Synchrony Financial ($SYF)

Everyone. Thanks for being here. Our next fireside chat session is with Brian Wenzel, the CFO of Synchrony Financial. Thank you for being here, Brian.

Jon, thank you, and thank you for the invitation.

Yes. Good. I think most people know who Synchrony is, but if you could just give us a minute on introducing Synchrony, we were talking about more generalist interest in the space. So give us a 30,000-foot description.

Yes. We obviously are one of the largest credit card issuers in the United States of America. We are 1 of probably, I'd say, 2 full spectrum lenders, which means we go super high FICO, but we can also go a little bit deeper into nonprime. And our model, right, is to have a multiproduct set that we can bring to partners. And if you look at our partners, they're some of the largest and best in the world when you think about an Amazon, a Walmart, a PayPal, a TJX, a Lowe's. I mean they're just tremendous customers. And then you look at the ability to offer installment lenders, installment lending, secured or unsecured, you can do private label cards, we can do a secured card. We can do a dual card, we can do a co-branded card. We can do a business, private label card, business dual card, invoice-based. So we can bring an entire solution set. And then the last thing I'd say is the model is different. We have a scale model with over 70 million active accounts, well over 100 million trade lines. So we have tremendous access to data that allows us to really have a unique underwriting engine to do that. But the beauty of the model is our economic arrangements with partners provide stability and returns. So it may cap the upside, but it gives you a good floor on the bottom side. So the returns in this business are incredibly resilient.

Good. I described you this morning as being in every part of the K, the intersection of the K.

Yes. No, that's a fair point. We have probably 27% that's nonprime, but we have a bunch that are super prime. So we see the consumer and every day, we have probably better than most visibility into what the entire U.S. consumer is doing and how they're generally responding to the environment.

Yes. That's a good segue to maybe the question on everybody's mind. What are you seeing in the economy? What are you seeing in terms of consumer health? There's obviously a lot going on.

Yes. It does get tough when you keep coming to these conferences. -- someone expects you to say something different. I mean I walk -- before I came down, I at CNBC on and everything is death and doom and that's the news cycle, right? But the consumer generally overall is hanging in there, right? And the narrative really hasn't changed. I think we were one of the early ones to talk about the K-shaped recovery. I'd say the lower-end consumer continues to firm. So they've kind of withstood whether it's the high inflation that they felt and affordability issues that they felt, but they've gotten wage increases. The lower end -- I'm sorry, the higher end has pulled the economy. They feel a little bit more -- they're coming down a little bit flattening. The pressure point a little bit is that prime customer in the middle, right, who hasn't gotten as much of the wage increases but it's felt the affordability concerns that kind of comes in there. But overall, all 3 folks are generally doing well and being very consistent in their patterns.

Okay. You filed your managed portfolio 8-K this morning for February. Talk a little bit about what you're seeing in terms of the underlying spending and payment trends and receivables growth for the month.

Yes. Again, we look at the progress we're making. I said earlier this quarter, and it's continued on. It's actually accelerated. On a purchase volume standpoint, we accelerated in the 4 quarters. Last year, we're down, I think it was minus 4%, minus 2%, plus 2%, plus 3%. That's accelerated here in the first quarter from that -- from the fourth quarter. It's probably accelerated a little bit more in February than January, but both months had accelerated from the exit point in 2025. So we feel good about that. I'd also say, even though you see that acceleration at the top of the house, you can't lose sight of what's happened underneath, right? So we actually lost $400 million of sales for the 2 weather storms that came through, primarily the East Coast, but a little bit of the South. I mean $400 million of sales took out quite a bit. And some of the sales are tougher to get. If you're in a dentist and your appointment gets canceled, it's not like I'm going to get that -- I'm going to get it eventually, but it doesn't come right back. So even with that, the sales have been terrific. So we've continued to make progress on the inflection of receivables. I know everyone's focused on that. So we feel good about where that is. One of the things, Jon, that's a turning point for us is when we look inside the portfolio is where we're going on discretionary purchases, and we start to see really positive signs in there. So we feel good about growth and where it's heading.

