Synchrony Financial

Good morning and welcome to the Synchrony Financial fourth quarter 2022 earnings conference call. Please refer to the company's investor relations website for access to their earnings materials. Please be advised that today's conference call is being recorded. Currently, all callers have been placed in listen-only mode. The call will be opened up to your questions following the conclusion of management's prepared remarks. If at any time you should need operator assistance, please press star zero. If you wish to ask a question following the prepared remarks, please press star one. I will now turn the call over to Catherine Miller, Senior Vice President of Investor Relations. Thank you. 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 can 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 Wenzel, Executive Vice President and Chief Financial Officer. I will now turn the call over to Brian Doubles.

Thanks, Catherine, and good morning, everyone. Synchrony closed the year on a very strong note with fourth quarter net earnings of $577 million, or $1.26 per diluted share, a return on average assets of 2.2%, and a return on tangible common equity of 22.1%. These financial results contributed to full-year 2022 net earnings of over $3 billion, or $6.15 per diluted share, our second highest in company history, a return on average assets of 3.1%, and a return on tangible common equity of 28.5%. This performance was driven by continued strength across the fundamental drivers of our business and a high level of execution across our key strategic priorities throughout the year. We achieved record purchase volume of $180 billion for the full year, which surpassed our prior year's record and was 15% higher on a core basis. Spend per active account was 7% higher for the year, reflecting robust consumer demand across the broad range of products and services for which Synchrony offers flexible financing. We also acquired 23.6 million new accounts and grew average active accounts by 8% on a core basis. The combination of strong consumer spend and some moderation in payment rate contributed to ending receivables growth of 15%. As expected, credit continued to normalize across our portfolio with full-year losses of 3%, still more than 250 basis points below our underwriting target of 5.5% to 6%, which is generally the level at which our risk-adjusted margin is more fully optimized. And finally, synchrony continued to drive progress toward our long-term operating efficiency target, reflecting the combined impacts of our cost discipline, the inherent operating leverage in our highly scalable model, and strong revenue growth. Synchrony's ability to deliver consistent growth and strong returns is a testament to our well diversified portfolio, our balanced approach to product and credit strategies, our compelling value propositions, and the strength of our business model. As a result, Synchrony was able to return more than $3.8 billion of capital to shareholders during 2022, $3.3 billion of which was through share repurchase, a 17% reduction in our shares outstanding. When we look back on 2022 and the caliber of results we were able to deliver for our customers, our partners and providers, and our shareholders, it really all comes back to the dedication shared by the Synchrony team as we realize our ultimate goal, to power commerce by delivering a leading digital ecosystem, connecting our partners and customers through world-class technology, products, and capabilities. Over the last year, Synchrony has built upon the core strengths of our differentiated business model by executing on the key strategic priorities that are driving progress toward that collective goal. We continue to expand and enhance our partner programs, including the addition of more than 30 partners, and the renewal of more than 50 relationships, including, most recently, Lowe's, with whom we've partnered for over four decades to drive innovation and value to both their do-it-yourself and pro customers. Synchrony also continued to diversify our products, programs, and markets during 2022, deepening our reach and expanding the utility and value we offer to our customers and partners alike. We continue to scale our diverse product suite with the launch of synchronized installment and paying for products at a number of retailers and providers, including Belk and Discount Tire. These fixed pay offerings represent another financial tool that we can offer to qualifying customers while also driving incremental sales to our partners and providers. And whether it's delivering flexible financing offers in a dental practice, connecting a customer with a large partner through a seamless mobile transaction, are driving incremental sales at small and mid-sized businesses. Synchrony meets our customers, partners, and providers wherever they are in their digital or retail journey and deliver the right product at the right time. For this reason, we launched a number of strategic partnerships over the last year to expand our distribution channels and broaden customer access to our comprehensive product suite. Through integrations with point-of-sale and business management platforms like Clover and practice management solutions like Cycle, Synchrony has added hundreds of thousands of small business locations and several thousand provider locations through whom we can seamlessly and responsibly offer access to flexible financing. At year end, Synchrony had more than 460,000 merchant provider locations and 71 million active customers. So when you think about the sheer size and scale of the constituencies we serve and the wide range of financing needs we deliver through omni-channel experiences, it should come as no surprise that our dynamic technology platform is at the center of it all. During the last year, Synchrony continued to innovate and scale our digital capabilities to ensure that we can remain at the forefront of the ever-evolving consumer financing