit. So we don't see things that are troubling to us. And I think as we step through the first-half of the year, I think we'll take an assessment back on whether or not, at what point do we want to potentially lift some of the credit restrictions that are in place.

You know, there could be a scenario where you do some of that in the back half of this year. I wouldn't say, you know, I wouldn't say there's a scenario where we reverse everything. But there could be, you know, a reason for us to sit back and say the actions have largely fulfilled what they needed to do in order to get the book in the right place. So that's how I think about credit and some of the performance of the book today in here.

Thank you.

Thank you. Have a good day.

Thank you. And we will take our next question from Terry Ma with Barclays. Please go ahead.

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

Yes, thank you and good morning, Terry. So we don't forecast 30-plus, 90-plus externally. What I'd sit back and give you maybe color on is some of the trends that we do see in credit, which obviously informs not only the charge-off rate, but where we go from a reserving standpoint. We continue to see entry rate favorability.

That again, accelerated a little bit more in the fourth quarter for some actions we've taken pre-collections. We've seen good performance relative in our two flows to charge-off. And really our late stage collections have improved. So I think as you look at that, that gives us a really high confidence level as we think about getting the charge-off rate down year-over-year and back into our target underwriting zone.

I think if you think about the short-term nature here, obviously there's generally a seasonal lift that you see particularly in the first quarter and going, you know, go on from there. We will not see as much of a seasonal lift to traditionally it's been around 50 basis points. We will not experience that in the first quarter 2025 or belief mainly for two things: one, is that performance I talked about particularly late stage improvement across some of those later delinquency stage is, number one, and two, the timing of certain recovery actions we have, why recoveries are going to be, you know, on par with how you think about 2024, just the timing of that plays through.

So a little bit better seasonally in the first-half, or first quarter, excuse me. So we feel good based on that delinquency formation of flow.

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

So maybe any color on the delta between the guide versus the realize? And then how we should think about the allowance ratio?

Yes, thanks for that question. So let me try to address a little bit of the ending point in 2024. I think there's really two factors that kind of have gone into that ending point being. Maybe higher than other people expected or generally we said it'd be fairly in line with our exit point in 2023. Number one, the denominator clearly had some influence to being slightly higher on a rate basis, so that's part of it. The second piece of it probably is a little bit of what I would say conservatism, how we think about the credit actions inside the quantitative part of the model as we enter 2025. I think if you take a step back while we're not providing guidance on the reserve, but think about the components here, if you continue to believe or believe that the net charge-off rate comes back down closer to that or inside of the net charge off long-term guide, right, that part of the model, which is the quantitative part of the model, you should be able to get a rate benefit coming off of that.

The second piece of it is your qualitative overlays and whether or not you get clarity on the macroeconomic environment, right, which today continues to be, you know, an ebbs and flows on how inflation is trending and how interest rates are flooding. But those two are the pieces that we're going to have to watch. Inherently, I think if you think about a charge-off rate for declining and you think of a macroeconomic environment that improves and you have greater clarity, there would be a downward bias as you move into 2025 and exit out of 2025 on the reserve rate. Again, you'll be subject to a little bit of the seasonality throughout the year, but there should be a downward bias under that type of scenario or framework.

Thank you. And we will take our next question from Moshe Orenbuch with TD Cowen. Please go ahead.

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

Yes, Moshe. So look, I would say first we're thrilled to have renewed JCPenney and Sam's Club. You know, we've been with both partners for decades now at this point, so we're extremely happy to have them renewed. We're excited to launch pay later with JCPenney.

I think it's a real testament to the multi-product ecosystem that we've built, you know, starting with Lowe's, now JCPenney, it's really resonating with our partners, both, frankly, both on the renewal side, but also as we go out and compete with new -- compete for a new business. And I think it's different than it was probably two or three years ago where you had partners that were leveraging FinTech’s, looking for buy now, pay later solutions. They were basically doing anything they could to generate and drive sales. Now they've kind of taken a step back and they said, hey, you know, we want a product that can be a starter product, a way to bring in new customers, and then over time, graduate them to a revolving product, a co-brand card, and when you look at the economic model associated with that, it's really compelling.

It's great for us, it's great for the partners, because some of the starter products in buy now, pay later don't exactly meet our return threshold, but when you look at the lifetime value of that customer, it absolutely does. And like I said, it benefits us and the partner. In terms of the two renewals on economics, we don't get into that. I would just tell you that we're extremely happy with both the economics and the terms of both agreements.

