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Text: This information can be accessed by going to the Investor Relations section of the 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 nor guarantee the accuracy of our earnings teleconference transcripts provided by third parties.
It is truly an honor and a privilege to talk to you today for the first time as the CEO of Synchrony.
Building on our strong foundation, I believe Synchrony is exceptionally well-positioned for this next chapter of our growth journey.
There is strong momentum in the business, driven by the ongoing implementation of our strategy and the unwavering hard work and commitment of our people.
While this past year has been challenging and unprecedented in many ways, we are starting to see positive signs of recovery and we are seeing the benefits of the strategic initiatives that we accelerated in the new programs that we launched last year.
I'm very optimistic and excited about the opportunities ahead and I'm honored to lead Synchrony into the future.
And with that, I'd like to get into some of the highlights of our first quarter results.
Earnings were $1 billion or $a 1.73 per diluted share, an increase of a $1.28 over the last year.
The resilience of our business has been evident as we navigated the pandemic.
From the underlying fundamentals of our business, including diverse programs and networks, and solid underwriting to our ability to quickly adapt to meet the moment with easily integrated seamless digital solutions, we have demonstrated that our business is structured to execute even in the most challenging operating environments.
And as we begin to emerge from this challenging period, we have seen many of our growth drivers outperform pre-pandemic levels experienced during the first quarter of last year.
Importantly, purchase volume increased a strong 8% over last year with a substantial increase in purchase volume per account of 18%.
While we're seeing strong trends on purchase volume, loan receivables were down 7% to $76.9 billion given elevated payment rates with the infusion of additional stimulus this quarter.
Though, average balances per account have rebounded, increasing 1% over the first quarter of last year, as our new accounts which were up 3%.
Net interest margin was down 117 basis points to 13.98% as further stimulus continue to elevate payment rates, which lowered our receivable mix and yield.
The efficiency ratio was 36.1% for the quarter.
We are on track with our strategic plans to reduce our expense base by moving $210 million of expenses by the end of the year.
Credit continue to perform exceedingly well.
The net charge-offs were 3.62% this quarter compared to 5.36% last year.
As a result of our liquidity and funding strategy in response to the COVID-19 impact on our balance sheet.
Deposits were down $1.9 billion or 3% versus last year.
Given our excess liquidity, we have been slowing our overall deposit growth.
Total deposits comprised 81% of our funding as our direct deposit platform remains an important funding source.
Our ability to service and provide digital tools to customers makes our bank attractive to depositors and we will continue to build our additional capabilities.
During the quarter we returned $328 million capital through share repurchases of $200 million and $128 million in common stock dividends.
We continue to have a solid pipeline of new opportunities across our platforms, but we are being very disciplined around risk and returns and it is critical to ensure that our partnerships are structured with strong alignment that benefits both parties.
Having said that, as we previously announced, we will not renew our partnership with the Gap as we were not able to reach terms that made sense for our company.
We expect that exiting this partnership and redeploying the capital will be earnings per share neutral relative to current program economics and accretive to proposed renewal terms.
We have been on a journey to grow with partners who leverage our digital capabilities to help and drive sales and meet the rapidly changing needs of our customers.
Our ability to run programs with transformational digital innovation has been demonstrated with a number of recent wins.
These capabilities are also integral to the success of all of our programs as consumers are rapidly adopting technologies that enables contactless commerce and expect engagement along their digital purchase journeys.
We are leveraging our vast digital assets as well as our strong data analytics capabilities to make the entire consumer experience more personalized and meaningful.
We have continued to expand our digital penetration across the customer journey from apply, to buy, to servicing.
Approximately 60% of our applications were done digitally during the first quarter and we grew 14% in mobile channel applications.
In retail part 50% of our sales occurred online and approximately 65% of payments were made digitally.
The investments we are making in digital and data analytics continue to pay off.
During the quarter, we renewed 10 programs including American Eagle, Ashley HomeStore, CITCO, and Phillips 66.
We also added 10 new programs including Prime Healthcare, Mercyhealth and Emory Healthcare, which furthers our penetration of health systems.
And we are also expanding the utility of our CareCredit card.
Our patient financing app is now available on the Epic App Orchard.
This makes care credit available to hundreds of healthcare organizations using Epic's MyChart and enabling cardholders to use CareCredit to take co-pays, deductibles and medical expenses not covered by insurance.
Not only does this technology integration provide a way to increase the usage and acceptance of CareCredit, it also helps health services and hospital providers to run efficient financially healthy organizations by helping to improve revenue cycle management and reduced debt risk.