What's an example of that on the discretionary side?

Yes. So think about Home & Auto. So furniture is a big one. Home specialty would be a big one. You're starting to head into the spring season. So if you look at 2 platforms inside of our business, Home & Auto and lifestyle, they were the laggards, I'd say, because that's where the bigger ticket purchase are. And you think about lifestyle, this is going to be outdoor power sports, outdoor power equipment. So your Polaris, your Briggs & Stratton and lifestyle. And then you think about home specialty, we've actually seen really positive trends regarding transaction frequency in those 2 businesses and value. So they are trending upwards. I'd say when you looked at President's Day, we were negative a year ago on President's Day. This year, we're just about just a little bit under 10% on President's Day, and that's huge for that business because they run a lot of sales and promotions. So we feel encouraged by those results.

Okay. Anything else, any other shifts from the fourth quarter trends you want to flag? And it sounds like you're feeling confident being able to recover some of the weather-related.

Yes. That will come back. Listen, we like the trends in the portfolio. It goes back to -- we have a pretty diverse set. So I think when you think about it, we want discretionary purchases to come back. That's really where the consumer confidence kind of comes in. When the consumer is confident they're going to spend more, again, we're seeing the green shoots in the business. We see frequency our cards up, which is terrific. So again, good trends as we exited 2025. And again, through the first 60-plus days here of 2026, we're pleased.

Okay. Now that we're into March, any update on tax refunds? You've talked about that quite a bit in prior calls, but any impact on fundamentals, credit paydowns, volumes?

Yes. Volume is a little bit early, but we obviously are looking at volumes and we're looking at the payment trends, right? If you go back and just for your audience, we expect ultimately, tax refunds when you get through the season to be up somewhere between $500 and $1,000. I think they're up 11% today, which is a little over $300. But again, you're going to get some bigger refunds that roll through a little bit later. There is separation that happens with tax refunds. So the way the tax reform from last year happened, there's going to be a little bit higher benefit into that, call it, more income levels that are probably $100, $150. So someone who makes a little bit more money, they tend to file late. You would tend to see some of those folks pay down debt or save. Right? The more moderately -- the more moderate consumer from an income level, so you think about selling $50,000 to $75,000, they're already levered. What they do is they tend to consume a little bit more, right? So they tend to kind of spend because they've been tight. Now I get the tree, now I can do certain things. So that's the separation we see. Now again, being a full spectrum lender, I got both sides of that barbell. When I look at the early days here, and again, we're only through a couple of weeks of the tax returns, payment rate for us, if we look at -- go back for the last 5 years, and I look at how payment rates developed here in the weeks preceding tax refund filing season and what they are now, payments rates elevated just under 20 basis points. So we see a little bit of paydown that's happened versus historical average, but again, not overwhelming at this point. Again, I think you see the sales component probably is more of a March phenomenon and April phenomenon than it would be late February, early March.

It sounds like you don't have a preference for how consumers deploy their tax refunds in any way.

Jon, we ultimately want the consumer to be disciplined, right, whether that's paying down debt or consuming it because they know they can pay it off. That's what we really want the consumer to do. And what we strive to do is to be there for the consumer when they want to make those purchases. And so we'll support them in any way possible. And again, I feel really good from a credit aperture standpoint where we are. So again, whether the customer wants to pay down the debt, which gives them more line to ultimately spend or if they spend, we want to be there for them.

Okay. You commented on the negative news cycle. Do you feel like that's just disconnected from what you're seeing from a consumer spending point of view? Or how much impact does that have? We look at it every day, but -- what do you think on that?

