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Good morning. Welcome to the Synchrony Financial second quarter 2026 earnings conference call. Please refer to the company's investor relations website for access to their earnings materials. Please be advised that today's conference is being recorded. Currently, all callers have been placed in a listen-only mode. The call will be opened up for your questions following the conclusion of management's prepared remarks. If at any time you should need operator assistance, please press star zero. If you wish to ask a question following the prepared remarks, please press star one. I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin.
Thank you. Good morning, everyone. Welcome to our quarterly earnings conference call. In addition to today's press release, we have provided a presentation that covers the topics we plan to address during our call. The press release, detailed financial schedules, and presentation are available on our website, synchronyfinancial.com. This information can be accessed by going to the investor relations section of the website. Before we get started, I wanted to remind you that our comments today will include forward-looking statements. These statements are subject to risks and uncertainty, and actual results could differ materially. We list the factors that might cause actual results to differ materially in our SEC filings, which are available on our website. During the call, we will refer to non-GAAP financial measures in discussing the company's performance. You can find a reconciliation of these measures to GAAP financial measures in our materials for today's call. Finally, Synchrony Financial is not responsible for, and does not edit or guarantee the accuracy of, earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. On the call this morning are Brian Doubles, Synchrony's President and Chief Executive Officer, and Brian Wenzel, Executive Vice President and Chief Financial Officer. I will now turn the call over to Brian Doubles.
Thanks, Kathryn. Good morning, everyone. Synchrony's second quarter performance reflected strong momentum across our core business drivers. New accounts continued to grow, and average active accounts inflected to growth. Customer engagement continued to be strong, leading to higher spend per account across each of our five sales platforms and 8% growth in purchase volume, which reached an all-time high of almost $50 billion in the quarter. Growth was broad-based across all five of our sales platforms, led by diversified value. The broad utility and strong value offered by the partners in this vertical continued to resonate deeply with customers, including our ongoing partner expansion, and in combination with higher gas sales, drove a 12% increase in purchase volume compared to last year. Spend across our digital platform grew 9%, primarily reflecting strong performance across partners with broad diversified offerings and highly engaged customers. Purchase volume in both our home and auto and lifestyle platforms increased by 6% compared to last year. Home and auto growth was driven by the performance of new programs. In our lifestyle platform, higher spend was primarily driven by the performance of new programs and strength in the other apparel and goods category, as well as in the luxury category. Meanwhile, health and wellness purchase volume grew 2%, primarily reflecting growth in pet. Synchrony's co-branded cards, including our consumer and commercial dual cards, accounted for 52% of our total purchase volume in the second quarter and increased 23% versus last year. This trend was driven by the combination of new programs and product upgrades, as well as higher broad-based spend and enhanced utility across our card programs. Out-of-partner discretionary spend on our consumer co-branded products grew in line with non-discretionary. Both were up double digits despite elevated fuel prices in the second quarter. Particular strengths came from categories like entertainment, retail, and electronics. As you can see in the charts at the bottom of slide three, the proportion of discretionary spend was consistent or higher across customer cohorts throughout the quarter, even as fuel prices rose significantly. Overall, we believe these trends reflect resilient consumer behavior, likely supported by some benefit from increased tax refunds and lower tax withholdings, and strong demand for the value and utility our products deliver. Synchrony is focused on providing the purchasing power customers need for each of life's moments. That kind of financial flexibility depends on dynamic underwriting capabilities, a diversified product suite, and the industry expertise to reach and serve a broad range of both local and national businesses and providers. To that end, we added or renewed more than 15 partners during the second quarter, ranging from Suzuki Motor to AmeriVet and Roto-Rooter. Our renewal with Suzuki Motor extends our 17-year partnership, continuing to deliver secured installment financing solutions through their more than 700 dealers nationwide. Meanwhile, our renewed relationship with AmeriVet, which supports a network of over 200 locally led veterinary clinics across 37 states, positions CareCredit as their exclusive financing partner through a seamless single-application waterfall solution. Together, CareCredit