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S&P 500   5,096.27
DOW   38,996.39
QQQ   439.00
Pure Storage, Hormel Foods rise; WW International, First Advantage fall, Thursday, 2/29/2024
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
How major US stock indexes fared Thursday, 2/29/2024
Average long-term US mortgage rises to 6.94% after marking fourth-straight weekly increase
Critical asset just had biggest fall on record (Ad)
Best Buy reports lower 4Q sales and profits as shoppers remain cautious
Grads From This Midwestern School Are More Likely to Start a Billion Dollar Company Than Founders Who Went To Stanford, Harvard, or MIT: Study
Critical asset just had biggest fall on record (Ad)
It's Leap Day, and You're Probably Working — Here's How 'February 29' Affects Your Paycheck
From Hometown Hero to Franchise Partner — 3 Celebrities Collaborating With Their Hometown Brands
S&P 500   5,096.27
DOW   38,996.39
QQQ   439.00
Pure Storage, Hormel Foods rise; WW International, First Advantage fall, Thursday, 2/29/2024
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
How major US stock indexes fared Thursday, 2/29/2024
Average long-term US mortgage rises to 6.94% after marking fourth-straight weekly increase
Critical asset just had biggest fall on record (Ad)
Best Buy reports lower 4Q sales and profits as shoppers remain cautious
Grads From This Midwestern School Are More Likely to Start a Billion Dollar Company Than Founders Who Went To Stanford, Harvard, or MIT: Study
Critical asset just had biggest fall on record (Ad)
It's Leap Day, and You're Probably Working — Here's How 'February 29' Affects Your Paycheck
From Hometown Hero to Franchise Partner — 3 Celebrities Collaborating With Their Hometown Brands
S&P 500   5,096.27
DOW   38,996.39
QQQ   439.00
Pure Storage, Hormel Foods rise; WW International, First Advantage fall, Thursday, 2/29/2024
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
How major US stock indexes fared Thursday, 2/29/2024
Average long-term US mortgage rises to 6.94% after marking fourth-straight weekly increase
Critical asset just had biggest fall on record (Ad)
Best Buy reports lower 4Q sales and profits as shoppers remain cautious
Grads From This Midwestern School Are More Likely to Start a Billion Dollar Company Than Founders Who Went To Stanford, Harvard, or MIT: Study
Critical asset just had biggest fall on record (Ad)
It's Leap Day, and You're Probably Working — Here's How 'February 29' Affects Your Paycheck
From Hometown Hero to Franchise Partner — 3 Celebrities Collaborating With Their Hometown Brands

Synchrony Financial Q2 2022 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-Q Filing

Participants

Corporate Executives

  • Kathryn Miller
    Senior Vice President of Investor Relations
  • Brian Doubles
    President and Chief Executive Officer
  • Brian J. Wenzel
    Executive Vice President and Chief Financial Officer

Presentation

Operator

Welcome to the Synchrony Financial's Second Quarter 2022 Earnings Conference Call. My name is Vanessa, and I will be your operator for today's call. [Operator Instructions]

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

Kathryn Miller
Senior Vice President of Investor Relations at Synchrony Financial

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 nor 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'll now turn the call over to Brian Doubles.

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Thanks, Kathryn, and good morning, everyone. Synchrony continue to execute on our key strategic priorities and deliver strong financial results for the second quarter 2022, including net earnings of $804 million or $1.60 per diluted share, a return on average assets of 3.4% and a return on tangible common equity of 30.3%. These results were driven by Synchrony's differentiated business model and our deep understanding of the needs and expectations of our customers and partners.

Consumer health also remained strong during the second quarter, which supported continued demand for the wide variety of products and services that our partners, merchants and providers offer. As a result, Synchrony added 6 million new accounts, grew average active accounts by 4% and achieved our highest purchase volume ever in a quarter of $47 billion, a year-over-year increase of 12% or a 16% increase on a core basis. Dual and co-branded cards accounted for 38% of core purchase volume and increased 31% from the prior year. Consumer spend was broad-based across our platforms, leading to double-digit growth in our Diversified & Value, Health and Wellness, Digital, and Home & Auto platforms, as well as single-digit growth in our Lifestyle Platform.

We also continue to see higher engagement across our portfolio as purchase volume per account grew by 8% compared to last year. The continued strength in purchase volume contributed to loan receivables growth of 5% year-over-year or 11% on a core basis. Our dual and co-branded cards accounted for 22% of core receivables and increased 27% from the prior year. We also continue to extend our reach and engage more customers, thanks to our ability to deliver our seamless experiences, attractive value propositions and broad suite of flexible financing options across our ever-growing network of distribution channels.

To that end, we recently announced the launch of Synchrony SetPay pay in 4 through Fiserv's Clover point-of-sale and business management platform. This buy now pay later offering further expands the suite of payment and financing option and will be part of the pay with Synchrony app on the Clover app market for merchants. Through our partnership, Synchrony is able to expand our customer reach and distribution through hundreds of thousands of small businesses across the country. Synchrony's long-term partnership with AdventHealth, one of the largest not-for-profit health care providers in the U.S., is another example of how we continue to expand and deepen our reach in health and wellness. AdventHealth will offer CareCredit as its primary patient financing option and will accept CareCredit nationwide in more than 130 facilities, including hospitals, urgent care centers, outpatient clinics, and physician practices.

As out of pocket health expenses continue to rise for consumers, Synchrony's CareCredit is a way for people to pay for care not covered by insurance, including deductibles, co-insurance and co-pays. CareCredit's flexible financing options will be available for all points of care and within the patients AdventHealth account, which includes Epic's MyChart portal, enabling patients to manage their care needs alongside the resulting financial obligation. In addition to extending options for consumers to pay for care, CareCredit will also help streamline the health systems payment processes.

In short, Synchrony is increasingly anywhere our customers looking to make a payment or finance a purchase. 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 and retailers and providers alike is what positions Synchrony so well to sustainably grow, particularly as customer needs change and market conditions evolve. We have one of the largest active account basis in the U.S. with more than 65 million active accounts, and yet our typical customer has less than two of our products on average.