We are excited by the prospects to support patients beyond elective care as we expand to offer payment options for non-elective medical expenses and routine care.
I'll spend a few minutes today outlining our CareCredit strategy and providing a framework to think about the opportunities that lie ahead.
Over the last several years we've been transforming CareCredit to become a more comprehensive solution for consumer financing and payments in healthcare, pet care and wellness by expanding our relationships with providers, retailers, payers and pharmacies.
We have unparalleled scale and depth in this space with $9.3 billion in receivables and acceptance of approximately 250,000 enrolled provider health and wellness retail locations.
The card is used by more than 8 million cardholders.
We earn more than 80% of dental offices nationwide and over 40 healthcare specialties, 13 of which we entered into since 2018.
We see big opportunity in health systems and hospitals and have rapidly expanded our reach by launching eight new programs in 2020, bringing our total to 13.
With the growth in our pet vertical, we are now in over 85% of that practices and have grown pets and force by 174% since our acquisition of the Pets Best insurance business two years ago.
A big part of our success is the engagement we have with our cardholders.
Our cardholders give us high marks as we have increased our customer satisfaction score to 92% from 78% back in 2009.
Our net promoter score is nearly double the credit card industry average, and is proof the value our cardholders placed on the card we've been able to increase our repeat sales to nearly 60%.
That is a testament to the hard work that we've put into creating a strong value proposition for the card and for increasing utility as we build our network, one office and provider at a time.
And our growth numbers reflect these efforts and the position we hold in this space.
Our receivables have increased 44% in seven years.
We have also increased the breadth of our business with an increase in provider locations of 41% in that time frame, and active accounts currently stand at 5.7 million, another double-digit increase in seven years.
We have built an incredible platform for growth and we are in an enviable position as we chart the course forward continuing to evolve to capture further opportunity.
There is still tremendous opportunity continue to unlock growth in dental, veterinary and specialty industries.
We are making investments to simplify the customer and provider experience and leveraging technology to support more consumer-driven self-service capabilities with ample room for growth, with increased penetration among our existing partners and through innovation to make an increasingly easy to engage with our network.
Just recently, we acquired Allegro Credit, which is both deepened our penetration in audiology and other industries, while also enabling new products and capabilities.
With the steady increase in out-of-pocket healthcare costs and the popularity of high-deductible healthcare plans consumers are assuming more of the financial responsibility for their healthcare.
This translates to a significant opportunity of more than $405 billion in out-of-pocket health expenditures in the U.S., but flexible and extended financing is only a small component of overall healthcare payments.
So, there is significant runway for growth.
We're also expanding beyond the traditional CareCredit industries and capitalizing on the evolving healthcare landscape that has increased focus on overall wellness.
We have moved beyond elective care financing and now support patients by enabling them to pay for non-elective medical bills, planed procedures, and routine medical care as we expand in the health systems and more healthcare specialties.
This will be enhanced by ongoing integrations with practice management software and the recent news of our CareCredit becoming available through Epic's App Orchard.
Further, we have expanded our utility, creating more ways to access healthcare services by partnering with pharmacies.
CareCredit is already accepted at more than 17,000 pharmacies nationwide and we recently announced that we will become the issuer of the Walgreens co-branded credit card program in the U.S., the first such credit program in the retail health sector and expect to launch the new program in the second half of 2021.
We are also transforming our pet business to be a more comprehensive financial solution provider and to meet the needs of pet parents throughout their pet care journey.
Now, more than ever Americans are invested in their pets with both pet ownership and cost increasing significantly over the past several years, and that trend grew even more during the pandemic.
Americans spend more than $100 billion on expenditures.
There is a large market outside of that practices with significant opportunity to provide new products, financing alternatives and services.
CareCredit supports a lifetime of care for pets.
And with the acquisition of Pets Best Insurance, we currently offer a complementary solution with veterinary care to support pet owners with simple, flexible financial options.
We continue to integrate the Pets Bets Insurance offering to capitalize on the payment and customer experience synergies and we're also looking for ways to expand into other pet adjacencies through products and services in retail.
By focusing on the needs of our partners and customers and bringing substantial scale and expertise, we believe we will drive loyalty to the CareCredit network and as a result should see outsized growth in the future.
This is an important period of time for our company, and the world as we continue to emerge from the pandemic.
Our business and the actions we've taken over the past year, we will well positioned to take advantage of the opportunities which lie ahead of us.
I share Brian's sentiment of appreciation and the unwavering commitment of our people.
