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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.
2020 was a challenging year, marked by a global pandemic, economic disruption and unrest due to racial injustice.
It was a true test to our resilience, our agility and our strength as a business.
We're proud of the way Synchrony managed through these challenges.
Though there have been significant developments that provide hope that the pandemic will begin to moderate, the virus resurgence and resulting regional shutdown and continued impact on unemployment is something we are still managing through.
And though the pandemic continues to impact results, we are encouraged by some of those trends that have developed.
Later in the call, Brian Wenzel will detail these impacts on the quarter's results and provide a view on how we think this year might develop.
I will provide a high-level overview here.
Let's first focus on our quarterly results, including some of our recent successes, which are outlined on slides three and four.
Earnings were $738 million or $1.24 per diluted share, an increase of $0.09 over last year.
Loan receivables were down 6% to $81.9 billion, and average active accounts decreased 10% from last year, with new accounts down 19%.
Purchase volume per account increased 10% over last year to $602.
And average active balance per account increased 4% to just under $1,200.
Net interest margin was down 37 basis points to 14.64% and the efficiency ratio was 37.1% for the quarter.
Net charge-offs hit a new low at 3.16%.
As a result of our liquidity and funding strategy, in response to COVID-19 impact on our balance sheet, deposits were down $2.3 billion or 4% versus last year.
This includes a strategic decision to slow overall deposit growth, given the excess liquidity we have.
Total deposits comprise 80% of our funding and 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 out additional capabilities.
During the quarter -- we returned $128 million in the quarter through a common stock dividend.
We also announced that the Board authorized $1.6 billion in share repurchases for 2021, beginning in the first quarter.
We have a solid pipeline across our platforms, a mix of start-up and existing programs.
But we are being very disciplined around risk and returns, given the uncertainty in the current environment.
And while this retail landscape is shifting, we believe similar opportunities will continue, as evidenced by recent wins.
I will touch upon a few highlights.
We announced that we will become the issuer of Walgreens co-branded credit card program in the U.S., the first such credit program in the retail health sector.
The card will allow customers to earn rewards for purchases anywhere Mastercard is accepted.
We expect to launch the new program in the second half of 2021.
This new agreement is built upon the company's existing strategic partnership.
CareCredit is already accepted at more than 9,000 Walgreens and Duane Reade stores.
We are committed to providing Walgreens customers and patients with unparalleled experiences, a best-in-class loyalty program and the ability to manage their health and wellness spending.
In addition, we renewed our strategic partnership with Mattress Firm.
We provide flexible financing solutions and innovative business tools that empowered Mattress Firm to meet their customers at critical moments in the purchasing journey, which is increasingly online.
Our digital tools and industry-leading credit program team, including marketing, and analytic retail experts have optimized every step of the omnichannel customer journey to deliver a competitive user experience.
We look forward to many more years as a strategic partner of Mattress Firm.
We also reached a definitive agreement to acquire Allegro Credit, a leading provider of point-of-sale consumer financing for audiology products and dental services.
Allegro offers numerous customers loan options through its merchant partners with flexible payment terms at the point of sale.
These products are designed to offer customers choice to purchase the products and services they need or want.
The addition of Allegro Credit's merchant network and customers complements our strategy of growing CareCredit, our leading health and wellness financing platform.
The transaction is expected to close in the first quarter of 2021.
Altogether this quarter, we signed nine renewals and won seven new deals, along with the acquisition.
I cannot overstate the importance of digital innovation to the success of our programs.
Consumers are rapidly adopting technologies that enable contactless commerce and expect engagement along their digital purchase journeys.
We are leveraging our digital assets and continuously investing to ensure our partners are well positioned in this rapidly evolving dynamic.
These investments include the capabilities to empower SaaS and seamless integration with our partners' digital assets, enable customer choice at the point of sale, enhance contactless experiences, facilitate a seamless and easy application process, bring the in-store experience to a customer's digital devices for applications and payment, and integrate our financing office throughout the entire digital shopping experience.
