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Synchrony Financial (SYF)

Participants
Greg Ketron Director, Investor Relations
Margaret Keane President and Chief Executive Officer
Brian Doubles Executive Vice President and Chief Financial Officer
Sanjay Sakhrani Keefe, Bruyette & Woods, Inc.
John Hecht Jefferies
Moshe Orenbuch Credit Suisse
Bill Carcache Nomura
Ryan Nash Goldman Sachs
Mark DeVries Barclays Capital
Rick Shane JPMorgan
Betsy Graseck Morgan Stanley
Ashish Sabadra Deutsche Bank
Call transcript
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Operator

Welcome to the Synchrony Financial Fourth Quarter 2017 Earnings Conference Call. My name is Vanessa, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. the to turn of Ketron, now Relations. Investor will call Greg over Director I begin. may you Sir,

Greg Ketron

Thanks, everyone, Good call. operator. morning, Thanks earnings our for conference quarterly joining us. and welcome to

provided section be today’s on synchronyfinancial.com. release, Relations topics to the our the plan during detailed website, press address accessed This to call. to that Investor presentation financial addition In schedules we we have and by covers website. a going press of the The release, can our information presentation are available

started, we are differ that the risks list could Before in materially on are statements. to our results comments I filings, We to website. our to get want These factors our SEC remind that today and subject available forward-looking actual materially. you uncertainty, might and will which cause include differ results statements actual

the measures we financial During in discussing refer non-GAAP will company’s performance. call, to the

measures materials financial can of GAAP measures find to call. our these in today’s reconciliation a You for

responsible not is by Synchrony and our only parties. teleconference Keane, transcripts on website. edit accuracy the Margaret authorized for of The our Finally, nor Executive Doubles, third are provided President guarantee Chief located earnings results Financial up for Executive Officer, not and and and presentation, our Officer; we webcasts this will open Vice present complete After the call President Financial morning. the Chief will Brian we questions. does

pleasure the Margaret. turn call my to it’s to Now, over

Margaret Keane

our begin call. results, joining reform cover a I’ll Tax the the for Thanks, impact for solid sets thanks quarter which which later on X. an Greg. quarter, foundation We had fourth will Good everyone, morning, XXXX in on fourth us. Slide Brian ended with and reported XXXX.

well and business relationship look this and of I’m XXXX, our for will realize the credit going and we later spend employees our with our consumer we to strategic development time agreement as in way value my what significant the highlights, to shareholders, end to fourth for to tax expansion the as priorities. including reform a expect in covering in significant from PayPal, credit drives our that today exciting and We was quarter outlook I communities. and will utilize our benefit benefit very with will strategic extend announced expand PayPal results significantly XXXX strategic with and A the in Brian achieved relationship. financial our detail we call. the

will U.S. extending consumer Credit exclusive In co-branded the PayPal which consumer with credit card we years. the in issuer addition with our credit financing under program online PayPal, will one extended offerings two now consolidate of PayPal’s for U.S. This relationship, program to the XX become PayPal we

As this acquiring we part PayPal’s credit well receivables be held interest U.S. portfolio, by transaction, will as of other consumer investors. as

We expect this the third close to the transaction year. quarter of in

leader and issuer U.S. the in as Credit for organizational offerings our The and PayPal’s that customers two for co-brand between we credit require for rewards areas customer and focus, merchants. risk Synchrony platform offers extended to both different PayPal programs both having allow holistically products partner consumers needs, financing one two these with products have a mobile Credit data should address will a manage and PayPal. superior create could successful change. The provide brand for opportunities Together, needs of for extension unique to trusted of we our expertise. they PayPal in migrating PayPal sheet synergies Also, is in their experiences Combining and exclusive program help which and given for programs for best-in-class and become tremendous program and for the forward balance digital capabilities Moving experiences management, credit natural can deliver with PayPal of XX-year as our relationship. and payment customers. benefits

the consumer This merchant rapidly expanded continued growth: optimizing on within digital focus customer differentiation to will ongoing world-class growing digital and strategy our Our value channel. main reach supports experience payments engagement. drive proposition, sustained relationship three the to support components

to We consumer evolving teams, providing We experience, These have PayPal. program built our needs. including analytics, expanding proven compete our relationship primarily data record to capabilities a strong played an on significant capabilities, reputation programs, us will space our and with all in in services meet role and digital scale, capabilities this this our dedicated value-added loyalty of allow partners. important

to effective a PayPal’s customers. and and long have value products during propositions develop them history tenure closely and We worked have with our for innovative

leverage very grow We pleased opportunities significantly the extending program. are obviously be to to jointly as this new we relationship important this

exciting we Furnishings Sono Home Solutions we organically and and Bello Wearhouse During was This programs including new quarter renewed quarter, the very are for CareCredit. innovative with relationships, and Men’s Association, continue and both Husqvarna Sweetwater Viking, and of Bosley partnership. a and the Card, several us new growth, fourth Payment obviously launch to and productive to generate Retail pleased and through

partnerships. on And remains and in XXXX. renewal get the call to on for top new pass achieved we strategic XXXX, our the a Brian outlook in made progress and provide to substantial XXXX, details results recap the priority. the this I growth, a financial to of through Before like deals priorities we Growing business quarter over of several for our our I’d organic our key

innovative winning very of marketing, organic new sales several relationships our analytics deals and on more and innovation, three XX value in We in XX key cards. year promotions than We successful more are our renewing propositions had and growth platforms. driving than data through digital a

will outsized digital payment and is areas especially where presence We continue see important of is as to the in expand expand new space. to opportunities this, particularly it our pursue PayPal an example business, our opportunity. in we