We've got great alignment on both. I talk about that a lot because it's absolutely critical to have a successful program. These are long-term agreements and you want to make sure that the interest between us and the partner is perfectly aligned and in both cases I think they are.

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

Yes, so great question, Moshe. I think what you're going to start to see is in a couple areas, right? We'll see an acceleration potentially of dual card, right? So that we're having dual cards as you potentially would think about where we may be down selling a little bit more in a private label today, we would go through and do more upgrades from the private label product into the dual-card products, that's one.

I think in two, an area you'll see is where we have probably been more restrictive on credit line increases and potentially credit line decreases, you'll see probably a little bit more credit line increase activity and decrease activity and that generally will happen in some of the larger balance type platforms that we have. So I think initially what you'll start to see is really some expansion into growth areas, some improvement on our approval rate in new accounts that then begins to flow through on the purchase find activity. Again, I think centered in a little bit of the larger type balance platforms.

I think another big component here is going to be when the consumer has enough confidence, we watch consumer confidence quite closely, but has enough confidence where they want to make more discretionary purchases, because that's what we're seeing across the board, where it's in health and wellness, you think about some of the cosmetic or Lasik potentially when you think about in home and auto, some of the mattresses and furniture deferrals. Those should create nice tailwinds when the consumer gets some confidence as we step through they're noncredit oriented, but we'll be there to help them. So I do think it's a little bit broader on some of the actions that we would take or begin to unwind under that potential scenario.

Great. Thanks so much.

Thanks, Moshe. Have a good day.

Thank you. And we will take our next question from Jeff Adelson with Morgan Stanley. Please go ahead.

Hey, good morning. Thanks for taking my questions.

Hi, Jeff. Good morning, Jeff.

Just given the broader slowing growth of purchase volumes and account growth you've seen for a few years now and the credit actions you've taken, can you maybe share some of the feedback and conversations you're having with your key retail partners around that? I understand that Synchrony controls the underwriting, but are you hearing more of a desire from some of these partners to maybe lean back in a little bit here? And how is that talking point of slower growth narrative maybe feeding into the competitive dynamic as you look to really renew and win new partnerships from here?

Yes. Jeff, I think it comes back to what I said earlier, which is all of our programs, we have really good alignment with the partners. So when we saw what the industry did in ‘21, ‘22, a little bit into ‘23 and the massive amount of credit that was extended to consumers, we started very proactively making some of these tightening actions and modifications. And we did that completely transparently with all of our partners, just like we do on everything related to the program.

We look at the data, we look at the results. We show them exactly what it's going to do to the performance of the program, both on the growth side, but also on the RSA piece, and we make those decisions jointly. We control credit. There's no confusion about that, but we do it very transparently with our partners.

And our interests are aligned through the RSA. And you're seeing that now. I mean, as Brian said, the RSA will come up a little bit, because of the PPPCs and the better net charge-offs profile for 2025. That's exactly how they're supposed to work. And so both the credit actions and the RSA are working as designed.

And so in a partnership like this as long as you've got a good contract where it's very clear that we both win together. And don't be confused, we both want to grow. We want to improve more customers. We want to help our partners drive sales, but we want to do it in a prudent way where we're managing to the long-term credit target, and I think we're doing that.

Yes. The only thing I'd just add on to that, Jeff. I mean, just taking a little step back here, we did put up the second highest purchase volume ever as a company, coming off a record purchase volume in the year before. And we had significant asset growth the year before.

So this is in -- I'd say, some long-term trend. This is by design of taking credit actions. That's why I think -- if you look at the pace at which losses start to accelerate and push through your long-term historical averages, we were probably the slowest to do that and one of the fastest coming back out, and we didn't have a steep an increase. That was because of credit actions and our desire to do that.

So again, I don't want to lose sight of the fact that from a purchase line perspective, this is a significant year for our partners and for our company.

Okay, great. And as my follow-up, just maybe circle back on Sanjay's question. If the late fee regulation doesn't come out and let's just say the CFPB resends the rule, can you just talk about the plans from there? And have any of your retail partners talked about maybe a desire to pull back on some of the PPPC you put through?

Yes. Look, I'll start on this. I think clearly, there's been some positive developments on the litigation front, the injunction will stay in place. I think Judge Pittman made some positive comments about the merits of the case for the industry.

With all that said, nothing is final. We don't have certainty at this point. So we're not planning on making any changes to the pricing actions at this point. We got to see how the litigation progresses.

We need some level of certainty. And like I said earlier, I think we'll do exactly what we did when the late fee proposal came out. We'll go out. We'll talk to our partners.

