Good morning, everybody. My name is Jeff Adelson, U.S. Consumer Finance Analyst here at Morgan Stanley. Kicking off the 17th annual financials conference here at Morgan Stanley is Synchrony Financial. Before we get into that, just a few stats. We have 136 participating companies this year. That's a record for us. 483 corporate attendees overall representing $5.5 trillion of market cap. So with that, Brian Wenzel, welcome.

Jeff, thank you. Thanks for the invite, and glad to be here.

Maybe we can start with some exciting data you put out this morning. You put your AK out. It looks like you saw a third consecutive month of positive loan growth. Delinquencies came in a little bit better than seasonality. How do these trends compare to your expectations for the year?

Yeah, you know, first of all, we're incredibly proud of the results this morning. For those that didn't get up at 6 to read it, And, you know, our 30-plus delinquencies is 4.2. If you really look back at that trend over the last 12 months, it's been very consistent. When we look at it versus seasonality, it's better than seasonality. When you look back to the 17 to 19, more normalized window, net charge-offs, you know, right in line, you've got to cycle adjust a couple of things when you look at it, either year over year or sequentially. But losses came in, you know, great. So credit continues to perform. You know, the focus of a lot of discussions, Jeff, has been around growth. So the EOP asset growth is up 1.8%. When you look at it, you know, on a linked quarter basis, particularly when you look at April having Lowe's commercial kind of come in, you actually did beat seasonality in May, right? So if you think about it, end of the first quarter, we're 42 basis points. We did add Lowe's. Now we're at 1.8, and we continue to be there. And, you know, purchase buying continues to be strong.

So you're recently starting to see this better growth. Second quarter is seasonally important for several of these discretionary categories you have in the business, home and auto, power sports, so forth. Based on what you saw in today's data and based on what you saw around Memorial Day into June, how are the spending trends tracking for this quarter?

Yeah, you know, it's interesting for CFOs as we kind of come here because you feel like you don't – we're all saying the same thing. The consumer has been resilient. And I know people, if you watch CNBC, maybe you don't feel that quite as much from what they say. But really, as we look at what purchase volume has done, first of all, it started exiting out of 2025. It accelerated into the beginning part of the first quarter, and it's actually maintained that pace in the mid to high single digits. So, you know, we feel good about purchase volume overall as you kind of go in. But if you drop down, you're incredibly right about how important part of our business is in the second quarter, particularly on Memorial Day when you look at it. And we have really started to see some green shoots. If I kind of look at Memorial Day, some areas where we've seen pressure, you know, where positives, you know, by a good bit over 2025. So when I think about HVAC, when I think about home improvement, when I think about furniture, you know, we've seen strength in those categories. Even in luxury, you kind of see people out shopping maybe because there's a lot of rain here in the Northeast, so people went through that. Outdoor continues to be a little bit of a challenge on some of those bigger ticket places there, but we really saw green shoots with regard to discretionary purchases and what the consumer is willing to do. So relative strength, I'd say, from a purchase volume perspective.

And that's particularly notable given what we've seen from gas prices, I think, recently. So what else are you seeing from the consumer under the hood there? Any shifts in behaviors as consumers have dealt with those higher prices? Obviously, we saw the higher tax refunds come through as well.

Yeah, so let me unpack that question a little bit. I think the first thing, Jeff, is to understand how gas prices really kind of flow through to the consumer. You know, everyone kind of presumes you see this increase and it immediately has an effect. And we've gone back a long period of time to look at significant gas price increases and what it correlates to and what it doesn't correlate to and how it works. The first, you know, I'll say a little bit of misnomer or urban legend is gas prices are correlated to delinquency. They're actually not. You know, we haven't seen any data in our data where it's coordinated. Where you start to see, the first thing that has to happen is you have to have a significant increase in gas, and that would be $1 to $1.25. So, okay, you can check that box. It was, you know, $3 nationally in February, and it's up over $4 now. So you're there. There is a period of time it takes for it to work its way to the consumer. So if people are expecting to see, you know, changes in behavior patterns after a couple months, that's not what the data historically has told us. So it has to be much more prolonged. So I think, you know, if you look out in, call it end of September and October, if there's not relief when it comes to gas, then I think you sit back and say, okay, you know, is there going to be ramifications? As a flow-through consumer, clearly, you know, the consumer feels the pressure of gas prices. I'd say, you know, they're in the first stage right now, which is you go to the gas pump and you're annoyed. Watch in the meter if you're in a state where you actually pump gas, not like Jersey. But you go through that annoyance factor that you have, but it hasn't really changed, you know, their overall level of consumption. We do see a little bit of shift where the non-discretionary piece is rising faster than discretionary. So clearly it is having some effect, but it's not impacting the overall impact of spending for the consumer itself.

