Synchrony Financial

Welcome to the Synchrony Financial 3rd Quarter 2022 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, and good morning, everyone. Synchrony delivered another strong quarter of financial results, highlighted by net earnings of $703 million, or $1.47 per diluted share, a return on average assets of 2.8%, and a return on tangible common equity of 26.6%. Synchrony's ability to deliver consistent growth and resilient returns is a testament to our well-diversified portfolio, our balanced approach to product, consumer, and credit strategies, and the strength of our differentiated business model. As we continue to leverage our advanced digital capabilities expand our reach through new partners and distribution channels, and further diversify our product suite. Synchrony further solidifies itself as the partner of choice for retailers, merchants, and providers alike. To that end, we added or renewed 15 partners in the third quarter and are excited to be partnering again with Bassett and Floor & Decor. Bassett has chosen to partner with Synchrony again because they value three of Synchrony's core strengths, our superior customer experience, our advanced data analytics and ability to leverage these data insights to drive growth, and the unique marketing opportunities that exist through Synchrony's home network and marketplace, which will enable them to reach more customers and drive growth. Meanwhile, Floor & Decor has selected to partner with Synchrony again because of our ability to power a multi-product offering for both consumers and commercial customers. Floor & Decor is a high-growth retailer and believes that Synchrony is best positioned to help them achieve their objectives. So whether they're looking for advanced data analytics and the powerful network effect of our marketplaces and networks, our seamless omni-channel experiences, or our diverse suite of financial products and services, Synchrony is well positioned to deliver strong, targeted outcomes for each of our partners. We are increasingly anywhere our customer seeks tailored payment and financing solutions, big or small purchases, occurring in person or digitally. We leverage our industry expertise, broad distribution channels, and dynamic financial ecosystem to connect our partners with customers whenever and however they want to be met, with a broad range of products and services, attractive value propositions, and seamless experiences that meet their needs in any given moment. As a result, Synchrony continued to reach and serve more customers in the third quarter. On a core basis, excluding the impact of recent portfolio sales on prior year periods, we added 5.8 million new accounts, and increased core average active accounts by 8% year-over-year. Purchase volume grew 6% to $44.6 billion, or 16% on a core basis, reflecting both the increase in accounts as well as higher engagement across those accounts, with 8% higher spend per account versus last year. This continued strength in purchase volume was broad-based across our portfolio and a testament to the breadth and depth of our five sales platforms. The compelling value propositions we offer and a healthy consumer. At the platform level, Synchrony achieved double-digit growth in our diversified value, health and wellness, digital, and home and auto platforms, and single-digit growth in our lifestyle platform. More specifically, home and auto purchase volume was 11% higher, driven by strength in home, furniture, and auto-related spend, as well as the impact of inflationary conditions on inventory, gasoline, and automotive parts. In diversified value, purchase volume increased 20%, driven by higher out-of-partner spend, partner penetration growth, and strong retailer performance. Lifestyle purchase volume grew 6%, reflecting an industry-specific rebound within luxury and higher out-of-partner spend more broadly. The 18% year-over-year increase in digital purchase volume generally reflected growth across the platform. We experienced greater customer engagement, including higher active accounts and spend per account among our more established programs and continued momentum in our new program launches. The 16% increase in health and wellness purchase volume was driven by broad-based growth in active accounts and higher spend per active account in our dental and pet categories. We are particularly excited about the opportunities we see in our health and wellness platform to reach more patients and provide them with greater access to flexible financing. As healthcare costs continue to rise, and the burden of out-of-pocket expenses intensifies with the growth in high deductible health care plans. There is a clear and growing need for consumers to have access to the financial solutions that empower them with choice, choice in how and when they manage the cost of planned and unplanned medical procedures, as well as elective care procedures. Today, Synchrony's health and wellness platform encompasses more than 260,000 provider locations, 17 health systems, and approximately 75% of the country's dental and veterinarian practices through which we are expanding access to patient financing. We are a leader in patient care financing for the last 35 years, yet we know there is still more we can do to expand accessibility to Synchrony's patient financing product suite. We continue to expand our health and wellness partnerships and drive product and experience innovations. We're also broadening our distribution channels to reach and serve more customers through integrations with practice management software providers like Epic and health systems like St. Luke's. More recently, we announced our integration with Cycle, the audiology industry's number one practice management solution. Through this partnership, Synchrony will leverage Allegro Credit's leadership in the audiology industry and deliver a comprehensive set of financing options, including both CareCredit healthcare credit card and Allegro Credit's Buy Now, Pay Later financing solutions to more than 5,000 U.S.