Synchrony Financial

Welcome to the Synchrony Financial First Quarter 2020 Earnings Conference Call. My name is Vanessa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Greg Ketron, Director of Investor Relations. Greg, you may begin.

Thanks, Operator. Good morning, everyone, and welcome to our quarterly earnings conference call. Thanks for joining us. 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 Margaret Keene, Brian Wenzel, and Brian Doubles. I will now turn the call over to Margaret.

Thanks, Greg. Good morning, everyone. Today, our country and the world are facing an unprecedented global pandemic. I want to start by first thanking all of those working around the clock, especially our healthcare professionals and first responders on the front lines, as well as those behind the scenes, including our dedicated employees who are working to serve our customers and partners. While all of us have been impacted in different ways and we may suffer from sadness and loss, I am also encouraged and inspired by the resolve of our society to come together in this crisis. I've seen much goodness, selfless acts, and community support. It is certainly one of the things I hope continues long after this is done. I also commit to our employees, our partners, our customers, and our community. We will continue to do all we can to support you. This global health crisis is challenging us as individuals and as leaders. It is also challenging companies to execute in an extraordinarily difficult environment. And one more word of thanks here to the leaders in Synchrony who have stepped up in so many extraordinary ways through this incredibly difficult time. Thank you. Our company was founded in the 1930s as we began financing refrigerators in the Great Depression, and Synchrony has faced many other difficult periods, most recently the Great Financial Crisis in 2009. It is the combination of our heritage, strong culture, and our talented associates that will enable us to use our strengths to navigate these uncertain times, protect our employees, and continue to deliver for our cardholders, retailers, merchants, and providers. Later in the call, I will provide greater details in our response to the COVID-19 outbreak. But first, let me share with you our results for the first quarter. First quarter earnings were $286 million or $0.45 per diluted share. This included an increase in provision for credit losses as a result of the CECL implementation in January. The increase attributable to CECL was $101 million or $76 million after tax, which reduced EPS by $0.13. We generated solid growth in several key areas during the quarter. On a core basis, which excludes Walmart and Yamaha portfolios, Loan receivables grew 4%, which drove a 5% increase in interest and fees. Purchase volume increased 6%, and average active accounts increased 4%. The efficiency ratio was 32.7% for the quarter. We grew deposits over $500 million, or 1% over last year. And although we slowed the growth of deposits, giving the excess liquidity from the Walmart portfolio sales, We did continue to grow lower-cost direct deposits at a 3% rate over the prior year. Our direct deposit platform remains an important funding source for our growth, and we continue to invest in our bank to help attract new deposits and retain existing customers. We extended and added partnerships, we renewed several key relationships, and we added to our growing care credit network. We continue to be excited and are working closely with Verizon and Venmo to launch these new programs during 2020. While the ultimate launch dates for the programs will be dependent on how the current environment develops, we anticipate a mid-year launch for Verizon and a launch in the second half for Venmo. We continue to remain highly focused on digital innovation, accelerating our data analytics capabilities, and creating frictionless customer experiences, which are key to the success of our programs and winning new relationships. Dragging digital sales penetration is key to our success. In retail cards, digital sales penetration was 41% in the first quarter, and digital applications were 56% of our total applications. The mobile channel alone grew 34% compared to the same quarter last year, excluding Walmart. During the quarter, we repurchased $1 billion of Synchrony common stock and paid $135 million, or $0.22 per share, in common stock dividends. We are pleased with the strength of our business. However, we did experience a significant reduction in purchase volume from COVID-19 in the second half of March, which Brian will cover later in the call. The ultimate impact from this crisis is very difficult to quantify right now, with the duration and magnitude still largely unknown. However, we believe we have an advantageous position to navigate through this uncertain time. Our portfolio is well-positioned from a credit perspective, given changes we have made since the great financial crisis, in addition to some of the more surgical modifications we've made in recent years. Further, our RSAs have historically proven to be an effective buffer during times of stress. We have a partner-centric business model and are more nimble than ever, giving us the ability to rapidly implement changes and enhancements. We have also built a robust data lake that gives us access to information across the business at an