Synchrony Financial

Good morning and welcome to the Synchrony Financial second 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 the 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. In the second quarter, Synchrony delivered strong financial results, including net earnings of $569 million, or $1.32 per diluted share, a return on average assets of 2.1%, and a return on tangible common equity of 21.7%. Synchrony continues to demonstrate strong growth and financial performance as consumer behavior reverts to pre-pandemic norms and as our products and value propositions resonate strongly across our diversified set of platforms and partners. During the second quarter, we opened 5.9 million new accounts and grew average active accounts by 7% on a core basis. Once again, we set a new record as our $47 billion of purchase volume reached our highest level ever for second quarter. These strong sales continue to demonstrate the value of our diversified products and platforms. Health and wellness purchase volume grew 17% compared to last year, reflecting broad-based growth in active accounts along with higher spend per active account. The 8% growth in digital purchase volume was driven by higher average active accounts, and reflected continued momentum in several of our new programs. In diversifying value, purchase volume increased 7%, reflecting higher out-of-partner spend, strong retail performance, and the continued impact of newer value propositions driving penetration growth. Lifestyle purchase volume increased 10%, reflecting growth in average transaction values in outdoor and luxury. And in home and auto, purchase volume was largely unchanged versus last year. as the benefit of higher average transaction values and growth in commercial products was largely offset by lower retail traffic and a reduction in gas prices. Dual and co-branded cards accounted for 41% of total purchase volume in the quarter and increased 14% on a core basis, with several of our newer value propositions continuing to drive elevated growth. Our view into the consumer, informed by the billions of real-time transactional data that we regularly monitor, shows continued normalization in consumer behavior toward pre-pandemic levels, which has progressed in line with our expectations. Average transaction frequency continued to grow in the quarter, while average transaction values declined modestly. This decline, however, was partly attributable to lower gas prices. A deeper dive into our out-of-partner spend shows continued stability in key discretionary categories such as restaurants and entertainment, as well as in non-discretionary categories like grocery and discount stores. The reduction in average values was noted even among our highest credit quality borrowers, which was also accompanied by some modest slowing in transaction frequency. Following the trend from previous quarters, our younger borrowers, as well as those in lower credit grades, continue to reduce the pace of spend. This quarter, given the seasonal impact of tax refunds, we saw a small sequential increase in our payment rates, largely driven by higher credit quality segments. Year over year, however, payment rates continue to decline across age and credit bands. Meanwhile, the external deposit data we tracked shows that the average consumer savings balances declined approximately 2% from the first quarter, but remain approximately 7% above 2020's average level. So taken together, the payment, spend, and savings trends we're watching suggest that consumers continue to be well-supported by the constructive labor market and relatively healthy balance sheets as they gradually revert to their pre-pandemic norms. And as we continue to closely monitor the health of our consumers, we are also advancing the key strategic priorities of our business to position Synchrony for long-term success. One of our key priorities is the continued expansion of our multi-product strategy across partners, distribution channels, and markets, allowing us to meet our customers how and where they want to be met and with a variety of financing solutions that address their specific financing needs in each interaction. We recognize that our customers' needs change over time, and Synchrony can and should be their financing partner of choice throughout life stages. Whether applying in person, online, or through an app, we leverage our data and advanced analytics through our digital ecosystem to deliver fast, seamless offers designed to responsibly support each customer's particular purchase. For customers who appreciate the simplicity of an installment loan with flexible terms and payment schedules, Synchrony's Buy Now, Pay Later solutions have become popular options and are successfully attracting new accounts and driving deeper engagement. In fact, partners who have launched these products have seen a 29% lift in new accounts with over 95% of the sales coming from new customers. These solutions conveniently integrated into our broader partner relationships and product offerings and match with our deep insights into the consumer, clearly expand our reach beyond our traditional set of customers, and offer our partners another effective tool for engaging with their most loyal shoppers. Most recently, we announced that our partner at home selected Synchrony as its exclusive Buy Now, Pay Later provider, integrating this installment product with its existing suite of payment options. Customers can select Synchrony Pay Later at checkout, online, and in-store. And thanks to our integrated data and leading underwriting capabilities, most can be pre-qualified without impacting their credit score. At Home joins over 700 of our partners, providers, and merchants that now utilize Sinkring's installment suite in the form of our PayLater, Allegro, and secured installment loans. We are excited to further roll out these offerings across more programs and through our proprietary distribution channels over the coming months. As Synchrony continues to broaden our product suite and empower these offerings with our dynamic decisioning capabilities, we are better able to acquire and deepen relationships with our customers. We see these new installment products leading to cross-selling opportunities and product upgrades across the business and helping partners build lifelong customers. In campaigns across various portfolios, we have seen that 20% of private label cardholders are eligible for an upgrade to a dual card. which brings higher utility and better value propositions. And our customers respond to these upgrades with nearly double the purchase volume and 1.6 times the lifetime value to Synchrony. For our partners, these deeper relationships translate into more loyal, better engaged shoppers. And so ultimately, this successful execution of our multi-product strategy means better experiences for everyone, reinforcing a dependable and resilient model for all of our stakeholders as we head into the second half of 2023 synchrony is well positioned to capitalize on these and other new opportunities while continuing to consistently deliver for our customers our partners and our shareholders and with that i'll turn the call over to brian thanks brian and good morning everyone synchrony's second quarter results demonstrate the power of our differentiated model