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Synchrony Financial (SYF)

Participants
Greg Ketron Director of Investor Relations
Margaret Keane President and Chief Executive Officer
Brian Doubles President
Brian Wenzel Chief Financial Officer
Moshe Orenbuch Credit Suisse
John Hecht Jefferies
Rick Shane JPMorgan
Ryan Nash Goldman Sachs
Bill Carcache Nomura
Don Fandetti Wells Fargo
Betsy Graseck Morgan Stanley
Kevin St. Pierre KSP Research
Sanjay Sakhrani KBW
Call transcript
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Operator

Good morning and welcome to the Synchrony Financial Second Quarter 2019 Earnings Conference Call. My name is Brandon and I'll be your operator for today. 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 Relations can today's on site release, Investor topics to to our of plan during detailed Web press address be synchronyfinancial.com. Web going site. call. to that the presentation financial addition In schedules we we have in accessed covers the a by press section the The release information our This presentation are available

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

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

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

not is only authorized does earnings our by The parties. Financial accuracy not third teleconference are transcripts Synchrony located our the guarantee responsible Web webcast on of Finally, nor provided edit and site. for

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

Margaret Keane

everyone Good and joining Greg. for morning Thanks today. us thanks

promoted marketing platforms, banking key strategy. key outline on the President. experience These for business and results, of focused second been include and expansion M&A, data I recently Before across into investments In deepening get the initiatives direct-to-consumer of including customer is company's I'd some he like this he which accelerating strategy, important the at company executive digital to quarter responsible. is Brian level product has the company. integration Wenzel analytics, functions to and the the venture the enterprise the of role, made we changes growth of the

XX more Brian retail years. the deep continue Officer Officer platform experience and operations people as imparts and for a as as Wenzel of He Chief year successfully His of Brian focus objectives. served growth will past card our Financial for has CFO. financial for perspective our to execution than Deputy our Brian Doubles our and of succeeds partners. understanding Financial on a Chief broad and long-term

a continue and priorities us business. what our right strategic these that underscore to am changes have far am the dedication the grow proud to to I we lead transform and the drive confident and These roles right future. leaders have the achieved thus people in I to into of

our analytics opportunity drive detail from Brian today You cover initiatives to innovation and will will are have hear data helping that them financial results. an Wenzel digital Brian to our will Doubles as And growth.

our overview I'll by of Slide X. second providing begin accomplishments on an quarter

our progress our $X.XX. across partner as which results results. included platforms the deliver by continued Wal-Mart of the in expected driving strong through $X.XX share of on helped a Our each quarter the focus per and in positively programs million related the the portfolio new to sale of organically Earnings impact reserve XXX reduction both growth a second sales or

Wal-Mart portfolio, the were receivables X%. purchase XX%. grew up interest and and X%, Loan Net loan digits income excluding accounts receivables both active a a on double grew average grew basis core strong volume

successfully. look successfully as completed report that of We our This to to conversion pleased line the the continuing is program. during XX.X% expectations. has to to Paypal innovative forward solutions quarter. achieved ratio efficiency to in program Paypal partner Our I'm with to with been on-boarded grow And our develop we was

make Program. to also Direct in have our We continued investments Deposit

growth During deposits. come has we the billion much X.X and of direct grew year or quarter, deposits last over this through XX%

Partners relationships key and we with payment new recently extended In sales platform, solutions recently and launched Global relationships program. renewed a extended also CCA We and Penske our Automotive.

HDAC Samsung and with added also Zero programs Motorcycles. We new

analytics quarter, During Together deep program personalized we for fans. we in new also leveraging enhance are sports data loyalty experiences license leader deliver our launched expertise merchandise. Fanatics, the global the to with in shopping our and

priority broader cards. to is acceptance grow network key you of As our great utility to our and a know strategic

with been credit particularly in have network. We successful doing our that care

This quarter Valley's Group Baylor we to physicians in White and care expanded our network the include credit Scott Texas. Center Medical Lehigh Sunnyvale

partnership and to our and renewed with also remained Bosley programs, shareholders. returns strong of risk operating relationship highly sheet focused We We with our adjusted returning our launched capital with the on a Lighthouse. balance

dividend to share Overall, planned this make quarter, quarterly us as repurchases executing we includes our the continue up organically progress strong is new our in we programs. $X.XX both billion plan began strategic the initiatives share growing increase in a per a and quarter against beginning capital via which During $X in to the of quarter. to new third for

in investments customer And and those success. our to outline technology, Brian of Our are fundamental innovative data achievements shortly. analytics digital seamless experiences some will

active Wal-Mart were spend portfolio, Slide largely by were and and XX%. sales volume up up last but I'll on on reclassification on over few Interest results was PayPal accounts it were Loans X%, were portfolio. fees purchase our up In of increased offset year a results turn strong loans they by I the retail Wal-Mart XX%. grew X. XX%. excluding Before XX% the Average program driven minutes platform to which acquisition, him, card, the our over credit

have conversion to PayPal the completed of happy are portfolio. We the

merchant key has customer for are thousands enhanced in through this a and our we an merchants the the within This partnership, of expanded rapidly growing and digital experience providing is environment space capabilities and consumers. relationship payment