unprecedented level. Combine that with our analytics capabilities, and we have another powerful tool to help our partners manage through this period. The digital capabilities we've built, which have helped us win important digital partners, are another crucial tool in empowering our partners across the business to manage through this time by helping them to shift volume to online and mobile channels. Now I would like to spend some time focusing on the actions Synchrony has taken for our employees, partners, and communities. We have taken these actions in the spirit of assisting the communities in which we live and operate to to assist in stemming the global health crisis while still meeting the needs of our cardholders, retailers, merchants, and providers. Each action we have taken has been with empathy and consideration for each constituency, and we will continue to act as this crisis evolves. Our employees are the strength of our company. We moved quickly and decisively to put actions in place that support the health, wellness, and safety of our colleagues across the globe. We are implementing a plan for 100% work-from-home structure. In the U.S., employees from across our company, from support functions to our frontline contact center associates, are all working from home. This has allowed us to stabilize our operation and service our customers while keeping our employees safe. We are assisting our associates by covering the cost of co-pays for virtual doctor visits for any employee who wishes to consult a medical professional, and enhancing our benefits to include expanded backup emergency care benefits so that our colleagues have the child care or elder care support needed. We are also providing financial planning and employee assistance along with wellness programs. For our contact center associates, we provided a one-time special bonus to thank them for their essential role they are playing in assisting our customers every single day without missing a beat. In addition, we are setting up an emergency fund to help our associates deal with unexpected financial challenges which may impact them during this period. For consumers that are experiencing financial hardship, we have the ability to assist these cardholders during this extremely difficult period. We will raise fees and interest charges or we can extend promotional financing periods. We will also waive minimum payments on existing balances for certain qualifying accounts. For those seeking the ability to expand their line for necessary purchases, we will evaluate credit limits if they meet our credit criteria. Many of our partners have been with us for decades, and we have been there to help them grow their businesses. We are now here to help them protect it. we have taken an aggressive approach to ensure we continue to provide our partners and their customers with dependable service and products that they can use during this time of disruption. Our investments in making all of our digital assets fast and easy to use are helping them to serve their customers, and our relationship managers are actively helping them, and there has been no disruption to their availability to our partners. Our agile structure is helping to foster real-time solutions and our dedicated teams are tirelessly working to support our partners and their customers. The communities where we live and work are such a core part of the fabric of synchronous culture. That's why we've committed $5 million to help local and national organizations assist those areas of the country most affected by COVID-19. We will be supporting groups like Feeding America and Meals on Wheels in the U.S., as well as organizations in Puerto Rico, India, and the Philippines. Also, our employees have contributed numerous hours to Synchrony's Gear Up initiative. Employees have engaged in our communities to assist in making certain protective devices, such as face shields using 3D printing, as well as sewing gowns and masks through our network of cardholders who are actively engaged in the sewing community, where we have a number of partners who sell sewing machines. We have also leveraged our care credit network, and Synchrony is serving as a location in our community's where people can donate PPE items and we are engaging in the transfer of items of need to various medical facilities. We are facing an extraordinary and unprecedented time, but Synchrony has the strength, the resources, and the resolve to fight this global health crisis for our employees, partners, customers, and communities. Having been in business for nearly a century, We have navigated various times of economic uncertainty by maintaining our focus on supporting our associates, partners, and their customers, but also continuing to invest in our businesses for the long term. I am proud of what actions we have taken for our constituents, and I have confidence that through the strength of our business model and balance sheet, we will continue to navigate this crisis successfully. while maintaining our focus on the significant opportunities in our business, our long-term objectives, and strategic initiatives. With that, I'll turn the call over to Brian Wenzel to review some of the key business trends we are seeing, the financial performance for the quarter, and views on a framework to help consider the impact of COVID-19 on our key outlook drivers.