We also continue to expand our digital penetration of all aspects of our customer journey: apply, buy and service.
Approximately, 60% of our applications were done digitally during the fourth quarter and grew 18% in mobile channel applications.
In Retail Card, 51% of our sales occurred online.
Finally, approximately 65% of our payments were made digitally.
In short, we are rising to the challenges presented by this difficult time.
We have strengthened the strategic position of our business and expanded the opportunity set that lies before us.
And we're investing in the right strategy that will enable near-term successes while also driving considerable shareholder value over the long term.
With our future in mind, as you know, a few weeks ago, we announced some important changes to the leadership of this company.
Effective April 1, I will transition to the role of Executive Chair of our Board of Directors, and Brian Doubles will become Synchrony's President and CEO.
Synchrony means so much to me, and one of my goals as CEO was to set up a thoughtful leadership transition with a successor who will advance what we have built.
Both the Board and I believe there is no one in the world better equipped to do that than Brian.
Brian has helped to build Synchrony every step of the way.
He has been my trusted partner for more than a decade, including through our IPO.
When we started Synchrony back in 2014, we set out to build a great business with a great culture that delivers for our partners and customers every day.
Together, with our 16,500 employees, we are doing just that.
With Synchrony in a position of strength, now is the time to implement this transition, allowing Brian to continue the incredible progress that has been made and to drive the next stage of Synchrony's exciting growth journey.
I look forward to working with Brian through this transition and continuing to support Synchrony's growth and future success as Executive Chair.
We truly would not be where we are or who we are today without her leadership, and it's an absolute honor to succeed her and lead Synchrony into the future.
I am also grateful that we will continue to benefit from Margaret's expertise and leadership in her role as Executive Chair.
And I am excited to partner with her and the Board, our leadership team, and especially our employees as we continue to capitalize on our momentum.
There is a lot to be excited about as we continue Synchrony's journey.
We have a strong business, a winning culture, and a tremendous opportunity to build on this strong foundation.
As incoming CEO, I will continue to implement the strategy that we've developed over the last few years, and which has enabled the momentum that our business has today.
We will continue to leverage our competitive strength, deepen our market leadership and invest in digital, data analytics and new product offerings to create a seamless customer experience.
We will continue to grow our business and drive value for all of our stakeholders, our investors, our employees, our partners and our customers.
Fundamental to our business is our objective to provide a full suite of products that can be tailored to serve the evolving needs of our customers and partners, while earning appropriate economic returns.
Our partners' most critical needs are centered on their ability to offer a product that can seamlessly integrate with our digital assets and systems, deliver higher average order volumes and sales, increase conversion rates and deepen customer loyalty.
By the same token, customers have their own unique set needs, including financing solutions that fit within their budget, are transparent and easy and convenient to use, and which offer them flexibility in their purchase and financing decisions.
We have extensive experience in installment lending, which has informed our approach to equal payment financing.
We think about these products in two categories.
We offer mid- and long-term equal payment plans with promotional periods anywhere from 12 to 162 months, depending on the product category.
We also offer short-term equal payment plans with promotional periods of three to 12 months.
We offer collateralized installment products with bigger ticket purchases with promotional periods from 12 to 180 months.
And we also offer short and long-term installment loans through our SetPay product.
These products run anywhere from three to 36 months.
All of these products are priced appropriately to meet our partner and customer objectives with APR starting at 0%, and each of these products, in turn, offer distinct benefits and address the unique objectives of our partners and customers.
Revolving equal pay products, for example, can be embedded inside of an existing revolving account, eliminating the need for a customer to open a new account.
And given the nature of their functionality, they also provide for repeat purchases as well as higher engagement and loyalty to the partners plan.
Meanwhile, closed-end products can be appealed to customers that prefer regular predictable payments.
To put our overall equal payment financing strategy in perspective, we currently have $15 billion in equal payment balances, 56% of which have 0% APR financing.
We have about 74,000 partners or locations offering our payment plan products.
And we have an overall repeat purchase rate of approximately 30% within 24 months of the first purchase.