partner. We about excited are very with valued the opportunities continued this

contract retail our relationships success retail card We doing fees are have great XX% under have Currently and card XXXX and ongoing space partner on loans until interest worked are renew in so. in and had the beyond. hard to

platform resulted driven furnishings active solid loan X% receivable by broad growth particular that Interest Payment on solutions increased power delivered accounts strength and receivables fees in loans growth. increased primarily was average X% of X%. sales volume X%. loan another also home with the up quarter. generated based across and in the growth We and Purchase

develop to network extend solid utility solutions of initiative our yielded results. Our the has payment and cards

locations. care Synchrony with used. use auto over the Synchrony we along million million card cards at their for X future. million We of can locations in driving home gas helped now growth initiatives And volume at be These with significant XXX,XXX drive approximately purchase create excluding have of approximately where to network nearly can other that cardholders that X opportunity stands currently nationwide the card and networks have X our reuse have now over such cardholders card oil related and as XX% higher

and fees accounts on loans led Interest receivables increased was and solid Card the veterinary specialties. X% generate X% credit X% to continues dental growth. growth, was X%. driven receivables an also by active increased growth volume primarily average up Purchase of by loan

new With XXX,XXX over on cardholders. quarter, the now this locations in network acceptance we active million partners and X have over

the increased and XX% the to card this rate drive reuse the network purchase significantly of of volume in helping utility have We to second quarter.

increased sales continue partners value and solutions delivered extend platforms expand growth relationships, we as utility, card solid provide networks and We our our to cardholders. across added to

the turn call I'll that, to Brian over Doubles. With

Brian Doubles

Slide my I'll comments morning Good X. on everyone. Margaret. begin today Thanks

growth ever That has acquire as experience have the or cardholders and means help to innovation required information meet channels work customer to have that been such and seamless develop to and to seamlessly. of digital ensure partners organic and a e-commerce programs. their and a essential to that channel whatever and must programs plug-in significant new rise drive their uses. We apply, both have digital The investments seamlessly made helped access across our technologies, customer account SyPi shopping evolving and which servicing rewards experiences across of to customers. us leading delivering all cards, Innovations digital Synchrony requirements digital

an to partner. responsive powerful we user dynamic It is and can incorporate can incentives. pre-qualify tool to applications needs first applicant enter known minimize It to that and configure the is intelligent apply offers, experience each can purchase coupons and an credit Digital of customers. a number also presale integrates and that for adaptive fields

is Our functionality access for quick easy the provides account mobile to and digital servicing key platform servicing experience. that optimized

and plug-in and SyPi that quickly We a Home. mobile another Alexa make integrated approximately. Amazon servicing check payment. or virtual Cardholders and or balance powerful Google can innovation into have developed their can a partner's card things be do seamlessly Synchrony also capabilities like is assistant

XX% XX% over retail been account impacts on meaningful penetration customers channel sales happening the growing. platform, card quarter. penetration online credit, for apply this can having the the These our XX% year. last our mobile sales digital nearly ability grow for their of check same Overall are and applications online in and quarter mobile growing to consumers redeem of service Through alone our are earned for innovations has The with second was channels. our rewards. Digital

to SyPi made of Furthermore, July the visits growth of have over billion XXX% we in X we payments since annual being launched now average platform and XXXX. in

stay investments evolving we yet need are significant the these While to they contemplated. they on and focused ahead important are of to achievements, have may this with conveniences landscape. not customers continuing are where meeting features We're they make

as part it an of the know integral increasingly and analyze Slide our you X, actionable data has to Turning to make ability programs. and success of become the

data that credit assets servicing strategies. ecosystem customer informed partners experiences fraud developed to underwriting, of our sources personalized customer marketing, broad and leverages other We optimized external integrated enhanced set from an have through Synchrony, a data transform and retail

X and by our illustrate customer analytic behavior to We to the to is how engage partners results. data more right are than with developing us of direct demonstrated data, transformative, impact which provide deeply right program It and on on ever Slide innovative a provided enable driven experience presentation today's customers data will the are right value empowers us data before. capabilities The the examples analytics where time. analytics to channel having at has of

Through credit improved partners a use for sales in more line by customer results same to provides assignments able and XX%. experience improve partners and we of XX% and economics analytics for the customers for at our best drives data program. have certain time better to the shared This been

proven are our reduction fraud to that of analytics partners have rates, customer enhanced Customers as segmentation much to for powered propensity have the a highest good of predictors scores has XX customer observed engagement and fraud Also XX fraud. higher. data lead advanced to with low by techniques as behavior

the Increasing with more us offer customer strategies account enhancing build based allows targeting on strategies campaign balances. drive also segmentation higher us experiences. returns, partners help to customer and engagement our increases effective These campaigns. spending customer Customer while for marketing our in and

results important we drive leverage component focusing of user business investing an keep Given help and data will of to activate to the performance methods program our integrated and enhance on new the experience. assets it's analytics, powerful data and

