Synchrony Financial

Welcome to the Synchrony Financial Third Quarter 2021 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 your host, Catherine Miller, Senior Vice President 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. Finally, Synchrony Financial is not responsible for, and does not edit or guarantee, the accuracy of our earnings teleconference transcripts provided by third parties. The only authorized webcasts are located on our website. On the call this morning are Brian Doubles, Synchrony's President and Chief Executive Officer, and Brian Wentzel, Executive Vice President and Chief Financial Officer. I will now turn the call over to Brian Doubles.

Thanks, Catherine. Good morning, everyone. The power of Synchrony's model continued to show through in our third quarter financial results. We continued to reach and serve more partners and customers. New accounts grew 17% to 6.2 million, and average active accounts increased 5% to 67.2 million during the period. This is in large part attributable to the powerful combination of our data-driven insights, our seamless customer experiences, and our industry-leading product suite, which resonates deeply with customers. Synchrony's omni-channel capabilities enable our partners and customers to connect wherever and whenever they want to be met, and the variety of financing options and value propositions we offer empowers them with choice. As we continue to anticipate and deliver on the needs of our partners and customers, we drive more value and greater utilizations. This translated to an 11% increase in purchase volume per active account during the third quarter and 16% growth in total purchase volume compared to last year. Of course, this strength in purchase volume was largely offset by the persistently elevated payment rate trends resulting from government stimulus and industry-wide forbearance actions, leading to a 2% increase in loans, including loans held for sale. Net interest margin of 15.45% was 165 basis points higher than last year, primarily reflecting the reduction in excess liquidity. Operating expenses were down 10% compared to last year and down 7% year-to-date as our cost efficiency initiatives continue as planned. We remain on track to reduce about $210 million from our expense base by year-end, even as we continue to invest in our business. The efficiency ratio was 38.7% for the quarter, largely flat with last year. Credit continued to perform very well, Net charge-offs were 2.18% for the third quarter, down 224 basis points from last year. Net earnings were $1.1 billion, or $2 per diluted share, and included a 33-cent benefit from the reserve release related to the reclassification of the GAAP portfolio to hell for sale. Turning to our balance sheet, deposits were down 3 billion, or 5%, versus last year, reflecting retail deposit rate actions we took to manage our excess liquidity. Deposits represented 82% of our funding mix at quarter end, a slight increase versus last year due to the retirement of debt. During the quarter, we've returned $1.4 billion in capital through share repurchases of $1.3 billion and $124 million in common stock dividends. We also continue to reinvest in our business. As we highlighted during our recent Investor Day, our ability to remain nimble and adapt to the ever-changing consumer finance landscape has been driven by our continued investment in our product suite and our innovative digital capabilities. In fact, if you think about the last decade alone, the introduction of digital wallets, point of sale financing, and a greater variety of installment offerings, just to name a few, has demonstrated the importance of diversity, accessibility, and utility in both products and experience. And so Synchrony has continuously evolved, adding new financing options, enhancing our technology platform, and expanding our channels and distribution networks in order to reach and serve more partners and customers in sustainable ways that drive greater value for all. In addition to launching new products and partner programs, we are remaining focused on innovative ways to get scaled distribution of our product suite. Last week, we announced our expanded strategic partnership with Fiserv, through which small businesses will now be able to access synchrony products and services and accept private label credit card payments via the Clover point of sale and business management platform from Fiserv. This will enable accelerated growth for small businesses, empowering merchants to attract more customers and generate more revenue by offering their customers greater flexibility and choice in how they make purchases. We will also explore additional opportunities to cross-sell synchrony products to existing Clover merchants. Importantly, this strategic partnership also deepens Synchrony's ecosystem and reinforces our growth strategy to expand and accelerate innovative product offerings through additional distribution channels. It builds on our momentum to bring our products to merchants faster and leverages Synchrony's leadership in financing, analytics, and services. We're