Synchrony Financial (SYF) Q4 2022 Earnings Call Transcript

Synchrony Financial (NYSE:SYF) Q4 2022 Earnings Call dated Jan. 23, 2023.

Corporate Participants:

Kathryn Miller — Senior Vice President of Investor Relations

Brian Doubles — President and Chief Executive Officer

Brian Wenzel — Executive Vice President and Chief Financial Officer

Analysts:

Moshe Orenbuch — Credit Suisse — Analyst

Ryan Nash — Goldman Sachs — Analyst

Donald Fandetti — Wells Fargo — Analyst

Sanjay Sakhrani — KBW — Analyst

Erika Najarian — UBS — Analyst

Arren Cyganovich — Citi — Analyst

Betsy Graseck — Morgan Stanley — Analyst

Kevin Barker — Piper Sandler — Analyst

John Hecht — Jefferies — Analyst

Richard Shane — JPMorgan — Analyst

Presentation:

Operator

Good morning, and welcome to the Synchrony’s Financial Fourth Quarter 2022 Earnings Conference Call. Please refer to the company’s Investor Relations website for access to their earnings materials. [Operator Instructions].

I will now turn the call over to Kathryn Miller, Senior Vice President of Investor Relations. Thank you. You may begin.

Kathryn Miller — Senior Vice President of Investor Relations

Thank you, and 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 our 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.

Brian Doubles — President and Chief Executive Officer

Thanks, Kathryn. Good morning, everyone. Synchrony closed the year on a very strong note with fourth quarter net earnings of $577 million or $1.26 per diluted share. Our return on average assets of 2.2% and a return on tangible common equity of 22.1%. These financial results contributed to full-year 2022 net earnings of over $3 billion or $6.15 per diluted share, our second-highest in company history. Our return on average assets of 3.1% and a return on tangible common equity of 28.5%. This performance was driven by continued strength across the fundamental drivers of our business and a high level of execution across our key strategic priorities throughout the year. We achieved record purchase volume of $180 billion for the full year. We surpassed our prior year’s record and was 15% higher on a core basis.

Spend per active account was 7% higher for the year, reflecting robust consumer demand across the broad range of products and services for which Synchrony offers flexible financing. We also acquired 23.6 million new accounts and grew average active accounts by 8% on a core basis. The combination of strong consumer spend and some moderation and payment rate contributed to ending receivables growth of 15%. As expected, credit continued to normalize across our portfolio with full-year losses of 3%, still more than 250 basis points below our underwriting target of 5.5% to 6%, which is generally the level at which our risk-adjusted margin is more fully optimized.

And finally, Synchrony continue to drive progress toward our long-term operating efficiency target, reflecting the combined impacts of our cost discipline, the inherent operating leverage in our highly scalable model and strong revenue growth. Synchrony’s ability to deliver consistent growth and strong returns is a testament to our well-diversified portfolio, our balanced approach to product and credit strategies, our compelling value propositions and the strength of our business model. As a result, Synchrony was able to return more than $3.8 billion of capital to shareholders during 2022, $3.3 billion of which was through share repurchase, a 17% reduction in our shares outstanding.

When we look back on 2022 and the caliber of results we were able to deliver for our customers, our partners and providers and our shareholders, it really all comes back to the dedication shared by the Synchrony team as we realize our ultimate goal. To power commerce by delivering a leading digital ecosystem, connecting our partners and customers to world-class technology products and capabilities. Over the last year, Synchrony has built upon the core strengths of our differentiated business model by executing on the key strategic priorities that are driving progress toward that collective goal. We continue to expand and enhance our partner programs, including the addition of more than 30 partners and the renewal of more than 50 relationships, including most recently Lowe’s, with whom we partner for over four decades to drive innovation and value to both their do-it-yourself and pro-customers.

Synchrony also continue to diversify our products, programs and markets during 2022, deepening our reach and expanding the utility and value we offer to our customers and partners alike. We continue to scale our diverse product suite with the launch of Synchrony’s installment and paying for products at a number of retailers and providers including Belk and Discount Tire. These fixed-pay offerings represent another financial tool that we can offer to qualifying customers, while also driving incremental sales to our partners and providers. And whether it’s delivering flexible financing offers in dental practice, connecting a customer with a large partner through a seamless mobile transaction are driving incremental sales at small and mid-sized businesses.

Synchrony meets our customers, partners and providers, wherever they are in their digital or retail journey and deliver the right product at the right time. For this reason, we launched a number of strategic partnerships over the last year to expand our distribution channels and broaden customer access to our comprehensive product suite. Through integrations with point-of-sale and business management platforms like Clover and practice management solutions like Cycle, synchrony has added hundreds of thousands of small business locations and several thousand provider locations through whom we can seamlessly and responsibly offer access to flexible financing. At year-end, Synchrony had more than 460,000 merchant provider locations and 71 million active customers. So when you think about the sheer size and scale of the constituencies we serve and the wide range of financing needs we deliver through omnichannel experiences, it should come as no surprise that our dynamic technology platform is at the center of it all.

During the last year, Synchrony continued to innovate and scale our digital capabilities to ensure that we can remain at the forefront, the ever-evolving consumer financing landscape. We drove greater mobile customer engagement through a number of initiatives, including both our digital wallet provisioning and the Synchrony app. Accounts provision for digital wallet use in 2022 increased 75% compared to last year, contributing to 85% mobile wallet sales growth. And in terms of our mobile app, we upgraded our side pipelines to the latest version, which delivers new features, including a new user experience freeze my card, e-statements, auto-pay, apply and Apple Pay push provisioning.

As a result, unique visitors and payments within the SyPi channel each grew by more than 20% compared to last year. In today’s tech-forward world, a best-in-class customer experience is characterized by seamless intuitive and hyper-personalized engagement. This in turn requires a more comprehensive understanding of each customer as we connect them with partners and providers and anticipate which products and services will optimize the experience. For that reason, we are constantly driving deeper integrations leveraging more predictive and actionable insights throughout our digital ecosystem and developing solutions that are grounded in our customer experience insights.

Over the last year, Synchrony achieved over 70% growth in the number of applications using our APIs. And more than 80% growth in API transactions, including from our clients and partners, leveraging Synchrony APIs to power their digital experience. Our partnership with PayPal is a great example of how together we continue to leverage more APIs to enhance our offerings and drive an even more seamless experience for their customer. In Q1, we launched PayPal savings which enabled instantaneous movement of funds between PayPal balances, no withdrawal limits, and a savings goal feature to empower customers to set and reach their financial goals.