This MasterCard offers with at by card combines than of such utility which standard more is nationwide. move top ability grocery penetrate Card. in the earn our network in the offers flooring that utility acceptance. home credit key of card and credit Another Dual also Pacific the so cards continue being Synchrony stations CareCredit of CareCredit the in upgrade continues cardholders’ program. rewards of new added fitness, be travel Extending we launch wherever the health, our the where sector can launched our make to our cards focus such announced at the the wallets. the of expanding to the as further and the behavior. roll is in and added towards the care well with efforts XXXX enhanced Similarly, to to example auto electronics. appropriate is entertainment gas particularly purchase locations card for of we progress Mavis launched convenience accepted, The are for To cards important purchases to Cathay where CareCredit to area, addition our CareCredit, the Care Payment fuel In to Discount convenience we of verticals, Solutions, enhanced as with Car of network. is for end, home XX,XXX we card partners, capabilities our comprehensive card especially accepted network This new Solutions new repeat working promotional the of one which motorists migrate cardholders purchases. platforms, pay service for this extensive parts of the network, thousands as at to The offers more MasterCard that retails been sales in furnishing, network recently within and out we’ve accepted and points as our purchases Tire the Synchrony all debt-related cardholders and Payment locations, and another

by several expanded into XXXX, the the locations rate. made verticals, new We the our XX,XXX XXXX. and therefore, is expanded durable provider equipment, in the therapy. acquisition progress The Citi increased also as evidenced The usage our portfolio in in further with more have CareCredit utility, reuse of number card orthopedics than medical our also physical improving early and by network of of Health and Card we’ve such

CareCredit Solutions, XX% Payment fourth rate volume. was of the was purchase total for the For it XX% quarter in reuse and

continued we date innovative seen usage. commerce, plug-in, significant our offer the During of launched XXXX, in through investment an developer have and Early we using tools we our we’ve partners acquired on growth capabilities. of app analytics call that we in GPShopper, and enhancing apps engagement innovative analytics leading-edge mobile our XX app digital plug-in suite We SyPi. the to and which full year, a data now in focus a and

expanding capability enhancing this are of functionality improving ease do engagement us acquisition capabilities, And the and mobile for that. partners. We will to our use and help our users mobile

a a is disparate to better enables have We customer less us learning customer have transactions and using important our than over retailers invested which data SKU X billion drive to just grow techniques. transactions in a XX% next-generation years more ago. we their data now environment, three the experience holistic of this category and engagement This compared to higher level We access program. approximately us machine information of sources data to partner gives that view network increasingly the of leverage half to with or as go over on and

we to Additionally, techniques, such marketing as return media advanced optimization using improve mix analytic are investments. on

our Given an growth, had deposit. to important direct has focus strong also increasingly we on successes have growth equation, base that that our significant especially deposit operational and part funding and become of

a we to an turn enhance over XX% consumers, substantial the we’ve of of the now our our upcoming share to funding growth past Through to year. investment, expansion value all over strong plan experience sheet dividends via year. of We deliver not has XX% deposits and shareholders, total results the and distribution now capital and our last buybacks have to quarter helped online and able with our call for for payout balance direct Brian deposit maintain only increase both expectations to for comprise deposit made increase drive in but in Overall, the direct growth, outline investments been the sources. may. financial improved this and a and the I’ll through announced this

Brian Doubles

impact driven $X.XX corporate tax I’ll diluted fourth the Cuts Slide This deferred Jobs of this But of the Margaret. million, by presentation. lower Tax remeasurement share. the we in the morning, on passed earnings rates tax $XXX our of or quarter December. X Act related Thanks, to assets, in net and included per start reported the

impact, or $X.XX earned we quarter. share fourth this per in million, diluted $XXX Excluding the

income quarters X% deliver growth due we’ve year. interest last X% receivables. noted I and business. have primarily we’re the refinements in will to the loan in made more receivables pleased impact refinements the fee continued with we receivables growth the growth generated grew underwriting HHGregg bankruptcy. and the loan and strong presentation. to we by slower previously the The Overall, of Purchase compared the interest later volume underwriting We to year. over detail over The growth up the recent was cover in driven fees was and up last X% growth across with on

would we expect on value in last As we year. impact decreased in that move increased The active continued X%. included are solid these forward balances in consumers. another to X% average and year-over-year, propositions offers the up the moderate million, to with their compared had continue balance per from rate, cards with We driven quarter to items strong which year impact quarters. by prior growth, in the future average resonate in promotional our accounts X% account growth positive average or active and trends RSAs $XX run average

strong was from operating growth average quarter, the X.X% percentage the top expense. this down receivables RSAs leverage incremental generated share quarter, we While higher last by in the as was positive and a year. provision for offset X.X% line of

The prior credit increased I had in growth. moderating the slightly RSAs by reflecting income by Other reserve $XXX presentation. range build $XXX the million normalization. the losses trends provision asset million model. and one the over in lower XXXX, The in will of normalization driven million we our was X.X% year, primarily were quality versus business loan than for natural detail we the lower last lower X.X% later in than XXXX metrics $XX year, was quarter driven receivables enter cover as more credit XX% the offsets the in expected, year. For

by was While and $XX spending everyday our loyalty this driven value by million, interchange on continued expense was up $XX offset driven growth by propositions. Dual out-of-store by Card, increased in million, primarily

and is partial on a loyalty RSAs, back interchange of there each the the so reminder, expense a As to run these offset items.