Wenzel. turn that, the call to With I'll Brian over

Brian Wenzel

to Wal-Mart related portfolio. Slide $X.XX of X. the $XXX included of a areas share. the Thanks The earnings X quarter expected $XXX reduction benefit as second Brian. reduction of in totaled or reported morning or growth sale noted on of This and the million we diluted Slide I'll reserve in the start presentation. This $X.XX per after provide We generated tax EPS strong quarter. an of million in $XXX million for year-over-year number a

receivables up loan portfolio, year over Wal-Mart PayPal XX% the and of were loan program Excluding the on up fees addition the XX% interest, credit last receivables were reflecting year. last

we X% a We XX% growth. solid increased has acquisition percentage business improve and organic expectations. X.X% over the pleased to active credit for million Overall, program receivables returns as or average the quarter generate with across well from performance continue was RSA an program Growth was has as accounts deliver also XX% inline growth. increased PayPal Purchase growth $XXX last of risk drove adjusted on increase. our this volume the year. including we're last with RSA's the the the year.

a RSA's X.X of a range expect percentage will in to be for detail I to as cover in average receivables continue more XXXX, We X.X later. which to

a $XX presentation The partially the driven build the reduction, detail related quality million portfolio of loan reserve to reserve I provision later quarter. million, by $XXX the by the losses for cover core metrics in decreased the will or Wal-Mart million asset the in mainly more offset in

program. versus Other primarily related $XX last by year expenses or addition expenses the of PayPal driven to X% Credit million increased

the to continued second company results the generate strong overall So, quarter. in

the program net margin and income receivables interest I and and will include Slide up growth. The loan acquisition was cover with Net margin our interest was and line for XX.XX% which to year's in program pre-funding impact driven primarily move by credit our income addition XX% compared XX.XX% the margin interest PayPal was the of last PayPal of to expectations. X, credit of the trends. the net

We as percent assets the benefited loan of earning total year driven Credit from program growth. to a compared higher mix receivables primarily last acquisition receivables and PayPal by

increase an was yield versus basis of interest total X The in decline impact margin The yield the benchmark loan receivables was liabilities interest to loan from increase a predominantly due Also net points PayPal XX acquisition. impacting cost rates. in a to bearing and XX.XX% liabilities receivables Credit basis program decline higher bearing mainly in was X.XX% of the points year last cost. interest

to believe year. normal the the margin this continue XX.XX% interest around for potential seasonality and sale portfolio XX% net some with We Wal-Mart range run in the will year later fluctuation to the

cover receivables delinquency held XX-plus the year. to to I'll on approximately Slide to credit XX, reclassification loan was of primarily also due last terms in delinquency specific Next billion The for trends. in X.XX% delinquency of X.XX% our in The XX plus key quarter trends the year compared was versus rate delinquency the with sale. rates Wal-Mart rate dynamics X.XX% X.XX% and last in $X increase our was

the that loan to million expect approximately receivables at sale loan expected which we receivables to portfolio period was consumer Wal-Mart in receivables $XXX quarter charge end. remain prior in off The loan end

that Given million continue a the reported the represent the majority percentage portfolio billion to Wal-Mart $XXX and held delinquent for the of are that the loan period end loan on higher. we sale skewed receivables accounts high $X total, and receivables in of exclusion rates receivables the in in period report from delinquencies delinquent these and

Credit delinquency quarter the program of rate PayPal the in third addition impacting the of Also to acquired XXXX.

approximately and program exclude PayPal basis the rate you basis delinquency points delinquency the reflecting stabilizing the XX-plus of last then rate If by improved compared year XX by the portfolio, X to approximately Wal-Mart XX trends. credit plus impact points improved credit and

to expected rate net The due net lower to of basis quarter mainly we to last The somewhat levels. expected compared compared X.XX% offs. recovery offs reported higher quarter. and second X.XX% Moving charge to rate to We was We was to than charge on to X%. charge in that X.XX% points a XXXX. XX year as looking quarter last and quarters net off the closer receivables had prior and recovery higher had trend to was expectations the the had percentage XX average in rate first for X.X% back quarter

While PayPal continue impact to improve, the offset from addition this the by partially program. trends was the Credit credit of

million Excluding points off a percent The impact PayPal X losses the a compared bill and the to the charge the in receivables expectations. quarter the reduction and last year. was in the was excluding related program X.X% $XXX impact the Wal-Mart for in line from portfolio, approximately allowance second with of core and was basis to reserve rate reserves our Wal-Mart credit as loan net down portfolio of

fast Looking $XXX have held be the degree diminishing we as that in in the the starting the growing with PayPal see third in that impact from see and second higher the year. acceleration quarter, to in quarter. seasonality of The sides as expect growth growth period normal for some than on of declining in receivables we this we year After Credit due third the to is range. that include build we account reflects opportunities growth comparing for loan quarter in provided digital outlook Consistent growth the of loan we'll and the half we third receivable last reserve the the the January, program. space core core acceleration in be expect Wal-Mart quarter in expected remains investment. into portfolio taking the in an second well This the million will forward, acceleration the

the in second was remaining end now the the reserves loss in reserve Regarding future October. portfolio. sale million Wal-Mart $XXX loan with the be We loss portfolio expect The portfolio at held approximately the of loan completed quarter. the of the reductions against Wal-Mart will associated

reserve the in We the in will occurring with third reduction expect quarter the the around in when quarter was portfolio the fourth be $XXX sold. reduction million the remaining

charge Regarding net offs.

charge accounting The quarter and The related was credit to last be driver third in third a second of point quarter of year. offs quarter. year impact XXX second significant in seasonally PayPal basis charge-off net July in the also decline the quarter rate Credit the from from program the net last purchase lower than acquisition tends

line expect the from to XX quarter. This of included outlook. year declines more historical modest in to line in expectations the second this our with be and decline points XX in We and with basis more is XXXX charge-off net our