In addition, existing PayPal customers are able to quickly and easily open their PayPal savings account inside PayPal Super App. In Q2, we launched our new and refresh co-branded PayPal Cashback credit card with a best-in-class cashback offering and a fully-integrated experience within the PayPal app, powered by native APIs. And in Q4, we enhanced our everyday value proposition on the Venmo co-branded card by introducing free person-to-person payments. The 3% fee is waived for the consumer when they use their Venmo Visa. We are really pleased with what the PayPal and Synchrony teams have been able to execute as we grow and evolve in new and unique ways, empower top-of-wallet products and best-in-class experiences for our customers.

Synchrony also launched our new cardholder service platform across many of our largest portfolios in 2022. This new platform offers customers the ability to service their accounts in one dashboard and enables a broad suite of account notifications across every aspect of the credit lifecycle. These notifications include a range of instant transactional or it’s all enhanced with enriched merchant data and a completely redesigned digital service experience. In addition to tax and email alerts, we were able to deliver these notifications and alerts directly within our partners, iOS and Android apps by leveraging our patented SyPi platform continuing to enhance the customer’s experience within our partners’ brands. While this new account manager is still in its early stages, we observe some strong trends in response to launch. 60% of those logging in have more than one account and 80% of our users stated that their experience was easy or very easy to use and a top driver of their satisfaction.

In fact, its more dynamic interface has achieved a double-digit improvement in our transactional net promoter score compared to our previous account management site. This new platform will span the broad set of financial products that Synchrony offers and will enable intuitive self-service and highly customized and personalized experiences, increase speed-to-market of features and solutions for our partners, and a more effective way for Synchrony to engage, empower and deepen our relationships.

Accordingly, as we continue to scale and integrate more of our products in the coming year, we believe this enhanced account manager will become an increasingly powerful tool to drive higher-quality engagement and deeper value for our customers, partners and Synchrony alike. To that end, we also remain focused on driving greater connectivity across our vast customer and partner basis with the expansion of our Synchrony marketplace. Mysynchrony.com connects customers with information and relevant offers from brands that they trust. These offers are powered by proprietary insights that Synchrony has gleaned through a variety of resources, including online search activity within their shopping category and location to provide personalized offers to the right audience at the right time.

As we continue to enhance this level of personalization and launch capabilities like pre-qualification within our marketplace over the last year, Mysynchrony.com achieved a 25% increase in both new accounts and sales as well as 11% growth and referrals to our partners. This is a testament to the deep customer relationships that our network products Foster. Synchrony’s ability to leverage our marketplaces like mysynchrony.com or carecredit.com to drive new and existing customer traffic, as well as incremental and repeat sales to our partners has been and will continue to be a meaningful competitive differentiator, an important growth driver for our business longer-term.

In summary, Synchrony is increasingly anywhere our customer is looking to make a purchase or a payment. Big or small, in-person or digitally, we can meet them whenever and however they want to be met with a broad range of products and services to meet their needs in any given moment. This ability to deliver the versatility of our financial ecosystem seamlessly across channels, industries, partners and providers alike is what positioned Synchrony so well to sustainably grow particularly as customer needs and market conditions evolve.

And with that, I’ll turn the call over to Brian to discuss fourth quarter financial performance in greater detail.

Brian Wenzel — Executive Vice President and Chief Financial Officer

Thanks, Brian, and good morning, everyone. Synchrony’s strong fourth quarter results demonstrate the power of Synchrony’s purpose-built business model at work. The diversification of our portfolio across industries and spend categories supported by sophisticated underwriting and disciplined credit management enabled continued purchase volume growth that surpassed last year’s record level.

In addition, the alignment of economic interest between Synchrony and our partners through our retailer share arrangements is performing as intended. Excluding the impact of portfolio sales, our RSA declined as credit losses continue to normalize and funding costs began to rise, enabling Synchrony’s delivery of consistent, attractive risk-adjusted returns as we have done for many years. The scalability and efficiency of our dynamic technology platform is enabling operating leverage even as we invest in our business. And Synchrony’s strong balance sheet continue to support our customers and partners as their own needs evolve. In combination, these business drivers have continued to uniquely position Synchrony in our ability to deliver sustainable outcomes for our customers and our partners and consistent returns to our shareholders even as market conditions change.

Let’s now discuss Synchrony’s fourth quarter financial results in greater detail. Purchase volume grew 2% to $47.9 billion, reflecting a 3% higher spend per account versus last year. On a core basis, purchase line grew 11%. This continued strength in purchase volume was broad-based across our portfolio, demonstrating the breadth and depth of our five sales platforms, the compelling value propositions we offer and continued consumer demand.

At the platform level, Synchrony achieved double-digit growth in our diversified value, health and wellness and digital platforms and single-digit growth in our home and auto and lifestyle platforms. More specifically, in diversified value, purchase volume increased 15% driven by higher out-of-partner spend in addition to partner performance and penetration growth. The 10% year-over-year increase in digital purchase volume reflected the growth in average active accounts and greater customer engagement. Health and wellness purchase volume grew 15% compared to last year as we experienced broad-based growth in active accounts as well as higher spend per active account. In-home and auto, purchase volume increased 9%, generally reflecting strong spend in home and higher prices in furniture. And in lifestyle, purchase volume was 2% higher, driven by higher at our partner spends.

Turning to Synchrony’s dual and co-branded cards where we continue to experience strong growth. Core purchase volume on these products grew 21% versus last year and represented approximately 40% of our total purchase volume for the quarter. As we’ve discussed in the past, our customers derive great value from our dual and co-branded cards because they combine best-in-class rewards with broad utility. Generally speaking, approximately half of our auto partners spend is comprised of nondiscretionary spend by billpay, discount store, drugstore, health care, grocery and auto and gas.

And while we observed some minor category shifts during December, for example, from T&E related spend towards more clothing and other retail as well as a reduction in auto and gas-related spend towards more grocery and discount spend, Synchrony’s relative mix of discretionary and nondiscretionary at a partner spend has remained essentially unchanged. Consistently strong consumer spend, coupled with some moderation in payment rate contributed 10% higher average balances per account versus last year and 15% growth in any receivables. Our dual and co-branded cards accounted for 24% of core receivables and increased 28% from the prior year.

Net interest income increased 7% to $4.1 billion, primarily reflecting a 13% increase in interest and fees due to higher average loan receivables and higher loan receivable yields, partially offset by the impacts of the portfolio sold during the second quarter of 2022. On a core basis, interest and fees increased 21%. Payment rate for the fourth quarter, when normalizing for the prior year impact of the portfolios recently sold, was 17%, approximately 75 basis points lower than last year and approximately 160 basis points higher than our five-year historical average.