trend driven noted As with expense or by loyalty $XX X% increased quarter, we fluctuation. quarterly versus marketing. percent last last we to as expect program XXX% year, revenue million, Other interchange primarily growth a some near in of expenses

our and and going forward digital our expect growth, to office. driven largely platforms strategic mobile including and to automate back and investments expenses continue program, by capabilities to enhancements streamline in We deposit our be investments sales direct to our

to up was business trends. year income to positive over I’ll point the margin X improvement. operating to X%, and income to yield driven our on Net related XX.X% was receivables as we loan benchmark increased largely last a costs liquidity by growth. efficiency basis continues degree to margin year our in higher Lastly, the a quarter benefited the versus by cover funding strong with average of have well decline The X XX growth. by the interest a to interest-bearing was primarily and rates ratio continued year, slightly excess liquidity our due to higher the margin net rates receivables generate amount as as XX.XX% compared down interest XXX we’re our points XX.X% Slide mix from higher significant continue optimize XX.XX%. margin net in liquidity PayPal. prefunding move leverage. basis to slight compared The of to for offset on and compared in receivables receivables holding and last year’s points, line driven of deployed interest basis margin from support expectation. higher was that by This The strong was The last last a liabilities,

the for outlook expectations going in XXXX later. our forward margin cover will We our

key on our X. credit Slide cover I’ll Next trends

dynamics delinquencies last XX-plus last specific delinquencies with the X.XX% of and X.XX% X.XX% start year. I’ll X.XX% to versus the XX-plus trends. compared terms quarter, in In were delinquency year, were

resulted net to last normalization. a in charge-offs. rate net was year. the continues factor NCOs largest The contributing charge-off to compared to Moving X.XX% to This increase be The X.XX% in from allowance the our year and was for million. expectations. $XXX build third percent X.X% X.XX% losses loan a as The near reserve receivables for quarter of the rate was the NCO

As noted due lower normalization reserve we the than million to impact expected from earlier, somewhat growth. I was build the credit $XXX slower moderating and range receivables

our the I’d our describe volume to to growth. we As underwriting purchase related more the to refinements recent forward on like impact and look XXXX, vintages

vintages First, trend the most recent continue in line expectations. to with our

making the XXXX the we see started changes. As to continue refinements and in our underwriting those you of to impact remember, we second-half of positive

throughout the XXXX Additionally, we that in our the year changes line vintage have vintage continued to performing better XXXX underwriting XXXX is the than suggests and vintage. with make incremental curve more data and

underwriting purchase these have Now in refinements our score. resulted by surprisingly, mix also to volume FICO changes

strong If increased XX% same you FICO pace volume continue XXX, purchase to year. accounts purchase stratification, with a at a by last in greater grow we score FICO the look quarter at than which volume fairly over

our FICO economic While credit expectations expect normalize we and on purchase pace XXXX actually range we in on our XXX as we of volume for taking. impact the loss continues These XX%, I’ll the into actions from of summary, assuming for declined beyond. been reflecting below outlook provide credit here, have view trends next help and Later, year. our moderate the move expectations will the to XXXX, while In change stable conditions. the inform results

good see returns. to continue for adjusted We at growth opportunities attractive continued risk

expenses million, marketing. driven up in over Expenses year. the growth I’ll primarily continued came last Moving to expenses by at cover X, X% Overall, quarter. and be for to Slide our $XXX

earlier, XX.X% continue I ratio over last for As noted year, while to core to in the our was operating basis as efficiency investments. leverage quarter the point XXX improvement business, a drive the continuing we fund strategic over

of January XX.X%, back our year For the ratio points below from original outlook was down well approximately in full-year, the prior basis and over the efficiency XX XX%.

cover position, Slide Moving as execution capital funding well plan XX, we announced liquidity the to May. sources, I’ll continued our capital as in of and

our been our funding one our strong Looking the of growth funding profile base. has drivers of the of first, at primary deposit continued strategy

business. of continue funding the for attractive as stable, source view this We to a

our slightly billion, XX% our primarily at puts operating through at our Over grown the of the This XX% deposits year, deposit we than last program. year. deposits funding, by higher over last direct $X we’ve level were

Longer-term, to ability customers. our with We our in continuing attract to growth as customer expect our digital Overall, pleased attractive our deposit to and program our building in with deposits we and continue receivables grow to growth. as capabilities. great line rates by continue out deposit we’re to retain drive service, well expect direct offer to

Credit well prefunding the which plan received rate market. our of billion the in of for fixed we fourth part by the issue did As debt quarter, XX-year PayPal very portfolio, $X was

continue prefunding the onboard prepare PayPal in execute we as XXXX. will plan both to will the consist We and to The deposit third of prefunding portfolio our quarter of funding. wholesale

of So our overall, we execute funding strategy very to our continue feel a diverse and set funding about to access good sources.

at capital of of on billion, XX.X% to under phased-in phased-in capital point was basis is which of the We reflecting XXX basis to and our ended is some Total plan the reflecting compares last fully Turning quarter the Basel liquidity. deployment XX.X% fully our down reduction, the from through XX% last of This impact rules. year $XX.X to III a CETX and This liquidity. growth. around XX% our assets. liquidity year, deployment equal total capital

subject the as the and levels. We expect approach to modified these levels liquidity above LCR be well LCR required to put

to We During per plan execute dividend stock repurchased quarter, May. $X.XX a million we and common of on the share announced $XXX stock of capital during continue fourth quarter. the in the we common paid

little have authorized share $X.XX over the in XXXX. of million Board $XXX through quarters June the billion ending our XX, a remaining repurchases four We

built execution strong plan and repurchases. deploying growth form a further we with the of balance levels, capital through share dividends liquidity on the and diversified we continue share strong legal and to capital and market plan and will and sources in to continue repurchase subject any sheet funding capital and our execute very other of We approvals. and conditions to required We outlined new we regulatory strategy that factors, continue restrictions the including execute Overall, previously. to expect

receivables. last versus we XX, recap I’ll performance provided Starting with XXXX the outlook January. on loan Slide Next our

in to in Our marketing partners X% outlook of The growth value be driven to our X% line on range the props X%. our with organic delivering XXXX strong cards was with strategies by our our and of continued growth strong growth.