And as you sort of did that historical look back on delinquencies where it didn't have an impact, what maybe are the early indicators elsewhere you look at there?

Yeah, so the first thing, when gas starts to weigh on the consumer, what you'll see is in the middle section, right, you'll see some of the consumers start to save maybe a little bit more money putting their second gas because they know gas is going to be a little bit higher. But overall, what you start to see is, okay, the consumer will begin to decrease the average transaction value, but increase frequency. They're trying to make cash go a little bit further than it has there. And then you start to see it flow through. So they're making more frequent purchases, but because they're trying to stretch dollars, you'll see that they may try to stretch dollars in other ways, you know, particularly grocery, et cetera. But then you would just start to see the first thing that begins to impact is sales, and you'll pull back and you'll have payment rate, you know, slow down, which, to be honest with you, you know, would be somewhat helpful for asset growth. But you need those factors to kind of work its way through the system. I generally believe when you think about the unemployment market here in the United States and where unemployment strength is, you're not going to see it tip the consumer. At least that's not our belief that it tips the consumer, but it most certainly can impact spending behavioral patterns and payment behavioral patterns really in the latter part of 2026 if it's unabated from the levels that it is today.

Got it. So not seeing it yet, but something to keep an eye on in the back half of it. Makes sense. Maybe just switching to some of the more, you know, growth-oriented parts of the business. You know, you took a number of credit actions, and with those largely behind you, You now have your charge-off rate at or below the historic range you target, 5.5% to 6%. As you've started to see this loan growth inflect, and I think about 30% of your credit adjustments are now back on or reversed, and those start to season, how are you thinking about the pace of incremental reopening of credit from here? And maybe longer term, how are you balancing the credit risk of returning to your long-term growth objective versus maintaining good credit discipline?

You know, the first thing, I think for those people who invest in Synchrony, I think they appreciate the fact that we are laser-focused on risk-adjusted returns, and we're not going to bend on risk-adjusted returns to just try to grow the business for growing the business' sake. You know, lending businesses are the easiest businesses to grow. They're more difficult to contain credit on. And, you know, our belief is we'd rather have a better ROA than try to just get growth. And so, you know, we're going to be much more disciplined when it comes to how we think about that. Particularly when you think about, you know, our credit aperture and what we did in the back half of 2025, you know, that takes about a year to season in. So you'll start to see the effects of that in the latter part of 26 into 27. So while the credit's good now, you should see, you know, a nominal increase as it relates to that, which is expected as you open the credit aperture. But you're also going to start to feel the effects of some of the new programs. Like you think about it, Walmart will only start in the fourth quarter, so you're only starting to see a couple, you know, a very little bit about losses today. But that will begin to come through the book in the latter part of, you know, this year, particularly the fourth quarter into 2027. So that will continue to kind of grow in here. Again, we feel really good about the aperture. I don't think we feel a need to do that. And I think when you hear people talk about, well, at the margins, that's lower return. We're just not going to take a lower return. There's no reason for us to do that. We'd rather be consistent and more stable with our partners, merchants, and providers.

And speaking of Walmart, as you look at the first year of OnePay, you know, you're coming up on that anniversary. How meaningful has that been to the growth so far, and what do you expect over the next few years?