and AmeriVet are helping more pet parents access the care they need, ultimately enabling better outcomes and healthier pets. Synchrony's multi-year agreement with Roto-Rooter Plumbing & Water Cleanup will enable us to expand how customers pay for essential home repairs and ongoing home care. We will deliver our multi-product capabilities with revolving and installment financing options available side by side to enhance flexibility and choice as customers manage these often unplanned expenses. Synchrony's partnerships typically span decades because we continue to evolve together as the consumer landscape changes and our customers' everyday needs and expectations shift. We recently refreshed our credit card program with DICK'S Sporting Goods, building on our longstanding partnership of over 20 years. Our products now feature an everyday 10% back in scorecard rewards on qualifying DICK'S purchases to drive greater value, financing flexibility, and convenience for consumers. In April, we completed our acquisition of the MyLowe's Pro Rewards American Express Card portfolio and became the issuer, delivering a cohesive customer experience with simpler applications, digital servicing, and more utility and value. The MyLowe's Pro Rewards card complements the existing MyLowe's Pro Rewards private label credit card by extending pro purchasing power and rewards earning potential beyond Lowe's. Whether we are empowering small and medium-sized contractors to keep their businesses running smoothly, unlocking greater value and loyalty for hobby purchases, or enabling pet families to access the care their pets need, Synchrony is driving more meaningful customer and partner outcomes through the moments that matter. With that, I'll turn the call over to Brian to discuss our financial performance in greater detail.
Thanks, Brian, and good morning, everyone. Synchrony's second quarter financial performance was highlighted by a positive inflection in average active account growth, all-time high purchase volume, and continued acceleration in ending loan receivable growth, all while maintaining our credit discipline and delivering a strong credit performance. As a result, we generated net earnings of $885 million, or $2.59 per diluted share, a return on average assets of 2.9%, a return on tangible common equity of 25.2%, and an 8% increase in tangible book value per share. Turning to our performance in detail. Purchase volume grew 8% versus last year and reached almost $50 billion. Ending loan receivables grew 2% to $102 billion, reflecting the impact of higher purchase volume, partially offset by the continued effects of elevated payment rates. The payment rate of 17% was approximately 70 basis points higher than last year and approximately 170 basis points above the pre-pandemic second quarter average, primarily reflecting the impacts of new portfolio seasoning, shifts in portfolio and product mix, and our previous credit actions. Net interest income increased 2% to $4.6 billion, primarily driven by the combination of higher interest and fees and lower interest expense. Interest and fees increased 1%, primarily driven by the growth in average loan receivables. Interest expense decreased 8%, primarily due to lower benchmark rates. Our second quarter net interest margin increased 30 basis points versus last year to 15.08%, reflecting two key drivers. One, a 39-basis-point decline in our total interest-bearing liabilities cost, which reflected the impact of lower benchmark rates and contributed approximately 29 basis points to our net interest margin. Two, a 131-basis-point increase in the mix of loan receivables as a percent of interest-earning assets versus last year, which contributed approximately 23 basis points to our net interest margin. These improvements were partially offset by two factors. One, a 68-basis-point reduction in our liquidity portfolio yield, which reduced our net interest margin by 13 basis points. The decline was generally driven by lower benchmark rates. Two, an 11-basis-point decrease in our loan receivables yield, which was primarily driven by lower benchmark rates and lower assessed late fees, partially offset by the continued impact of our PPP fees. This reduced our net interest margin by approximately nine basis points. On a sequential basis, net interest margin decreased 42 basis points, primarily due to two drivers. One, the decline in our interest and fee yield, which reduced our net interest margin by approximately 31 basis points. This is primarily due to the lower assessed late fees as delinquency reaches a seasonal low and as the efficacy of our credit actions and ongoing credit discipline support fewer defaulting accounts. Two, the decline in the mix in loan receivables as a percent of interest-earning assets, which reduced our net interest margin by approximately 16 basis points. This was generally due to seasonal pre-funding ahead of our expected loan acceleration in the back half of the year. Turning to the remainder of our P&L. RSAs of $1 billion, or 4% of average loan receivables in the second quarter, increased $35 million versus the prior year, primarily reflecting program performance and higher purchase volume. Provision for credit losses increased $55 million to $1.2 billion, primarily driven by a reserve release of $163 million versus a $265 million release in the prior year, partially offset