The net interest margin was 15.58% in the fourth quarter, a year-over-year decrease of 19 basis points. The primary driver of the decrease was higher interest-bearing liability costs, which increased 168 basis points to 2.86% and reduced net interest margin by 136 basis points. The mix of interest-earning assets also reduced net interest margin by roughly 6 basis points. These headwinds were partially offset by a 92 basis point improvement in loan yields, which contributed 79 basis points to net interest margin, and our liquidity portfolio yields, which contributed 44 basis points. RSAs were $1 billion in the fourth quarter and 4.68% of average loan receivables. The $224 million year-over-year decrease was primarily driven by the impact of portfolios sold in the second quarter of 2022 and higher net charge-offs, partially offset by higher net interest income.

Provision for credit losses were $1.2 billion for the quarter. The year-over-year increase reflected the impact of a growth driven $425 million reserve build and higher net charge-offs. Other income decreased $137 million, primarily reflecting the impacts of the prior year’s venture investment gain and the current quarter’s higher loyalty costs driven by our strong purchase volume. Other expenses increased 3% to $1.2 billion, primarily driven by higher employee costs, technology investments and transaction volume, partially offset by $75 million of asset impairments and certain incremental marketing investments recognized in the prior period.

The fourth quarter employee cost included certain additional compensation items of $21 million, higher stock-based compensation and higher headcount driven by growth and in-sourcing. Total other expense included $12 million of additional marketing and growth reinvestment from second quarter’s $120 million gain on sale proceeds. As detailed in the appendix of our presentation, the $120 million gain on sale and reinvestment made in the second, third and fourth quarters of this year were EPS neutral for the full year 2022. Our efficiency ratio for the fourth quarter was 37.2% compared to 41.1% last year. Putting it all together, Synchrony generated fourth quarter net earnings of $577 million or $1.26 per diluted shares. We also generated a return on average assets of 2.2% and return on tangible common equity of 22.1%.

Next, I’ll cover our key credit trends on Slide 10. The external deposit data we monitor continues to reflect a slow reduction in consumer savings. Average deposit balances at the end of December were down approximately 5% from their peak in March of 2022, but still approximately 1% higher than 2021’s average and 12% higher than 2020’s average. On an annualized trend basis, the savings decline that began around that March 2022 peak appears to have started to slow in December, primarily in terms of its intensity.

Turning to Synchrony’s portfolio, credit normalization continued as expected during the fourth quarter. Vintages are still performing better than 2018 and delinquency entry rates remain lower than the historical average at approximately 80% of their pre-pandemic levels. That said, as consumer savings rates has decreased, borrower payment behavior is reverting towards pre-pandemic levels with normalizing entry rates into delinquency and higher roll rates in early delinquency stages following the charge-offs. This trend continued in the fourth quarter as payment rate normalization trends expanded from the nonprime segments of our portfolio into the prime and super prime segments, where the average outstanding balances tend to be larger.

Relative to period-end receivables, our 30-plus delinquency rate was 3.65% compared to 2.62% last year and our 90-plus delinquency rate was 1.69% versus 1.17% in the prior year. And our fourth quarter net charge-off rate increased to 3.48% from 2.37% last year, still remaining well below our underwriting target of 5.5% to 6%, at which point portfolio credit risk is better optimized relative to profitability. Our allowance for credit losses as a percent of loan receivables was 10.30%, down 28 basis points from the 10.58% in the third quarter, primarily reflecting the impact of an asset growth driven reserve builds, which was more than offset by the impact of receivables growth in the denominator.

Moving to another source of Synchrony’s strength, our capital, liquidity and funding. Deposits at the end of the fourth quarter reached $71.7 billion, an increase of $9.4 billion compared to last year. Our securitized and unsecured funding sources decreased by $316 million. Altogether, deposits represented 84% of our funding, while securitized and unsecured debt represented 7% and 9%, respectively, at quarter end.

Total liquidity, including undrawn credit facilities, was $17.2 billion or 16.4% of our total assets, consistent with last year. We maintain a diversified approach to both our deposit base and our secured and unsecured debt issuances and prioritize a strong and efficient funding foundation of at least 80% deposits. We expect to continue to grow our deposits to fund our growth, and we’ll maintain an opportunistic approach to secured and unsecured issuances when market conditions are supportive of efficient funding.

We manage our balance sheet to be interest-rate neutral. That said, as we continue to grow our deposit base, and given the level of interest rates, consumers are actively rotating from savings to CDs. This has had the effect of extending our deposit duration while making our balance sheet slightly liability sensitive. We will continue to manage interest rate risk through term maturities. It’s also important to note through its mutual alignment of economic interest and delivery of a minimum return on assets at the partner program level, Synchrony’s RSA will provide some offsetting support to the impact of rising interest rates on our business.

Moving on to discuss Synchrony’s capital position. Note that we previously elected to take the benefit of the CECL transition rules issued by the joint federal banking agencies. As a result, starting this past January of 2022, and continuing in January of 2023, Synchrony makes an annual transition adjustment of approximately 60 basis points to our regulatory capital metrics until January of 2025. The impact of CECL has already been recognized in our income statement and balance sheet.

It should also be noted that the FASB CECL update for the accounting of TDRs becomes effective for Synchrony as of January 2023. This accounting standard update eliminates the separate recognition and measurement guidance for TDRs, which previously followed a separate process using a discounted cash flow methodology to quantify the TDR-specific reserve requirement. Synchrony is adopting this update on a modified retrospective basis as of January 1, 2023. Based on our current estimate, the adoption will result in approximately $300 million reduction to our reserve balance, which we recognize net of tax and equity. The net impact of the adoption will contribute approximately 25 basis point increase to our capital ratios.

From a capital metric perspective, we ended the quarter at 12.8% CET1 under the CECL transition rules, 280 basis points lower than last year’s level of 15.6%. The Tier 1 capital ratio was 13.6% of the CECL transition rules compared to 16.5% last year. The total capital ratio decreased 280 basis points to 15%. And the Tier 1 capital plus reserve ratio on a fully phased-in basis decreased to 22.4% compared to 24.4% last year. Synchrony continued our track record of robust capital returns in the fourth quarter. In total, we returned $803 million to shareholders through $700 million of share repurchases and $103 million of common stock dividends. As of quarter end, our total remaining share repurchase authorization for the period ending June 2023 was $700 million. Synchrony remains well-positioned to continue to return capital to shareholders as guided by our business performance, market conditions, regulatory restrictions and subject to our capital plan. As we make further progress toward our targeted capital levels, we look to develop our capital structure through the issuance of additional preferred stock and the issuance of subordinated debt.