You know, first, you know, Walmart is just such an iconic retailer, and it has such scale and distribution, both not only in the stores, but digitally. You know, we're very, very proud of the fact that they, you know, selected us to come back after, you know, our relationship terminated in 2019. And that really speaks to the testament of our capabilities, both digitally, our capabilities to execute, whether it's in a digital channel or a physical channel, and the way in which we, you know, are leaders in this space. So we're really proud of that aspect. Let me just start there. You know, obviously, because of the size and scale of this, you know, it is probably the fastest de novo or is the fastest de novo that we've had. Now, again, the first Walmart program was at DeNovo, and we got from $0 to $9 billion over 20 years. This is different because it's much bigger than what it was before. I think when we look at the program itself, I think we're really proud of, one, the value proposition that really resonates with the Walmart Plus consumer. So they see the 5% off, and they're engaging with the brand. And that's really where your first start is, do you have a compelling value proposition to provide that? And Walmart's meaningfully leading into that Walmart Plus as an important aspect for loyalty for the consumer. So the value prop is great. We're seeing great engagement at that high end in the Walmart Plus. And I think if you look at the digital placement, it's terrific on the site. So we're really proud about that, something very different than what we had back in 2018 and 2019. You know, I'd sit there and say the opportunity, though, Jeff, as we step into the back half of this year, is how do we get a little bit more production out of the stores, right? So, you know, you have great signs in the stores, QR codes in the stores. There are certain places in the stores you can do it. How do we get into the point of sale and not disrupt the flow that's there? But, you know, we're really proud of the relationship we have with the senior Walmart team. You know, the one-pay team is terrific and pushes us on innovation every day. So, you know, from our standpoint, it's off to a terrific start, and there's just more opportunity to go here as we look forward. The last thing I'd say is most certainly you can see some of the effects that are going to be in that diversified value segment, but in that segment we also have some tremendous retailers who are doing quite well, TJX, Sam's Club, et cetera, but obviously it's contributing and you can feel the effects slightly in the growth rate.

Hopefully we can get to that $9 billion quicker than 20 years this time, right?

But I don't know if so. Listen, our view is it's going to be a top ten. Can it be a top five? Obviously, it has the potential, but, you know, we'll take it day by day.

So, relatedly, the pipeline, you've described that as pretty robust. You continue to add partners at a pretty healthy clip. How have your partnership priorities evolved over the past few years, and where do you see the most compelling growth opportunities near-term versus long-term?

Yeah, you know, Jeff, let's first start about what we've done since the pandemic, actually the pandemic since 2001. We renewed over 300 partnership relationships. 16 of our top 20 partner relationships have been renewed in that period. All of our top five are 30 and beyond. 97% of interest in fee revenue from our top 25 are 28 and beyond. So we've done a very good job, I think, of, you know, maintaining our current relationships and demonstrating value to our partners, merchants, and providers. So we feel really good about that. And I think if you think about the number of wins that we've had, you know, yes, we have Walmart, but yes, you know, Bob's, which is a top ten furniture retailer in the United States, Restoration Hardware, Chico's, J.Crew. So you go down, I mean, there's some iconic brands that are in there, and it just goes back again to the capabilities that we have both digitally and that. And I think when you think about what's important to the retailers and the merchants and the providers is a couple things. One, we are digitally advanced, right? So whether it's de-applied, pre-qualification, the significance we have in PRISM and the innovation we have in our advanced underwriting, which recently was recognized with the Innovation of the Year Award for American Banker. You know, those are real competitive advantages when we go to get relationships. What we focus on in priorities there is, number one, you know, why does someone have a program? What is it? And for us, we're a successful program because I'm going to my most loyal customers. If you're not a loyal customer and you're just kind of going in there and you want credit, that's probably not the right, you know, product for that individual. And so, first of all, did they have a focus on what they want to accomplish with the program? Is it the focus of the C-suite, right? Are they going to push that, or is it, okay, hey, listen, I'm going to focus on something else either digitally or in store? So really, as it kind of goes back to, you know, can you have people that have a loyal base? Is it important to them as they navigate their business? And then it kind of goes into, okay, are they going to grow or what's happening with that? There's a lot of things that we have the potential to look at and bid on. If it's something that's not really going to grow or not really – people are trying to monetize it in a different way, it's something that we'll pass on. But, again, it goes back to having multiproduct, having the digital capabilities, having the advanced underwriting. And, again, I'll just end on this. Everyone, Jeff, will come here and tell you their underwriting is the best, right? I would sit back and say, in any competitive process, I would tell a merchant or a reporter, if you gave me a follow score, I guarantee, well, I shouldn't say guarantee, but I would lead to believe that we would have a better outcome on underwriting versus what they're getting today. And that's proven in past history.