by a $47 million decrease in net charge-offs. Other income increased to $19 million to $137 million, primarily reflecting the impact of a $30 million gain related to the exchange of our Visa B-2 shares, partially offset by higher loyalty costs. Other expense increased 7% to $1.3 billion, primarily driven by higher operational losses and technology investments. The second quarter efficiency ratio was 35.8%, approximately 170 basis points higher than last year. This resulted from higher overall expenses and the impact of higher RSA. Turning to our portfolio credit trends on slide eight. Our net charge-off rate was 5.43%, reflecting a decrease of 27 basis points from 5.7% in the prior year. Our allowance for credit losses as a percent of loan receivables was 10.09%, a decrease of approximately 33 basis points from 10.42% in the first quarter, and a decrease of approximately 50 basis points from 10.59% last year. Slide nine shows Synchrony's funding, capital, and liquidity ratios, which remain a core strength of our business. We grew our direct deposits by $2.9 billion versus last year and reduced broker deposits by $2.4 billion. At quarter end, deposits represented 83% of our total funding, with secured debt representing 9% and unsecured debt representing 8%. Total liquid assets decreased 9% to $19.8 billion and represented 16.2% of total assets, 186 basis points lower than last year. Turning to capital. During the second quarter, we issued $500 million of preferred stock with a final dividend of 7.25%, a full 100 basis points lower than our previous resettable preferred deal that was priced in February 2024. With this issuance, our capital stack is now fully developed. Synchrony remains focused on returning capital to shareholders and making further progress towards our CET1 target of 11%. At the end of the second quarter, we changed the presentation of our internal-use capitalized software costs on our balance sheet and reclassified prior periods to conform to this presentation. This change is reflected in our capital ratios for both the current and prior year. Accordingly, Synchrony ended the quarter with a CET1 ratio of 13.2%, reflecting a 100 basis point reduction versus last year, a Tier 1 capital ratio of 14.9%, reflecting a 50 basis point reduction, a total capital ratio of 16.9%, reflecting a 60 basis point reduction, and a Tier 1 capital plus reserves ratio of 24.7%, reflecting a 100 basis point reduction versus last year. Synchrony returned $950 million to shareholders during the second quarter, which included $850 million in share repurchases and $100 million in common stock dividends. At quarter end, we had approximately $5.7 billion remaining of our share repurchase authorization. Finally, I'd like to discuss our outlook on slide 10. We continue to expect average active account acceleration and strong growth in purchase volume in the back half of this year while maintaining our credit discipline. This growth should more than offset the impact of the elevated payment rate to deliver mid-single-digit growth in ending loan receivables by year-end. Net interest income is expected to grow in 2026 as a result of higher average loan receivables, the building impact of PPP fees, and lower funding liabilities compared to last year. These trends will be partially offset by the impacts of lower late-fee incidence and new account growth acceleration. We continue to expect net charge-offs to be less than 5.5% for the full year, with delinquency and losses following seasonality. As strong program performance contributes to higher net interest income and lower losses compared to last year, RSAs should increase but remain within our long-term target range of 4%-4.5% of average receivables. Lastly, we expect other expense dollars in the second half of this year to be relatively consistent with the first half as we maintain our focus on driving operating leverage while also investing in Synchrony's capabilities and future growth opportunities. Given the performance of our business so far this year and the expectations for the remainder of 2026, we now expect to deliver between $9.25 and $9.50 in diluted earnings per share. In summary, we're confident in our path forward as we execute on our strategic imperatives. We remain focused on enhancing our resilient foundation and generating strong profitability to drive intrinsic value over both the short and long term, while also returning significant capital to shareholders. With that, I'll turn the call back to Brian.
Thanks, Brian. Before I turn the call over to Q&A, I'd like to leave you with three key takeaways from today's discussion. First, demand remains strong. Synchrony delivers everyday value and utility for millions of consumers and compelling outcomes for hundreds of thousands of small and mid-sized businesses and providers across the country. Second, Synchrony continues to raise the bar. Through consistent investment in our innovation and evolution, we are driving outcomes that position Synchrony at the heart of what matters to customers and partners alike. Third, the power of our differentiated business model is evident through our financial performance. Synchrony is growing while maintaining our credit discipline, generating strong returns, and building significant long-term value for our stakeholders. With that, I'll turn the call back to Kathryn to open the Q&A.