than data margin second-half better new drive continued for some a along revolve Our and asset benefit in driven to offset than rates, were as last win sharing to and continued for impact innovation growth, which major provided capabilities tempering by expense, of in benchmark from expected original the to XXXX underwriting the well of mobile, optimal the in substantially the analytics program receivables RSAs higher and mainly a of ability X.X% are than the X.X% of a and of XX.XX% came began range in RSAs our more the partly was the percent higher organic the lower was interest to the we by as RSAs. XX% January. Higher XXXX. This back some enhancing funding in in is year, versus Net provision the refinements nature Moderately X.X%, data performance. as we mix outlook investments programs. at with average implement lower the deposit came from our yield growth from drivers rate of outlook receivables the of January. countercyclical demonstrates XX.XX% outperformance.

to XX.X%, XX%. the next significantly ratio was year, and XXXX of largely continued normalize year Our outlook net the in we for X.XX% Net favorable was outlook. rate and in to charge-offs very our off expect the outlook the into charge-off lower range. efficiency X% will line with than which I discuss in of around revised XXXX continue our levels The this in low

assets RSAs. we return expense. We continue And higher impact provision X.X%, of was Tax expense of Act. growth leverage lastly, to all higher by which the The provision outperformance. partially operating margin productivity, offset strong and leverage drive higher through revenue operating the offset on led higher increased the and a to excluding the generated The to were margins,

XXXX Moving to XX. outlook on our Slide

XXXX Our unemployment for continues the and is macro this year Fed assumptions rate mainly assume to tighten the stable.

including well the are portfolio. the an PayPal view impact Credit portfolio, We without onboarding the outlook providing a of as as

X, in XXXX expect of outlook. quarter third the the to of XXXX close closing July a purposes and We assume of for date

The range. continue. refinements is takes X% and for the assumes to lower growth trends account X% underwriting receivables outlook growth Our economic slightly without rate PayPal in into

volume sales broader grow to growth. to e-commerce to expect for We sales times three with at two retail and continue strong

XXXX. the portfolio range in the But range portfolio the expect of in PayPal the continue the We prefunding dilutive the will Credit effect margin run addition rate before would the to PayPal year. drive XX% in of second-half to XX.XX% growth to believe liquid the the have portfolio next XX% a is assets We the for may our magnitude and on the XX%, timing the portfolio margin, and onboarded. of full-year until XX.XX% the XX% to the push XXXX. believe to margin depending into We funding of as on is margin the down in short-term range the push closer may this prefunding held impact the

average our We of XXXX. expenses loyalty in program will somewhat the to expect receivables a for trend is program performance than into that higher and will range. programs, back RSAs second-half The X.X% for expectations. the strong continued expected higher impact and the PayPal build the as of X.X% the This of XXXX not expansion range reserve percent X.X% of moderating XXXX reflects

of slightly terms net by for will X.X% be we normalization lower in growth. credit, In X.X% range, the charge-offs receivables to XXXX and driven continued expect

we a of NCO similar expect range timing will portfolio for size the to second-half, given rates addition full-year. in impact in the the PayPal the end its While the

We and the to charge-offs. higher quarter, Looking rate the quarter first the net receivables. see due seasonal trend NCO typically at in compared to fourth seasonality the in decline

basis has over are the range point in more years, the seen two as XX what moderates increase historically. a closer the we to increase While and past modest have XX we to normalization been expecting

trends normalization year. we builds of second-half portfolio Regarding in PayPal The going continue reserves given the builds the will forward, addition growth-driven, expectation loan more be of that will add the our expect moderate. reserve to to will transition this loss the builds credit to reserve

reserve methodology by reserve will and need of the our portfolio for portion under a be to reserving will establish we XXXX. anticipate year-end the substantial We established a

the reserve the build XXXX. in of of our will we driver EPS this is acquire portfolio, the of of year the size we expect This the substantially overall solution add in the the main the portfolio. second-half back-half to after Given

quarter, to reserve the moderating by we fourth normalization expect million similar credit prior down and first run $XXX from the driven be the the $XXX quarter in trends. For the million build to rate, range to

Moving the efficiency to ratio.

with For approximately similar efficiency PayPal XXXX. the we business change continue of to ratio the XX% an would to impact XXXX, expect the This to portfolio. adding operate not with of

to expect operating feel in are to We continue whoever strategic continued drive business, we will offset be leverage core investments by on the spend partly this important to the business.

ratio the business continues continue favorably to to we efficiency forward, going feel expect Our compare we this to the leverage manage industry to operating well-positioned and positive as to over the long-term. generate

including on PayPal expect we assets transaction. a X.X% corporate the estimated taxes the from to impact generate XXXX, the Finally, in and of around dilution lower of return

rates effective in range tax Act, corporate rate lower taxes. XX% federal tax the includes going Tax and expect in our both the passed will the Given be state This we forward. to XX%

XXXX. to wanted for our around I Before thinking conclude, I capital reiterate

are We a to very follow planning as process similar before.

assumptions Fed in capital in April, timeline the on did a scenarios in hope February will Board with plan year. review our capital be to regulators due plans our as use position to and out will and We our a announce we a similar and that last develop and

acquisitions. continue that, With back we buybacks, expect cannot turn I and dividends it addition would to I’ll in this capital our Margaret. both share at deploying be to point, and to While program through to specific over plans supporting our as growth capital

Margaret Keane

and analytics, that continue with in Thanks, our continue upon to focus digital A marketing, of our on value across a platforms: is to our and our execute priorities to technology. cardholders we strategic capabilities sales close recap to three partners, Brian. loyalty building to and shareholders. priority drive top mobile I’ll

drive continue to risk adjusted appropriate we’ll expect organic growth and potential with programs new We to evaluate returns.

card We to our drive make and utility with investments and value work of necessary innovative partners deliver card usage. our attractive to propositions ideas will the expand to

level these engagement to as We to will help in top priority moves mobile data, to even remain the and these to as drive of technologies and well also investing and in will data an talent analytics with offerings category drive and our continue more the higher customers. a develop leverage technology level channels, SKU market in invest next-generation as help investment Digital capabilities.