Finally, let’s turn to our 2023 outlook for the full year, which is summarized on Slide 13 of our presentation. We expect strong consumer demand for the wide variety of products and services we finance to support continued broad-based purchase line growth. As excess consumer savings continue to decline, year-over-year purchase line growth rates should slow. Payment rates should also continue to moderate, but we’re still expected to remain above pre-pandemic levels throughout 2023. Together, these dynamics should contribute to ending receivables growth between 8% and 10%.

We expect our net interest margin to be between 15% and 15.25% for the full year and follow typical seasonal trends. This outlook is based on a peak Fed funds rate of 5.25% and incorporates the following five impacts during 2023. One, the increase in interest-bearing liabilities cost due to higher benchmark rates and the potential competitive pressures or higher retail deposit betas to address funding needs. Two, higher interest and fee yields, partially offset by higher income reversals as delinquency and charge-offs continue to normalize. Three, an increase in our liquidity portfolio yields, primarily reflecting the higher benchmark rates. Four, the fluctuation of mix of average loan receivables relative to average interest-earning assets as driven by the seasonal growth trends and timing of our funding. And five, the full year impact of the portfolios sold during second quarter 2022.

Before we turn to our credit outlook, it’s important to note there are a number of uncertainties that could change our expectations and the trajectory of credit normalization. We have greater visibility for the first half of this year and any significant changes in the medium-term macroeconomic backdrop would more likely impact portfolio credit trends in 2024. With regard to our portfolio’s credit trajectory in 2023, we expect most of the portfolio delinquency metrics to have reached normalized levels or equivalent to pre-pandemic levels by midyear. Accordingly, the associated charge-offs will reach pre-pandemic levels approximately six months later.

The seasonal impact of tax refunds and bonuses in the first half and the third quarter’s acceleration of receivables growth will likely lead to a decline in net charge-off rate for Q3 before credit losses rise and continue the normalization path through the fourth quarter. Given our expectation that delinquency metrics will reach their pre-pandemic levels by midyear, we expect net charge-offs to be between 4.75% to 5% for the full year, still considerably below our pre-pandemic annual loss rate target of 5.5% to 6%. We run multiple economic scenarios to inform our credit outlook as part of our normal business process. Our baseline reserve assumptions include an unemployment rate of approximately 4.2% by year-end. We have qualitative overlays for the current uncertainty and possibility of a mild recession.

In this scenario, we’d expect the unemployment level closer to 5%. This is reflected in our fourth quarter 2022 reserve rate, which is still higher than our day 1 CECL rate. Barring any significant changes in the macroeconomic environment, we do not expect our portfolio to reflect our fully normalized annual loss rate target until 2024. Accordingly, we continue to expect reserve builds in 2023 to be generally asset-driven and that the reserve rate will gradually migrate towards approximately 10% as credit normalization brings our portfolio net charge-offs back to that mean annual loss rate to which we’ve been underwriting.

RSA expense will continue to serve as a functional alignment of economic interest with our partners, reflecting the strength of our program performance and purchase volume growth, offset by rising net charge-offs. As a result, we expect RSA as a percent of average loan receivables to be between 4% and 4.25%. Should credit normalize at a slower rate than we expect, RSAs will likely come closer into the high end of that range. And the extent that funding costs or net charge-off rise to the high end or beyond of our current assumptions, we expect the RSA to come into the low end or lower than this range.

In terms of other expense, we remain committed to delivering operating leverage such that expenses grow at a slower rate than net interest income. Our full year expectation that expenses will run approximately $1.125 billion per quarter to the extent that receivables or revenue growth is not tracking ahead of expense growth for the full year, we will moderate our spending where appropriate while still prioritizing the best long-term prospects for our business.

As we demonstrated throughout this past year, Synchrony’s business and financial models are performing as it’s designed to do. Our proprietary data and analytics, diversified product suite and dynamic tech stack allow us to reach and improve more customers for the same level of risk while leveraging low customer acquisition costs and driving greater customer lifetime value. Our retailer share ranges are effectively aligning our partners’ economic interest with our own. And in doing so enabling Synchrony to deliver consistent risk-adjusted returns through changing market conditions. And our robust balance sheet is providing funding flexibility as we seek to provide continuity to our customers and partners when they need it most.

In short, Synchrony is uniquely positioned to deliver sustainable growth and resilient risk-adjusted returns even as market conditions change and the needs of our customers and partners evolve. We remain on track to achieve our long-term financial operating targets as market conditions stabilize.

I’ll now turn the call back over to Brian for his closing thoughts.

Brian Doubles — President and Chief Executive Officer

Thanks, Brian. Looking to 2023 and beyond, Synchrony is well-positioned to navigate the uncertainties of the operating environment that lies ahead. As we continue to leverage our differentiated business model to add new and deepen existing customer and partner relationships, further scale our comprehensive product suite, enhance our programs and expand our markets and deliver best-in-class experiences centered around each customer’s individual financing needs. Synchrony will increasingly attract new customers and forge more expansive relationships, support our partners’ ability to grow through evolving market conditions and solidify our leadership position as the digital ecosystem of choice, all while driving consistent, high-quality growth at strong risk-adjusted returns for all stakeholders.

With that, I’ll turn the call back to Kathryn to open the Q&A.

Kathryn Miller — Senior Vice President of Investor Relations

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.

Questions and Answers:

Operator

[Operator Instructions] We’ll take our first question from Moshe Orenbuch from Credit Suisse. Your line is open.

Moshe Orenbuch — Credit Suisse — Analyst

Great. Thanks very much. And thanks for all of the detail around the guidance and the performance. I think the — Brian, I guess, Brian Doubles, you talked a lot about some of the enhancements to your products. Maybe could you just amplify a little bit as to how you’re thinking about Synchrony’s role with your partners in this current environment? I mean, it seems like this is an environment in which you’re — and what I hear from the retailers is that they’re going to need your help more. Just talk a little bit about how to think about the things that you talked about that you’re doing and how that’s going to help Synchrony and the shareholders?

Brian Doubles — President and Chief Executive Officer

Yes. Sure, Moshe. Thanks for the question. You’re absolutely right. I think our partners, in an environment like this, tend to lean on us even more heavily. There’s a lot of uncertainty out there that we’ve all talked about in terms of consumer trends and behavior and what we can expect from inflation and just kind of the broad uncertainty around the macro environment. And so our partners look at us and they say, okay, what are we doing to drive sales, what are we doing to drive new accounts? And this is when they lean even more heavily on the rewards programs and the credit customers, we’ve talked about in the past, always is their best most loyal customer.

And so in this kind of environment, this is where they really double down and have really constructive discussions around, should we be refreshing the valve prop, should we be doing more promotions, more offers, are there new capabilities and new products that we should be introducing. And we’ve had really great discussions with our partners, particularly around the multiproduct strategy. So the combination of being able to offer a revolving credit product and installment buy now, pay later loan and how those products work together.