We'll do that very transparently. We'll look at a number of different factors, including any behavioral changes that we may have seen up until this point, we'll look at where other merchants and providers are pricing their programs. We look at the competition. We look at the industry.

And we'll go through the financial impact to our partners in terms of how it would impact the RSA. So again, it will be very collaborative. We'll make the decision together just like we've done on credit and when the first late fee proposal came out.

Thanks, Jeff.

And we’ll go next to John Hecht with Jefferies. Please go ahead.

Good morning, guys. Thanks for taking my questions. First one, I guess, is just another, I guess, aspect of credit, Brian Wenzel, I know '24 is early, but is there any kind of early reads from some of the aspects of the '24 vintage that leads you to believe that it might -- that vintage itself might be performing within the long-term goals?

Yes. First of all, thanks for the question, John and good morning. As we look at the vintages in 2023 and 2024, we talked about some of the early performance very early, particularly for ’24, I take back they continue to develop. And I'd say, as we look at those relative to the industry, they are performing better and the industry's experience on both ‘23 and ‘24 in our estimation.

Those vintages when I compare them back to 2018 moved slightly worse than 2018, but nothing that's really significant or gives us pause as they develop. So I think as we look at it, we're very happy with those two vintages, between ‘24 vintages that have the full credit actions embedded in, and we feel optimistic as just another reason why we're back, hopefully, inside our long-term target range of by $550 million to $600 million, but in the guide of $580 million to $610 million for next year.

Okay. And then Brian Doubles. Maybe can you talk about just the mix of digital commerce versus in-store commerce. And has that trajectory changed at all over the, I guess, kind of in the wake of COVID?

Yes. John, not surprisingly, it continues to increase, both in terms of the type of partners where we're seeing the most growth at the moment. But also how the consumer is shopping. One of the big areas where we're investing is in digital wallets that are becoming more and more prevalent.

We had the announcement of Apple Pay, which you saw. So that's an area where we continue to invest. I think we compete very well there. We have very sophisticated technology platforms that we embed into our partners' apps and their mobile platforms.

And I think that's obviously -- I'm stating the outage that's where the future is going, and we've been investing there for eight or nine years really heavily. And so we feel good about that as a competitive advantage, I think we have a more sophisticated platform than any in the industry.

Great. Thanks for the color, guys.

Thanks, John.

Thanks, John. Have a good day.

And we will move next to John Pancari with Evercore ISI. Please go ahead.

Good morning.

Hi, John.

On the liquidity front, I know you mentioned you're running at higher levels of liquidity around 17%, partly to prefund growth. I mean, could you give maybe a little bit more color around this decision? And what could change this view? And what's the longer-term outlook? What would you say is the appropriate long-term liquidity level as you look out?

Yes. Thanks for the question. As we look at the digital banking deposit market, we continue to think there's a place there with the consumers that we want to attract that there's still on track the way for us to get new customers. And what we did want to do was really shrink down deposit growth in the short-term only have to reaccelerate when growth comes in.

Today, even on a higher liquidity on an EPS basis, it's a positive trade for me. If I can bring in dollars at a high-yield savings rate of $4.10 and collect over that, right, in Fed cash, that's a positive economic trade and positive EPS trade. Yes, it will certainly hurts net interest margin, but I think the EPS dollars makes more sense. What I want to do is pull back and try to be rate sensitive in the short-term and then have a higher cost to acquire in the back half of the year or into next year when we grow.

So that's really the strategy around. I think we feel really that we're positioned well relative to who we define as our peers in the digital banking space. If you think about that long-term rate, it's generally in the, I'll call it, the 15% to 17% depending upon which quarter that you're in. So slightly lower than that from here, but we just wanted to call it out, because we're not going to alter our deposit funding strategy in the short-term, we believe the growth will reaccelerate at some point.

Got it. All right. Thanks, Brian. And then my follow-up is a quick one, just back to the late fee rule.

I heard you acknowledge the positive comments coming from Judge Pittman. But what are you actually hearing from your folks in D.C. post the election in terms of potential CFPB action as there's changes at the administration, I mean, could the rule be allowed the sorted out in the courts still or actually killed on the line? Thanks.

Yes. It's really hard to speculate on that. I mean, there are a number of different scenarios. We spent a lot of time with our legal team.

I will tell you, just going back to when the litigation started, it has been a lot of ups and downs. And I think the industry feels fairly good about Judge Pittman’s ruling, but how it could play out from here there's still a lot of uncertainty. I think the appeal window is still open until the first week of February. So I don't want to get into speculating.