As we continue to expand our distribution channels and more effectively leverage our various marketplaces and networks, Synchrony can connect our partners with more customers and drive still greater lifetime value expansion. Take for example, our Home and Auto Care networks, where combined annual visits surpassed $300 million last year and carecredit.com which received almost 19 million provider views in 2021, as well as 19 health systems across the country and our strategic partnerships with point-of-sale platforms like Clover. No matter how you look at it, Synchrony is increasingly delivering the power of our networks on behalf of both our customers and our partners, whether it's through the expansion of our existing customer wallet share or increasing our reach to new customers, we are driving efficient and sustainable growth because of our increasingly ubiquitous presence and the universal utility of our offerings. From revolving lines like our private label, dual and co-branded cards to our broad range of installment offerings and secured and commercial products, Synchrony's financial ecosystem can deliver the right financing offer for the right product at the right time, all while optimizing the value they seek. And of course, this is all enabled by our dynamic technology stack. Synchrony has prioritized innovation for many years and have the digital capabilities to facilitate deep integrations with sophisticated partners as well as simple functionality for smaller local businesses. We can be as plug and play or as customized as necessary without increasing our level of investment.

As Synchrony leverages our proprietary data, analytics and underwriting through these integrations, we deliver not only seamless experiences, but also consistently powerful outcomes for both our customers and partners. The breadth and depth of our consumer lending expertise informs every aspect of our customer and partner strategies and allows us to support them and provide a great experience. The level of continuity that Synchrony provides across channels, spend categories and partners as well as through business and market changes, drives both loyalty and resilience for Synchrony and our stakeholders, from partners with digital omni presence across spend categories and point-of-sale and merchants that offer great value across discretionary and non-discretionary needs to providers like doctors and dentists and major health systems like AdventHealth and St Luke's and practice management software like Epic, Synchrony is increasingly at the center of a broad range of financing needs, empowering our customers with choice and best-in-class value propositions that truly make a difference. This drives greater diversity and resilience in our portfolio both in terms of our sales platforms and the industries we serve as well as consumer spend categories.

Our customers finance everyday purchases like gas, groceries and routine medical expenses, as well as more episodic need like buying a new mattress or replacing a refrigerator. They drive great value from our general purpose and dual and co-brand cards, coupled with the best-in-class rewards they can earn on their spend. About half of our auto partners spend is comprised of non-discretionary spend like bill pay, discount store, drugstore, healthcare, grocery and auto and gas. And of course, Synchrony also drives resilience from our disciplined approach to growth at appropriate risk adjusted returns. Our sophisticated data analytics and our proprietary underwriting have enabled Synchrony to reach more customers and offer them greater financial flexibility, while also maintaining or improving upon the predicted level of risk.

In fact, since 2009, Synchrony has more than doubled our purchase volume receivables and interest income, while also growing our mix of prime and super-prime customers by 14 percentage points. Meanwhile, we built a very strong balance sheet, including a stable deposit base that represents more than 80% of our funding at any given time, consistent and efficient access to the debt capital market and a robust capital and liquidity position such that we currently operate with 15% CET1 ratio at 25% Tier 1 and credit reserve ratio. So when you bring it all together, 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 our partners evolve. We leverage our proprietary data and analytics, diversified product suite and dynamic tech stack to maintain low customer acquisition costs, deliver consistent credit performance and drive greater customer lifetime value. We align our partners interest with our own through retail share arrangements, which are designed to deliver consistent risk adjusted returns for Synchrony through changing market conditions, while also sharing program profitability with our partners, and we utilize a stable and efficient funding model to provide continuity to our customers and partners when they need it most.

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

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

Thanks, Brian, and good morning, everyone. Synchrony delivered another strong financial performance for the second quarter, highlighting the benefits of our highly diversified business across our sales platforms, our partners, merchants, providers and customers, and underpinned by the continued health of the consumer. This quarter, we achieved the highest quarterly purchase volume as a company, exceeding $47 billion, which reflected a 12% increase compared to last year. On a core basis, which excludes the impact of our recently sold portfolios in the prior and current year quarters, purchase volume grew 16% year-over-year.

From a platform perspective, our Diversified & Value, Health and Wellness, Digital, and Home & Auto platforms each continue to generate double-digit year-over-year growth in purchase volume, reflecting strong demand for the variety of goods and services we finance, as well as the broad partner merchant and provider net we're expecting connet our customers and partners. At the platform level, Home & Auto purchase volume was 12% higher due to continued strength in home as well as higher auto-related spend, reflecting the waning effects from the pandemic period, the preference for consumers to invest in the maintenance of their existing vehicles given the supply chain issues on new and used vehicle sales and the impact of inflationary pressures on gasoline purchases and automotive parts. In diversified value, purchase volume increased 24%, driven by the strong retailer performance and higher customer engagement. The 14% year-over-year increase in digital purchase volume generally reflected the growth across the platform, wWe experienced greater customer engagement, including higher average active accounts and spend per active among our more established programs and continued momentum in our new program launches.

The 15% increase in the Health a& Wellness purchase volume was driven by a broad-based growth in active accounts and higher spend per active accounts, driven by our dental, pet and cosmetic categories. Our lifestyle platform generated purchase volume growth of 2%, reflecting strong retailer sales and growth in our music, specialty and luxury verticals, partially offset by the ongoing impact of inventory shortages in our outdoor vertical and particularly strong growth in the prior year period. Loan receivables grew 5% year-over-year to $82.7 billion or 11% on a core basis. We also continue to see sequential growth, driven by strong purchase volume and partially offset by higher payment levels.

Net interest income increased 15% to $3.8 billion, primarily reflecting the 13% increase in interest and fees due to higher average loan receivables. Payment rate for the second quarter, when normalizing for the impact of the portfolio sold during Q2, was 18.1%, approximately 20 basis points higher than last year and approximately 250 basis points higher than our historical average. The net interest margin was 15.60% in the second quarter, a year-over-year increase of 182 basis points. The primary driver of our NIM expansion was a 570 basis point increase in the mix of loan receivables relative to total interest earning assets, primarily due to the growth in average receivables and lower liquidity. This accounted for 105 basis points of the year-over-year increase in our net interest margin. In addition, the second quarter's 80 basis point improvement in loan yields contributed to a 63 basis point improvement in net interest margin, while the slight increase in interest-bearing liability costs reduced net interest margin by 1 basis point.