And one of the things that, as you know, we’ve been very focused on in that multiproduct journey is creating an easy experience for the customer, but also a really easy experience for a partner. So how do you offer multiple products and use our data-driven analytics to make sure that the customer, their customer is getting the right product, the right offer at the right time.

And I think in an environment that we’re heading into, that becomes even more important. So going all the way back to our Investor Day, we talked about that strategy. We spent a lot of time on it, and I do believe still to this day that the multiproduct strategy is the winning one. And we’re hearing that from our partners. They’re highly engaged in it. And I think, over time, it’s going to pay big dividends for Synchrony and all of our stakeholders. So thanks for the question.

Moshe Orenbuch — Credit Suisse — Analyst

Great. And maybe just to flip this over to Brian Wenzel. As you kind of factor all of that into the financial aspects, where are the areas you think that this could kind of help either already embedded in that guidance or where it could — things could be better as we go through 2023?

Brian Wenzel — Executive Vice President and Chief Financial Officer

Yes. Thanks, Moshe, for the question. As I think about it, that engagement really to drive the compelling value proposition and linkage to the customer can really drive, what I would say, spend probably above what you’d see either in retail sales or in the general economy. So that would — will help fuel a lower payment rate as well. So, I think you can see upside to the asset of $8 million to $10 million, if that gained a lot of traction in 2023.

Moshe Orenbuch — Credit Suisse — Analyst

Thanks so much.

Brian Doubles — President and Chief Executive Officer

Thanks, Moshe.

Operator

We’ll take our next question from Ryan Nash with Goldman Sachs. Your line is open.

Ryan Nash — Goldman Sachs — Analyst

Hey, good morning guys.

Brian Doubles — President and Chief Executive Officer

Good morning, Ryan.

Ryan Nash — Goldman Sachs — Analyst

Brian, maybe to just start on the loan growth guidance. Can you maybe just unpack some of the drivers behind it. I think you mentioned 30 new business wins. Brian Wenzel, you talked about solving payment rates and also maybe expectations for purchase volume growth. And then I guess any color across which platforms you expect to drive the growth just given the robust growth you’ve seen along with shifting views on inflation? Thanks.

Brian Wenzel — Executive Vice President and Chief Financial Officer

Yes. So thanks for the question, Ryan. So, I think as you think about our asset growth, there’s two dynamics that come into play. One is, you will see a slowing payment rate. Now, again, we don’t expect the payment rate for the entire business to get back to historical levels during 2023. So, that is one that will help you from an asset perspective. But if you believe that the economy is going to get a little tougher, the headwind then becomes, will the consumer pull back on spending a little bit. So, I think those two dynamics kind of play with each other and how we think about it. Again, if the economy doesn’t — is stronger than we think, then again, I think — I still think you’ll see slowing payment rate, but you’ll see stronger sales kind of going in and you could have upside in that scenario to the outlook.

Ryan Nash — Goldman Sachs — Analyst

Got it. And maybe as my follow-up, Brian, your comments on the RSA dependent on the trajectory of credit. So maybe just to clarify, so we’re talking about 4% to 4.5% this year, which is lower than the 4% to 4.5%. I think you talked about it in Investor Day, yet, we’re still not back to normalized levels of credit until ’24. So my question is, have the goalposts for the RSA move down? What are some of the moving pieces that would have driven that? And is it possible that we could be operating below the 4% level at some point? Thank you.

Brian Wenzel — Executive Vice President and Chief Financial Officer

Yes. Thanks. First, Ryan, just to make sure we’re on the same page. The guidance for full year 2023 is 4% to 4.25%. And again, I think you have a couple of things. One, you do have a little bit of the net interest margin coming down that plays through the RSA, number one, with the interest-bearing liabilities cost going up. Two, you have the increase in that charge-off rate kind of coming through. Three, you have a little bit of the opex piece coming through. And four, you have growth in the denominator with really receivables. So, I think that plays through — to the extent your question, can it operate below a 4% level? Yes, it can operate at 4% level, but that would be more dependent upon trajectory of net charge-offs and how much of that is offset through net interest margin. Again, given the timing of losses, we’re sitting here mid-January, which we have pretty good visibility really through mid-July now. So there is an opportunity for it. Again, we’ve given you the guidance we think is the best estimate for 2023 as we sit here today.

Ryan Nash — Goldman Sachs — Analyst

I appreciate the color.

Brian Wenzel — Executive Vice President and Chief Financial Officer

Thanks, Ryan.

Operator

We’ll take our next question from Don Fandetti with Wells Fargo. Your line is open.

Donald Fandetti — Wells Fargo — Analyst

Good morning. Can you talk a little bit about regulatory risk specifically around what the CFPB might do on late fees? Any timing or kind of your updated thoughts?

Brian Doubles — President and Chief Executive Officer

Yes, sure. So look, I think the timing that’s been kind of speculated upon out there is pretty much in line with what we assume, which is we might know something here in the first quarter, but I think probably won’t have an effective rule until late this year or early next year. So again, pretty much in line with our expectations. We’re prepared for that. I think we’ve talked about in the past that about 60% or a little over 60% of our late fees sit in programs that have an RSA, so that’s an offset. Obviously, we’ll work with our partners on that. They have an incentive to help us offset the impact if there is one. So we’re ready for it. We’re preparing internally. We’ll see what comes out. But I think we’ll have some time between when we have some clarity and probably an effective rule, like I said, late this year or early next year.

Donald Fandetti — Wells Fargo — Analyst

Got it. And can you talk a little bit about the relative health of the low-end consumer versus prime, what you’re seeing?

Brian Doubles — President and Chief Executive Officer

Yes. Look, I think internally, we certainly talk about a K-shaped recovery. I think we’re certainly seeing that playout. I think, broadly, the consumer is still healthy. I think they still have savings. We’re seeing really good spend patterns, great spend on our products, in particular. Last year was a record year in terms of purchase volume. So generally, we feel pretty good about the operating environment. With that said, clearly, there’s uncertainty as we move throughout the year depending on inflation and where rates go. So we’re watching that very carefully. Our credit teams are highly engaged, and they’re monitoring the portfolio to see where we need to make some tweaks and adjustments along the way.

I don’t know, Brian, if you’d add anything to that?

Brian Wenzel — Executive Vice President and Chief Financial Officer

I think you covered it.

Donald Fandetti — Wells Fargo — Analyst

Thanks, Brian.

Brian Doubles — President and Chief Executive Officer

Thanks.

Operator

We’ll take our next question from Sanjay Sakhrani with KBW. Your line is open.

