Synchrony Financial

Welcome to the Synchrony Financial Fourth 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 Kathryn Miller, Senior Vice President, Director of Investor Relations. You may begin.

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. 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 Doubles, and Brian Wenzel. I will now turn the call over to Margaret.

Thanks, Kathryn, and good morning, everyone. 2020 was a challenging year marked by a global pandemic, economic disruption, and unrest due to racial injustice. It was a true test to our resilience, our agility, and our strength as a business. We're proud of the way Synchrony managed through these challenges. Though there have been significant developments that provide hope that the pandemic will begin to moderate, the virus resurgence and resulting regional shutdown and continued impact on unemployment is something we are still managing through. And though the pandemic continues to impact results, we are encouraged by some of the trends that have developed. Later in the call, Brian Wenzel will detail these impacts on the quarter's results and provide a view on how we think this year might develop. I will provide a high-level overview here. Let's first focus on our quarterly results, including some of our recent successes, which are outlined on Slides 3 and 4. Earnings were $738 million, or $1.24 per diluted share, an increase of 9 cents over last year. Loan receivables were down 6% to $81.9 billion, and average active accounts decreased 10% from last year, with new accounts down 19%. Purchase volume per account increased 10% over last year to $602, and average active balance per account increased 4% to just under $1,200. Net interest margin was down 37 basis points to 14.64%. and the efficiency ratio was 37.1% for the quarter. Net charge-offs hit a new low at 3.16%. As a result of our liquidity and funding strategy, in response to COVID-19 impact on our balance sheet, deposits were down 2.3 billion or 4% versus last year. This includes a strategic decision to slow overall deposit growth given the excess liquidity we have. Total deposits comprise 80% of our funding, and our direct deposit platform remains an important funding source. Our ability to service and provide digital tools to customers makes our bank attractive to depositors, and we will continue to build out additional capabilities. During the quarter, we returned $128 million in the quarter through common stock dividends. We also announced that the board authorized $1.6 billion in share repurchases for 2021 beginning in the first quarter. We have a solid pipeline across our platforms, a mix of startup and existing programs. But we are being very disciplined around risk and returns given the uncertainty in the current environment. And while this retail landscape is shifting, we believe similar opportunities will continue as evidenced by recent wins. I will touch upon a few highlights. We announced that we will become the issuer of Walgreens' co-branded credit card program in the US, the first such credit program in the retail health sector. The card will allow customers to earn rewards for purchases anywhere MasterCard is accepted. We expect to launch the new program in the second half of 2021. This new agreement builds upon the company's existing strategic partnership. CareCredit is already accepted at more than 9,000 Walgreens and Duane Reade stores. We are committed to providing Walgreens customers and patients with unparalleled experiences, a best-in-class loyalty program, and the ability to manage their health and wellness spending. In addition, we renewed our strategic partnership with Mattress Firm. We provide flexible financing solutions and innovative business tools that empower mattress firms to meet their customers at critical moments in the purchasing journey, which is increasingly online. Our digital tools and industry-leading credit program team, including marketing and analytic retail experts, have optimized every step of the omni-channel customer journey to deliver a competitive user experience. We look forward to many more years as a strategic partner of Mattress Firm. We also reached a definitive agreement to acquire Allegro Credit, a leading provider of point of sale consumer financing for audiology products and dental services. Allegro offers numerous customers loan options through its merchant partners with flexible payment terms at the point of sale. These products are designed to offer customers choice to purchase the products and services they need or want. The addition of Allegro Credit's merchant network and customers complements our strategy of growing pet credit, our leading health and wellness financing platform. The transaction is expected to close in the first quarter of 2021. All together this quarter, we signed nine renewals and won seven new deals along with the acquisition. I cannot overstate the importance of digital innovation to the success of our programs. Consumers are rapidly adopting technologies that enable contactless commerce and expect engagement along their digital purchase journeys. We are leveraging our digital assets and continuously investing to ensure our partners are well positioned in this rapidly evolving dynamic. These investments include the capabilities to empower fast and seamless integration with our partners' digital assets, enable customer choice at the point of sale, enhance contactless experiences, facilitate a seamless and easy application process, bring the in-store experience to a customer's digital devices for applications and payment, and integrate our financing offers throughout the entire digital shopping experience. We also continue to expand our digital penetration of all aspects of our customer journey, apply, buy, and service. Approximately 50% of our applications were done digitally during the fourth quarter and grew 18% in mobile channel applications. In retail card, 51% of our sales occurred online. Finally, approximately 65% of our payments were made digitally. In short, we are rising to the challenges presented by this difficult time. We have strengthened the strategic positioning of our business and expanded the opportunity set that lies before us. And we're investing in the right strategy that will enable near-term successes while also driving considerable shareholder value over the long term. With our future in mind, as you know, a few weeks ago, we announced some important changes to the leadership of this company. Effective April 1st, I will transition to the role of executive chair of our board of directors, and Brian Bubbles will become Synchrony's president and CEO. Synchrony means so much to me, and one of my goals as CEO was to set up a thoughtful leadership transition with a successor who will advance what we have built. Both the board and I believe there is no one in the world better equipped to do that than Brian. Brian has helped to build Synchrony every step of the way. He has been my trusted partner for more than a decade, including through our IPO. When we started Synchrony back in 2014, we set out to build a great business with a great culture that delivers for our partners and customers every day. Together, with our 16,500 employees, we are doing just that. With Synchrony in a position of strength, now is the time to implement this transition, allowing Brian to continue the incredible progress that has been made and to drive the next stage of Synchrony's exciting growth journey. I look forward to working with Brian through this transition and continuing to support Synchrony's growth and future success as Executive Chair. With that, I'll turn the call over to Brian.