Maybe it's not all true every time, but I would tend to bet that we would have a better underwriting because of the data in what we do. and you know as you've been able to win some of these partnerships recently and since covid as you you know acknowledge the renewals there um you touched on some of this but what are the priorities your partners are focused on in these discussions and have you seen a shift or any evolution in the competitive environment around renewals and rfps and um maybe just where is buy now pay later coming in the equation as well yeah you know so i've been in this business 28 years.

And I think if you go back 15 years ago, it was about economics. They said, okay, great, you have the capabilities. We'll see. It's about economics. Now there's much more discussion. And the discussions happen actually more advanced than they did earlier. So they start earlier, and they really want to focus on what are your capabilities? Can you deliver for me digitally? Is it seamless for the consumer? So I look at some of the innovations that we brought in over the last five years, whether it's your API costs. I mean, if you're in Venmo, you cannot tell you're dealing with us versus Venmo. So can you have the digital assets to embed wherever they're kind of going to go, number Number two, I think with our scale, is multi-product. We can do installment lending. We can do secured. We can do private label. We can do dual card. You know, we have the full suite. We can do that for consumer. We can do it for commercial. So having a broad suite allows them to sit back and say, okay, if a consumer is coming whether it's digitally or in a retail format, you know, how can I get the best product in their hands? And then you look at our base and you sit around and say, listen, with approximately 70 million average active customers, you know, you have a deep customer knowledge that you can get value props that resonate. So that's really what we see. Now, when it kind of gets to buy now, pay later, you know, their model is different, right? They don't give as much credit out. They don't want to go into the bigger ticket because they don't want the line tied up there. They generally play in a smaller ticket and generally play with a different type of consumer. They're one that was more cash-oriented, maybe a little bit lower on the credit spectrum. That's why they use the kind of purchasing power or line as a throttle to control credit because they just can't take exposure on the bigger tickets where we can. And so even where they're in place with our merchants or partners, we haven't really felt any true ramifications of that. That's not to say that we don't have a healthy, productive paranoia about what they're trying to do, but they're trying to get scale, number one. And number two, they realize that just having an installment offering is not something that providers necessarily want or partners, so they're trying to get a multi-product set, but they don't really have the scale yet. So, you know, so the competitive dynamics are interesting. I think when you think about, you know, true competitors we deal with, you know, cities shifted focus more to co-brand. I think they'll try to maintain, you know, some of their premier brands in Macy's and Depot. You know, Cap One, you know, I'm sure who will be here. And, you know, they're trying to figure, I shouldn't say, They probably understand, but where they go in the retail partnership business versus Discover versus their brand. You know, Barclays is one that's probably a little bit more aggressive, and at times I'd say irrational as they try to get scale. But, again, you know, if you don't have a lot of history, it's tough. They don't have a lot of levers other than price sometimes to compete. And then bread, we don't really see them as much. We overlap in a small segment, but I think they probably want to come closer to some of our segment, but they just have a different scale and balance sheet than we have.

And speaking of some of your larger competitors, we just got a new re-proposal for the capital rules. The common period is wrapping up here. Maybe just touch into how you're thinking about using this 125 to 150 basis points of capital relief you estimated. Could these changes in your view maybe create some advantages for you versus your larger peers that have to deal with more burdens and requirements potentially? And any other feedback you've maybe been giving your regulators?