We continue PayPal partially the the impact expect be will with to net increase driven the sale entirely portfolio the Credit X.X% this by offset charge XXXX portfolio the offs slight by for in later the year. X.X% Wal-Mart of of range

to and similar of effects net XXXX. expected charge-off be rate the PayPal Excluding to Wal-Mart, was

credit on discussion thoughts of to up our around beginning I the in on you CSO give wrap initial visibility trends, I Before some want implementation XXXX.

that for our under with over assumptions the of evaluation a on exclusion still finalizing based are We factors and capabilities are number inclusion or analyzing potential remain alternatives we predictive time.

on We testing validation our core parallel testing. undergoing our are model have commenced and models

continue also work to feedback regulators. with from obtain and We

remain preliminary been our reported allowance increase quarter. key the we loan our the total estimate have compared factors quality the composition adoption forecasts depend noted to the these factors what view open the upon impact on from losses [Indiscernible] based I would at to for impact current have XX% in and in the While initial the addition end economic asset conditions the of to previously. portfolio, will and of second XX% upon

improvement leveled forward [ph] to trends to In and expectations in are with move have we show line trends economic as we the [stay and summary continue conditions. low] showing stable our off credit expect assuming

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

do over slow factors. to X% acquisition we're driven XX, expenses expense this Moving We following the year program. last expenses by the at expenses up primarily of to Credit rate growth the second are Overall half of up in Year-to-date the due for billion the PayPal $X.X the I'll in expect year quarter. cover X%. Slide came and to

comparing beginning Credit of post the the portfolio. PayPal with against acquisition begin the we'll First, third quarters quarter,

In the expenses portfolio quarter here to impact after this efficiency addition the for this, with last favorable XX.X% ratio the The and year. on will Wal-Mart later year line expectations. the sale be of level in was

Moving at our billion to deposits direct we've The primarily strong last of and our or compared funding that X.XX% puts XX, Trust. our issued debt XX% June, significantly million year. year This the our $X.X Issuance deposits last to over deposit with grown XX% has XX% Card oversubscribed. of program. $XXX rate through demand we a year-term a In fixed of out secured in Synchrony were three issuance Slide

plans. to compares capital This phased ended year reflecting execution through growth of Turning liquidity. Basel the PayPal We and CETX fully basis to a impact continued at fully of in quarter under capital our deployment XX.X% on XX.X% program, capital the the acquisition Credit the in rules. phased the X of and last the organic

On we new are XX, May capital June to pleased X, our XXXX. plan announce through

$X.XX the XX.X quarter program the freed sale shares during May repurchased portfolio. of the an the Board share commencing our from stock up increase the million plan of repurchase during the includes quarter. We million represented and Wal-Mart totaling common $X expected capital in in share in $XXX began quarterly up the This to Our which quarter. new billion, approved shares dividend second third repurchasing to per execute to

some assets. XX% liquidity is over for to the year of facilities down deployment the our Credit XX.X% of which total $XX.X Total acquisition. undrawn billion PayPal our from program last This liquidity equate including was of credit reflecting

very capital growth of liquidity we share funding maintaining the a we and strategy continue form continue plan balance to sheet to capital diversified and further of and dividends sources repurchases. committed we strong We're that through execution our Overall, to the and and execute levels in capital outlined the deploy previously. with expect strong to

to as to well seasonality the Before for the range and second later with around expectations as I recap margin wanted interest year. the at view current our conclude, potential for believe the quarter. sale continue will the run Wal-Mart year year. this the the interest fluctuation I XX% Overall, for the to net with line third performed some XX.XX% portfolio in net normal We quarter margin our

of a expectations. as the RSA quarter line were percentage average X.X% in for our with receivables

to for continued X.X% the be RSA X.X% We range expect XXXX. the to in percent to

in bill we'll we in reserve be expect Regarding largely $XXX growth in the be by for third see credit the core to a normal range. driven and quarter million we third seasonality the quarter

to to quarter. at The second sale Wal-Mart October. expect completed portfolio end against now the be the remaining million reserve of held We was in portfolio loan the $XXX of loss approximately the

We Credit partially occurring round portfolio still X.X% to the in over expect the with quarter charge impact remaining fourth portfolio the in net third was when slight We X.X% portfolio later driven to quarter in of the the be by the increase the be range the offs the Wal-Mart with in a $XXX reduction reduction reserve million for sold. the year. by entirely will sale XXXX this offset the XXXX from expect PayPal

Excluding and XXXX. be PayPal expected rate to to Wal-Mart effects net similar of charge-off the is

The the quarter. third seasonally quarter lower second rate be net charge-off to tends than

year's second points was last credit to the basis accounting program PayPal by decline third of the purchase driven impact related also Credit acquisition. the from quarter XXX from The quarter

decline XX more the to and of expect trends year XX this with basis to more in line points. modest historical We be

ratio be leverage still expenses, and full positive efficiency to operating the continue to year. to around expect the we generate Turning for XX%

attractive business returns. growth the continues risk with to summary, In adjusted strong generate

the now Q&A. back I'll turn to to open the Greg call

Greg Ketron

comments the That concludes on quarter. our

as begin one follow like will you yourself please ask accommodate possible. question. We can to to many primary that one the I'd now as up Q&A participants of session so to we limit and

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

Operator

you, Thank sir.