RSAs were $1.1 billion in the second quarter and a 5.4% of average receivables. The $121 million year-over-year increase was primarily driven by the continued strong performance of our partner programs and also included an approximate $10 million impact associated with the reinvestment of the gain on sale from portfolios sold during the second quarter. The reinvestment was in support of the growth initiatives in association with the value proposition launch. As a reminder, the RSA is designed to create mutual alignment of interest. While each agreement is unique to the partner program, we generally structure the majority of our economic arrangements such that the investment and upside opportunities are shared. So as Slide 7 demonstrates, the RSA enables our partners to sharing the profitability of our programs, while also providing economic protection to our business. In a rising credit loss environment, the level of RSA payment to our partner declined because the higher credit costs become a larger offset to the programs profitability. In addition, the minimum profitability thresholds within each RSA ensures that Synchrony achieves an appropriate risk adjusted return before any incremental program economics are shared with the partner. These minimum return threshold also provide a buffer to our business and the occasional evnet of a regulatory change, so that the profitability of the program performance is impacted by, for example, a change in fees collected. This dynamic also was demonstrated on Slide 7 due to the strength of our risk-adjusted return when the Card Act became effective in 2011.

Given the questions regarding the potential changes to late fee regulation, I thought I'd highlight two things. First, over 16% of our late fee revenue flows through our RSA agreement and would be subject to sharing with our partners. Second, greater than 95% of the late fees are covered through either repricing rates or change in law provisions, effectively change in regulation provisions, which were included in our program agreements adopted after the Card Act was implemented. This is another example of how the RSA function as alignment of interest with our partners as market conditions change.

Next, let's focus on provision for credit losses, which was $724 million for the quarter, a year-over-year increase to the impact of a reserve release last year and partially offset by lower net charge-offs. Other income increased $109 million, primarily reflecting the impact of the $120 million gain on sale from the portfolio sold during the quarter. Excluding the impacts of the gain and certain reinvestments of the portion of the proceeds, other income would have been 3% lower year-over-year, primarily due to the impact of higher loyalty costs that were partially offset by interchange revenue year-over-year.

Other expenses increased 14% to $1.1 billion due to the impact of higher employee cost, marketing spend, information processing and other expenses. Our efficiency ratio for the same quarter was 37.7% compared to 39.6% last year. Excluding the effects of the reinvestment expenses deployed from the gain on sale proceeds, the efficiency ratio would have been 36.8%, an approximate 280 basis point improvement. The increase in employee cost versus last year reflected higher headcount, driven by growth and in-sourcing, as well as higher hourly wages and other compensation adjustments. Total other expenses included $62 million of costs related to additional marketing and site strategy actions as we reinvested $120 million gain on sale through these and other growth and efficiency initiatives. As detailed in appendix of our presentation, we expect that the gain on sale and reinvestment in Q2 and the remainder of this year will net out as EPS neutral on a full year basis.

In summary, Synchrony generated net earnings of $804 million or $1.60 per diluted share for the second quarter. We also generated a return on average assets of 3.4% and return on tangible common equity of 30.3%. These strong net earnings and returns demonstrate the power and efficiency of our digitally-enabled model, combined with the compelling value of the financial products and services we offer through our financial ecosystem. Not only were we able to support the strong customer demand with a diverse range of products, but we're able to do so while maintaining cost discipline and strong risk-adjusted returns.

Next, I'll cover our key credit trends on Slide 11. At a macro level, we continue to see signs of gradual normalization across the credit spectrum of the portfolio. That said, even with this normalization, our 2021 and 2020 vintages continue to perform better than our 2019 vintages, and payment rates remain elevated versus last year as well as compared to our historical average. With regard to delinquency, our 30-plus delinquency rate was 2.74% compared to 2.11% last year, and our 90-plus delinquency rate was 1.22% compared to 1% last year. The year-over-year delinquency comparisons were primarily impacted by the prior year periods historic lows, at which point, the impacts of COVID-19 stimulus and forbearance action had the greatest impact on the portfolio. Our portfolio with strong delinquency trends have continued to drive year-over-year improvement in our net charge-off rate which was 2.73% compared to 3.57% last year, an 84 basis point improvement year-over-year, primarily reflecting the very strong consumer. Our allowance for credit losses as a percent of loan receivables was 10.65%, down 31 basis points from the 10.96% in the first quarter.

Let's focus on some key trends that continue to support our strong performance and confidence we have in our business. First, the consumer remains in a strong position. The combination of robust labor markets, wage growth and elevated savings continues to support the desire to spend and repay their financial obligations, while also managing through the impacts of the inflationary pressures. According to external data, stimulus spending segments have generally remained consistent from March through June. About two thirds of consumers have either spent a portion of stimulus or have the entire amount of stimulus they receive still saved, the remaining third of consumers has spent the entirety of the cash stimulus they received during the last two years. We're taking a look across the balance tiers, the top two tiers of the stimulus recipients those whose balance is above 2,500 hours, have seen modest balance decreases, while the lower tier balances less than 2,500 have remained flat.

During the second quarter, consumers rotated their spend within discretionary and non-discretionary categories as they manage higher cost from inflationary pressures while still fulfilling their everyday purchases. In general, we saw a slight variability across our other quarters spend volume and frequency trends. These fluctuations likely indicated that the consumer is not actively reducing total spend or frequency, but rather rotating their overall spend. So for example, in certain categories like grocery, it appears that our customers managing to ticket size and substituting items that are a greater priority, whether that means choosing a generic brand or forgoing a less desired item or treat.

In terms of gas station spend, however, average transaction values have accelerated with rising gas prices, but transaction frequency has generally held constant if not increased slightly. All this is to say we continue to see trends of a strong consumer who is moving through their day-to-day and spending money without meaningfully changing their choices or priorities. Second, the differentiating strengths of our business as well as the underlying trends within our portfolio that we have discussed today continue to demonstrate Synchrony's ability to deliver consistent risk adjusted returns to changing market conditions.

In addition to the inherent resilience that comes from the diversification of our portfolio across spend categories, financing options, distribution channels and customer demographics, Synchrony drives financial strength through our sophisticated, cycle tested underwriting. The predictive power of our credit decisioning and account management capabilities supports more stable loss performance around our target credit loss range of 5.5% to 6%, even as economic conditions change and consumer credit worthiness evolves. From 2009 peak loss rate of 10.7% during the great financial crisis, the last decades average of approximately 4.5% loss level, our portfolio has grown and involved meaningfully and even as the mix of partners and credit quality of our portfolio has shifted over that same decade, Synchrony has grown significantly and delivered resilient risk adjusted returns within a band of 8.5% to 11%. It's also important to note that we delivered these returns even as interest and fees have been coming at somewhat lower levels due to the elevated pay rates during the last two years.