excited to utilize the point-of-sale innovations driven by Clover to continue to transform the way people purchase while helping merchants grow. Furthermore, as we and our partners endeavor to provide more comprehensive customer access to financial products and resources, we are excited to expand our partnership with PayPal. As announced in late September, Synchrony will be launching PayPal Savings, a new PayPal branded savings account. This unique opportunity will allow us to expand the distribution of our savings product to a unique set of customers with features and functionality inside the PayPal app, delivering an enhanced customer experience, while also further diversifying our deposit base at an attractively low cost to acquire. In addition to our ongoing efforts to expand both our product suite and distribution network, we also seek to enhance partner and customer engagement through customized value propositions and omnichannel capabilities. We recently launched two industry-first retail health and wellness credit cards, the MyWalgreens MasterCard and MyWalgreens Private Label Credit Card. which reward customers with savings on future health and wellness purchases. MyWalgreens credit card holders can earn 10% Walgreens cash rewards on eligible Walgreens branded products and 5% Walgreens cash rewards on other eligible brands and pharmacy purchases. MyWalgreens MasterCard holders can also earn 3% Walgreens cash rewards on eligible grocery and health and wellness purchases everywhere else, including healthcare providers. and 1% Walgreens cash rewards on eligible purchases anywhere MasterCard credit cards are accepted. In a world where consumers are increasingly responsible for a greater proportion of their health-related costs, we believe these value propositions will drive considerable value while also providing greater financing flexibility for health-related needs and enhancing loyalty over time. Furthermore, Synchrony's digital capabilities allow us to seamlessly engage with customers wherever they are. We have deep digital integration across the Walgreens web, mobile, and native app channels with the ability for customers to apply and instantly buy through all of these channels. We've launched frictionless customer experiences, leveraging technology capabilities like QR codes, quick screen, which is a real-time pre-screen of one, customer-initiated pre-qualification, a directed device in-store application process, card servicing integrated seamlessly into the Walgreens app, and API integration with the MyWalgreens loyalty program. And while it's still early, the initial data we're seeing indicates that both the value prop and dynamic customer experience we have achieved with Walgreens are resonating very well with cardholders and driving spend both inside and outside of Walgreens in categories such as grocery, health, and wellness. By empowering our partners and customers with best-in-class wallet optionality and compelling outcomes, Synchrony is increasingly well-positioned as the partner of choice. With more than 65 million active accounts, Synchrony has market-leading reach and deep, diverse lending insights that enable us to better anticipate the needs of customers and, therefore, which financing options will optimize utilization and drive lifetime value. So whether it comes in the form of our dual, co-branded, and private-label credit cards, our various set-pay installment products, or our Synchrony MasterCard, we deeply understand when, why, and how customers seek financing solutions for their day-to-day purchases. We're particularly excited about the opportunity we see for our Synchrony MasterCard, which allows us to tap into the $500 billion general purpose credit card market. We are taking a measured approach to growth. However, by leveraging our scale and underwriting expertise, we've been able to identify better performing customer segments, acquire more customers at lower CPAs, and fine tune our channel strategy over the last two years. Today, Synchrony MasterCard offers a variety of value propositions, which we use in combination with our pricing strategy to expand our customer reach and optimize conversion. And we have great digital utility through dApply and integration in Apple Wallet, as well as our mobile app. This allows customers to access their various bank products, their money market and high-yield savings accounts, as well as their credit card balances and transaction data. This value proposition and seamless digital experience resonates very well with our customer, leading to purchase volume growth of 36% versus the same period in 2019. We're also seeing higher levels of engagement around the product and brand as spend per active account is up 40% versus 2019. So we're very excited about our Synchrony MasterCard. It's an important offering within our product suite strategy. that we believe will enable us to capture a larger portion of customers' top-of-wallet spend and which should drive highly scalable growth and above-average returns to our business over the long term. And with that, I'll turn the call over to Brian.