Yeah, so let's first start with if you're investing in synchrony, our capital position and our ability to generate a significant amount of capital is a strategic advantage, right? So you look at our current capital position at 12.7% CT1 at the end of the first quarter. Our target's 11. Our stress capital buffer is 250 until 28. So when you look at that and then look, you know, when we showed you back in the first quarter in the last 12 months, we generated 350 basis points of CT1. This is business because the higher return throws off a lot of capital. So start there that we have this tremendous ability. with the capital we generate, but also in the capital that we produce each quarter and year. So that's a competitive strength. With regard to, you know, where you started the question about how do you think about the 125 to 150 basis points, we spend no time on that, Jeff, right now, because there's a number of things that have to happen in advance of that. You know, the first thing is you have to have a period of close on this rule. But you have to get through. There's stress testing that will come out probably in the third quarter, rules around that, and what's going to change there, and then you have the responses to this, and you'll have the rules that kind of come out at the end of the year most likely. When you look at what Basel III says, and I'll go through it, if it went in as written, we would go under the standardized approach and get that benefit of 125 to 150 basis points more likely. The advanced approach is not as favorable for us because while you get incremental RWA reduction, What it brings into is two things that are really, or three elements that are really hurtful to us. Number one, it treats all open-to-buy as equal, right? A lot of our open-to-buys on one-and-done furniture accounts, high-end tickets, high FICOs. It just puts the conversion factors and peanut butters it. So it takes up quite a bit of the benefit from the RWA reduction. The second thing, it introduces operational risk RWAs, which double counts with what happens in stress. And third, it's a little bit more punitive around the DTA. So, you know, obviously we'll comment on that. I think the industry most certainly, you know, from the card side, will lean into the operational risk piece a little bit, and most certainly we'll provide our comments. And then, you know, hopefully the rule is out by the end of the year, and then we can figure out what we want to do with that capital. And I think people have got to think about, you know, what the rating agencies or other people are going to think, you know, when this comes out. The good news with the rating agencies and us, we just, you know, you know, we just went through our process with the rating agencies. But, you know, they look at our balance, and the loss of absorption capacity we have at, you know, close to 25 percent is just, you know, puts us in a really good position with them. So, but it's something we have to watch.

All right. And as we, you know, take it back to the conversation we had around your investments in digital engagement, launching new partners, your efficiency ratio has ticked up a little bit. As you look to return to positive operating leverage, where do you see yourselves today in your overall investment cycle? How much efficiency upside do you think exists beyond this year? And maybe how do we think about you or timing or whatever framework you would use? Just how do we think about you getting back down to that 32% to 33% level that you target?

Yeah, you know, the first thing, and this is interesting because the RSA plays a role in the denominator. So some of the inflation you see in the efficiency ratio is because that comes into play, which is more unique for synchrony. I think when you think about a dollar expense base, we're generally consistent, you know, quarter on quarter, and that's where we kind of gave some frameworks as we move out. You know, the investment has been relatively consistent. No matter where we are, we're looking for that longer term. So we're going to continue to focus on health and wellness, which is, you know, just a strategic asset that we have in our sales platforms. We're going to continue to focus on our, you know, accelerating our customer experiences at digital. We're going to continue to invest in Prism. We're going to continue to invest in the consumer bank. And, you know, what we've ticked up spending this year has been really in a couple of technology areas, right? Number one, AI, and number two, cloud. So we want cloud to accelerate here and get through our journey, which we expect to be the end part of 2027. And, listen, we have to be investing in AI both from a growth standpoint but also from a productivity standpoint. So I don't view investment as accelerating from here. I know that's a lot of fear from customers. It's going to accelerate, but I think you'll see, you know, some modest increase this year. And then, you know, in theory, as we get back to growth, you'll get that operating leverage to come back through. And most certainly as losses come back inside the long-term target zone, I think it helps on the denominator side to bring the efficiency ratio down.

And speaking of AI, some of that tech spend is going towards agented commerce. So as commerce does become more automated, how do you see Synchrony's role evolving maybe beyond the traditional retail car product you've historically offered? And where do you think you can maybe differentiate between the other providers in the ecosystem?