Moving on to another Synchrony strength, our funding, capital and liquidity. Synchrony's balance sheet has been built to be resilient. Over time, we diversified our business in support of our ability to generate consistent risk-adjusted returns and considerable capital. This in turn has allowed us to grow and evolve our balance sheet, such that we can fund growth efficiently without having to make trade-offs with regard to what's in the best long-term interest of our business and our various stakeholders.

Let's start with a strong and stable foundation of Synchrony's funding, our deposit base. Deposits at the end of the second quarter reached $64.7 billion, an increase of $4.9 billion compared to last year. Our securitized and unsecured funding sources declined by $1.3 billion. This resulted in deposits being 84% of our funding compared to 81% last year with both securitized and unsecured funding each comprising 8% of our funding sources at quarter end. Total liquidity including undrawn credit facilities was $18.9 billion, which equated to 19.8% of our total assets, down from 23% last year.

As a reminder, before I provide the details on our capital position, it should be noted that we elected to take the benefit of the CECL transition rules issued by the joint federal banking agencies. The impact of CECL has already been recognized in our income statement and balance sheet. The annual transitional adjustment pertains strictly to our regulatory capital metrics. We ended the quarter at 15.2% CET1 under the CECL transition rules, 260 basis points lower than last year's level of 17.8%. The Tier 1 capital ratio was 16.1% on the CECL transition rules, compared to 18.7% last year. The total capital ratio decreased 270 basis points to 17.4%, and the Tier 1 capital plus reserve ratio on a fully phased-in basis decreased to 25% compared to 28% last year.

We continue to deliver robust capital returns to our shareholders. In the second quarter, we returned $809 million to shareholders through $701 million of share repurchases and $108 million of common stock dividends. When considering our existing capital position today combined with the meaningful earnings and capital generation of our business, Synchrony is particularly well positioned to execute our capital plan as guided by our business performance, market conditions and subject to our capital plan and any regulatory restrictions. As of quarter end, our total remaining share repurchase of authorization for the period ending June 2023 [Phonetic] was $2.4 billion.

Finally, let's review our full-year outlook, which is summarized on Slide 14 of our presentation and incorporates the following macroeconomic assumptions, 10 interest rate increases during 2022, qualitative tightening measures, a slowing economy resulting from these actions, continued higher inflationary conditions and no additional impacts from the pandemic, we continue to anticipate broad-based strength in purchase volume as consumer savings declines and payment rate moderates, while on a lag, we also expect purchase volume growth to moderate. Given the strong purchase volume and loan receivables growth we've achieved in the first half of this year, we expect ending loan receivables to grow in excess of 10% versus the prior year to the extent that payment rate moderates further, we would anticipate purchase volume to moderate and loan receivable growth to accelerate. We expect our net interest margin to be approximately 15.5% for the full year. As we move through the back half, net interest margin will be modestly lower to the impacts of seasonal funding to support growth. Our net interest margin outlook also reflects the anticipated impact of rising benchmark rates as well as the increase in interest and fees, driven by the primary movement and payment re-moderation. Higher interest and fees will be partially offset by the impact of reversals as credit normalizes and the impact of benchmark rates on funding. To that end, we now expect net charge-offs of approximately 3.15% for the full year, feflecting the strong credit performance we experienced in the first half.

As we move through the second half of the year, we continue to expect delinquency to rise modestly. We continue to expect reserve builds in 2022 to be generally asset-driven, absent a meaningful change in the macroeconomic environment. RSA expense will continue to reflect the impact of strong program performance and robust purchase volume growth, but should continue to moderate as net charge-offs rise. We now expect RSAs as a percent of average loan receivables to be approximately 5.25% for the full year.

In terms of other expense, we continue to expect quarterly levels to be approximately $1.05 billion. This outlook excludes the impact of the $120 million gain on sale that we are reinvesting in our business this year. As a reminder, we deployed $80 million of the gain on sale proceeds in 2Q, and expect to deploy the remaining $35 million to $40 million in the second half, such as the gain in reinvestments will be EPS neutral for the full year. We remain committed to delivering positive operating leverage to the extent that our 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 investments. Examples of such is the opportunity might be to lower the workforce additions or reducing other discretionary spending. So to conclude, Synchrony is operating from a position of strength as we progress through 2022. We are confident in our businesses ability to continue to deliver sustainable, attractive risk-adjusted growth and resilient, peer leading range of risk-adjusted returns even if market conditions change.

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

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Thanks, Brian. Very few consumer financing providers in the market today have Synchrony's unique combination of broad customer base and wide range of partners and providers, diverse product suite and deep distribution channels, innovative technology capabilities and robust funding capital and liquidity. Synchrony's core strengths enable us to consistently and efficiently connect our customers and our partners and provide continuity through high-quality outcomes, including the right financing product at the right time with attractive value propositions and a best-in-class experience for our customers, incremental customers with stronger lifetime value for our partners and sustainable growth and consistently strong risk-adjusted returns for our stakeholders.

And with that, I'll turn the call back to Kathryn to open the Q&A.

Kathryn Miller
Senior Vice President of Investor Relations at Synchrony Financial

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

Thank you. [Operator Instructions] And our first question is from Ryan Nash with Goldman Sachs.

Ryan Nash
Analyst at The Goldman Sachs Group

Hey, good morning, everyone.

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Hey, Ryan.

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

Good morning, Ryan.

Ryan Nash
Analyst at The Goldman Sachs Group

So, Brian, maybe can you unpack the net interest margin guide a bit, I think you said 10 hikes, which is a little below the market, and I guess is the change in guidance reflective of the outperformance or any other drivers? And maybe could you just talk about the deposit pricing strategy from here given the pace of the hike and what's included in for betas in terms of the updated margin guidance?

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

Yeah, thanks -- thanks, Ryan. I'll try to unpack that question in pieces. So, the first is when we look at our reserve modeling and how we think about the back half, we use 10, we're probably at 13 now. As we said in the past, we are generally interest rate insensitive, we're $1.4 billion liability sense of now. So the fact that the rates kind of comes through does not have a big impact on our business and really shouldn't affect or shouldn't really impact our net interest margin in the back half of the year, number one.