That concludes our prepared remarks. We will now begin the Q&A session. So that we can accommodate as many of you as possible, I'd like to ask the participants to please limit yourself to one primary and one follow-up question. If you have additional questions, the investor relations team will be available after the call. Operator, please start the Q&A session.
分析師問答
At this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Please limit yourself to one question and one follow-up question. Our first question comes from Ryan Nash with Goldman Sachs. Please go ahead, your line is open.
Hey, good morning, everyone. Brian, if I look at the EPS in the second half relative to Street expectations, it implies some downsides. I know that there's color on some of the moving pieces of guidance on slide 10, but maybe just walk us through some of the things that are embedded for the second half in NII and credit, and where do you think expectations may be off from here? Thank you, and I have a follow-up.
Hey, Ryan.
Good morning, Ryan. Yeah. Thanks for the question, Ryan. I think when you look externally and what people have modeled, when you think about the reserve coverage ratio, I think the ending point, how they got there was a little bit more spread across quarters. When you look at the first half for us, the rate came down even though we had growth and we offset the provisions against that growth. I think as you start thinking about the back half of the year, the reserve rate probably doesn't really moderate from here. Over the medium term, it probably can. You're going to see more growth-driven provisions in the back half. I think you get to the ending point; it's just how people model the quarter is number one. I think when you think about the EPS guide: net interest margin was really at the lowest point here in the second quarter, that's going to begin to build. Again, what we tried to say to folks is, as much as you have those charge-off declines, you're going to have a significant impact relative to late fees. When you look at it, walking from the first quarter to second quarter, you had your 18 basis points of just reduction related to late fees, put aside the AEA piece and the ALR piece. I think as people try to model this, they have to take into better account, number one, the effects of late fees are kind of coming from the better charge-off position. Two, they have to get the reserve transitions right over the quarters as it kind of builds with growth. The last thing I'd leave you with: put aside the operational losses. Operating expenses are down year-over-year versus our expectations. Again, that's something we're dealing with and dealt with in the first half of the year; that's really going to be consistent. I think people still model a little bit lower OpEx because they're using efficiency ratio. Again, we're trying to help you with dollars. Those are the bigger pieces I think, Ryan, as you think about the back half. It's just how you got there quarter-by-quarter versus the full year number.
Gotcha. No, I appreciate the color. Brian, you had flagged that the margin could be lower in the quarter, and that came through. I know that you just noted the margin begins to build from here, but maybe just talk about some of the drivers and the key assumptions embedded in that. Do these elevated payment rates impede your ability to expand the margin further over time? Thank you.
Yeah. Let me start with where you ended, Ryan. I know there's probably a lot of questions with regard to the 73 basis point increase from the first quarter to the second quarter in the payment rate. Eighty-five percent of that, or 62 basis points, were really driven by two factors. Number one, new portfolios accounted for probably half that move, which related to not only Walmart, but you had Bob's and some other portfolios that came through. The amalgamation of a bunch of new programs drove a significant increase in the payment rate quarter-on-quarter. Second, promo mix contributed as well. Those two combined were 85% of the change. Payment rate was relatively stable quarter-on-quarter otherwise. As you think about the net interest margin as you move to the back half of the year, you should see, as a framework to think about it, you are going to get a benefit on ALR as you step out, and that builds between the third quarter and the fourth quarter. Late fees probably have hit what I'd say is a trough to some degree. You won't see as much impact really as you move into the back half of the year. That headwind that you experienced being 19 basis points this quarter kind of abates and swings quarter-on-quarter. Those are some of the bigger pieces. That late-fee component is outweighing the benefit that we got from the PPP fees. I think as you try to model through the late fee impact and the new account impact on them, that is more concentrated in the back half of the year.
Thank you.
Thanks, Ryan.
We will move next with Sanjay Sakhrani with KBW. Please go ahead. Your line is open.
