Synchrony Financial

Good morning and welcome to the Synchrony Financial first quarter 2023 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 a listen-only mode. The call will be opened up for 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 Katherine 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 Wentzel, Executive Vice President and Chief Financial Officer. I will now turn the call over to Brian Doubles.

Thanks, Catherine, and good morning, everyone. Today, Synchrony reported strong first quarter results, including net earnings of $601 million, or $1.35 per diluted share, a return on average assets of 2.3%, and a return on tangible common equity of 23.2%. Once again, the power of Synchrony's differentiated business model, matched with the continued health of the consumers we serve, delivered consistent growth across our diversified set of partners and products. On a core basis, we opened 5.2 million new accounts, grew average active accounts by 8% and drove $42 billion in purchase volume, the highest ever for a first quarter. This milestone was achieved with results across each of Synchrony's five platforms, highlighting the strength of our diversified model. Health and wellness purchase volume grew 19% compared to last year, reflecting broad-based growth in active accounts and higher spend per active account. In diversified value, purchase volume increased 16%, driven by strong out-of-partner spend, strong retailer performance, and penetration growth. The 10% growth in digital purchase volume was broad-based, reflecting growth in active accounts and strong customer engagement. In lifestyle, purchase volume increased 9%, reflecting higher transaction values, primarily in outdoor and luxury. And in home and auto, purchase volume increased 6% due to strength in our commercial products and higher transaction values in furniture and home specialty. Dual and co-branded cards accounted for 41% of total purchase volume and increased 22% on a core basis, reflecting continued strong response to several new value propositions. Synchrony's record first quarter purchase volume growth is a testament to the utility of our flexible financing solutions, the compelling value propositions we offer, and the continued resilience of our customers as they navigate the impacts of inflation and higher interest rates. We regularly monitor our customers' needs and their financial health through our billions of real-time transaction data. Our insights continue to show only minor variations in average transaction value and frequency across spend categories. At a high level, average transaction values and frequency increased in the quarter across both in-store and out-of-partner spend. reflecting the continued impact from ongoing inflationary pressure. However, growth in average transaction value slowed in March, possibly reflecting the early impact of lower tax refunds. More broadly, the data suggests that our customers are actively managing their budgets as the macro backdrop evolves. We also continue to see some minor seasonal category shifts within our out-of-partner spend, though the relative mix of discretionary and non-discretionary spend remains essentially unchanged. Meanwhile, across the spectrum of credit segments we serve, our highest credit grade borrowers continue to shop more frequently and spend more when they do. In a sign of their relative health, the transaction frequency of super prime customers in certain platforms grew at rates lasting during the summer of 2022. Lower credit grade borrowers are shopping somewhat less often. This trend has remained relatively stable since the fourth quarter and follows the payment behaviors of this credit segment, which migrated toward pre-pandemic levels in the second half of last year. In terms of payment behavior, we also continue to see normalizing payment rates across age cohorts and credit bands, which is to be expected as consumers spend their accumulated savings and begin to revolve their balances. Based on the external deposit data we monitor, consumer savings levels continue to decline through March 31st, though at a slower pace than we saw through most of 2022. Average consumer deposit balances declined 2% this quarter, though they remain 10% above 2020. As accumulated savings continue to decline at this modest pace, we expect borrower payment and revolve trends to further normalize. This, in turn, will drive continued growth in our interest-bearing loan balances, the return of delinquency and credit loss metrics to pre-pandemic levels, and better optimized risk-adjusted margins for our business. Synchrony's business model is designed to support our customers and partners through changing macro conditions, and in particular, a more normalized operating environment than we've seen since the start of the pandemic. As this progression back to historical levels continues, we are managing the business prudently for the long term while watching trends. With that view and given the stable labor markets and the relative strength of the consumer's balance sheet, we remain positive on the state of the consumer today. Our confidence comes from our decades of experience managing through economic cycles. This experience delivers a model that sustainably serves all of our stakeholders. At the crux of it all is our diversified partner portfolio and product suite, which give us the tools to deliver consistent, high-quality products and results throughout varying environments. We continue to build on these strengths in the first quarter, as highlighted by our recently announced product launch and the addition or renewal of more than 15 partners. In particular, we launched the Synchrony Outdoors Card, which was in direct response to customer and partner demand in our power sports business, serving as an example of how our platform realignment is enabling Synchrony to rethink how we deliver for partners and customers. Synchrony has long provided valuable installment lending solutions for power sports equipment. However, in this market, which is projected to reach $131 billion by 2028, there are significant purchases that occur after the initial purchase, such as accessories, parts, garments, fuel, service, and warranties that were not served by the installment lending model we have traditionally offered in Powersports. Our dedicated platform team with combined experience across partners and products identified this opportunity to meet our customers' demand and drive still greater loyalty for dealers. Turning to our health and wellness platform, Synchrony extended relationships with the largest and second largest dental associations this quarter, solidifying CareCredit as the dental financing solution of choice. More specifically, we announced a 10-year partnership extension with the American Dental Association, distinguishing CareCredit as the only ADA-endorsed patient financing solution. This endorsement, which dates back to 2001, includes special features and offers for more than 159,000 dentist members and their patients. We also extended our 20-year relationship with the Academy of General Dentistry, remaining the exclusive patient financing solution for the benefits program of the Academy's more than 35,000 member dentists. These continued longstanding partnerships underscore the unique value that our integrated care credit offering delivers to both the providers and patients we support. And finally, we announced renewals across an array of partners this quarter in our home and auto platform, including with Haverty's and Lovesac. Synchrony's ability to grow and win new partners as well as diversify our products, programs, and markets enables us to drive greater flexibility, utility, and value for our customers and partners alike, while also enhancing the resiliency of our business. In summary, I'm proud of the many ways in which Synchrony continues to meet our customer, wherever they are looking to make a purchase, a payment, or a deposit. As their needs and priorities continue to evolve, Synchrony is ready. ready to deliver flexibility, value, and seamless experiences through more solutions and in more locations, along with our industry-leading partners. And with that, I'll turn the call over to Brian.