I'll now provide an update on our first quarter results.
The pandemic and resulting government stimulus actions have impact in several key areas of our business over the past year.
However, our business mix has helped us to mitigate some impact from the pandemic and certain areas have performed very well, including digital, home-related products and services, veterinary services, electronics and appliances.
Performance in these areas have provided support against the overall effects of the economic downturn.
As we exit the first quarter, we are starting to see greater signs of economic recovery more broadly.
Purchase volume an increased 8% versus last year and exceeded our expectations for the quarter.
From a macroeconomic perspective, we have seen consumer confidence reached one year high March, unemployment continued to improve and the easing of some of the remaining local restrictions.
This is evident in the increase in purchase volume per account which is up 18% over the last year.
Average active accounts were down 8%, which marks a slowing in the rate of decline that remains impacted by the macroeconomic effects of the pandemic in 2020 and uneven recovery in the first quarter.
We did originate over 5 million new accounts, an increase of 3% versus the first quarter 2020 which is a positive sign and reflective of improved consumer sentiment.
Loan receivables declined 7% which was worse than our expectations.
The driver was higher than expected elevation in payment rates, which resulted primarily from the recently enacted stimulus.
Interest and fees on loans were down 14% from last year, driven by the elevated payment rate in addition to lower delinquencies.
Dual and co-branded cards accounted for 38% of the purchase volume in the first quarter and increased 6% in the prior year.
On loan receivable basis, they accounted for 23% of the portfolio and declined 10% from the prior year.
Overall, we saw positive momentum in several of our growth metrics this quarter where higher payment rate is impacting loan receivable growth.
While we're still cautious about the state of the pandemic with the recent rise in confirmed cases, we are encouraged by the progress made with the national rollout of vaccine and lifting some of the remaining restrictions.
We remain optimistic of the positive momentum and continued improvement as we progressed through 2021.
RSAs increased $63 million or 7% from last year.
RSAs as a percentage of average receivables was 5.1% for the quarter.
This was elevated from the historical average primarily due to the significant improvement in net charge-offs.
We reduced our loan loss reserves this quarter due to an improved macroeconomic outlook in line with the decline in loan receivables.
This coupled with lower net charge-offs resulted in a significant decrease in the provision for credit losses of $1.3 billion or 80% from last year.
Other income increased $34 million, due to investment income.
Other expenses decreased $70 million or 7% from last year due to lower operational losses and lower marketing costs, partially offset by an increase in employee costs.
Moving to our platform results on Slide 9.
Our sales platforms continue to be impacted in varying degrees due to the pandemic restrictions and elevated payment rates.
Their trajectories have been different based on factors such as business and partner mix, digital concentration, provider access and availability of hardline goods.
We have seen broad-based momentum in purchase volume as consumers become increasingly confident as we begin to exit the pandemic.
In Retail Card, loan receivables declined 9%, that show momentum with purchase volume increasing 11% versus last year.
Average active accounts were down 7% and interest in fees were down 16% due to the impact from the pandemic.
We're excited with our renewal of the American Eagle program and continue to see significant opportunity with our recently launched programs with Verizon and Venmo as those programs begin to build.
The strength of our powersports and home specialty and payment solutions continue to helped offset some of the impact from pandemic shutdowns and higher payment rates.
During the quarter, loan receivables declined 1% and average active accounts were down 9%.
Interest and fees were down 11%, which was driven primarily by lower late fees, finance charges, and merchant discount, all resulted reduction in loan receivables.
We did see positive momentum in purchase volume, which was up 3% over last year.
Our focus on growing this platform resulted in several new programs being signed and renewed key partnerships, including Ashley Home furniture during the quarter.
We continue to drive organic growth through our partnerships and networks and added 3,900 new merchants during the quarter.
We also continue to drive higher card reuse, which now stands at approximately 34% purchase volume excluding oil and gas.
Although, CareCredit was the largest overall impact from the pandemic restrictions, improvement in this platform has continued into 2021 as providers have increased, elective and planned services from the trough in the second quarter of last year.
This improvement is evident in our purchase volume being flat to last year.
Loan receivables were down 8% this quarter and drove a decrease in interest and fees on loans of 7% as we reported lower late fees and merchant discounts.
During the quarter, we continue to grow our CareCredit network, enhance the utility of the card.
The expansion of our network and acceptance strategy has helped us drive the reuse rate to 59% of purchase volume in the first quarter.
This is a powerful growth platform for our business and remain excited about the opportunities to drive future growth as the impact from the pandemic subsides.