I think there are so many data points that Jon are a little bit conflicting. So I think someone latches on to one data point and moves forward. So you look at the jobs report from like last week and suddenly, the jobs markets moved in a certain direction and something happening. You got to look at a whole dashboard of different types of metrics to lay a story out. And sometimes one metric isn't necessarily the metric. Like when we look at unemployment, yes, we look at unemployment rate. That's probably not the first thing we look at. We look at unemployment claims, but then we go back underneath it, what are the fundamentals of the employment market, which are some positive, some negative. So is it softening? I don't know, you look at openings, firings, participation rates. You look at participation rates by categories where jobs are being added, you have to look at that whole story. And I think, unfortunately, what we see in the media and other things, people latch on to one rate and try to take that across a broad set of assumptions, which could be a little bit dangerous.

Yes. But you don't feel like it's significantly worse than it was a year ago?

No. From a year ago, it's probably a little bit better. I think inflation is probably a little bit better, but affordability is still an issue for most Americans. Most certainly now you see it with gasoline kind of going up. That just puts more pressure back on to the consumer. You just had an inflation print that wasn't the best. But again, it's one data point. But overall, the consumer has weathered this. And I think the real question becomes, does '26 look a lot like '25? Or do you start to see positive trends, particularly in the back half of the year to exit out of it? And then that's what we hope. We feel it's going to be a lot like '25, but we hope it trends out so that you're exiting out of '26 in a much better position.

Good. That's good to hear. It's a constant fight, as you know.

Yes. And again, the death of the consumer is not there. The consumer is hanging in there. And I think we just -- you need to be patient with what's going on.

Okay. Turning to the balance sheet. You're still talking about mid-single-digit receivables growth in 2026. Talk a little bit about the building blocks of that guidance, first couple of months, how do you think they've tracked? And what are you kind of broadly assuming to get you there?

Yes. So we've qualitatively, Jon, try to break it into a couple of pieces. Number one, the biggest building block for us is core growth, right? And what drives core growth is really that discretionary purchases. So areas where we've seen the consumer be a little bit more thoughtful with regard to consumption. Again, we talked about in the Home & Auto business, particularly in home specialty, those are bigger ticket items where people have pulled back mainly on confidence. We're seeing green shoots. We've seen the year-over-year Vs decline there. We've seen positive transaction frequency increasing there. So that's positive. You see it, again, in the lifestyle business. You even see it in our health and wellness business when you think about cosmetics. So we see more Botox treatments than you're seeing actually cosmetic surgeries. People are willing to consume. They're just not as confident last year. I think that's the biggest building block is to have that consumer confidence turn -- and again, we've seen positive results here in the first couple of months of 2026. The second building block is new programs. Obviously, our relationship with OnePay and Walmart, which is off to a terrific start. That's going to be -- help the growth rate in 2026. We also have -- we're excited about the relationship with Lowe's, who's been a partner with us for close to 50 years. But taking a commercial program from American Express and bringing that over here later in the second quarter, that's going to provide growth. And then winning Bob's Discount Furniture. That's one of the top 10 furniture retailers. So they'll begin to add growth. And again, we're launching Chico's, I want to say, in the next week or 2. We have RH, which again, is very small, but that back half of the year. So that's the second building block is kind of program launches and programs kind of coming through. And then the third, on a much smaller basis is some of the credit aperture changes that we made in the third and fourth quarter last year that will help. So those are the 3, again, core being the larger one, then you have the new programs and then credit.

Okay. Can you talk a little bit more about the new programs that you've onboarded? And how are they doing? It feels like this is going to come later in the year, but talk a little bit about the cadence of that as well.