Sanjay Sakhrani — KBW — Analyst

Thank you. Good morning. Brian Wenzel, I wanted to dig into some of the commentary on credit quality. You mentioned you’re assuming 4.2% unemployment rate, but the qualitative assumption is in the 5% range for the reserve rate. I’m just curious what kind of impact would there be to the charge-off rate if the unemployment rate reaches 5%? And then you mentioned or I guess, does this mean that there’s no impact to the reserve rate if we migrate to the 5% unemployment?

Brian Wenzel — Executive Vice President and Chief Financial Officer

Yes. Thanks for the question, Sanjay. So the qualitative portion, which brings the unemployment, effective unemployment rate up to that, call it, 5% level, again, we look at claims. But that essentially says that in that environment, there probably wouldn’t be any form of significant rate-related reserve increases. Again, for the impact in net charge-offs, there is a timing issue here that happens. So the unemployment rate have to move up pretty rapidly in the beginning part of the year to have a factor in the back half of the year, which would impact the net charge-off rate. So, if that happens, you’re probably more looking at some headwinds towards 2024 from a net charge-off basis, but again, you should have that reserve for in the short-term.

Sanjay Sakhrani — KBW — Analyst

Okay. So really no change to the reserve rate, just timing on the charge-off rate?

Brian Wenzel — Executive Vice President and Chief Financial Officer

Yes, I mean, obviously, we were most sensitive to unemployment claims. Obviously, there are other things in the economy that we are sensitive to, but that would be the biggest factor for us to have to relook at reserves. And again, I know there’s a lot of questions on reserve rate dipping down. That’s a seasonal factor that happens every fourth quarter because of the denominator. I mean we’re up in absolute dollars from third quarter to fourth quarter. And again, you’d expect as your receivables come down in the first quarter, that rate to rise.

Sanjay Sakhrani — KBW — Analyst

Okay. And just a follow-up question for Brian Doubles. Maybe you could just help us think about how you’re managing the business as you’re thinking about loan growth, obviously, very undecided on where the economy is going as a whole I think. And then any flexibility you might have on expenses to the extent that we have a more adverse scenario?

Brian Doubles — President and Chief Executive Officer

Yes, sure. I mean, look, we’ve talked about this in the past that we try and manage the business really well through cycles. And we try and provide a level of consistency to our partners in terms of how we underwrite. And so if you look at the last couple of years, we’re coming out of the absolute best credit environment we’ve ever seen in the history of the business. And we didn’t take an opportunity to underwrite a lot deeper. And I think that’s why you saw, again, I think, more consistent loan growth from us than maybe some others, and that’s really important to our business.

Because if we take an opportunity to really underwrite deeper and take approval rates up, then we know, at some point in the future, we’re going to have to pull back on that. And we try really hard not to do that. Again, consistency is really important to our partners. So, we feel pretty good about the guide for next year the 8% to 10% growth. And we think that, that’s prudent. That’s not — that doesn’t assume significant changes in how we’re underwriting. Now clearly, if things change and we see the macro environment play out differently than we’re contemplating right now, then we’ll go in, and we’ll make some tweaks, and we’ll make some adjustments. But we feel pretty good about the 8% to 10%.

And look, I think the one thing on expenses, you’ve seen us be pretty disciplined over the years. We had some opportunity last year to make some incremental investments. We did that. Really happy with the return and the payback on those investments, but we stay really disciplined there. And if we head into a tougher environment in ’23 or ’24, then certainly that’s an area that we’ll look to pull back on if we have to.

Sanjay Sakhrani — KBW — Analyst

Thank you.

Brian Doubles — President and Chief Executive Officer

Thanks.

Operator

We’ll take our next question from Erika Najarian with UBS. Your line is open.

Erika Najarian — UBS — Analyst

Hi. Good morning. My question is relating to capital and capital distribution for 2023. As we think about ending the year at 12.8%, I guess this is a two-part question. Number one, does your buyback trajectory get impacted by the macroeconomic uncertainty, even though your receivables growth is set to slow in ’23? And secondarily, is there an amount of cushion that management wants to hold against that 11% target, not necessarily for macro uncertainty, but for potential opportunity use in terms of purchases in case those arise, portfolio purchases in case those arise?

Brian Wenzel — Executive Vice President and Chief Financial Officer

Yes. Thanks, Erika. So to your first question on the macroeconomic environment, right now, we’re going through the early stages of developing our capital plan that we’ll submit to the Federal Reserve in the latter part of March. So we go through that. With that capital plan, we run a number of different loss stresses and severe loss stresses and the idiosyncratic stresses in order to inform us really of what the range of outcomes are and how comfortable we feel with the environment. And again, as we said, throughout 2022, we feel very comfortable in the environment continuing on the capital plan that we laid out and submitted to the Fed last March and got approved in April. So we will use that to inform it. Again, during the year, we go through multiple stress scenarios. So we continue to feel good even under a stress scenario that the targets and the environment that we will continue to operate with a very good capital plan. So we’ll do that to inform us.

With regard to the level of capital, 11% is our target. Now the first thing to remind you and others of is we have to continue to fully develop our capital stack right through incremental Tier 1 through a preferred or and then obviously through Tier 2, whether that be sub debt or incremental preferred. So, we have to continue to develop the capital stack to even be able to achieve the Tier — the CET1 target. And then secondarily, I think every company operates with a little bit of operating range. The real positive part of our business, Erika, is that we generate a lot of capital each year, which we employ back in. And obviously getting down to 12.8%, the growth that we had anticipated when we talked to you back in October 12%, we came in at 15%. So we’re able to fund that growth, and that’s really we think, very attractive returns that will continue to generate capital as we move into ’23 and beyond.

So yes, there is some type of operating earnings. But again, the target also has a buffer to it, so you can most certainly go through that buffer a little bit if you wanted to do an acquisition. So that’s not a floor, it’s just a range in which we operate with and we’ll continue to try to deploy capital in a manner that’s in the best interest of our stakeholders.

Erika Najarian — UBS — Analyst

Thank you for that. And my second question is a follow-up to an earlier question about the reserve. I just wanted to clarify. Fully understand the comments on the trajectory of losses from here. However, on the reserve, if we did end up with an unemployment rate at the end of the year that is closer to 5% versus 4.2%. I just wanted to make sure I understood this correctly. Will there be an increase in the reserve rate or that’s more significant? Or does the qualitative take care of any potential increases from that 4.2% baseline?

Brian Wenzel — Executive Vice President and Chief Financial Officer

Yes, thanks for the question, Erika, and I’ll try to be clear here. The 4.2% is the baseline, which we take from Moody’s. Effectively, when we run through the model, you’re probably more like 4.5%. There are qualitative overlays that bring it effectively to 5%, right? Or closer to 5%. So in theory, if you were to hit that, there should not be rate-related provisioning, it should just be growth-related provisioning at that point. It’s only if your outlook changed above 5%, which you would anticipate more rate-related increases.