landscape. We drove greater mobile customer engagement through a number of initiatives, including both our digital wallet provisioning and the Synchrony app. Accounts provisioned for digital wallet use in 2022 increased 75% compared to last year, contributing to 85% mobile wallet sales growth. And in terms of our mobile app, we upgraded our SciPy clients to the latest version, which delivers new features including a new user experience, freeze my card, e-statements, auto pay, apply, and Apple Pay push provisioning. As a result, unique visitors and payments within the SciPy channel each grew by more than 20% compared to last year. In today's tech-forward world, a best-in-class customer experience is characterized by seamless, intuitive, and hyper-personalized engagement. This, in turn, requires a more comprehensive understanding of each customer as we connect them with partners and providers and anticipate which products and services will optimize the experience. For that reason, we are constantly driving deeper integrations, leveraging more predictive and actionable insights throughout our digital ecosystem, and developing solutions that are grounded in our customer experience insights. Over the last year, Synchrony achieved over 70% growth in the number of applications using our APIs and more than 80% growth in API transactions, including from our clients and partners leveraging Synchrony APIs to power their digital experience. Our partnership with PayPal is a great example of how together we continue to leverage more APIs to enhance our offerings and drive an even more seamless experience for their customer. In Q1, we launched PayPal Savings, which enabled instantaneous movement of funds between PayPal balances, no withdrawal limits, and a savings goal feature to empower customers to set and reach their financial goals. In addition, existing PayPal customers are able to quickly and easily open their PayPal Savings account inside PayPal's Super app. In Q2, we launched our new and refreshed co-branded PayPal cashback credit card with a best-in-class cashback offering and a fully integrated experience within the PayPal app, powered by native APIs. And in Q4, we enhanced our everyday value proposition on the Venmo co-branded card by introducing free person-to-person payments. The 3% fee is waived for the consumer when they use their Venmo Visa. We are really pleased with what the PayPal and Synchrony teams have been able to execute as we grow and evolve in new and unique ways, empower top-of-wallet products, and best-in-class experiences for our customers. Synchrony also launched our new cardholder service platform across many of our largest portfolios in 2022. This new platform offers customers the ability to service their accounts in one dashboard and enables a broad suite of account notifications across every aspect of the credit lifecycle. These notifications include a range of instant transaction alerts, all enhanced with enriched merchant data and a completely redesigned digital service experience. In addition to text and email alerts, we are able to deliver these notifications and alerts directly within our partners' iOS and Android apps by leveraging our patented SciPy platform, continuing to enhance the customer's experience within our partners' brands. While this new account manager is still in its early stages, we observe some strong trends in response to the launch. Sixty percent of those logging in have more than one account, and 80% of our users stated that their experience was easy or very easy to use and a top driver of their satisfaction. In fact, this more dynamic interface has achieved a double-digit improvement in our transactional net promoter score compared to our previous account management site. This new platform will span the broad set of financial products that Synchrony offers and will enable intuitive, self-service, and highly customized and personalized experiences increase speed to market of features and solutions for our partners, and a more effective way for Synchrony to engage, empower, and deepen our relationships. Accordingly, as we continue to scale and integrate more of our products in the coming year, we believe this enhanced account manager will become an increasingly powerful tool to drive higher quality engagement and deeper value for our customers, partners, and Synchrony alike. To that end, we also remain focused on driving greater connectivity across our vast customer and partner bases with the expansion of our Synchrony marketplace. MySynchrony.com connects customers with information and relevant offers from brands that they trust. These offers are powered by proprietary insights that Synchrony has gleaned through a variety of resources, including online search activity within their shopping category and location to provide personalized offers to the right audience at the right time. As we continue to enhance this level of personalization and launch capabilities, like pre-qualification within our marketplace over the last year, MySynchrony.com achieved a 25% increase in both new accounts and sales, as well as 11% growth in referrals to our partners. This is a testament to the deep customer relationships that our network products foster. Synchrony's ability to leverage our marketplaces like MySynchrony.com or CareCredit.com to drive new and existing customer traffic, as well as incremental and repeat sales to our partners, has been and will continue to be a meaningful, competitive differentiator and an important growth driver for our business longer term. In summary, Synchrony is increasingly anywhere our customer is looking to make a purchase or a payment, 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, partners, and providers alike is what positions Synchrony so well to sustainably grow, particularly as customer needs and market conditions evolve. And with that, I'll turn the call over to Brian to discuss fourth quarter financial performance in greater detail.