Yes. They're constantly going to be stepping up here. I mean we're really excited about the couple of programs that we're launching. Walmart is a tremendous retailer. We had a very long relationship with them that stopped a couple of years ago. We took a break, and now we're back, which is a testament, I think, to our capabilities and what we can kind of bring -- but again, they have such velocity of customers and such customers who are loyal to their brand, providing a valuable product to them, particularly when you think about Walmart+ and what they're trying to drive there. So to the extent that we can maintain relativity, and again, I think today versus what we had before, we have a much better product or much better value proposition, we're appealing to a broader customer base. So there, we just got to continue to execute. We have tremendous placement digitally, both in the OnePay app, the Walmart app, the website. We'll get stores. We'll focus now on stores. We have great size there. So that's tremendous. I think the Lowe's opportunity is another one here where we were doing the private label part of the business. Amex was doing the co-brand part of the business. When you combine that, the power of 1 plus 1 is going to be greater than the 2 programs individually because if American Express was declining someone, that customer didn't get approved. if they want a co-brand card and not eligible for it, we can give them a private label card. So we should be able to accelerate the combination of those 2 programs. And it goes back to our strength and ability to execute with Lowe's. So we're excited about that. The capabilities we have allows us to play and win when you think about Bobs. And then you look at what we've done in the last couple of years, the Venmo relationship and the way in which we've integrated into that app is outstanding and clearly a top 10 program. We got Verizon right behind it, which has a very terrific value prop. So we continue to win with, I think, a wider range of partners, mainly based on the capabilities we've built over decades.

What does the pipeline look like? I mean, what are we going to be talking about in a year?

Yes. The good news -- let me start with us for a second. Our large partners are all 30-plus, our top 5 partners. And I want to say 97%, 98% is locked up '27 and beyond. So we feel good about where we are with our partners. I'd sit back and say there's some midsized relationships that are probably more end of '27, '28. I think there's a little bit of mull. So I think you're going to see some de novo things that are happening in the next couple of years. But these are long-cycle sales relationships. So we're talking to people about '27 and '28 now for opportunities that are in the market. And listen, I think there are going to be real questions on some of the competition of like where their focus is going to be. So we really feel well positioned to win that, and we're very competitive. We're not going to be the leaders on price, and that's okay because I think we bring tremendous value. We want to get paid for the value we bring.

Okay. You touched on competition. And I guess maybe a 2-part question here, but what would you -- how would you describe your risk appetite now? Is it -- I don't want to say looser, but it feels like you're more willing to grow? And then what's the competitive environment like in general?

Yes. Jon, this is a very interesting question. Do we have an appetite to grow? We always have an appetite to grow, right? We want to be a growth company. We want to look at a long-term framework of that 7% to 10% growth. That's where we want to be, but we're not going to do that at all costs. That's not the singular metric. We want to be efficient. We want to drive returns. I think that if you're investing in Synchrony, it's about are you getting efficient capital utilization. We want that 2.5-plus percent ROA. We want the ROTCE in the high 20s. That's what we're trying to drive. And I think just to grow and not necessarily achieve that or add accounts that don't meet our lifetime value, that doesn't make a lot of sense to us. So we have the appetite to do it, just weather the environment, and we're not going to chase growth for no reason. So that's the purpose. And so I think now, again, we saw a couple of years ago, there was too much credit that was pumped into the system, right? When loss rates kind of went up, that was not a macroeconomic event. That was an overextension of credit event. That has rationalized since, call it, mid-'23, where I think issuers kind of pulled back. And at the same time, there's a lot of score migration. So there's a lot to work through over the past couple of years. A lot of that's behind us, not all of it's behind us, but that's why you still see certain card issuers with elevated loss rates. We tightened because it wasn't efficient for us to go back. Yes, we could have had a loss rate that's over 6% and kind of continue to grow. That's not where we wanted to do that. So yes, I have the appetite to, but we're going to be very disciplined with regard to driving the returns being efficient. I have better uses to deploy capital than to deploy it in lower returning assets.

Okay. What -- how do you describe the BNPL competition at this point? Is it more aggressive, less aggressive? Is it a threat to some of your originations?