Our broaden continue source, banking an products we and capabilities. our funding such, important to as remains platform will and

continue We have opportunities traditionally the It will penetration, strong leverage financial remains paramount offerings such we had sheet as with areas explore to space. we travel product our and to in and new balance meaningful may not where operate business entertainment and that also profile. a expertise our

We do a remain proven our us for to have this and in future. priority top the it ability will

diverse funding. our support to and expect business We model stable with

We also expect rating to capital targets. maintain to regulatory credit strong operations, business and and growth, liquidity support our

we strong Finally, will continue position. our leverage to capital

and Our organic first growth program are acquisitions. foremost capital priorities and

long-term growth, we to support continues to be Second, capital for cardholders growth. that and to repurchases. return to capabilities forward value our shareholders and look share in dividends and And M&A well-positioned for driving lastly, helps partners, our further us enhance XXXX. Synchrony

Greg Ketron

the concludes Thanks, Margaret. on our comments quarter. That

We will session. now begin the Q&A

ask many as limit question. of we you possible. that to accommodate can primary one yourself one to participants as So to like follow-up please and I’d

the additional start questions, be team have Investor after the call. Q&A available the If Operator, please will you Relations session.

Operator

Thank you.

session Instructions] And now [Operator our our Sanjay Sakhrani will from We we begin with have first question-and-answer question KBW.

Sanjay Sakhrani

you. question to the rates charge-off recent Good and a vintages. for those performance XXXX, at bit Brian, the credit the I look Thank quality on trending When morning. be little maybe in that first seeing just the softer – vintages, you with talked reconcile Could guys fact trend recent than the you’re initially in the vintages range. that a about of what stage had terms later you better? seem

Brian Doubles

Yes. Sure, Sanjay.

line trends X.X% of on that outlook X.X% all trending is generally gave with that the say the We to an our we’re exactly look, seeing, So, XXXX. we in expectations. you Based credit for was only we growth. will The year in very made we normalization moderate receivables tweak with and prior to through flow factor of the lower will consistent view. small pace move our slightly as that of

the So line But the growth due look just XXXX. impact we more just vintages, does as XXXX slightly we refinements to some at have performing the that it’s took noted in that vintage underwriting when XXXX, than rate. an and with on better earlier, we made, of down we

have below fourth XXX-plus they We FICO are on in just in the XX%. were down change growth XXX highlighted mix the the a range, seen that in good range. quarter in that still sales. really sales, up we’re seeing sales We But

very with on to core the our much expectations. rate starting moderate small in The was line growth tweak business bit again, in XXXX. only a So, the

Sanjay Sakhrani

And tax guys I’m tax this. from kind the you savings as And of you missed competitive Okay, industry? the do of expect concerned, savings? expecting are I as if activity some then are great. or far response, savings to of But with associated the any the sorry any invest

Margaret Keane

Yes.

Sanjay, I investment to is Margaret. we’re are looking our communities. areas it’s where think, our the and really So, an employees How on two you? make

of for we terms actually into growth I in already the if you our of have anything plans don’t know, lot And In Brian, built accounted those initiatives a investing business, else. would add already for.

Brian Doubles

look, shareholders. Sanjay, very way drives generally, on say value we’re focused benefit for real I’d this our that Yes, using in a

I think, primary objective. that’s our

that when we’re there investments a at our the on some then, always to outlook. today of funding we And make return do we’re things the for in said, But most it’s able at charitable little look, contributions. more pretty that, modest, looking is where our impact initiatives fully bit can business. growth we additional as employees, Margaret We’re look in The meet included hurdles.

pretty there additional would perspective now marginal. anything right from So our be

Sanjay Sakhrani

you. Thank Yes.

Brian Doubles

Yes.

Operator

you. Thank

John with from Jefferies. Hecht Our next comes question

John Hecht

Thanks very morning, Good much. guys.

Brian Doubles

John. Good morning,

Margaret Keane

Good morning, John.

John Hecht

can in then update high-level incremental notable trends just the any competitive upcoming And And give us any on you market? progress is, maybe for a updates renewals? any on question first

Margaret Keane

Sure.

competitive the environment So, pretty has much I same. that think been

XXXX as expect be We same the to XXXX.

renewals. on entrenched I But our would for working is you can’t focus focused we’re us hard is our that, teams very are those what on our every partners partners and day any tell comment probably really particular think, one. working on what to and on need. I to renewals our what I work in well single

really we’re feel make about meeting we to competitive we’re about partners’ good and So, and the felt that’s good our pretty We the pipeline. pretty investing needs, we’re focused on. what sure environment,

John Hecht

you’ve – digital the segment? these composition given have thanks the and any Okay, growth that Margaret, in that. And you for historically that of then, do e-commerce stats the

Margaret Keane

XX% good continue to would industry Sure, now, that card some is our of is we about up I retail say is, business, which in sales really sales was with say, positive line XX%. would that penetration X.X% growth one which I the online the quarter. XX%, where and in see real prior the were Sure. year-over-year so is over up

very channels. we on and this focused and continue stay through volume to the So digital mobile driving

John Hecht

Great. very guys. Thanks much,

Operator

you. Thank

Suisse. Moshe comes Our Credit next Orenbuch question from with

Moshe Orenbuch

band intrigued the Great, at thanks. disparity Brian, between and the higher-end the lower-end. was of the I FICO the kind of by growth

of is you bit that away? go Just lower quarters, that maybe long that that effect And persists? I that could a little several FICO how of is that? will longer can band the when of mean, talk it than – or kind

Brian Doubles

question. good a it’s look, Moshe, Yes,

impact is of I little would moderate really expect the in that into as starting we think, to it and cumulative underwriting XXXX. second-half third a saw in of the seeing we clearly you’re that you we those of made XXXX. quarter the bit really fourth What head refinements and quarter the

So you’re to see books. to come that the starting

still I us. FICO. we’re a at you should and just XXX segment sales of still – So and that, plenty when great booking for XXX between comment look That’s

returns volume it’s We’re we doing attractive compare there. at you a It’s year still it profitable just what to were down. when ago, booking

Moshe Orenbuch

Right.