Moshe have ahead. Please [Operator begin We Credit And the go from we session. will now Orenbuch. question-and-answer Instructions] Suisse

Moshe Orenbuch

hear Can Can you hear me? you me? Great.

Margaret Keane

Yes. right. All

Moshe Orenbuch

Thanks.

that. about Sorry

talk for maybe for close talk of growth. a talking I Wal-Mart and that that to overall about acceleration you out potential thinking probably given about pretty expand loan growing organic the and XX% and XX% has about was through relationship into the driving in how so -- vehicle that as you're that? the mean significantly potential figures So now Could transitioning guess or to how growth? I about you're loan PayPal before

Margaret Keane

Yes.

which the of excited that completed far, on about. list And we which seamlessly was we have a thing are the conversion that went and we've think to our fairly initiatives now sized conversion drive that I a significant growth first So we're the for really program. that's us really attention can really targeted refocus great really for

I the technology even teams think closely really this base I part more a a partnership merchant go be say and we the integrated see enhancements with we both of really well as into as working our really together, would so going as work PayPal, of story marketplace on have working we're big growth we it's strong program as enhancements to forward. and our really

Moshe Orenbuch

thanks. during you think pace. to billion? about X how million start maybe the gears stock. were late quarter should at we little getting of of switching the that over Like you a despite I deployment $XXX the continue And similar mean a looking just bit able worth kind Great to of a buyback are

Brian Doubles

Moshe. I have would The Great. core a you is, capital earnings. think plan upon return Thanks way our based about it

think how for about up $XXX the freed at the look you about in gets $XXX how reserves If then and second When fourth. of of freed guided the in released in capital you fourth you that million effect Wal-Mart capital in should XXXX. gets third can $XXX think upon the in quarter. tax kind and to quarter, gets released it million the quarter gains we the which the the $XXX million conveyance at look portfolio up first how had We've capital and that's you million

Moshe Orenbuch

much. so Great. Thanks

Operator

From Hecht. Jefferies have ahead. we go John Please

John Hecht

very Thanks much guys.

and a high You I'm time activity innovation at servicing to Internet-based over expect we costs. acquisition activity. level online customer activity greater kind digital guys that from just spent about talking or more bit of a should that costs wondering time reduce and

Brian Wenzel

John. absolutely. is Brian. this Yes, Hey, Yes,

that continues an years. in a -- It's five investing area us. be been really last is heavily pretty real for strength this we've over area think I that the an to

acquisition phone, our of -- investment channel. at you look XX% it's the apps think our now through if of pay in We're GPShopper. I our digital getting

mobile year-over-year card, really sales If we've the retail Xx penetration average. online national you at growth look XX% about seen it's at good

its the really And so, it it's as think acquisition all through -- bill. servicing and paying we about your way

And think customers and fact making in really call us. an not way to this But it's look us a helping so, helping all apply love I having acquisition payment efficiency programs, credit. growth, can costs is service. clearly for We new that. is to reduces that This you the our drive back-end differentiator even if play. beyond It so part of somebody a the us when also for customer the real organic but

John Hecht

within I that Thanks. card to are helpful. detailed they That's or assigned? guidance guess you portfolios a around gave out wondering Okay. guys have much more some little I assigned -- guess give as CESO. this that give duration in the I'm you quarter you the first company the that that different guidance to bit us of curiosity you is as anything you what's the

Brian Wenzel

John. card assumptions. Yes. we We of Obviously, those around into based too really get some much company. can't a Thanks detail primarily are

and various commercial those are we constituencies we're We line through there where have have but going other we or participants in believe with working the now accounts card issuers. when in we're products, some through assumptions again, generally

John Hecht

guys Understood. very much. Thank you

Brian Wenzel

Thanks John.

Operator

From JPMorgan, go we have Rick Shane. Please ahead.

Rick Shane

your guys. Hey high work at today role. the look Brian me think And a that forward new But, look taking wrong a that questions of sort this am lowering there. When going to type CETXX and XX, if were if will this your correct I in you Thank Brian on the targets congratulations targets? you morning. CETX those will please my low is CESO for lot given on implement suggests, you you curious I I'm range how respective XX consider you at of geography and preliminary

Brian Wenzel

you. Yes. Thank

impact I'd really capital first we The is announced the obviously doesn't that, thing this our range morning say plan.

going First period the all [Technical through XXXX. Difficulty] for of

As we range. posting creates additional capital in capital, which our unexpected capacity think these of really really the about reserves really, buffer the loss reduces absorption additional

losses absorption these this over believe really posting should about ultimately regulators it, built through capital to our begun we and we But lower us we've loss have CETX work again, discussions our when out obviously the time. our allow threshold. So and to over is threshold get that belief. CETX or reserves with being should posting of this we capacity for is think credit That's reduce time

Rick Shane

would agree. say? regulators you've And the are what the curious that there rating I'm you're we the other with they agencies mentioned conversations in certainly constituent be

Brian Wenzel

with we're discussion as models and that's understand reserves additional Our don't a the has They really in by put in them been rating think the discussions the preliminarily is with CESO with these about that how well event. they buffer credit their upfront. We're loss capacity. posting familiar agencies about we believe absorption

So, we our of with engaged both are agencies.