Yes. Listen, we always have respect for people in the business. But you got to go back to the customer that a lot of those folks are trying to get. They're trying to get people who are cash, people who aren't going to take credit anyway. So the population of people they serve is different. Yes, there's some overlap. So I can't say they're 100% unique, so they are overlap. But we've been able to do, Jon, and look at where they have been in places where we are, and we haven't seen them necessarily affect our volume. And in certain cases, there's a very clear delineation between where they play and where we play. So we tend to win -- consistently win and win at a high level on bigger ticket installment lending. So we can step in. We have the balance sheet. We have the scale. We have the servicing capabilities. They tend to play in smaller tickets and smaller size installments. And that's where they want to play because they're trying to get velocity, they're trying to get scale. They can't take the risk on large tickets. I mean, a lot of their presentations about, hey, listen, we can get you 100% or not 100% or close to 100% approval rate. But what they do is say, okay, here's a bigger ticket, put 50% down, I'll prove the rest. I mean we'll sit back and say, I'll take the big ticket. I'll underwrite the full 100%. So it's a different type of model. I think what's interesting about their model was a lot of it was anti-credit cards, et cetera. Now you see them saying, okay, the one product probably doesn't work. You can't get enough scale off of one product. So they're trying to create -- go to more traditional products, whether it's debit or credit in order to try to create that full spectrum. But again, they don't have the scale that we have, which is a real competitive advantage for us.

Okay. On the credit topic, you've provided your loss guidance, 5.5% to 6% for '26. Are the tightening actions fully reflected in what you're seeing today? Do you expect some tailwinds to continue in 2026? You're clearly in the range today, but how do you expect this to play out?

Yes. We had the opportunity, Jon, at a competitor conference a month ago to kind of -- I try to clarify this a little bit. When we laid out our outlook and we put the page up, we put our long-term framework up for charge-offs. People are reading that as technical guidance and your guidance is losses going up, not like that was really not the intention of it. I think the intention of it was to say we have stable credit. And again, we view that and we continue to view that credit is stable. You look at the results today, when we look at it both on a net charge-off basis for February as well as 30-plus delinquency, we're better than seasonality on both those metrics. We continue to be better than seasonality. And again, I expect that to kind of flatten out and normalize here, but we feel really good about it. We took tightening actions in '23 and '24. Those are kind of fully seasoned in the portfolio. We took some actions, different actions where we opened the credit aperture in the third and fourth quarter of '25. They'll season out back half of this year, third, fourth quarter into the beginning part of '27. So again, you'll continue to see those effects kind of build throughout the year. So -- but we feel good about where the aperture is now. But Jon, one of the questions that we get quite a bit is like why are you in a more restrictive type situation than maybe others. If you go -- and this is not Synchrony, just you can go to the credit bureaus, probability of default across every credit grade is up versus the pre-pandemic period. A lot of that's the liquidity and excess availability of credit that's in the system. But that's something that we watch. And you look at the macro and say, okay, inflation is still not where we want it to be. Interest rates are higher than a neutral rate, so it's a restrictive position. So we're cautious from that standpoint. But again, we're not blind to the fact that, that probability is up. That's why we are better positioned because we control line sizes better right? We have a lower line structure so that our exposure at default is going to be less than our peers. So that's how we control the loss lever. And again, we came in saying credit will be stable in '26. And so far, the first 2 months of the year has most certainly met that standard.

You may have just answered it, but just comfortableness with the reserve level and potentially bringing it down? Is it just a lot of the factors that you just discussed?

Yes. The factors that go into the reserve, and I said back in January, and I don't think it's any different. There's more a downward bias on the reserve. Again, think about the first quarter, the rate naturally goes up based upon seasonality. But there's generally a downward bias because the loss performance has been steady. If I look at entry rate has been better than the pre-pandemic period. We see strength across pretty much all delinquency stages, except for to do right now. So we feel good about that. That's the biggest contributor to your reserve rate. And then you overlay on macroeconomic assumptions that are generally a little bit more pessimistic right now. So as you get more comfortable with the macro and the macro is not going to deteriorate and you have this kind of continued stable performance, you should see a general -- a more downward bias on to the rate. And again, I'm not locked into CECL day 1. There's not a benchmark. Day 1 was here for about a week, it felt like in 2020 before the pandemic hit. So again, we feel comfortable that the reserve rate does come down. And we feel when you have a CET1 plus reserve rate over 25%, the balance sheet is well prepared for any economic scenario.

I want to touch on a few more things, but just quickly, am I going to be here next year? Or is it going to be a robot? How do you think about AI and job loss, obviously topical for your company?