Brian Doubles

Slightly.

of hard would exactly. for a couple think quarters, to I predict So more continuing about it

the based and these in going and constantly We’re on making returns where the we’re profitability. where we’re seeing refinements seeing

Moshe Orenbuch

Got it.

both you company’s the The see past returns? a what on to a of talk goes growth dilutive mean, could follow-up and little of its in terms about your as XXXX, what as you Just question. would bit it that from standpoint might impact PayPal’s forward the in returns that

Brian Doubles

opportunity program obviously growth be a cannot great We the for us. the with partnership more about excited and Look, it’s expanded PayPal.

I been very clear how terms think think, at what in PayPal. we’ve about of is it impact on XXXX the going to forward,

into EPS return the XXXX, return business. definitely As overall you it’s in from accretive is Longer-term, an the move of line standpoint. the with

that program. like the It’s earnings which a program something the for returns. like a multiple partnership. through really We when new we launching or is profile resilient we got very really So obviously expanding look a scenarios,

we’re… So

Moshe Orenbuch

Great.

Brian Doubles

I Like more about excited it. be we couldn’t said,

Moshe Orenbuch

much. very Thanks

Operator

Thank you.

Bill Our with question Nomura. next from Carcache comes

Bill Carcache

held reserve we’re that that to in versus into environment Is then we continuous last assuming macro expect Good we persist? rate reasonable saw XXXX XXXX morning. is less and change to seeing going in PayPal that – ultimately, there your November it current this And does environment that morning. slow – that year-over-year the building Thank look XXXX, XXXX in first and x that delinquency and December, in translate also downward ahead. Brian, we’re XXXX that versus building in the time less their for in reserve you. again trajectory saw now we

Brian Doubles

Bill. Sure, great Yes. Look, question.

you the to this pointed delinquency out, begin moderate as did trends think, I quarter.

point XX quarter – points. in basis saw third that up come fourth year-over-year. last to guess, I basis We down So, quarter increase they the were quarter XX or year-over-year,

we So continue. reserve we’ve expect you in Clearly, what our builds expectations. than in That’s moderate they were saw of some you expectations a the trend we reserve reserves growth-driven done. the of more quarter. like that think given build in fourth what It’s coming in and We view XXXX. year, with line would of certainly the tightening being in here part our in driven that look quarter. first by the return obviously the than that to to was the for expect better to We’ve

consistent outlook, again, would to very year. in the on credit reserve thought So earlier builds we it and both be where the

Bill Carcache

XXXX guess, process having and also bit, process previously to just but perhaps by versus only a a that extend thought lower being moving reserve reasonable? from that XXXX, is build little a in growth-driven mean normalization I not more would growth-driven, that thought definition, to seasoning-driven, effectively So

Brian Doubles

builds that come the quarter. million Yes, you million down that’s I back That’s our reasonable. for $XXX in range in quarters to first fourth to million the go to mean, quarter. three just if per $XXX reserve were $XXX the XXXX, now

the expectation lower obviously, the outlook builds, PayPal, right, in the just add reserve And compared builds core would of to the be, excluding quarter quarter. addition to an out, million the will again, million, XXXX. $XXX kind in they so would first fourth of $XXX that of giving to if be run you similar significantly second-half. for and We’re the PayPal to Then moderate reserve the XXXX

think PayPal with third bringing we’re a likely is, reserve in on the best the starting about way portfolio to of we’re zero. the So quarter most and

roughly call nine over, we’re build months, full effectively, to it, a maybe months, existing So methodology. going XX reserve under our

and So for to to that think XX XX months build a months. coverage it XX loss over nine to we’re going about on

really of the the of $X.XX driven going and that So in driver the allowance on is come to back of dilution a year, by that’s second-half that that indicated lot November of really the in, in we PayPal build.

Bill Carcache

NIM. on That’s the optical driven may by quickly the build anything I Isn’t could compression. ask, clarify there prefunding? of with it’s of perhaps you’re else more follow-up great. the my And or impact you. liquidity that thank on if really to liquidity I so, Brian, that just the NIM NII you from in than wanted sense adverse negative is no that associated kind bringing? kind If

Brian Doubles

way a think about good to That’s it.

the range, that very is with around very So, margin stable the XXXX XX.XX% net consistent core interest rate.

going of in is out bit assets on as So is on funding the that that a prefunding short-term hold in you the the to stable. include core first-half, start down bring book. does then bring that the here impact brought portfolio PayPal, margin we we’re NIM the And until to

got a some negative combination that carry So of on you’ve funding.

on from You’ve denominator also larger the NIM the rate. got the impact

second portfolio largest before impact the quarter bring the see probably on. you’ll So the in you

XX%. of driven timing It a the bit a at and magnitude bit by funding you would below unknown for a the little I little the range gave the adjusted of it magnitude little dip really prefunding. of XX.XX% was timing NIM PayPal could conservative think That’s to and that about the depending why is that this point. we a to closer So on XX%,

Bill Carcache

you. Thank

Brian Doubles

think, core margin, very again, But interest net I stable. importantly,

Operator

Thank you.

question Ryan Our with Sachs. Goldman from comes next Nash

Ryan Nash

morning, good guys. Hey,

Margaret Keane

Good morning, Ryan.