Thank you. Good morning. Just building on what Ryan was talking to you about, Brian. As I think about the RSAs, those also came in sort of at the low end of the range that you guys are targeting. As we think about the second half of the year, do those then elevate? I'm just trying to think about where we land in that wide range that you have for the RSAs.
Thanks. Good morning, Sanjay. RSAs, there's a number of things that factor through there. When you take a step back and look at the relative percentage relative to PPNR minus net charge-offs exclusive of RSA, it's generally in line with prior quarters, so it's not significantly different. One thing I'd say though: in this particular quarter, as well as some effects in the first quarter, the way operational losses sometimes flow through is they go directly through RSA versus being an offset. It's a charge back through operational losses. A good bulk—I'd say over 70%—of the operational losses are covered by RSA. In particular, over $20 million this quarter was covered directly through the RSA and not through that offset on the operational losses line. As I take a step back, some of the idiosyncratic things that we saw in operational losses, and some of the things may be caused by partners who made modifications that had an unintended impact, hopefully that is behind us. We're coming off of historic lows relative to operational losses in 2025. While we expect it to elevate, we think that the acceleration here should flatten out in the back half of the year. We'll certainly mix, and I'd say that item drove a little bit of the RSA movement. You'll see RSAs generally move up a little bit from here, but stay within the range.
Okay. Then maybe if we pull up a little bit more, just thinking about the business model, because a lot has changed over the course of the late fees and then Walmart, and obviously you guys have moved the mix to, I think, a higher credit quality consumer. Maybe this is a question for Brian Doubles. When we think about the ROA of the business and the portfolio, is that still intact at like 2.5% or so? I'm just trying to think about the overall implications of all the different moves and what it means for the ROA. Thanks.
I'll start on that, Sanjay. Look, I think to your point, a lot has changed in the last five years. We've brought in new partners and renewed a number of our top 10 partners. The lens we look at all of those things through is the long-term guidance of 2.5% plus ROA. I think when you do all the puts and takes, everything we've brought on—even smaller programs that we've exited because they were below our return threshold—they all steer you back to that same range in terms of return.
Okay. Great. Thank you.
Yep. Thanks, Sanjay.
Thanks, Sanjay.
Thank you. Our next question comes from Terry Ma with Barclays. Please go ahead. Your line is open.
Hey, thank you. Good morning. You called out some of the impact on the overall consolidated yield for the book. If I look at platform results, it looks like digital and diversified value showed the most year-over-year decline in yields. Any color on what's going on with those two segments? Is it more promo usage, or is it more late fee there? Any color on that, please.
Thanks for the question, Terry. When you think about those two platforms, Diversified Value has seen really strong growth across partners. When you think about some of the value orientation you have there—whether it's a TJX or Sam's Club—clearly the yield gets impacted when you introduce a new program like the Walmart OnePay program that's in there. There's nothing fundamental I would point to in Diversified Value beyond mix. For digital, we have a couple of very large partners like Amazon and PayPal and refreshed value propositions which have driven significant growth in purchase volume and asset growth. When you change the trajectory of the company—you know, we were down last year in assets and now we're plus 2%—there are implications across the P&L, including net interest margin as you have these new accounts. That begins to subside as you have a more consistent growth rate stepping out of 2026. It's really a factor of growth, whether it be a new partner or a value proposition that's resonating with consumers.
Got it. That's helpful. Maybe just talking about Home & Auto, looks like Lowe's was in there this quarter. Maybe just talk about the underlying trends that you're seeing ex-Lowe's. I think you called out some green shoots last quarter. Thank you.
We're actually encouraged by home and auto. You think about that business: furniture was up nicely in the quarter. Home specialty was up mid-single digits, which had been more of a challenge for us as consumers held back on larger-ticket purchases. Real bright spots in there that we feel good about. Obviously, we're excited about expanding the relationship with Lowe's and bringing that commercial co-branded portfolio in. That does have a very different payment and volume turn to it. When you add that co-branded relationship on top of what was our private label relationship, all the accounts that might apply for co-brand but would have received nothing now will be offered at least a private-label card. That should expand growth as we move forward. Again, we're encouraged by trends in home specialty and furniture, which ties back to consumers being a bit more resilient and willing to spend on certain discretionary items. Thanks, Terry.