I'll move to Slide 10 and cover our net interest income and margin trends.
During the quarter, recently enacted stimulus contributed to an elevation of payment rates, which were up about 2 percentage points on average compared to the average payment rates we experienced pre-pandemic.
The difference was as high as 3.5 percentage points in March when the most recent stimulus plan was enacted.
This has resulted in a reduction in loan receivables, which has had an impact on net interest income and net interest margin in the first quarter.
Net interest income decreased 12% from last year, driven by lower finance charges and late fees.
The net interest margin was 13.98% compared to last year's margin of 15.15%, largely driven by the impact of the pandemic on loan receivables and increase in liquidity and lower benchmark rates.
Specifically, the loan receivables yield of 19.32% was down 135 basis points versus last year and was the primary driver of 117 basis point reduction in our net interest margin.
The mix of loan receivables as a percent of total earning assets declined over 3 percentage points from 81.7% to 78.6%, driven by the higher liquidity held during the quarter.
This accounted for 61 basis points of the net interest margin decline.
The liquidity yield declined as a result of lower benchmark rates and accounted for 23 basis points reduction in our net interest margin.
These impacts were partially offset by a 93 basis point decrease in the total interest-bearing liabilities costs to 1.57%, primarily due to lower benchmark rates.
This provides a 78 basis point increase in our net interest margin.
We continue to believe that in the second half of the year, excess liquidity will begin to be deployed into asset growth and slowing paying rates should result in higher interest and fee yields leading to increasing net interest margin.
Next, I'll cover our key credit trends on Slide 11.
In terms of specific dynamics for the quarter, I saw the delinquency trends.
Our 30-plus delinquency rate was 2.83% compared to 4.24% last year.
Our 90-plus delinquency rate was 1.52% compared to 2.10% last year.
Higher payment rates continue to drive delinquency improvements.
Focusing on net charge-off trends, our net charge-off rate was 3.62% compared to 5.36% last year.
Our reduction in net charge-off rate was primarily driven by the improving delinquency trends as customer payment behavior improved over the last several quarters.
Our loss for credit losses as a percent of loan receivables was 12.88%.
Moving to Slide 12, I'll cover expenses for the quarter.
Overall expenses were down $70 million or 7% from last year to $932 million as we continue to execute on our strategic plan to reduce costs.
Specifically, the decrease was driven by lower operational losses and lower marketing and business development costs, partially offset by higher employee costs.
The efficiency ratio for the first quarter was 36.1% compared to 32.7% last year.
The ratio was negatively impacted by lower revenue that resulted from lower receivables and lower interest in the fee yield, which was partially offset by a reduction in expenses.
Moving to Slide 13.
Given the reduction in our loan receivables and strength in our deposit platform, we continue to carry a higher level of liquidity.
But we believe it's prudent to maintain a higher liquidity level during uncertain and volatile periods, we are actively managing our funding profile to mitigate excess liquidity where appropriate.
As a result of this strategy, there is a shift in the mix of our funding during the quarter.
Our deposits declined by $1.9 billion from last year.
Our securitized and unsecured funding sources declined by $2.1 billion.
This resulted in deposits being 81% of our funding compared to 79% last year.
The securitized funding comprising 9% and unsecured funding comprising 10% of our funding sources at quarter end.
Total liquidity including undrawn credit facilities was $28 billion, which equated to 29.2% of our total assets, up from 25.3% last year.
Before I provide details on our capital position, it should be noted that we elected to take the benefit of the transition rules issued by the joint federal banking agencies, which has two primary benefits.
First, it delays the effect of the CECL transition adjustment for an incremental two years.
And second, it allows for a portion of the current period provisioning to be deferred and amortized with the transition adjustment.
With this framework, we ended the quarter at 17.4% CET1 under the CECL transition rules, 310 basis points above last year's level of 14.3%.
The Tier 1 capital ratio was 18.3% under the CECL transition rules compared to 15.2% last year.
The total capital ratio increased 320 basis points to 19.7%.
And the Tier 1 capital plus reserve ratio on a fully phased in basis increased to 28.7% compared to 24.1% last year, reflecting the increase in the reserves as a result of implementing CECL.
During the quarter, we returned $328 million to shareholders, which included $200 million of share repurchases and paid a common stock dividend of $0.22 per share.
Given the continued uncertainty in the operating environment, I thought it'd be helpful to provide color on our current view on the key earnings drivers for 2021, which we've laid out on Slide 14.