Rick Shane

much. Sure. Thank you so

Brian Doubles

Thank you.

Operator

Sachs Goldman go Ryan have Nash. From Please ahead. we

Ryan Nash

guys. morning good Hey,

Margaret Keane

Good morning.

Ryan Nash

I we growth you to think ask range. that a as X% headed rate we new about reserve core XXX think question Thanks. how Is could in about were talked maybe growth of X% the you're in when quarter. third as a can about run that built, be XXX XXX historically where should expecting that improves? growing the time? million million loan you reserve to Maybe million of to And the build guess I on Should related that a over

Brian Wenzel

auto second we [Technical X% our about of that of the is, X% quarter. growth programs the our Great. really seeing expansion expect first growth an we see the through think solutions payment terrific in platform half We guided year to back kind year, of stable X% the We're forward as Thank Difficulty] of of well the range look happening you. network through channels. this broader Through it to all and has half going platforms. primarily as fast in move there the we to growth and X% out some the we back credit reserves What of care the of see forward The we our growth as acceptance home quarter, acceleration and driven. be our should accelerate there. Brian growth is growing highlighted way of of as digital I and into

driven see in move in we the the And the year half be So we reserve an do acceleration primarily growth. growth of should forward. as back again,

Ryan Nash

on Rick's up follow CESO. a question ask can I regarding if maybe then, And it. Got

forward, about sense obviously use So, several think ability years the you phase about just have get the for in? when wanted the return three think to for year you a to capital you implementation Thanks. how going

Brian Wenzel

Yes.

taking right. to of capital we initial them. regard are part we capital through three With our down absorption is with of how account estimate to again, we phased CETX of CESO originate should over fact years posting as with our in in the about line reserves. going that's and treated as losses regulators would to all. building capacity that rate time higher and continue work it come The think be impact these incorporated our will that You But, be we're peers first over into and

Ryan Nash

you. taking for Thank question. my Thanks

Operator

Carcache. have Please ahead. we Nomura Bill go From

Bill Carcache

Hi. Good morning.

cut? each you this missed I can if a the Hey, maybe discuss XX Wenzel. that we give on color how of any of impact point should the Brian, first you Sorry but Fed basis and impact be Brian my is about for question more thinking us accommodative can

Brian Wenzel

Thank Yes. you.

movements. Obviously, as me Let environment. three the know out second with a of as start far is the today interest there modeled what's rate which forecast we one

assets we've to several liabilities business And you rates. And where We our at scenarios about models have when the and to business. are against try rates and take fairly we well-matched each looked really think impact our on or not other. done of generally exposure

it's environment. rate declining whether rate a balanced environment fairly we're or rising So

business. XX.XX% look models year net the really range. So, the margin And that then when those we've had with in interest to that. Xx year or since market the ability competition to is will done, and the with we of we're where And retail going. lower relating comfortable for April savings The fairly CDs CD lowered manage this high forecast interest the deposits at rate on rates XX% comfortable to be we've the yield we've our really and

So rate we interest our deliver really on sheet exposed comfortable to interest margin we're felt given balance our can not we that again net movements.

a that's large be accommodative in think obviously and going I short and the that in transition going fairly capital, on regard With to participants are understand the term. to on they they we for know the Fed, flexible there's CESO with market work obviously them

Bill Carcache

expect on That's on digital impact sense There's that for and innovation a growth. ratio digital Any impact give to about on slides the your numerator Separately example the are us for further efficiency the question great. Doubles. color investments competitors technology. the your benefit investments Brian be the in can and that such Can investments I the of would your cloud how great. commentary Thank to already we digital making some Thank the another your of focus that time, is been there Brian public from think less efficiency improvements you. of of of your leading efficient levels. had your industry on lot a over your both for operating room digital Thanks new you. of denominator you on for

Brian Doubles

app SyPi one at that have online through us either our they're saves us e-statements view to able absolutely operating through X in It And and Yes. we driving checking partners are there. statements a the existing digital every But, for our channel time also and scale, now payments we're a the efficiencies billion Sure, and new money. their initiative on towards of we a think Again, us money obviously revenue whether coming payments big apps. in real move terms or partners. saves as over everything win driving more does making both look I we customers leverage of that the app given for mean Bill. but our growth, through relationships. winning new then I real get people relationship if digital our you we of

I think real for company. these are all that efficiency things drive the

driving efficiency. growth, as think it both absolutely operating top-line revenue as would as I well growth So about

Bill Carcache

It's Thank very helpful. you.

Brian Doubles

Thanks Bill.

Operator

Don Fargo Wells have go Please From ahead. we Fandetti.

Don Fandetti

good Hey, morning.

So, Brian..