Ryan Nash

Brian, back and from original ask Can profitability? point. the the like given just we’re in this about talk to middle is midpoint the can of range. below the a about that, to kind tax get X.XX% maybe impacted on talk programs the about all if guess, so came X.X% the reform, range? pre-tax the RSA, in to also the And how we talking you X.XX% just RSAs now the getting based seems X.X% two can and lot shifting I loyalty – you at at it the X.X% all well I of something this about at in by maybe are guidance, or interplay back line maybe of to

Brian Doubles

miss me I Ryan. lot if back Sure, Yes. a so something. There’s bring there, in

is to X.X% to for I the to that’s XXXX, RSA, on for of outlook go terms think, what the it best think X.X% RSAs. That the X.X% to was in original okay, back I would a historical more about of the which way our to consider norm year. X.X%,

from And operating you provision leverage retailers out, expense, in ended items program well that sharing as higher those right? the incremental pointed okay? as offset had, as we to So better was more increase year had Now, the sharing year-over-year. primarily we the at loyalty additional than two due X.X%, that margins that in we expense also and

of think, our that’s for highlights natural I one the look, credit good That offsets normalization business. thing. a So, to obviously

you range. expect RSAs combination X.X% of start to the we to that That be X.X% in think reflects So the both program now to performance. as XXXX, strong about

build, I the as We to mentioned as also moderate expect move earlier, through we year. reserve the

lower obviously, puts range. X.X% of that. us will to the it the in payments That way construct our put that range. benefit to we partners the the reserve but from It all RSA somewhere X.X% historical doesn’t think just builds, closer us So increases back, and

Ryan Nash

Got it.

just could ask I a follow-up. if Now

Thanks. related about to from a Can bit million in their that is to relative into lower of X.X% the slower? given guidance terms pocket? to that, given And core get think, X% something you so terms consumers to that, a of just right experiencing the more last from lower tax money I Is for that X.X%, number? for improving reserving you’re there growth that the growth is credit little reform. baked now, having given fact going going X% you in growth. had the benefit in guess, the around Is talk obviously are your still it last or guidance, customers in year, anything said the to Just to $XXX be I quarter credit

Brian Doubles

Sure, Ryan. Yes.

credit personal outlook discretionary in increased or consumer. on would nothing either personal tax expect from rate into really through benefit But early like the side. it’s to the on speculate the forecast. tax consumers more the should Obviously, baked better income sales a too haven’t there’s anything provide reform. for benefiting So somewhat either lower or economy we to to those, of We

to be there. So some reason didn’t I optimistic We look, think, potentially there’s anything. include

So it’s I tell. was still other think, to early question your then And bit on? a little

Ryan Nash

build, of absolute The reserve growth given growth? slower level

Brian Doubles

little think the of that build quarter a bit expectations. better the bit little fourth being than a our drove in I look, Yes,

is included and will our that’s XXXX in forward, best to about off. compared leveling slightly. reserve outlook normalization in think Going moderate the that way credit down build reserve XXXX builds to But come the

We for reserves will to continue growth. book

line growth-driven credit included outlook. more thing first in We’re our going we’ve as difficult quarter. off, outlook I is earlier will little that’s the normalization bit reserve to build. all not the going reserve beyond that to with give you build But is a It’s The become to split. in and see out important the level a that really an you’ll estimate that, think

Ryan Nash

taking Got it. questions. Thanks for my

Brian Doubles

Thanks.

Operator

you. Thank

Our next from DeVries Barclays. question comes with Mark

Mark DeVries

new this I Yes, feel know in been conservative. had have been you’ve you’ve one, this think make make you charge-off But item other overly you to to do guys revisions past. that thanks. My the conservative question mean, mainly charge-offs, I have every is. to has I guidance with on guidance in had how –

for range? level a that that, XXXX, be mindful get you’re set this if to not below pretty to perspective on kind you’re interested going within when guidance at of setting of confident, you new your Just where where you

Brian Doubles

we you I of look, – to best give view to Yes, XXXX tend is our Mark, think give look to we like. – you try we what going

little bit a perform better. typically things Some

back bit think, think, I in a you metrics. into natural the we against take need we how offsets to little business, performed you And the you we account. Some have XXXX, worse. key in you things if come go also showed to all And

to saw kind just normalization back more January credit the we than that of very to XXXX the strong and performance, a is better if would and walk RSAs we in So year, margins you back of and return. get you last thought lower offset through we

timing where the the wouldn’t can of drive I so a of think, with guidance call margins, exception I that prefunding the – I the given And in difference maybe conservative. rate, the

focused think, where on the is And I beat look, all outlook obviously our those metrics best to trying we’re view. can. we

Mark DeVries

enough. push anything that can you the prefunding, fair or do to there considering Okay, And just then is a on out bit.

of So much well that you’re cash those not too advance in carrying getting receivables? sheet balance on

Brian Doubles

would is on going a say, prefunding I we the best we acutely try are we bring to look, very going to as third in Yes, is, here of are aware manage how and and expensive it quarter. large that can. This that asset we’re

going on when not expect have a to we’re be to to with $X to. PayPal we in of we bring and on close that going don’t And regular funding dialogue We’re timing.