Erika Najarian — UBS — Analyst

Perfect. Thank you.

Brian Wenzel — Executive Vice President and Chief Financial Officer

Thanks, Erika. Have a good day.

Operator

We’ll take our next question from Arren Cyganovich with Citi. Your line is open.

Arren Cyganovich — Citi — Analyst

Thanks. In your press release, you noted that you had added or renewed 25 programs, including Lowe’s, which has historically been one of the largest partners that you have. Can you talk a little bit about are you starting to push some of these renewals past 2025, which I know you had a lot of them locked in through 2025, and what’s the competitive environment for these renewals today?

Brian Doubles — President and Chief Executive Officer

Yes. So look, first, I would say that we’re always looking to renew where we can at attractive terms for us and the partner. So the teams that we have on the ground sitting with our partners every day, you come across things where it makes sense to add some years to the deal investments we want to make, changes in valve prop, et cetera. So our teams are out there every day finding ways to renew in ways that benefit our partners and benefit us. So, we’re thrilled to extend with Lowe’s. They’re one of our oldest clients. I think this extension will take us over 50-years, which is pretty incredible when you think about it.

I would say, competitively, just more broadly, it’s still competitive, very competitive environment. But I do think, as you start to head into periods of uncertainty like we’re heading into now, you do start to see the competition get even more disciplined. And we all know and appreciate that we’re not going to be operating at half of our targeted loss rate like we saw in the last couple of years, and you start to see that discipline work its way into the competitive dynamics. So I think that’s good. We’re a very disciplined bidder in these processes, and it’s nice to see that kind of happen across the industry. So we feel really good about how we’re positioned. I think in times like this, back to the earlier conversation, you’re really competing on capabilities. And that combined with good price discipline across the industry is a good thing for us.

Arren Cyganovich — Citi — Analyst

Thank you.

Operator

We’ll go next to Betsy Graseck with Morgan Stanley. Your line is open.

Betsy Graseck — Morgan Stanley — Analyst

Hi. Good morning.

Brian Doubles — President and Chief Executive Officer

Good morning, Betsy.

Brian Wenzel — Executive Vice President and Chief Financial Officer

Good morning, Betsy.

Betsy Graseck — Morgan Stanley — Analyst

One question to follow-up on something you mentioned in the prepared remarks. Normalization, you’re seeing migrate into prime and super prime, I think I heard you right there. And I just wanted to understand if you were just talking there about the payment rate normalization? Or are you also talking about normalization and delinquencies and your net charge-off outlook? Maybe you could unpack what you meant a little bit more, if you don’t mind? Thanks.

Brian Wenzel — Executive Vice President and Chief Financial Officer

Yes. So as Brian mentioned earlier not many will talk about it, but there is, what I would say, a more K-shape recovery or we’re seeing it, where the lowering consumer has been normalizing at a faster rate both, I’d say, from a payment rate behavior standpoint as well as a delinquency and charge-off standpoint. And as you continue to move away from the pandemic and stimulus, you begin to see the other cohorts, which is the prime and super prime, which had already started to normalize, continue to add normalization trends. I think the important part for us, Betsy, is as we take a step back and think about the entire portfolio for a second, if you looked at historical 30-plus and 90-plus-day delinquencies to pre-pandemic levels and applied it to our balances as you step through this year, what you’d see is a very linear normalization of delinquencies for us. And again, that’s really the bottom end normalizing a little bit quicker. And now you’re starting to see the top end.

But if you look at that linear pace beginning in the first quarter last year, I mean, we’re about 80% of our pre-pandemic delinquencies and it’s moved about 10 percentage points each quarter. So, we’re not seeing an acceleration in normalization. It just kind of is flowing through and that’s on top of a larger balance, but it is normalizing in a manner in which we expected. But again, there is a little bit of a K-shaped recovery where we’re starting to feel. Again, moving back, all our vintages from ’20 on are performing better than our vintages in 2018. So, we feel good that the normalization that we’re expecting is happening on a path that we expect.

Betsy Graseck — Morgan Stanley — Analyst

Yes. And that was — part of the follow-up was around the vintages. So your vintages ’20, ’21, ’22, pretty similar. And I guess the underlying question here is, as the performance is coming in relative to what you had pre-pandemic, how much more room is there for opening up the credit box or pulling in incremental loan growth?

Brian Wenzel — Executive Vice President and Chief Financial Officer

Yes. I mean, if you break it apart for a second, Betsy, the ’20 vintage and obviously, the early part of 2021, that’s performing the best, right, because that’s when we put in refinements. It started the pandemic because no one knows what’s going to happen. Latter part of ’21 and ’22 performing between that vintage and 2018. So I think, in all cases, they’re doing better, but again, they’re slightly different under different underwriting standards. I don’t envision, and Brian talked about this, the consistency that we have both in underwriting for origination, but account management that we’re going to use that as a growth lever. I think we have a really diverse and attractive set of partners, so we get spend across a multitude of different verticals and categories.

And then when you look at the fact that we’re really having — have compelling value propositions and are aligning to our most loyal customers at our partners, we don’t have to use credit as growth engine as opposed to others. So, I don’t envision us using credit and opening up the credit box from here forward. Right now, what we’re doing is we’re making modest refinements when we see things that concern us, but we’re not doing anything across the board because we don’t see it across the board in our portfolio.

Betsy Graseck — Morgan Stanley — Analyst

Got it, thank you.

Brian Wenzel — Executive Vice President and Chief Financial Officer

Thanks, Betsy. Have a good day.

Operator

We’ll take our next question from Kevin Barker with Piper Sandler. Your line is open.

Kevin Barker — Piper Sandler — Analyst

Thank you. I just wanted to follow up on some of the capital questions. If we did see a rapid increase in unemployment from a base rate of 3.5% to roughly 5% or maybe somewhere around that level as we approach year-end ’23. I mean would you start to consider your capital levels to have already embedded that type of unemployment rate or those types of assumptions of economic deterioration just given the stress test? Or do you feel like you need to be a little bit more cautious given the outlook could change rapidly in that type of environment?

Brian Wenzel — Executive Vice President and Chief Financial Officer

Yes. So first of all, thanks for the question, Kevin. When we think about our capital plan and the stress test we run, the unemployment rates that we use in those stress tests are significantly higher than 5%. So the 5% isn’t concerning on its face value relative to capital and our capital levels. What really we would look at and our risk committee and the Board would look at is, is there a reduced visibility into the macroeconomic environment where you’re concerned or in the case where you’re concerned about the level of net income being generated. That’s where you would come back to saying, hey, listen, should I think about capital differently. But remember, these stress test models are built under a very severe scenario. And as long as you’re inside of that, you should be able to continue on your capital plans and be able to weather it. That’s why it is. There’s a lot of buffers on top of the minimum requirements. So again, it’d be well north of 5% before we get concerned.