Thank you. We will move next with Darrin Peller with Wolfe Research. Please go ahead.
Hey guys, thanks. With much of the recent increase in expense from tech investments and just some early operational losses as you launch the Nova programs, can you give us some color on your expectation for second half expense dollars versus the first half?
Good morning, Darrin, and thanks. Our expectation is that operational losses will flatten out and trend downward. Tech investment will continue at the same pace. We're showing discipline around employee costs and other areas. The back half generally has more volume than the first half, particularly in the fourth quarter, so you'll see more volume-oriented expenses—things tied to active accounts or network fees—come through. Those dollars in totality in the back half will approximate the first half. If you pull out operational losses, our expense outlook on a dollar basis will align directly with asset growth. We feel good about that as we move forward. We're showing discipline while investing in technology so we can hit medium and long-term growth goals.
Right. Okay. Thanks, Brian. Quick follow-up: the chart on slide three was helpful. It shows that among your co-branded cards, discretionary spend showed little impact despite higher gas prices. Is this the case from what you're seeing? Is it more the seasoning of new programs or anything else driving that?
When you look at the consumer, higher gasoline prices and inflation would be expected to cause pullback, but that hasn't reflected in spending. The trend was solid to accelerating throughout the quarter. Having the right multi-product set and compelling value propositions matters. We saw green shoots in discretionary across the portfolio: dental in health and wellness turned positive, luxury in lifestyle was strong, furniture and home specialty were bright spots. Consumers are disciplined managing their balance sheets but are willing to spend in certain areas. That, plus strong entry and late-stage credit trends, supports the observed resilience.
All right. That's good to hear. Thanks, Brian.
Great. Thanks, Darrin.
Thank you. We will move next with Rick Shane with JPMorgan. Please go ahead.
Hey, guys. Thanks for taking my question. I'd like to talk about your AI strategy and investment. We're through a period of rapid deployment and probably not an enormous focus on token costs. I'm curious, as you look at the opportunity now, how are you managing compute expense, and more importantly, as you move forward, how do you implement strategies to balance token costs versus employees?
Yeah, Rick. This is a huge opportunity for us. We're investing and seeing it transform how we work across functions and platforms. It's increasing capacity and productivity; speed to market is improving. Ninety percent of our exempt employees are actively using the tools, which is fantastic. We're encouraging broad usage now, but we'll be disciplined around associated costs. If we have a use case that drives productivity, speed to market, or better outcomes for partners and customers, we'll invest. We have use cases across tech, contact centers, collections, fraud, and credit. We view these as investments and will ensure good returns on those costs.
Brian— Go ahead, Brian. Sorry.
That's okay, Rick. Regarding token costs, they are not material to us today and not something we spend a lot of money trying to control at this point. We have a framework that looks at AI costs—license, token or credits—and how they're consumed. Our FinOps team, which manages cloud cost, is overseeing this. Right now, we're focused on adoption and finding the right levels. Longer term, these companies are investing billions, and we need to consider how those costs might be passed back through licenses or token costs. It's not driving our results today. Our technology costs are more about investments in core initiatives like Pay Later and other product development.
Understood. At some point, do you think we get to a world where token cost is looked at like T&E, with budgets and constraints? Right now, it's encourage broad usage. Do you expect that to shift?
I think you'll look at it differently across the company. In tech groups there will be a different model for engineers than for support functions like finance or HR. We'll develop activity-based costing and consider token consumption by process. For example, if you use AI to run a process, you should understand token consumption and the total cost versus human capital. It's early innings for everyone, but it'll evolve into how we measure return on investment. We have a rigorous process for budgeting new products, and these costs will be included in that evaluation.
Got it. Very helpful, guys. Thank you so much.
Thanks, Rick.
Have a good day, Rick.
We will move next with Rob Wildhack with Autonomous Research. Please go ahead.
Morning, guys. I wanted to go back to slide three and zoom in on June a little bit. You have purchase volume in June spiking to 11% growth, which is great. I think loan growth in June, though, was still a little slower than seasonality. First, what were the drivers? Anything to call out on June volume growth? Second, appreciate all the color on payment rate. In light of that commentary, what are the purchase volume assumptions that underpin the loan growth guide from here?