Margaret Keane

Don. morning, Good

Don Fandetti

you. Thank

line it I around? kind have end quarter a it in NIM, bit then maybe down question. tiny or your the down it's NIM said be It on that the you've in like So but mentioned feels more last QX. would you that slightly think a than little towards I a internal of the credit of internals, just bouncing it's And lower is with your in

Brian Doubles

was we with where Yes. right The net expectations. in be expected to line margin

in sequentially, loan basis our nine points As versus our is was PayPal there [indiscernible] first XX the they portfolio, quarter [indiscernible] of the which related basis in the shift with points to acquisition down receivables slight from expense. primarily Credit and decline interest of move a then pressure the a

for with was we So year, would in XX.XX% be line to where thought the XX%. and it again again, it we still expect

Don Fandetti

is Synchrony I business you adjustments in back 'XX. their right And those in of that raising of potentially the are label, competitors purpose do do think take largely like raising, least companies more general if what mixed bit industry in now underwriting CapitalOne But in started growth card JPMorgan card of Within lines. and sort at overall. actually a private an out Okay. that you terms shifting think through to then, aggressive have XXXX little is signals the or lending you underwriting accelerating seeing positioning tightening

Brian Doubles

for can't that portfolios 'XX doing see channels in I day industry Yes. 'XX the we refinements in. we the speak We really made and what say others in is, refinements some would every make I what based what are the in we back upon operate and timeframe.

say the through PayPal throttle significant Wal-Mart XX opening results And can throttle see I credit operating that I'd and We or look and year-over-year delinquencies you XX [Technical either down plus are closing we we deep portfolio. the when are making you not ex and think at see Difficulty]. our credit being the plus changes stabilizing

way position here. to take in either a we not where going as move we're forward we're So, actions

with at 'XX it on look vintage line I'm vintage results performing, performing early 'XX XX, 'XX sorry, or and is the is line them, So as credit are the we're vintages in the how back with in the XX to we almost the and our vintage comfortable 'XX.

changes. and with at we're credit not is comfortable we're where So, significant taking any

Don Fandetti

kind seeing was bit recoveries, the or bounce you can recoveries. just then pricing And bulk on on the little are sale, they I know of like color a this a quarter-to-quarter. around better of Okay. higher

Brian Wenzel

quarter. seeing X.X% quarter the are seeing loan from what really than in receivables, so and seeing better again demand of of Recoveries We're we marketplace. better participants that across greater the this we to was most first we one average our guided pricing we're from channels. our expected the And

about think as of obviously, flow overall half of onetime opportunistic year. more So recovery and were outside little bit and I first I'd results our performance better than those is we expectations. the recoveries, the But, a the arrangements transactions say

Don Fandetti

Thanks Brian.

Brian Wenzel

you. Thank

Operator

From Graseck. Morgan Stanley Please ahead. have Betsy go we

Betsy Graseck

Hi. Good morning.

Margaret Keane

Good morning.

Betsy Graseck

and loan know as understand looking to is significant your you're x you've would a also -- how then the on to loan I just carved PayPal. just outlook. with wanted about with Hi. I the very that wanted growth. think that the understand just I'm nicely for strategy Question because about has spend a Wal-Mart to out this and and PayPal growth bit NCO we portfolio think that go-to-market understand side. credit growth I just a opportunity And PayPal toggling

Margaret Keane

side. terms in this We strategies they're Yes. PayPal the And work how closely with we're out pretty credit global building sophisticated of on with them.

I big quality we're ability the really that terms that offering and is way around of marketing with in way. and offers. in customer I PayPal really Brian going just a in to front that of that the thoughtful growth differently the no credit approve and think really accounts. get -- to placement the closely we're places. make or up about how really right in important there's working the And of other the in is portfolios integration environment approach can So, said, really I we're digital think us in the two and throttle them as But, very you the now. our think lot say we is a sure good of the And plans than right we're the any and of makes a difference this this on open to treat And to PayPal any your at

Brian Wenzel

the perspective, slightly and off rate returns The only again, issue charge probably that margin net for adjusted I we this contemplate itself, off the at risk higher a from company. that that year operates portfolio really when relative that. thing get would add a while PayPal Wal-Mart portfolio better to And as a is, we're the compensate [indiscernible] obviously than that credit of you

Betsy Graseck

as and generates customers higher that obviously also definitely, a think little is overall. just that a that result rev this Yes. that online bit a No, accurate? mobile growth Is I'm that thinking

Margaret Keane

I say. platform a It's would Yes. fast payment growing

Betsy Graseck

then are the with got how have capital if and way. you leaves do tea coming your don't outlook follow of rule, the starting own we well been tailoring that this regarding stress for capital of on to that's read going point Fed you guys thinking can and in does say an change talking you and offset that SCB the the know about. of so CESO, touched anticipating on with have be even the thinking it be is these know what And running we just for out lower some how should when is we've about rule your question we've a I Fed you opt-in should the earlier, it's portfolios but new that the or I a what's you about tailoring that levels levels still capital But at

Brian Wenzel

Yes.

is a say we opt-in for unfortunately wish only as So we can clarifying, just us. that I [indiscernible] requirement

now returns capital of the business as as in think to a CESO, we're performs our number which over We we'll down. started in long-term. way here, at our well then as be and move We're to earnings our when the forward that resiliency of at be XX% ago we very believe down down begin peers. offsets look of to I excess business And migrating believe the impact look in we're because that. we right the As ratio we years drive with about we're comfortable CETX of with going the at we able able of line of our obviously peers the

us. really on don't impact rules expect from those we an So,

Betsy Graseck

triangulating Eleven-ish or kind too. where something are peers like of is really that

you. what for So that's sense makes

Brian Wenzel

our we with with comment discussions them. are the that to our we're having operate. again target, peers, working And Yes. but can't think that's we line the business in exact that's long-term of we given get profile where I should

Betsy Graseck

Yes.