As you think about deposit betas, this has been an interesting topic and I think people are looking back, really to the last cycle quite a bit with regard to the betas. And I think the important part is to understand for us as our issuer specific book, we do have a bigger shift between savings and CDs, the duration i sdown a little bit from what used to be 11 months to five, but were -- were 57%, 60% savings now. When you look at the rates start -- where the rates were at the start of the cycle, they were much higher than what they were sort of this cycle. So beta is a little bit higher, it's competitive. We're going to continue to move with the market, but we have a lot of growth to fund in the back half of the year so the deposit betas will be slightly higher than the past cycle, but clearly manageable. I think as we think in margin in the back half of this year, the real key is going to be how much liquidity we have in our average earning -- interest earning assets. So we expect that whatever the interest-bearing liability cost increase will be largely offset with higher interest and fee income, so that will be almost -- I'll call it neutral so to speak in the back half and then you're just going to feel the effects as we move into the third quarter to pre-fund growth for the fourth quarter and that will cause what I would call a normal seasonal decline in margin as we move forward.

Ryan Nash
Analyst at The Goldman Sachs Group

Got it. And if I can ask a follow-up maybe for both of you. So the reserve today is 10.65%, still above day one CECL despite obviously very low losses. And I know this in partially is hard to answer, but can you maybe just help us understand how you think about reserve building in a modest downturn, maybe relative to past cycles? And can you maybe just talk about how you think about the relationship between rising unemployment and losses in a recession just given the strong liquidity position that Brian Doubles had outlined that consumers are in, in the prepared remarks.

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Yeah, let me take that, Ryan. So I think if you were to think about where we are from a delinquency standpoint, our reserve just on a model basis, right, a pure model or probably lower than day one today, so I know a lot of folks are sitting around saying we are approaching day one. Given the credit performance, you would you argue that probably would have been lower than day one if we are back in that period of time. I think as we move forward, we're going to see the relationship that you normally see between unemployment and charge-offs will hold for a little bit, but I think given where it is, how low it is, given the the high amount of savings similar to what we saw both back in '20 and back in the GFC, you probably break correlation between unemployment and net charge-off rate. So I think it's important to watch that. But it's cost could be for the actions we take.

I think as people think about the path to normalization, I think some people are underestimating. We're at such a low right now. We have the ability to take actions to control that the charge-off to the extent the macroeconomic environment deteriorates quickly, that's very different than if we were at our mean net charge-off rate. So - so we would anticipate reserves as we move forward to mainly be growth driven and we hopefully will be able to manage if the macroeconomic deteriorate inside of what we think that mean loss rate is.

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

Yeah, I think Ryan, jut to expand on that a little bit. We've been pleasantly surprised all year by the strength of the consumer. We're running at below half of our target loss rate in the business. So to Brian's point, we've got a lot of room to move and we'll have plenty of time to move if we need to, if we start to forecast a worsening macroeconomic scenario as we head into '23, but the consumer from all aspects whether you look at spend, whether you look at credit at this point in time is still really strong. I think they've got the excess savings. I think two thirds of customers either saved a portion or all of the stimulus. So that's going to take a few quarters to burn through and we'll -- we're looking at this every day. And if we think as we move into '23, I think we feel really good about how we're positioned for the balance of this year. But as we move into '23, if we need to make some modifications to kind of keep us within our target loss rate, we'll absolutely do that.

Operator

Thank you. We have our next question from Moshe Orenbuch with Credit Suisse.

Moshe Orenbuch
Analyst at Credit Suisse Group

Great, thanks. And Brian Doubles, you had talked a little bit about offering of additional products to existing customers. Maybe I was hoping you could kind of expand on that a little bit? Maybe talk about how you can -- how you could do that, what areas of the portfolio you think are best kind of situated for that and maybe what that could add to your growth rate over kind of the intermediate term?

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Yeah, sure, Moshe. I think this is one of the most exciting things that we're working on frankly is -- is this multi-product suite and these offerings for our partners. And one of the things that's changed really over the last, I would say over the last six months in partners, in our discussions with them, they realize that there is an opportunity for them to rationalize and be a little more thoughtful about their point-of-sale and the products that they offer their -- their customers, and this is where we think we actually have a big advantage in that we've got a very robust product suite, whether it's a paying for a longer-term installment, private label co-brand dual card, we think of it almost like a menu where we can go into a partner and say look, this is what we have. These are the products that we think fit your customer based on their purchases and their spend patterns, and they're pretty excited about that. And I think that the benefit also for us is we can do that in a way where we're earning a very attractive return and at the same point, we should be able to reduce costs for our partners, and so I would just tell you there is a lot of engagement both big partners as well as small to mid-sized partners. And the other big part of this that we don't spend enough time talking about is just the integration model, and I think this is a big differentiator for us as well. So, as you know, we have big partners, we have small partners and providers in Health & Wellness, and they have, I would say different needs in terms of how we integrate with them, so we will have a big partner that is very interested in a robust full API technology stack integration so it's seamless within -- within their app -- Venmo is a good example of that, all the way down to the small dentist who need something very simple where the customer could just apply while they're sitting in -- sitting in the waiting room, and we can offer that spectrum of integration solutions. That's a really big deal because the one thing that we've seen which is really important right now is the technology resources that inside of our partners whether big or small, they don't -- they don't have the bandwidth frankly, and we need to make it super easy for them to integrate our products, our solutions, give them access to those financing options.

Clover is another great example that's -- we just announced, we're opening up SetPay payement for inside of our app which sits on the Clover platform. That's a really big deal because that allows us to build something once and distribute it to thousands of partners all at the same time. So as you think about our strategy to take a step back, you really have to think about us having a very comprehensive product suite to meet the needs of very different and diverse partners, but then also what are your integration strategies and how do you make that seamless and easy for the partner base. So again, one of the most exciting things that we're working on across the business right now.

Moshe Orenbuch
Analyst at Credit Suisse Group

Perfect, thanks. And just as a follow-up, from a -- from a credit standpoint as you started the year, there was some caution I guess, you had some caution about how some of your customers who had been, let's say received deferments elsewhere might perform and obviously that concern is kind of -- has kind of burned through. Could you just talk a little bit about and you mentioned a lot about the state of the liquidity of your customers. What are you looking at to kind of -- to kind of gauge their health at this stage? I mean, what are the -- what are the key things that you would look at and say, wow, that's -- now that's better or we're seeing that normalization continue? Thanks.