Synchrony's success in this and our other core strategies has been driven by our commitment to data-driven innovation, a deep understanding of our partners' objectives and customer needs, and our ability to adapt as the competitive landscape and market conditions have evolved over time.
Our organization is built around being nimble, responsive and results oriented.
We leverage our decades of underwriting experience, our proprietary data analytics and our industry expertise in order to design and implement customized solutions that address our partners' needs while also delivering appropriate economic outcomes.
This is what has driven Symphony's long-standing track record and deepened our market leadership over the years.
We are excited to drive this momentum forward in 2021 simply by continuing to enhance the value we offer to all those we serve.
I speak for everyone in the company when I say we look forward to working closely with them in the next chapter for Synchrony.
As we begin 2021, we're encouraged by the developments being made to fight the pandemic, and continue to be inspired by those in the front lines.
For our part, we remain dedicated to keeping our employees safe in helping our partners, customers and communities during this difficult period, guided by our values and principles.
And with the partner-centric focus, we are working to help our constituents navigate this environment with an eye toward the future and the opportunities ahead of us as we begin to overcome the pandemic.
However, our business mix, which includes a significant digital component and certain industries benefiting from staying at home, such as home-related products and services, veterinary services, and electronics and appliances have outbalanced against some of the effects of the economic downturn.
Purchase volume was essentially flat, down 1% versus last year and in line with our expectations for the quarter, despite some pressure from new shutdowns and restrictions as the pandemic progressed during the quarter.
The continued pressure caused our average active accounts to be down 10% and a decrease in loan receivables of 6%.
Payment rates continue to be elevated relative to normalized levels.
Interest and fees on loans were down 11% from last year, consistent with the core decrease we experienced last quarter.
Dual and co-branded cards account for 38% of our purchase line in the fourth quarter and declined 4% from the prior year.
On a loan receivable basis, they account for 24% of the portfolio and declined 10% from the prior year.
While we're seeing positive trending in our growth metric as we enter the quarter, the acceleration of the pandemic result in regional shutdowns and diminished effects of the CARES Act stimulus slowed that early momentum.
While our sales are stable, we are encouraged by recent developments, including the recently enacted stimulus, the proposed stimulus, a new administration and national rollout of a vaccine.
We believe these factors will have a positive impact.
It should provide momentum as we progress through 2021.
I'll provide a more comprehensive view on 2021 shortly.
RSAs increased $18 million or 2% from last year.
RSAs as a percentage of average receivables was 5.2% for the quarter.
This was elevated from the historical average, primarily due to the significant improvement in net charge-offs and the elimination of Walmart, which operated at a lower than company average RSA percentage.
The improvement in net charge-offs resulted in a decrease in the provision for credit losses of $354 million or 32% from last year.
This was partially offset by a reserve build in the fourth quarter of $119 million.
Other income decreased $22 million, mainly due to higher loyalty costs.
Other expense decreased $79 million or 7% from last year due to lower purchase volume and average active accounts, coupled with lower employee costs as we have begun to implement our strategic plan to reduce operating expenses.
Moving to our platform results on slide eight sales platforms continue to be impacted in varying degrees due to COVID-19, and their trajectories through this period have been different based on factors such as business and partner mix, digital concentration, provider access and availability of hardline goods.
In Retail Card, loan receivables were down 8%, with the COVID-19 impact being partially offset by strong growth in digital programs.
That resiliency is evident in the growth in purchase line, which was up 1% over last year.
Other performance metrics were down due to the impact from COVID-19.
We're excited about the launch of our new value prop with Sam's Club.
They are an important and valued partner, and we're excited about the changes in this program for Sam's Club members.
The continued strength of powersports and home specialty and payment solutions helped offset some of the impact from COVID-19.
Loan receivables declined 2%.
Average active account and interest and fees on loans were down 9%, which was driven primarily by lower yield on loan receivables.
Purchase line decreased 7% this quarter.
We signed several new programs and renewed several key partnerships this quarter.