We're staying very close to it. Obviously, we're communicating with our partners, but I don't want to speculate beyond that.

Okay, understand. Thank you.

Thanks.

Thanks. Have a good day.

And we will move next to Bill Carcache with Wolfe Research. Please go ahead.

Thank you. Good morning and thanks for taking my questions. First, can you discuss the potential for PPPC to drive your normalized return profile of 28% sustainably higher?

Yes. Thanks and good morning, Bill. We haven't changed our long-term outlook. I think to some degree, once the late fee rule settles in, whether it goes in, it doesn't go in, what the ultimate effect of the PPPC are, we'll come back and potentially revisit those targets at that point, but we haven't changed them yet, Bill.

Understood. Maybe following up on your efficiency guidance. Sorry if I missed this, but can you give us some color around the factors that would drive efficiency ratio towards the lower versus the higher end of the range?

Yes. One just goes back into how well you manage and grow your existing account population to the extent I can grow the existing balances I get operating leverage on that. I think we have a lot of discipline right relative to when and how we add incremental FTEs, and how we manage some of the nonexempt employees as we go through seasonal periods. So there's a number of different levers that we use.

And we go back into the net revenue decline we saw as a company through the pandemic. We're very quickly back into being one of the more efficient, if not the most efficient credit card company when it comes down to how we operate the business, and that's our commitment is to drive that operating leverage again in 2025.

Thank you.

Thanks, Phil. Have a good day.

And we will move next to Rob Wildhack with Autonomous Research. Please go ahead.

Good morning, guys. Question on the outlook for loan growth. Just wanted to get your thoughts on how that might progress through the year because I think in the past, you've talked about a scenario where you could open up a bit in the second-half. So is that still the base case and included in the outlook now?

And then what are some of the waypoints we should watch to see if that remains on track? Is it just as simple as net charge-offs normalizing? Thanks.

Yes. Thanks and good morning, Rob. As you think about loan growth as you step through the year, you first got to look at against what you're comparing year-over-year. Obviously, the most difficult comp would be the first quarter.

We were fairly clear in the second quarter, we saw a deceleration from the consumers that were really somewhat in advance of our credit actions. And then, obviously, the continued deceleration that you saw in the back half of the year, mainly from the credit acts themselves, as well as the discerning customers. So I think if you think about that, your first quarter is probably the more challenging one when it comes to loan growth. And then you should see it kind of accelerated as you step through second through the fourth quarters.

With regard to the scenario that we potentially have talked about a couple of times around lifting some of the credit restrictions, that's not part of the base plan, it would be something that we would look at later in the year, and then you'll begin to see those effects as we take those actions. A good precursor to that is going to be how you see that charge-offs develop and whether or not we can deliver on the charge-off guidance, and we talked a little bit about the first quarter, but really getting back inside that range and feel comfortable that the trajectory and what we're originating is the rate risk adjusted margin, that's really the focal point for the company in which we would then begin to lift some of the restrictions where it's the latter part of this year or into next year.

Thanks. And then a quick clarification on deposits in betas. 60% beta for this year. I think this time last year, you were talking about an 80% or 90% beta on the way up and an expectation for something similar on the way down through the entire cutting cycle. So how you think about the 60% this year in the context of the 80%, 90% that you experienced on the way up?

Yes. So the way we think about betas up and definitionally, I think issuers or banks look at it slightly differently. We look at the start of the read-up cycle to the start of the downward cycle. So when I look at that, both for high-yield savings and CDs, that beta is around 75% when [174, 176] (ph).

So that's really the guidepost. And ultimately, you're going to -- our view is you're going to get back to that same type of downer beta when you look at that first rate hike going forward, with 50% is more reflective, I think, of a little bit of lag that happens with digital banks and really the timing of the rate decrease. As you can see from our page, we only have 1 rate decrease in that's more towards the back half of the year. So given that lag, you don't see as much deposit beta during the current year.

Very helpful. Thank you.

Thanks, Rob. Have a good day, guys.

And we will move next to Vernon Crowley with Robert W. Baird. Please go ahead.

Hey, good morning, guys. Thanks for taking my question. I think most of my stuff has already been answered, but just -- you guys have mentioned a bit about the dual cards and the CareCredit dual card, driving new car growth. I'm just wondering if you guys could provide a little more color on your strategy here and what channels you're expecting to drive meaningful growth from?