Yeah, so we're working in almost every swim lane as we can because I think, Jeff, no one knows how Agenda Commerce is actually going to win and evolve here, right? You know, I think everyone has their own view depending upon their own business model, but the consumer is not screaming, I want agendic commerce, right? So, you know, the technology companies and others are trying to figure out what the right way for the consumer to do it, and consumer preference is going to come in. So we're focused on working through the app and where you see AI. We're focused on, you know, browsers and things like that where you have protocols that you want to kind of go through there. We're working with our merchant partners, so we're using Agentic Commerce as a means if you come onto their site. And then, obviously, we're investing in Agentic AI as it relates to our marketplace. So we don't know who's going to win. No one knows who's going to win. We're three to five years out with Agentic, but you have to play all the pieces. What's really important for us is how do we get our products to show up, whether it's in a ChatGPT or a Claude or a Gemini. How do you have that provisioning there? How do you kind of direct it back to some of our merchant partners? It's really about making sure that we don't get disintermediated as someone else tries to create the experience. And so you want the experience to be somewhat seamless, but we're going to have to play all the angles out here. So that's where we're focused on it. Again, we're partnering with the big AI companies as well as the big browser companies. So we're going to continue to play through, but it is a transformational period. But we can't lose sight of what is the consumer preference going to be.

And as I think about synchrony, speaking of evolution here, you've historically operated as more of what I would think of as behind the scenes for your retail partners. The consumer doesn't always know who you are, but you have increasingly leaned into proprietary co-brand. Do you see more of an opportunity over the long term to really build greater consumer affinity for your brand and what do you still view your mode as kind of being that embedded partner or choice for your retail partners?

No, I think it's broader. I mean, when you think about 140 million trade lines, you think of the fact that we opened 20 million accounts last year, that every application that comes through, 60% to 70% of them, we've seen them or do business with them. More people actually know who Synchrony is than you give it credit for. You know, if you go onto our platform we call Vista, you can see your accounts on there. So consumers actually do know what it is. What we have to be able to do better in any case is how do I kind of bring more options to them, not just intermediate where our partner business is, but how do we augment it? And so I think you're seeing that. It goes back to having partnerships and having broad-based utilities and strong value propositions that resonate with those consumers that drives you forward. So I don't think it's a dramatic shift for us. It's part of our evolution. We've been doing this for 100 years now or close to 100 years. It's part of an evolution where we can leverage the scale of our business.

And are there any other capabilities you think will become increasingly important for you to build or deepen over the coming years as we sort of see this evolution in the retail ecosystem?

Yeah, it's all about the customer experience. How do you make it seamless for the customer to do business with you? I think, you know, this is where you kind of, you know, scale matters, right? So how do you make it easy for them to apply, to buy, to service? That experience with strong value proposition is going to resonate more. And then that multi-product view that says, hey, listen, Synchrony will be there for whatever my financing needs are going to be to purchase a good or service.

All right. And if we fast forward three years from today, what do you think investors are most underestimating about the earnings power of your business today?

Yeah, you know, the first thing, and I'll start with some things that people don't tend to focus on. Like if you go back to, you know, since 2001, so eggs in the end of the pandemic, our average growth rate is 7%. percent, right? Our average ROA is high twos to three. ROTCE is, you know, 25 plus percent. That's pretty good performance in the last several years. So I think as we look forward, you know, our goal is, listen, how do we get back to, again, with an uncertain environment today, but hopefully the environment, you know, becomes more certain, you know, how do we get back to that long-term growth framework of 7% to 10%, maintain the losses, and then through strong capital, you know, delivering back double-digit EPS growth. That's what I think we want. You know, the investment thesis here in the company is going to be, and always has been, I want to be a, you know, higher growth, not necessarily at the top, but, you know, a couple times GDP. I want to be the best-in-class ROA, right, and I want to have stability, and you see that with the RSA. That's, you know, coupled that with strong capital generation, that's why you invest in this company. We've been around for 100 years. We continue to evolve. We have probably some of the best digital assets that will produce, you know, hopefully double-digit earnings growth.

All right. Well, with that, that's our last question. So thank you, Brian. Appreciate you joining us today.

Jeff, great. Good luck with your conference, and thanks for the invitation.

Appreciate it.