Yes. This goes back to the way in which certain things are presented. I think when you hear companies talking about these massive job reductions in AI, I would probably use some professional skepticism with regard to that. There's a lot of probably bloated structures where people are eliminating roles more so than AI taking jobs out. That said, Jon, in theory, your job should get more efficient. I don't know exactly what you do. Hopefully, these guys know what you do. But AI should make your job more efficient. I think that's -- as we at Synchrony look at it, it's less about full job replacement versus how do you kind of make things more efficient in what you're doing and really changing the roles in which people have. So we don't sit there and say, hey, listen, we have a person in the loop, right? So even though you deploy AI is not going to run everything. And AI is not going to kind of take over the world. It will make you more efficient. If I look inside our company and sit back and say, okay, take disputes for a second. You want to dispute a credit card transaction, you submit something via the mobile device, the web, you call in, there's an intake. There's document gathering. There's data gathering from retail partners. There's an evaluation of it. You determine it, you communicate back to the consumer, consumer comes back to you. That is an incredibly manual process today when you think about how data is gathered, whether it's -- you're getting it from restaurant, a big retailer, et cetera, how the intake form kind of comes in. AI can streamline that and give you a better customer experience. Yes, there could be some job losses there, but you're going to have someone that ultimately reviews that and says, is the model making the right determinations for the consumers. That's the kind of thing you'll see. So I'm not 100% sure your job should be easier to some degree because some of the things that you don't want to do today. And let me just give you another example, like engineering is a great one. Yes, AI can write code. But guess what, the engineers like writing code, what they don't like is the documentation and testing. AI can do the documentation and testing and then you can get either -- you can reduce the number of engineers or you get faster in your technology advancements. And that's how we look at it is take the things the engineers don't want to do, replace with AI. And give them the capacity to make changes at a more rapid level and you can see your services really and your capabilities advance at a faster clip.

Okay. Just on capital, you have stress test coming up. Talk a little bit about that. Talk about capital allocation. Are you thinking about returning capital to shareholders as well potentially?

Yes. We're in a position of strength when it comes to capital. We have excess capital today, and we're going to be aggressive and prudent in deploying that. We built this company around the CCAR process. We are our first year in the CCAR process. Fortunate for us that the Fed has made some changes where we now have been assigned a stress capital buffer of 2.5%. We won't get another one until '28. So -- but we feel good about where we are. We've had very constructive conversations with senior leadership at the Federal Reserve with regard to the models and how they work and how they're going to be reflected upon us. So we feel good about that. And so we're going to have a capital plan now that we're fully CCAR, we're going to have a capital plan that's consistent with what we've done in the past. Our capital allocation priorities have not changed, right? The first one is going to be organic growth. And we look at the opportunities we have in our health and wellness platform, our digital platform, some of the programs we have, we want to allocate capital there first. We obviously want to maintain and grow our dividend. And then it comes back to the balance because we generate so much capital on an annual basis and we have the excess capital, again, we'll either be aggressively but prudent with regard to share repurchases or look at inorganic opportunities. But those inorganic opportunities are not going to be huge. They're going to be more of the bolt-on things that we've done, whether it was Ally Lending, Pets Best a couple of years ago, Allegro, which was audiology and health and wellness. We're going to do things like that, that are real bolt-ons, a real attractive one we just did was Versatile Credit. So we'll focus there. But again, organic dividends, then share repurchases or some inorganic growth.

Okay. So to sum it up, you feel fine about growth despite the noise, you feel fine about the credit guide despite the noise. feel good about capital return. Anything else you want to flag?

No, listen, I think the model is working where we'd like. The RSA is a good buffer. As the program performance increases, RSA is going to go up, but it's providing the resiliency in this business. So you're seeing the turn back to growth. Credit is well contained. I'd argue, probably best in the industry. And again, we're leaning into the places where we can make a competitive difference. So we're excited about where '26 is, but we're obviously closely watching the macro.

Okay. Good. Thank you, Brian.

Thank you, Jon.