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Yeah, thanks Moshe. So I think when we think about the consumer today, you're right, the ones that received forbearance was ones we tracked very early on in the year. We continue to very closely the population of people who are still on student loan forbearance, so we're tracking that population of people as they move through. From a performance standpoint, we look at a couple of different things. We obviously look at how a spending behavior pattern changes. We drill in -- from a credit standpoint, we drill into payment behavior pattern increases and watch who is paying statement pay, who is paying the minimum pay, who is paying between those two and see if we see any dramatic shifts that are occurring inside those populations. And we look at that relative to credit grade. And again, we have not seen any real signs of a broad-based deterioration. Certain cohorts have migrated back to 2019-ish pandemic levels, but we have not seen broad-based deterioration. That goes into the low unemployment, that goes into higher early hourly wages, it goes into increased savings. So there's a lot of things that are still in there. So we're watching a lot with regard to spending in behavioral patterns that are in there. And again, population people who really I think the student loans are the ones that are the greatest interest to us right now.

Moshe Orenbuch
Analyst at Credit Suisse Group

Thank you. We have our next question from Betsy Graseck with Morgan Stanley.

Betsy Graseck
Analyst at Morgan Stanley

Hi, good morning.

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Good morning, Betsy.

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

Good morning, Betsy.

Betsy Graseck
Analyst at Morgan Stanley

Brian Doubles, wanted to just dig in a little bit on the credit quality of the book, you mentioned during your prepared remarks about how the portfolio has been skewing to prime -- super-prime, and wanted to get your sense as to how you're thinking about that trajects over the next year or so, maybe even just a couple of quarters if you want. I'm wondering if you're anticipating that with the new programs that will continue and how that is at all ameliorated by the increase in the near-prime, subprime portfolio increasing their borrowing as inflation continues to kick in here, just wondering how you think that trajects?. Thanks.

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Yeah, look, I'll start and ask Brian to comment. Look, I think the portfolio has never been in better shape than it is right now no matter how you look at it. You look at the delinquencies, the loss rate, roughly half of what we would target in this kind of environment, coupled with the fact that we've seen this really strong migration which has been intentional over time to skew more prime and less -- and less prime. And I think we're not contemplating anything as we move into the back half of this year and to '23 that would -- that would change that profile. We feel, again, really good about the operating environment right now. If you remember going back when losses started to reach these all time lows, we didn't take the opportunity to open up on underwriting. If anything what we did was we kind of -- we kind of dialed back some of the cuts that we made or modifications that we made in the beginning of the pandemic, but we stayed very disciplined. And there were clearly opportunities where we could have went deeper or we could have put our foot on the gas, but we knew that we were in this window where the consumer was really strong benefiting from the stimulus, but we didn't take that opportunity to go a lot deeper. In fact, we maintained our discipline and that's how we're going to continue to to run the business through the back half of the year and into '23. And so I wouldn't -- I wouldn't envision a big shift in that prime, near prime mix. I don't know, Brian, if you'd just add anything.

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

Yeah, the two things I'd probably add is; is one, origination and new accounts today are under indexes into non-prime. So I think from that standpoint to echo Brian's comments, we're not leaning in. Their lines continue to be lower in the non-prime segment than pre-pandemic levels. I do think over the course of time you will see the non-prime migrate up a little bit as you continue to see the unwind of score migration that happened during the pandemic and as balances returned back to more normalized level, but that's not really underwriting driven. That's really reversal of the trend that you saw during the pandemic.

Betsy Graseck
Analyst at Morgan Stanley

Okay, and then on the follow-up. This is a really nitty-gritty little question. So sorry for the question. But on Page 14 in the guide on credit normalization, you're saying that DQs -- credit normalization will continue with DQs rising modestly into '22 and I think in the last deck you used the word slow rise. So what am I supposed to take from that? Like modestly and slow rise seem to me to be the same type of message, but maybe I'm wrong now.

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

Yeah, you know, Betsy. First of all, we do appreciate all questions even if they are nitty-gritty. So what I'd sit back and say, you're going to see modest rise. It's not changing perspective with regard -- credit has overperformed in the first half of the year, which means the starting point in the back half is a little bit differently, but we don't see a drastically different trajectory from where we are here through the end of the year. Credit will be better for the entire year than when we sat here 90 days ago and most certainly six months ago, but we feel really good about credit as we move through the back half of the year and we feel good how that sets us up. To be honest with you, in '23, even given the uncertain macroeconomic background.

Operator

Thank you. We have our next question from John Pancari with Evercore ISI.

John Pancari
Analyst at Evercore ISI

Good morning.

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Good morning, John.

John Pancari
Analyst at Evercore ISI

Back to the reserve, your comment that reserves build from here should be more asset-driven. Does that mean that you pick a stable reserve ratio is likely for the near term. And then also from a seasonal perspective, I know you indicated in your broader economic guidance the expected economy to slow. So even from a seasonal perspective woudnt that warrant some credit related reserve build as the economic scenarios that you factoring worsen? Thanks.

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

Yeah, thanks for the question. So the way we look at the model, obviously, we have the base credit model that looks at the delinquency formation today and how that rolls out to loss over our reasonable supportable period. We have done a number of overlays on there which are more stressful with regard to how the consumer will evolve and have the macroeconomic situation of use. So I think with those overlays, you get to a point where we have -- what I would call an elevated reserve relative to day one CECL and where the portfolio sits today absent that. So I think as you think about moving forward in the environment to the extent that an adverse situation, an adverse macroeconomic situation develops, those overlays in theory become embedded into the core reserve model, and therefore you have growth-driven reserve here over the near term.

Operator

Thank you. Our next question is from Sanjay Sakhrani with KBW.

Sanjay Sakhrani
Analyst at KBW

Thanks, good morning. I guess first question is on the RSA. Obviously, you guys expected to now be at the low end of the prior guidance. I'm just curious what's driving that? I was a little surprised because the loss rate also is expected to be lower and that usually the two kind of work in inverse ways. So maybe you could just talk about that, Brian Wenzel?

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

Yeah, you have two different dynamics. You have, obviously, some of the operating favorability that you have coming through, there is mix that comes through here as well as gap coming out of the portfolio that brings you back down that operated at a slightly higher RSA percent, all that brings you down to the lower end of the range.

Sanjay Sakhrani
Analyst at KBW

Okay. And so going forward, we should expect it to be more correlated to the various operating metrics, given gaps out?

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

Yes, it should correlate to it. We also -- back on Page 7 of the deck, we also -- one of the things that I know people are trying to model RSAs in a way that they can be more predictable. I think we showed a metric here which is RSA relative to purchase volume. Because remember, there is a significant portion of the RSAs that is volume oriented that tends to be a more stable metric. I think you can look at it quarter-over-quarter seasonality and I think will help people as they try to build their models as they go through it. Again, we do believe that we're going to migrate back to that 4% to 4.5% level as net charge-offs normalize and as the revenue, interest of the revenue and yield normalizes as well.