-based hearing clinics. Synchrony is deeply passionate about empowering Americans to have greater access to responsible and flexible financing options whenever and however they need it. As we continue to add and renew existing leaders in the health and wellness space, including our partnerships with Aspen, Heartland Dental, Sonobello, and American Society of Plastic Surgeons, and expand our distribution channels with practice management software like Epic and Cycle. Synchrony is increasingly the financial ecosystem at the center of patients' daily lives, empowering them with choice and best-in-class value propositions that truly make a difference. We believe there is no other consumer lender with the industry expertise, customer and provider reach, or innovative solutions to help close the gap between Americans' patient needs and a suite of financial resources to address them. Turning now to Synchrony's dual and co-branded cards, where we also continue to demonstrate momentum. Purchase volume on these products grew 28% versus last year and represented about 39% of our total purchase volume for the quarter. When tracking average transaction value and frequency trends across the major out-of-partner spend categories of these products, we continue to see robust consumer demand across both discretionary and non-discretionary categories. As we would expect, there have been some modest seasonal shifts among a few of the major categories in favor of more education-related spend and less travel and entertainment spend. Otherwise, transaction values in gas and auto-related spend have continued to show growth in line with gas price trends and inflation, while grocery spend value is running relatively steady with the last few months. The more recent pullback in gas prices appears to have contributed to a slight acceleration in broader discretionary and non-discretionary spend. with categories like clothing, home furnishing and repair, bill pay and auto-related spending experiencing higher transaction value at similar frequency. Putting this all together, the daily and monthly touch points that Synchrony has with our customers across a broad range of purchases tells us that consumer health remains strong and supportive of demand. Whether they're taking care of everyday essentials like gas, groceries, and medical expenses, or making more episodic investments like buying a new mattress or replacing a refrigerator. Our customers are responsibly accessing financing for their needs, maximizing the value they seek, and managing well overall as they navigate the pressures of inflation and the uncertainty of the markets. Importantly, Synchrony's customer insights also inform many of the strategies across our business. We utilize this data to deliver optimized financing solutions and experiences for our customers greater outcomes for our partners, and more predictive insights for Synchrony as we manage our portfolio to deliver appropriate risk-adjusted returns through cycles. Our sophisticated underwriting and diverse product suite allow us to respond quickly to changing consumer behaviors and market conditions. Synchrony combines our scale, more than 100 million open accounts, and billions of transactions with external data, including utility and telecom information, device identification and usage, cash flow and income data, and also with partner data, like frequency and value of historical purchases, all to dimensionalize our customer and their transactions. This enables us to more effectively engage and service our customers, make better credit and fraud decisions, and drive prudent, profitable growth. Once our customers begin utilizing our credit products, Synchrony leverages real-time indicators to monitor any shifts in our borrowers' financial well-being. From transaction and payment behavior characteristics to credit bureau alerts, we are closely in tune with our customers and can make both account and portfolio level adjustments quickly. And of course, Synchrony's responsive digital capabilities are complemented by our fully scaled, highly experienced servicing teams to ensure that our customers have appropriate support when they need it. In short, Synchrony's dynamic technology platform is what powers our ability to have a finger on the pulse of each customer and harness the data into actionable insights so that we can optimize the outcomes for all stakeholders. We are able to say yes to more customers, more consistently, and for the same level of risk, even as market conditions change. This is what ultimately provides invaluable continuity to our partners and customers and resilient risk-adjusted returns to our shareholders. With that, I'll turn the call over to Brian to discuss the third quarter financial performance in greater detail.