We continue to drive growth organically through our partnerships and networks and added over 2,800 new merchants during the quarter.
We also continue to drive higher card reuse, which now stands at approximately 34% of purchase volume, excluding oil and gas.
Our efforts and successes are expanding an already solid base for growth as we exit the pandemic.
Although CareCredit was impacted the most by COVID-19 earlier this year, we began to see some improvement as the year progressed as providers continue to increase elective and planned services from the trough in the second quarter.
That said, rising infection rates and increasing stay-at-home restrictions did slow some of this progress.
Loan receivables declined 7% with interest and fees on loans decreasing 4%, primarily driven by lower merchant discount revenue as a result of the decline in purchase volume, which was down 6%.
Average active accounts decreased 10%.
As Margaret noted earlier, we're excited about our partner activity within this platform including the acquisition of Allegro Credit, our Aspen Dental renewal and expansion and our new partnership with Community Veterinary Partners.
During the quarter, we also continued to grow our CareCredit network and enhance utility of our card.
The expansions of our network and acceptance strategy has helped to drive reuse rate to 59% of purchase line in the fourth quarter.
We are proud of these achievements, I'm particularly excited about the opportunities we see to drive future growth in this platform as the impact of the pandemic subsides.
I'll move to slide nine and cover our net interest income and margin trends.
Net interest income decreased 9% from last year primarily driven by an 11% decrease in interest and fees on loan receivables due to the impact of COVID-19.
Net interest margin was 14.64% compared to last year's margin of 15.01%, largely driven by the impact of COVID-19 on loan receivables, an increase in liquidity and lower benchmark rates.
Specifically, the mix of loan receivables as a percent of total earning assets declined approximately 30 basis points from 80.2% to 79.9%, driven by higher liquidity held during the quarter.
This accounted for five basis points of the net interest margin decline.
The loan receivables yield of 19.93% was down 94 basis points versus last year and was a driver of a 75 basis point reduction in our net interest margin.
The liquidity yield declined as a result of lower benchmark rates and accounted for a 30 basis point reduction in our net interest margin.
These impacts were partially offset by an 89 basis point decrease in the total interest-bearing liabilities cost to 1.69%, primarily due to lower benchmark rates and a higher proportion of deposit funding.
This provides a 73 basis point increase in our net interest margin.
Next, I'll cover our key credit trends on Slide 10.
In terms of specific dynamics in the quarter, I'll start with the delinquency trends.
The 30-plus delinquency rate was 3.07% compared to 4.44% last year.
The 90-plus delinquency rate was 1.40% compared to 2.15% last year.
Higher payment trends have helped drive the improvement in delinquency rates.
Focusing on net charge-off trends.
The net charge-off rate was 3.16% compared to 5.15% last year.
The reduction in the net charge-off rate was primarily driven by improving delinquency trend as customer payment behavior improved throughout 2020.
The allowance for credit losses as a percent of loan receivables was 12.54% with the increase to last year being primarily driven by the adoption of CECL in 2020 and the impact from COVID-19.
Moving to slide 11.
I will cover expenses for the quarter.
Overall expenses were $1 billion for the quarter, down $79 million or 7% from last year.
The decrease was driven by lower purchase volume and average active accounts as well as reduction in employee costs and operational losses.
The efficiency ratio for the fourth quarter was 37.1% compared to 34.8% last year.
The ratio was negatively impacted by lower revenue that resulted from lower receivables and lower interest and fee yield, which was partially offset by the reduction in employee costs and operational losses.
Moving to slide 12.
Given the reduction in our loan receivables and strength in our deposit platform, we continue to carry a higher level of liquidity.
While we believe it's prudent to maintain a higher liquidity level during this uncertain and volatile period, 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.
Deposits declined $2.3 billion from last year.
Our securitized and unsecured funding sources were down $2.6 billion and $1.5 billion, respectively.
This resulted in deposits being 80% of our funding compared to 77% last year with securitized and unsecured funding, each comprising 10% of our funding sources at quarter end.