Thanks, Rob. As you think about the quarter, a lot of the June acceleration was driven by new programs that accelerated late in the quarter. Whenever you go through a portfolio conversion, there's a lag time for accounts to activate and start using a new product versus a product that has gone away. We had new programs and portfolio ramps—Walmart, Chico's, and others—contributing to the pickup. Regarding payment rate, it's going to remain elevated, and margins should expand as we move through the back half. With a higher payment rate, you will have slightly higher asset turn. Also, mix shifts, including commercial programs, will influence this. The historical turn will be a little higher going into the back half of the year.
Thank you.
Thanks, Rob.
We will move next with Mihir Bhatia with Bank of America. Please go ahead.
All right. Good morning. First question: can you talk a little more about the change in presentation for the internal-use capitalized software? What happened there and what's driving the change? Also on capital levels and CET1 targets now that the capital stack is more built out, is the current buyback cadence of $850 million-$900 million sustainable given the growth outlook for the next few quarters?
Thanks, Mihir. We generate significant capital each quarter, which is a strength and allows us to grow RWAs and return capital to shareholders. We don't comment on quarterly cadence, but you can look at historical activity. Capital supports our dividend and repurchase strategy. Regarding the internally developed software, there was new accounting guidance last year. We benchmarked our presentation relative to peers and discussed it with external accountants and regulators. We decided to reclassify capitalized internal-use software from intangibles to other assets. The effect is a corresponding impact to RWAs that resulted in about an 80 basis point CET1 change, recast for the prior periods and current period. This gives us more room to operate and supports our capital return strategy.
Got it. Thank you. Switching gears: late fees were in the news recently. Any incremental read on that situation, what's going on, and the potential for late fees to come back? What does the toolkit look like if that happens?
There's not a lot we can add; nothing has been formalized. It's early, so it's tough to speculate. Generally, price controls in a competitive industry can produce serious unintended consequences. Late fees are an important incentive for customers to pay on time. Removing the ability for the industry to price for risk can restrict credit and lead to account closures, which would be harmful for consumers and the economy. We're monitoring closely, but we don't know the intent of any potential request for information. We're staying engaged.
Got it. Thank you.
Thanks.
Thanks, Mihir. Have a good day.
We will move next with John Hecht with Jefferies. Please go ahead.
Morning, guys. Last year I think you had a really strong year of customer acquisition. How is that looking thus far this year? Where are customers coming from, and are there any notable trends?
Good morning, John. We generated over 5.1 million new accounts in the second quarter and about 9.5 to 10 million new accounts for the first half, which is strong. There's some benefit from new programs, but growth is across the board when products resonate. Our partners are in attractive segments—TJX, Sam's, Lowe's—and the diversity across verticals and sales platforms drives acquisition. We're on a trajectory toward the higher new account volumes we've seen historically.
John, we've got commercial teams that work closely with partners every day on marketing calendars, promotions, and offers that drive new account flow. That's embedded in our DNA and aligns with RSA structures to drive growth. It's good for partners and the program.
Okay. That's helpful. Any comments on how the latest Walmart OnePay program is ramping? Anything you've noticed about the behavior of that customer versus the book you had before?
We continue to be very excited about trends on Walmart. It's the fastest-growing program in our history across multiple metrics. It's a leading-edge program from a technology perspective and is different from past Walmart relationships. Everything runs through the OnePay app. Walmart+ contributes meaningfully; even non-members find value. The loyalty program is stronger in this iteration. This will be a top-five program for us. Walmart has been very supportive on digital placement.
One thing to add: over half of our Walmart accounts are Walmart+ members, who are highly engaged and buying multiple SKUs. Those are early adopters and very connected to the retailer, which supports the strong adoption.
Wonderful. Thanks, guys.
Thanks, John.
Thanks, John. Have a good day.
Our next question comes from Mark DeVries with Deutsche Bank. Please go ahead. Mark, your line is open.
Hello, can you hear me?
Can hear you now, Mark. Good morning.