Now, I get that okay.

Fed that? even so just cetera, bit et the with is And if little of migrating path the like a on rule lighter tailoring follow kind the you'll

Brian Wenzel

assess rules be engage with them. and dialogue the out as compliant them we'll and Obviously come in

nimble. So again, we'll be

Betsy Graseck

Thanks right. Brian. All

Brian Wenzel

Thank you.

Betsy Graseck

Thanks Margaret.

Operator

go From ahead. St. Pierre. KSP Kevin Please have Research, we

Kevin St. Pierre

Hi. Good morning.

Margaret Keane

Kevin. morning, Good

Kevin St. Pierre

just I'd like card basis credit quarter. Brian, in average yields XX into point decline to better understand the the

Is just what ago, dig that? to moment I bit into You a but touched low that. it drove moderate, or on mixed a it wanted

Brian Wenzel

Yes.

you we are the moving of impact and the again the related revolve at the of a is solely related yield higher into portfolio. it business core in the to of took we some rate rate and is rates they decline at majority So, [Kodak] book the in where of new basis seeing that when Credit in yield. take PayPal [ph] actions interest the take look be again, but They the The movement begun slightly we pricing a comes into is fully to expect effect XXXX. portfolio portfolio. rules that But last on lower a to year long impact the a run time under to in

Credit the So it's the decline. of PayPal driving acquisition really that's

Kevin St. Pierre

And a Thanks. up. it. follow then Got as

and marketing time? certainly particularly item development Where increase just over the business we expenses of advertising. commercials terms the and maybe in watching In I've big noticed goes think a tennis, that and and golf much too line but should me it's

Brian Wenzel

reissuances, we marketing value proposition. Yes. do fluctuate when and with Again, will bit that relaunch development little regard campaigns we to our a business line

So some there with that. is variability

but spender migrate brand other We some into things to big like that's externally in order in to dollars things into -- in done grow a -- are hundreds position of we're that branding. millions, that not commercials volume Again, and their of growth. thoughtful our expect with that. We've it's tens peers, not we loan generally been just receivable line more it's to millions of going

Kevin St. Pierre

you. Thank Great.

Brian Wenzel

Thank you.

Operator

question Please ahead. go Sakhrani with from KBW. Sanjay our last comes And

Sanjay Sakhrani

Brian, the I NIM to the follow Thanks. Good morning. yield and on I wanted up guess trajectory.

mentioned You repricing. the PayPal

assets, question some to might it the year have think that move good next ratio the is PayPal around be PayPal? as costs we know run through guy the you on to as little you for safe trend expenses similar higher but don't elevated into heard have expenses, for you ratio. look that tailwind all else think Wal-Mart been year, of as into I in we then, that we repricing next bit say rate a related I that that to to related run assume As your I rates and Should efficiency secondly, a is year the and those And on have of yield equal. exit because also might affect next efficiency move the rate. the the

Brian Wenzel

Yes.

So let first, me Sanjay. deal with your question margin

providing We're portfolio comprehensive as XXXX CIT guidance to of rate As the go not biggest look. interest net there, as it the operates today's relates higher January losses. in coming specific we as that we do will margin run a a come to The of of its in get relative from kind which more is Wal-Mart PayPal at obviously change obviously out we'll in. part

with will certainly So the visibility work regard some more and we'll guidance have interest through trends in be greater environments January there doing. to we'll to to rate provide effect there, you

to year. expenses we're XX% the again, regard With We're comfortable or XX% projecting with for going very to that.

there. As so that. to you there's be servicing provide us Obviously, happen think from XXXX about we'll going basis into an some on we've again line PayPal that quarter interim in this guidance item converted from shifts

So will fully that the rate. be run in

we of back the And as we'll the out quarter, Wal-Mart the half into costs. into come of the now In of run move to implement you'll of fixed the cost see any variable and some year the the out, part again, the for be year rate XXXX. in some costs we get particularly started fourth

Sanjay Sakhrani

question is micro simply just up on for Okay. My follow Margaret environment. the competitive

being competitive bit your about peers a market. the of the more in players talked One online

pipeline I think absorbing we could I that that deals look it forward. now, look. talk and pipeline out well a talk just about future flush of to know maybe the you're you guys right I've just as going big you discussion deal but does about as how heard the quite

Margaret Keane

of up, say out. pretty businesses we things all like that Yes. feel about with. where is and we would maybe what confident digital win winning we're the Sanjay. capability, of build there capability we're analytics right comfortable say I existing position pipeline think lot big and do A deals I to make in that startups. there's would enough we can do feel the a some portfolios our and three the of we not But we're robust. the our we're sure there winning will because years out come trying to deals ensure big that now and excited three I next both out there's data couple our of platforms two, the but And that deals we're we is meet returns continue

Sanjay Sakhrani

right, All Thank great. you.

Greg Ketron

Relations us the morning. to you call Thanks this day. answer for have. The you have further team Investor on will joining be available a We great may questions hope any

Operator

this today's gentlemen, conference. concludes for Thank you. joining. Ladies you and Thank

disconnect. You may now