Mark DeVries

Okay. you. Thank

Operator

comes with JPMorgan. question next Rick from Shane Our

Rick Shane

below. spend limits XXX see line you bit higher little gap on widened. for developing Thanks the XXX the above loan for to borrowers? the a the widen concentration surprised I’m between as differentiation has between you this the my an metrics that’s you’ve very taking and guys. growth Hey, spend given gap and There’s interesting morning. borrowers, good and or to less the from growth loan questions some Margaret have spend actually Brian, relationship FICO growth

Brian Doubles

Yes.

quarter. back dynamic we XXXX bit. normalization you come bit you fourth when the where a you’re sales, see So, quarter, is, starting yes, then right, and acceleration that, an more other of been, to think in I going to the underwriting to about saw in that best credit saw see your in that to XXXX, XXXX, overall you’re And where revolve So on we the is materialize pick deleveraging that’s the tightening this third tend you in a like underlying see have right? the first back-end portfolio, you’re mean kind refinements up making and that’s way

Obviously some cumulative is – volume. decline you of revolve overall the so these more purchase that the in see again, portfolio, which And offsetting – impacts some on over after of time, somewhat receivables X% growth, you’re that going in that our outlook is see tightening X% really the lower you’re result in that to which in of to what range. we’ve seeing done,

So line at those that that materialize point some closely. more volume up two will sense? purchase make and Does

Rick Shane

partners borrowers? And does. Are available value sub-XXX the the their liquidity you underwriting to you if costumers. to obviously, that and it getting less Yes, provide those you really credit retail the tweak any pushback make

Margaret Keane

And fact cognizant very all of cases, our in it. the think, cards. of cases, want people we the to can that them work I names their put they on partners closely handle are don’t very credit hands many that in with almost are

including pushback with us again, not we to closely work They credit. and with closely very here, on any partners. and So our want be all them are work responsible we getting we

Brian Doubles

again, And refinements. wholesale modest These these is – our to underwriting strategy. changes are aren’t this

You’re on of cumulative sales, seeing profile effect changing a of but the the we’re bit risk overall not portfolio. the

Rick Shane

Great. Got you, it. Thank guys.

Operator

Thank you.

Our next question comes from Betsy with Graseck Morgan Stanley.

Betsy Graseck

morning. good Hi,

Margaret Keane

morning. Good

Brian Doubles

morning. Good

Betsy Graseck

rate it’s Just next without a without with more – higher-end a is question X.XX% range. there’s on of lower-end of bit underwriting underwriting. as it, the year you quality, and PayPal’s X.XX% in wondering, guidance riskier the been the just it’s wondering, I’m at if than that they’ve thinking credit the range been net towards what because a just PayPal, charge-off for I’m the least, with you’ve and with the PayPal. to are

the you’ve numbers of same kind I’m scenarios? for that fact got So the both by struck

Brian Doubles

Yes, Betsy.

the it move the might PayPal within the full-year. around don’t think, I We range look, changes us So, range. for think

a it’s question. think, good I

PayPal the portfolio in given does aggregate. rate the portfolio at than a loss Just higher run our

some to we be we and think out. the expect little as rate beyond a hard beyond, start upward far that and you that. As XXXX bias specific XXXX on it’s there about do to through would be move But

Betsy Graseck

run And credit to the the in your that do way it, you of book? been line you’ve piece expect the same running anticipate of with from portfolio perspective rest or a you do run the how running they’ve portfolio

Brian Doubles

Yes.

that with we’re in risk So, well, being it’s underwritten significant very profile we first, I PayPal anticipate would this changes just portfolio. of the At comfortable don’t today. say, any the the way point,

and process. our leverage PayPal of their really utilize They’ve lot got that going and to great also of a we’re transactional can to techniques. scores going we our analytics underwriting data But obviously leverage. some We’re

manage So how and underwriting more sophisticated doing some around our some when can think, I portfolio together. we you the with even of combine of get today proprietary what techniques our models, they’re we

So…

Betsy Graseck

that’s that walled…? Is something

Brian Doubles

ahead. go No,

Betsy Graseck

Is that that that’s what you that can off walled from relationship? to walled and utilize or PayPal off like others with learn to you

Brian Doubles

we No, program. by very it’s Yes. – customized

So we don’t the programs. for air individual across and proprietary it’s customized very programs,

make I the to expertise best we’re companies would on can. what decisions ultimately control tools, So underwriting say PayPal, we we of look, the underwriting, but leverage data, both going the the to

Betsy Graseck

Okay. Thanks.

Brian Doubles

Thanks.

Greg Ketron

have question. more time for we So one

Operator

Thank you.

from Sabadra Bank. Deutsche last question come will with Ashish Our

Ashish Sabadra

Thanks.

Just to, maybe that right? of include the you’re you’ve kind of get, does the going that clarification, a tax benefit to guided ratio XX% that quick that is any efficiency from reinvestments

Brian Doubles

correct. That’s

Ashish Sabadra

any would comments on recovery kind any And there how the quarter? the Was How a be, And noise Okay. forward? if recovery help that? part to quantify you about those maybe of And just trends? the going was, that been hurricanes the in from there can do think second you trending?

Brian Doubles

sure. Yes,

rate. So, hurricane the recoveries, I that. Yes, recovery that really And charge-off October, higher-end was on other towards in really wouldn’t I stable. than highlight net anything the the then hurricanes pricing pretty put we us nothing disclosed back think, in of the would quarter, impact on

Ashish Sabadra

a can I if you what are go that hurricane – off. follow-up as like, the maybe on ask And your expectations, should forward, because come I really hurricanes just Okay. if effect

trends like hurricane impact underlying that but see come better we should off? So negative continue,

Brian Doubles

is being I Yes, forward. going it material wouldn’t think about

Ashish Sabadra

you. Thank thanks. Okay,

Brian Doubles

Sure.

Greg Ketron

further have. morning Okay. be in Investor everyone, call your this team Thanks, The Synchrony conference for a you interest joining Relations to any answer us may will on available Financial. questions and

So we have day. hope great you a

Operator

today’s and for Ladies this you. you conference. gentlemen, participating. Thank concludes Thank

You may now disconnect.