Yes, I'll take that. So look, I think the health and wellness business is one of our biggest strategic priorities. We've seen really good growth there, huge opportunities in front of us. One of the things that we looked at, just given the strong customer loyalty in the CareCredit product was offering a dual card.

So one thing we've seen over the last 10-years is that consumers like to compartmentalize their health and wellness spend. And so the idea was, hey, if you love the CareCredit product, use it at pharmacies, use it for health and wellness spend. We've collaborated with some of our other partners to be able to accept the CareCredit card. And so it's an exciting growth trajectory for us.

We love the product. We'll continue to invest there.

Great. Thanks, guys.

Thanks.

Thanks. Have a good day.

And we do have time for one last question. Our last question comes from Erika Najarian with UBS. Please go ahead.

Yes, hi. Just one last question and just pulling up back to growth. I think the primary conversation that I was having with your investors really around the time you presented at a conference in December was on the growth trajectory? And I just wanted to make sure we were really unpacking all of the messages that you gave us today?

So one is very clear, a lot of the slowdown in growth was from your -- from credit actions that you were proactive on. So I think that's pretty clear. You've mentioned that the consumer is in good shape, but the consumer is also not confident. So we kind of wanted to unpack what your cohort is really like in terms of how we're thinking about spending, because the data we've gotten across different cohorts, so far this earnings season has been pretty strong and the forward look has been pretty strong.

And the third is, I'm actually going to ask the other question on the PPPC in that if we don't get late fees, I mean, in a way, does it really matter if it's ROE accretive, if it's going to be disincentivizing to growth, right? Like a purchase APR of 32% might be disincentivizing to grow. So those are just 3 things that I think investors are really considering as we think about what are the -- what does the growth look like for Synchrony specifically in your cohort as we think about a consumer. That's probably a little bit healthier than we thought they were going to be in '25?

Yes. So let me start on the consumer. I think we -- look, we do feel good about the consumer. I think no matter what you're looking at, if you're looking at how they're spending, the fact that they're being disciplined, they're managing to a budget.

We have seen a pullback in the lower income cohort, and I think that's pretty consistent across the industry. That's where they're feeling the effects of inflation. On the higher income customer, they're pulling back a little bit, but I think still very healthy. And I think that's good for -- from a credit perspective, people are being disciplined.

They're not overextending, which is a good thing. So I think it's a combination of that and what we did on credit. And so we're very pleased with how the actions we took are performing, we're getting credit in line with the long-term guidance. And we're willing to sacrifice a little bit of growth here in the short-term to deliver that.

Yes. Erika, if I can add a couple of other points here. I think when you look at the overall consumer, when we look at that higher-end consumer, that hiring consumer for us was flat, right, for the quarter. So yes, it does trail, but it wasn't net negative, where we see more of the negativity down on the lower non-prime segment, which is the segment that attracted more of the credit actions.

So again, when you unpack the pieces of it, we don't feel really bad about it. When you get to the PPPC, you bring up the concept around the APR and that. A couple of things I'd just add to that. Number one, for all the programs in which we executed PPPC, we have a test first control.

So we actually can see purchase volume per active. We can see realization rate. We can see whether there is attrition, solid attrition or changes in revolver or transactor behaviors. And there's not a significant difference between the ones that are in the control group versus the ones that received the terms and conditions.

So that gives us some level of comfort that the sales decline are not necessarily PPPC-oriented number one. Number two, there were a couple of holdouts that we have, while we may have agreed the terms haven’t put in place, until [Indiscernible] went into place. In those situations, they're seeing some of the same declines that we're seeing across the board. So again, another data point that this isn't necessarily driven off of the PPPC.

So as we look at that. And then the final point I’d make, what people point to the APR, you have to look at the value proposition that these cards generally have a higher value proposition all in when you're looking at 5% discount in certain retailers or you're looking at 10% off and things like that. So a higher value proposition, which is a bulk of the RSAs, the gap is a great example of why you could have that thing kind of price. That's why someone can charge several hundred dollars for an annual fee in a card, because someone has believed that the value proposition is strong enough to support it.

So I think you got to take a step back and look at all the elements around the pricing of the product and the value proposition before you draw conclusions.

And that analysis is back to the point I made earlier, that's exactly what we sit down and go through with our partners. So we say, okay, here's the test. Here's the control. Here's what we think will happen if you move APRs up or down and what the trade-offs are.

And obviously, our partners are very interested in that, because they're impacted, frankly, both on the growth side, as well as their interests are aligned through the RSA.

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

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

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