Our views assume that the pressure from the pandemic and a slower economic recovery continues into the second quarter with the second half seeing the pandemic largely under control and the acceleration of the economic recovery.
First quarter purchase volume was stronger than anticipated as we entered the year, as local restrictions are lifted with consumer confidence improving so to consumers willingness to spend.
We currently believe these trends will hold and purchase volume will continue to recover across our platforms.
In the second quarter, we will be comparing against a period of widespread shutdowns.
In the second half, we anticipate improving growth trends as the pandemic impact moderates and macroeconomic growth accelerates.
Regarding loan receivable growth, we expect that stimulus will continue to have an impact on payment rates, and therefore, loan receivables into the next quarter.
In the second half of 2021, we assume payment rates will moderate as the effects of the stimulus abates and we return to more normalized consumer payment behavior patterns.
Combining this with the expected increase in purchase volume from the improving macroeconomic environment, this should contribute to loan receivable growth.
For net interest margin, we expect the higher payment rates will continue to pressure on loan receivables and generate excess liquidity, impacting interest and fee yield and asset mix.
We continue to believe that excess liquidity will be reduced through asset growth and so payment rates in the second half of the year, which will drive improving interest and fee yields and asset mix leading to increase in net interest margin.
With respect to credit, delinquencies are expect to increase from the current levels.
So, we now believe the peak will occur later than we anticipated, likely in early 2022.
While current delinquencies will result in lower net charge-offs in the second quarter, we expect net charge-offs to rise resulting from the increases in delinquencies as we move through 2021.
Given the magnitude of the stimulus that was deployed during pandemic, we believe the overall loss curve will be flatter than we initially thought that remains volatile and difficult to forecast due to the effects of the stimulus and industry forbearance has abated.
We expect reserves to be largely driven by asset growth, impacts from any rate changes in credit and in our macroeconomic assumptions and certain combinations of these factors could result in further reserve releases this year.
We expect RSAs to remain elevated into the second quarter, primarily reflecting strong program performance, including an improvement in net charge-offs, partially offset by lower revenue.
In the second half of the year, we continue to expect low RSAs generally, but slightly higher net charge-offs, partially offset by higher revenue.
As we outlined previously, we've implemented cost reductions across the organization and I'm pleased to report that we are in a pace which expense savings target of $210 million for the full year.
Partially offsetting these cost reductions will be the expense increases related to growth in addition to anticipated increase in delinquent accounts.
We will continue to closely monitor how the pandemic develops and to impacting the macroeconomic environment.
At the foundation is our belief that we position ourselves well for the opportunities that will develop as the economic recovery takes from hold.
Further, we've made the investments to support our partners as they have been required to rapidly transform their businesses to meet the new digital realities.
And will continue to make investments in our people, products, technology and platforms to drive long-term value and continue to ensure the safety of our employees, while meeting the needs of our partners, merchants, providers and cardholders.
Clearly, the pandemic has had significant impact and has in many ways changed the way we do business.
This quarter made it evident that we are beginning to emerge on the other side of this period.
Consumer sentiment has improved, the unemployment rate has dropped, the U.S. retail posted the largest gain in 10 months.
Our business is showing its resilience as growth has accelerated with purchase volume up 8% and 5 million new accounts opened in this quarter.
And although the solid growth metrics were tamped down by higher payment rates which impact loan receivables and NIM, these are headwinds that we anticipate will soon abate.
Credit performance has continued to outperform and we continue to extend our CareCredit network, delivering new products, financing alternatives and experiences with a focus on overall wellness in pet.
The bottom line is that we demonstrated that we were able to rapidly adapt to operate in the new environment, while continuing to keep our eye on the long-term, positioning ourselves well for the future.
And in my opinion.
We have never been in a stronger position.
That concludes our comments for the quarter.
We will now begin the Q&A session so that we can accommodate as many of you as possible.
I'd like to ask the participants to please limit yourselves to one primary and one follow-up question.
If you have additional questions, the Investor Relations team will be available after the call.
Operator, please start the Q&A session.

user
compname reports first quarter net earnings of $1.0 billion or $1.73 per diluted share.
q1 earnings per share $1.73.
gap inc. program agreement will not be renewed and will expire in april 2022.
expect strategic options on gap program will be accretive to diluted earnings per share relative to renewal terms.
if gap portfolio is sold, co expects to redeploy approximately $1 billion of capital.
qtrly net interest income decreased $451 million, or 12%, to $3.4 billion, mainly due to lower finance charges and late fees.

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