Total liquidity, including undrawn credit facilities, was $23.7 billion, which equated to 24.7% of our total assets, up from 22% 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 in March, which had two primary benefits.
First, it delays the effects 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 15.9% CET1 under the CECL transition rules, 180 basis points above last year's level of 14.1%.
The Tier one capital ratio was 16.8% under CECL transition rules compared to 15% last year.
The total capital ratio increased 180 basis points as well to 18.1%.
And the Tier one capital plus reserves ratio on a fully phased-in basis increased to 27% compared to 21.4% last year, reflecting the increase in reserves as a result of implementing CECL.
During the quarter, we paid a common stock dividend of $0.22 per share.
For the full year, we returned approximately $1.5 billion to shareholders in the form of share repurchases and common stock dividends.
As we finish 2020 and enter 2021, we have continued to assess the capital and liquidity strength of the company and the stability of our business at this point in the pandemic.
With this backdrop, the Board has authorized $1.6 billion in share repurchases for 2021, beginning in the first quarter.
Repurchases are subject to our capital plan, and regulatory restrictions as well as overall market conditions, including any potential deterioration from the ongoing pandemic.
Next, on slide 13, we are providing a framework on key drivers for 2021.
It goes without saying that the current environment will have periods of uncertainty and volatility until the pandemic is under control and the resulting impact to the economic environment is more fully known.
While our visibility is limited, we're providing this framework about how we are thinking about the year might unfold based on our best assessment as of today.
These views assume that in the first half of the year, there is continuing pressure from the pandemic and a slow economic recovery.
In the second half, we assume that pandemic is largely under control and economic recovery accelerates.
First quarter purchase items is expected to be consistent with the trends that developed at the end of 2020.
Second quarter comparisons will obviously reflect the economic trough experienced in second quarter '20.
The second half of the year, we anticipate improving growth trends as the pandemic impact moderate and macroeconomic growth accelerates.
Regarding loan receivable growth.
In the first half, we expect continued higher payment rates from the stimulus actions to impact loan growth.
In the second half of the year, we believe payment rates will slow as stimulus abate, and we return to more normalized payment behavior patterns, combined with the expected increase in purchase volume from an improving macroeconomic environment.
These drivers will contribute to accelerating asset growth.
For net interest margin, overall, we expect continued improvement as we enter 2021.
Regarding the improvement, in the first half, we anticipate that higher payment rates will contribute to continued excess liquidity impacting asset mix.
In the second half, excess liquidity is reduced through asset growth and slowing payment rates, which drive normalized interest and fee yields leading to increasing NIM.
With respect to our view on credit for the year, delinquencies are expected to increase with peak delinquencies occurring in third quarter 2021 and result in sequential quarter increases in net charge-offs.
We would expect reserves to be largely driven by asset growth and the impacts from any changes in the credit macroeconomic scenario.
We anticipate a reserve release during 2021 as the credit macroeconomic environment develops.
RSAs will remain elevated in the first half, primarily reflecting the strong program performance, including revenue and net charge-offs.
In the second half, we expect lower RSAs, generally reflecting the higher net charge-offs, partially offset by higher revenue.
As we outlined previously, we've implemented cost reductions across the organization.
We believe this will result in expense reductions of approximately $210 million during the year.
Partially offsetting these cost reductions will be expense increases related to growth in addition to the anticipated increase in delinquent accounts.
We will continue to closely monitor how the pandemic develops and its impact to the macroeconomic environment and adjust as the landscape unfolds.
As we enter 2021, we remain optimistic in the strength and the strategic position of our business to meet the challenges and exit the pandemic period in a stronger position than when we entered.
We will continue to make investments in our people, products, technology and platforms to drive long-term value and continue to ensure safety of our employees, while meeting the needs of our partners, merchants, providers and cardholders.

user
compname reports q4 net earnings of $738 mln or $1.24 per diluted share.
q4 earnings per share $1.24.
qtrly net interest income decreased $370 million, or 9%, to $3.7 billion.

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