Thanks. One question for Brian Doubles: where do you see the best longer-term growth opportunities—existing customers, organic TAM expansion through retailers or partners that haven't provided financing, or inorganic? As you think about that broader opportunity set, talk about your confidence in getting back to longer-term growth aspirations.
I'll highlight a few things. Our strategy is primarily organic; we're disciplined on M&A. We're investing heavily in our product suite and capabilities. We have a comprehensive set of products—secured cards, SetPay, revolving, PLCC, co-brand—that allow us to graduate customers and serve more of our partners' customers. Customer experience is critical: making credit easy to apply for, use immediately, and be available where customers want to be. We're integrating into ISVs, software platforms, and payment providers to serve many merchants via one integration—non-traditional partners—which is a big wave for us, particularly in health and wellness where we're integrated with many ISVs. Our proprietary underwriting platform, PRISM, is a competitive advantage. We've made big investments and get strong feedback from prospects and renewal discussions.
Okay, great. As you think about all those opportunities, discuss your confidence in getting back to longer-term growth aspirations.
I'm confident we'll get there. Some damping in growth was intentional due to a credit-restrictive posture. Our credit team brought charge-offs back in line quickly. We dialed in credit, which puts us in a position to open up and aim for the 5.5%-6% growth range longer term. As we do that, you'll see growth return to historical levels.
Thanks, Mark. Have a good day.
We will move next with John Pancari with Evercore. Please go ahead.
Morning. Given the time, I'll just ask one question. I appreciate the color around margin drivers. Any way to help frame the pace of improvements and possibly think of what a fourth-quarter exit net interest margin could look like as we look to 2027? How should we think about the pace of net interest income growth along with mid-single-digit receivable expectations?
I'll try to help with a framework, John. We're not providing specific quarterly guidance, but I would expect net interest margin to build off the second quarter's 15.08%. Drivers include seasonal ALR behavior—liquidity is currently at a peak, which will abate in Q3 and more so in Q4. Late fees, which were a headwind, should be past the trough and will be less of a drag in the back half. You'll also see continued build on PPP fees. Absent changes in Fed funds or interest rates, net interest margin should rise sequentially through the back half of the year.
Thanks, Brian. Figured I'd try.
It was a good try. You'll have opportunities to follow up with IR, and they can continue the conversation.
Our last question comes from Moshe Orenbuch with TD Cowen. Please go ahead.
Great. Maybe another shot at a similar idea, not in terms of a forecast. Brian, you talked about the impact of lower late fees in the first half of this year. As we go into next year, will that still be a factor? Can you talk about the impact in 2026 from accelerating account growth—can that impact loan yield, and will that moderate in 2027 and give you better growth in net interest income versus loan balances and other metrics?
Good morning, Moshe. If you think about 2026, we underwrite to a charge-off rate in the 5.5% to 6% range in the entry of the cycle. Where you see it below 5.5%, we would expect it to migrate back up over time. When that migrates back up, you should see a tailwind from late fees historically that helps net interest margin. Whenever you shift growth trajectory, under CECL there's an effect on reserves. Moving from asset decline to asset growth will create impacts on NII and net interest margin. If growth next year is more consistent—say modestly higher than this year—you'd expect a flatter growth trajectory versus larger swings, and a slightly higher net charge-off rate would give you two tailwinds to margin for next year: more consistent growth and the late-fee/margin improvement as charge-offs normalize.
Great. Thanks. Quick follow-up for Brian Doubles: you said the key driver of growth will be internal. We've seen some competitors pull back from private label expansion. Do you think there could be opportunities for larger portfolios—de novos or taking one over from another player?
Absolutely. By organic I include the portfolio business. We're the largest player in the space and most RFPs come across our desk. We evaluate them and price them discipline. That's been a big part of our growth strategy and will continue. When I referred to M&A earlier, I meant traditional company acquisitions. Our engine actively looks at de novos and existing portfolios; it's a very active pipeline.
Thanks very much.
Thanks, Moshe.
Great, Moshe. Have a good day.
This concludes Synchrony's Earnings Conference Call. You may disconnect your line at this time, and have a wonderful day. Thank you.