Sanjay Sakhrani
Analyst at KBW

Okay, great. And my follow-up question is for Brian Doubles. Obviously, you talked about the launch of pay in 4 with -- on Clover. I'm just curious, how much of that product is actually being utilized by merchants where you have a relationship versus not? Is it 100% your own customers today? And then also there's been a significant dislocation in valuations for players in this space. I'm just curious if there's anything you might do differently on a go-forward basis as a result of that? Thanks.

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Yeah, so Sanjay, I would say the majority right now is with existing partners. That's where we've been having discussions over the past nine months, give or take, and integrating and launching. What I would tell you though is Clover is really an opportunity for us to reach a broader distribution of partners that don't do business with us today and make it really easy and seamless for them just to download our app and then pick from our various financing options. So that's really the exciting part as we think about going forward is that one to many integration opportunity, which is frankly different than how we've managed the business in the past. So I think that's an exciting part of our strategy going forward.

And then I would say just on valuations generally, I think that does potentially create some opportunities for us. We run a very active M&A pipeline. One of the things we were a little disappointed is as we went through the pandemic, we thought valuations would check up a little bit. They did not, but we're starting to see some of that now. And that could create some opportunities for us, whether it's capabilities that would be easier to buy than build, some things like that. But I would tell you we are very disciplined around M&A. We only look to do things that are not only strategic but also EPS accretive. And so we've got a pretty disciplined process around that. So I think there may be some more opportunities here just on the margin, but we'll maintain that discipline.

Operator

Thank you. Our next question is from Mihir Bhatia with Bank of America.

Mihir Bhatia
Analyst at Bank of America

Good morning, and thank you for taking my questions. Maybe I wanted to start with asking about loyalty program costs. Those have been increasing, whether we look at it as a percentage of interchange revenue or purchase volume. And I was curious as to what is driving that? Is that just competition? Or are there particular programs, renewals, promotions ongoing that is making that line inflect higher? Just trying to understand how you expect that line to shake out longer term. I think historically it used to be around 100% of interchange revenue, maybe a little bit more, but it's pretty materially higher now. So just trying to understand more context there.

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

Yeay, first of all, good morning, Mihir. Yes. So I'd say this is less a function of competition, more a function of -- we've done some value props over the past 12 to 18 months and we are seeing increased purchase volume through that as our value propositions have resonated with consumers. So there isn't necessarily a reflection necessarily a reflection of changing to the competitive environment, refreshing value props that we normally do and we've done it across a number of different programs which is driving some of the higher loyalty again. Some of the loyalty sits on our books. The vast majority sits with our partners, which is why the RSAs is what it is because they're paying the -- the value prop costs from their proceeds out of the RSA.

I think as you look forward, one of the interesting things you're going to see, you'll see it really began in the third quarter is there's roughly $35 million of interchange that we will lose as our portfolios we sold this quarter have gone away and the loyalty costs were 100% borne by those partners. So what you'll see is, in theory, a widening of that gap beginning in the third quarter as we move out. The offset to that -- that $35 million, call it, 80-plus percent comes out of the RSA. So they move in different directions. But from a P&L standpoint it's neutral.

Again, I think in most programs where we collect interchange and we pay the value prop, it's the same. Some of the programs you got to remember are are ones where we don't collect interchange that are private label products where we may be paying a loyalty cost. And again, this goes back into -- we had record purchase volume ever for this company during this quarter. We had record purchase volume last year for this company, record purchase volume for the first quarter of this year. So that volume is going to generate higher loyalty costs. So it's less about renewals and other things. It's really about our products resonating with consumers. Thank you. That is very helpful, thank you. And then just wanted to follow up a little bit on Betsy's question about just the credit profile evolution. How much of that is being driven by just your underwriting standards? Maybe just talk about what those look like today versus, say, 2020 or 2018 even? Just trying to understand how things are changing in the context of this maybe? Yeah, so if you walk through the pandemic, right, the early stages, call it the beginning part of the second quarter, we tightened our standards, right? Now again, we are very different than most credit card issuers. We don't pull back entirely. It's our distribution model. So we don't necessarily do that. We tend to do things that we would call smarter with regard to credit. So instead of giving someone a dual card, we'll give them a private label card. We're a little bit more restrictive on some of the growth-related credit line increases, so we wouldn't do proactive credit line increases. And at the margin, we would tighten up origination. I think as we moved into the second quarter of 2021 when we saw the environment not being as potentially pessimistic as we did a year earlier, we began to unwind some of those actions and some of those refinements. So again, I think if you look at the standards that exist today, they're probably a little bit tighter than I think, 2019 levels, but approaching that. But our line sizes again are lower. But the good news is, I think we continue to introduce different data points into our decisions that makes us -- allows us to make smarter decisions both at the time of origination and at the time in which we're doing account management, i.e., authorizations, etc., that allows us to have a better profile. I think when we look at the vintages in '20 and '21, they still are outperforming that of 2018 and 2019. The 2021 vintage, a little bit worse than 2020, because again we had probably a looser refinement strategy in '21 versus '20, but both are significantly better than pre-pandemic levels and I think sets us up, and that's one of the keys. It sets us up for what we're going to see in '23. So we're very, as we sit here today, optimistic about the credit profile of the company.

Operator

Thank you. We have our next question from Brian Foran with Autonomous Research.

Brian Foran
Analyst at Autonomous Research

Good morning. I was actually going to ask about the vintages which you just touched on, but is there any sense you can give on the magnitude of outperformance versus 2019, delinquencies controlled for month seasoning or however you want to measure it. Just trying to get a sense of is it a little or a lot or somewhere in between on how much the '20 and '21 vintages are outperforming?

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

What I'd say is '21 is probably in the middle between '20 and '19 and '20 is significantly lower. It's probably how I frame it, Brian. We don't break out actual performance of device themselves with regard to coincident delinquency or loss rate. But as a frame, we referenced '21 in the middle, but significantly below '19.

Brian Foran
Analyst at Autonomous Research

And then maybe on competitive intensity, I mean you touched a lot of different competitors, I guess broadly maybe it's fair to say your traditional card competitors are maybe still getting a little bit more intense competitively or maybe reaching a plateau. But again that there's been a pretty big retrenchment seems in some of the newer fintech competitors. So maybe two questions. When you balance it all out, is it kind of a net neutral? Or is competition actually maybe pulling back because of the fintech side and any opportunities that -- that fintech retrenchment does present? I know you touched on maybe some of the M&A, but maybe organic opportunities that it presents.