Kevin Barker — Piper Sandler — Analyst

Okay. Thank you. And then in regards to maybe a follow-up to that on M&A. I think you’ve mentioned that the valuations are finally normalizing. Are you seeing any attractive opportunities start to develop, whether it’s portfolios or other acquisition potential targets given what we see out there today?

Brian Doubles — President and Chief Executive Officer

Yes. Look, I think you’re right. I mean we’re finally seeing valuations check up pretty significantly in some areas that we’re interested in. Our business development team has a very active M&A screen, so that’s certainly something that we look at. You’ve seen us do small acquisitions where we can kind of leverage our scale, Allegro is a great example of that, Pets Best is a great example of that, and we’ve grown those businesses very significantly since we acquired them. But we’re a very disciplined buyer as well. Those were very modest in terms of the capital outlay, but we saw a lot of future growth and earnings potential. Those are the things that we like to do. And so if we can do more acquisitions like that, we’d certainly look to do that, but we’re a very disciplined buyer when it comes to allocating capital to M&A.

Kevin Barker — Piper Sandler — Analyst

Thank you, Brian.

Operator

We’ll take our next question from John Hecht with Jefferies. Your line is open.

John Hecht — Jefferies — Analyst

Good morning, guys, and thanks very much for taking my question. I guess first, one is just on the NIM. You talked about deposit durations changing and so forth. Maybe can you just detail to us is the shift in deposit prices mostly over what your outlook is there? And any characteristic of kind of the duration of deposits now versus where it has been?

Brian Wenzel — Executive Vice President and Chief Financial Officer

Yes, thanks for the question, John. So I’ll deal with the latter part of the question first. So yes, we have seen an extension of the duration a little bit people have rotated into CDs. And we see people into call it that 18-month, 19-month duration, so it’s split out a little bit. I wouldn’t say materially. With regard to pricing as we move forward, I mean, obviously when we give them guidance here. What we saw in 2022 was really a change in the landscape, right? You had a lot of people trying to manage betas in the beginning part of 2022. And then when they felt the outflow in deposits during the year got more aggressive with regard to price, I think you saw a lot of that happen in the latter part of the year. It’s been very stable now.

So our outlook includes deposit betas getting a little bit worse than they have been from here, particularly on the CDs. So again, this is going to be something that we’re really going to watch relative to the Fed’s actions at the next couple of meetings and what their guidance is with regard to the terminal rate that they have out there. But we plan for in this guidance to have beta deteriorate in 2023.

John Hecht — Jefferies — Analyst

Okay. That’s helpful. Thank you. And then a second question, maybe can you characterize, you have some traditional partners, traditional retail partners like Lowe’s and so forth and then digital platforms like Amazon and PayPal. Is there anything worth noting about the general trends in the different types of platforms and how that might manifest itself over the course of ’23?

Brian Doubles — President and Chief Executive Officer

Yes. Well, so obviously, we serve a very broad range of partners, as you indicated. And clearly, you saw really strong growth in digital, strong growth in health and wellness. We would expect that to continue. I’ll tell you where you see the biggest difference, so John, it is actually in how we engage with those partners. And our solutions inside of those partners differ quite a bit. Venmo and PayPal is a great example where we’re completely integrated through our API architecture. And if you’re inside of the PayPal or Venmo app, you don’t know if it’s something that we built or something that PayPal built. It is really seamless to the customer. And that’s really important. And I think that really helps make that experience a good one for the customer and helps us drive growth over the long-term.

And you compare and contrast that with what we’re trying to do in the one-to-many space like with Clover and other solutions where we want to make it really easy for our smaller partners to leverage the financial products that we have, and we have to do that by building it once and then scaling it across the enterprise. So you really run the gamut from highly customized, fully integrated API architecture to a one-to-many solution, which just makes it really easy for our partners to offer our financing products. So that’s where you see the biggest difference between our partners and the partner set that we have today. I’ll tell you, at any given time, you’re going to have some partners that are doing really well and just crushing it, and you’re going to have some partners that are maybe struggling a little bit. As I said earlier, heading into uncertain times like this, the credit program becomes even more important, and that’s consistent across the board. So heading into an environment like this, we feel like we’re really well-positioned to help our partners succeed.

John Hecht — Jefferies — Analyst

All right. Thanks for the color.

Brian Doubles — President and Chief Executive Officer

Yes, thanks, John.

Operator

We’ll take our final question today from Rick Shane with JPMorgan. Your line is open.

Richard Shane — JPMorgan — Analyst

Thanks, everybody, for taking my question. I just want to talk a little bit more about the reserve rate outlook. End of the quarter 10.3%, day one was 9.9%. There was a suggestion that it will sort of trend back towards 10% over time roughly in line with day one levels. I think what that implies to me is that as we’ve gone through the learning process on the CECL models versus day one, that there has not been a material evolution in terms of sort of loss expectations that the reserve rates will sort of, on an apples-to-apples basis, be consistent with day one. Is that the right way to think about things. And can we just put that in the context of the normalization over the next 18 months?

Brian Wenzel — Executive Vice President and Chief Financial Officer

Yes. Thanks for the question, Rick. So, I think if you looked at the assumptions that went into the day one CECL model versus the assumptions that are in the model today, they’re very close to each other. So, I do think that you’re in a position where there’s not a significant difference right now. Where there is a difference is the macroeconomic overlays that we have in here that are much more significant than what they were on day one. So as that macroeconomic environment clears, right, either through the losses or through the fact that we were more conservative or things didn’t play out the way we thought, you’re going to begin to migrate back towards that day one level.

Now remember in CECL, at the end of the day, you forecast out for a reasonable and supportable period, right, that you have losses, and then you migrate to your mean. So at the end of the day, that mean hasn’t changed for us and our expectations. I mean, obviously, I’d like to say we had a normal period during CECL, but unfortunately, over the last two-plus years, we have not. So again, we’ll revisit at some point in the future what the mean loss rate is. But again, that does play into the fact that you will ultimately migrate and they should come back in line absent mix.

Richard Shane — JPMorgan — Analyst

Got it. Okay, that’s very helpful. And I think, like everybody, we’re all exhausted of living through unprecedented times and returning to normal would be nice.

Brian Wenzel — Executive Vice President and Chief Financial Officer

I 100% agree with you, Kevin. Sorry, Rick. Thanks.

Operator

[Operator Closing Remarks]