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Yeah, I think the competitive set has been fairly stable actually. I don't think that whether you're a mature competitor, one of our larger competitors or the smaller fintechs. I don't think that they've changed their strategies or their competitive intensity, plus or minus given the uncertainty as we head into '23 and '24. I think you might see some of that as we get more through the back half of the year and some of these signs become a little bit more real, if that does materialize. But I would say the competitive set has been pretty consistent. Pricing and economics has continued to be pretty rational. One of the things that we were looking for as we went through the pandemic is do we start to see competition really take advantage of a best ever credit environment. I think we saw some of that on the fintech side, but the more traditional competitors stayed pretty disciplined. We stayed disciplined. I think that will be helpful going forward. And I think the real question is, what does this look like as we head into '23 and beyond?

Operator

Thank you. We have our next question from Kevin Barker with Piper Sandler.

Kevin Barker
Analyst at Piper Sandler Companies

Thank you. You mentioned some additional macro overlays on your reserving ratios or just looking at your overall CECL reserving. Could you give us a little bit more detail on some of those major macro relays that you have embedded within the reserving? And then at what point would you start to say that the reserving level needs to rise? Or like what unemployment rate would you say we start to need to see significant moves in the reserve level?

Brian J. Wenzel
Executive Vice President and Chief Financial Officer at Synchrony Financial

Yeah, thanks, Kevin. So when you look at our baseline model, we start with the Moody's baseline, which is generally going to be a flat, what I would call unemployment environment and a GDP that's generally flat to decelerating over the next couple of years. I think when we start to look at the allowance and look at the overlays that get put in there, right, we're looking at forecasts that have the CPI accelerating. So we think about it in two different ways. The first is, probably the easiest way to think about it is late stage performance. So we think about it as you have a deteriorating employment environment that stresses your late-stage delinquencies which will flow through the model rather quickly. That's really where we look at it. we look at it in that context of being the roll rates that exist in that overlay as being more dramatic than what we saw pre-pandemic level. So it's a faster roll to loss.

The other overlay that we put on it is really related to what we say is related -- coming out of the Russia-Ukraine war that we see out there. And what that does is we have early stage deteriorating more quickly, an upswing in bankruptcies, which are probably at historic lows and that flows through the model with not as much deterioration in the back end or a severe deterioration in the back end. So you have a much bigger piece flowing through the model. So those are the ways in which we've kind of done the overlays.

Let's try to correlate it because, again, I think, Kevin, the one thing that's demonstrated a couple of periods of time here is that you have seen a dislocation between what had been very correlated metrics unemployment to loss. Traditionally, you see a correlation between gas prices an entry rate and what I would call early stage performance. We're not seeing that today, so your broken correlation. And that's really because of the effects of the stimulus and the forbearance that come through. So we have taken it really in two different ways and two different scenarios to create different overlays, which is: one, a severe back-end deterioration; and two, a more front-end deterioration that flows through with what I would call a sharper increase in non-age losses.

Kevin Barker
Analyst at Piper Sandler Companies

So given the uncertainty that we have out there and the different macro scenarios that could play out, and obviously, the cycle could be different, have you considered being a little bit more conservative in deploying capital in this environment just given the uncertainty we have in the outlook?

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

A couple of things, Kevin. One, we're operating at over 400 basis points above our CET1. So start there, we're in a very different position than probably all of our peers and those in the banking industry. So start with that premise number one. Two, under most scenarios we have a strong business that generates a lot of capital. And even under stress scenario, we didn't lose money during the pandemic in any quarter. So we continued to generate capital during that period. Three, we just got done with our preliminary run of our second quarter stress test, our normal stress test and then we run the Moody's S6 and S7 stress tests, and we remain in a very solid position. So as we look at the environment -- as we look at the environment, as we sit here today, look at those stress, look at our position, we don't believe there's a reason today to curtail our current share repurchase plans. That being said, we continually look at the macroeconomic environment and we continue to look at our ability to generate capital through earnings. And if we need to make an adjustment similar to March of '20, we will. But again, as we sit here today, given the stress that we run, the severe stress that we run, we feel comfortable with our current capital plan that's in place.

Operator

Thank you. We have time for one more question. Our final question is from Mark DeVries with Barclays.

Mark DeVries
Analyst at Barclays

Yeah, thank you. Really appreciate all the color you gave on kind of what you are observing from spend behaviour given the inflationary pressures. Are you seeing any, though, any kind of divergence in trend across the credit spectrum? Or are those trends pretty consistent from kind of super prime all the way down to non-prime?

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Yeah, so what I'd say -- what I'd say, Mark, is we're seeing positives, what I would call transaction values and frequency and consistency of frequency across all credit grades. I think the strongest credit we see is actually in the prime, so not super prime and not non-prime, but we are seeing continued strength in the non-prime. So there's nothing discernible as I look across the credit grade either on a transaction value basis or a frequency basis, nor do we see it across any of the sales platforms. It's remarkably consistent, the performance and the growth across all the platforms by credit grade. So again, I think when we look at the data and I look at the data by category, what we're seeing is that the consumer is not changing spending dollar-wise and their behaviors. They're just making different decisions inside their everyday spend. And it's not even just moving from discretionary, non-discretionary. They're just being more discriminate with regard to how they're spending their money. And it really goes to the power of the diversification that we have inside our sales platforms and in our -- in our sales platforms and inside of our sales platforms.

Mark DeVries
Analyst at Barclays

Got it. And then just a follow-up. The payment rate also doesn't really seem to be getting affected given inflation which seems pretty bullish. But kind of what are your expectations for that as we kind of look out for the back half of the year?

Brian Doubles
President and Chief Executive Officer at Synchrony Financial

Yeah, again, we've anticipated that you're going to see a moderation in the payment rate as we move back. We have seen a little bit of a shift in the payment behavior patterns between statement pays and min pays in between. So we've seen some of that moderation, we've seen some cohorts go back to 2019 levels. We expect it to begin to migrate back. The migration, I'll be honest with you, from our expectations back in January has been a little bit slower than we anticipated, which just goes back to the overall strength of the consumer. But we do expect it to slow just probably a little bit slower based than anticipated at the beginning part of the year, which again is positive from a credit standpoint. And again the strength in our purchase volume is helping us to get to that 10-plus percent loan receivable growth by the end of the year.

Operator

[Operator Closing Remarks]

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