Greg Ketron - Director, IR Margaret Keane - President, CEO Brian Doubles - EVP, CFO.

Sanjay Sakhrani - KBW Betsy Graseck - Morgan Stanley Moshe Orenbuch - Credit Suisse Don Fandetti - Citigroup Jeff Lengler - Goldman Sachs Brad Ball - Evercore Mark DeVries - Barclays David Ho - Deutsche Bank Rick Shane - JPMorgan Bill Carcache - Nomura Securities Dan Werner - Morningstar John Hecht - Jefferies.

Welcome to the Synchrony Financial Fourth Quarter 2014 Earnings Conference Call. My name is Vanessa and I will be your operator for today's call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Greg Ketron, Director of Investor Relations. Sir, you may begin..

Thanks, operator. Good morning, everyone and welcome to our fourth quarter earnings conference call. Thanks for joining us this morning. 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 Web site, synchronyfinancial.com. This information can be accessed by going to the Investor Relations section of the Web site. Before we get started, I want to remind you that our comments today will include forward-looking statements.

These statements are subject to risks and uncertainty and actual results could differ materially. We list the factors that might cause the actual results to differ materially in our SEC filings, which are available on our Web site. 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. The only authorized webcasts are located on our Web site.

Margaret Keane, President and Chief Executive Officer and Brian Doubles, Executive Vice President and Chief Financial Officer, will present our results this morning. After we complete the presentation, we will open the call up for questions. Now it's my pleasure to turn the call over to Margaret..

Thanks, Greg. Good morning, everyone. Thank you for taking the time to join us today. I'll start on Slide 3, but before I cover those slides, I will begin with a review of our 2014 accomplishments. After I provide a fourth quarter summary, I will then turn the call over to Brian to provide more details on our results and review our 2015 outlook.

2014 was a hallmark year for Synchrony Financial with many milestones to mark our progress. One of the highlights of the year, as you are all aware, was our launch as a new public company, a large step toward our eventual separation from GE.

Also, in preparation to be a standalone public company, we successfully added infrastructure to a number of key functional areas and operations to support our future standalone capabilities. This includes important capabilities such as our new data centers that have been certified and are fully operational.

We are now in the process of converting our applications and IT infrastructure. And while achieving separation is of great importance to the future of Synchrony, we have also stayed focused on our business objectives.

We have extended a significant number of our largest programs, extending our partnerships has been a key priority and we have lots of success here. We have been capitalizing on new business opportunities signing on several new partners across all three of our platforms.

To better serve our partners and cardholders, we continue to enhance our existing offerings and invest in new strategies with a focus on innovation and mobile payment technologies. We are pursuing a wallet strategy that is partner and consumer-led.

Our approach is to build, partner and invest in the development of payment services that embrace the latest technologies from across the industry to benefit our customers and partners. For example, we have a mobile platform that today allows customers to apply and buy, service their account and receive rewards on their mobile device.

To further enhance our payment strategies, we are in discussions with key players, testing emerging technologies and piloting proprietary mobile payment applications as part of our roadmap to developing long-term successful mobile payment solutions.

While developing this capabilities, we are maintaining the value proposition of our cards through the mobile payment process.

Last October, we signed up to participate in the Apple Pay program for our Dual Cards, putting us in a position to place participating Dual Cards into the Apple Pay wallet and we continue to progress on this front for rollout later this year.

And as we noted last quarter, we continue to work with our strategic partners such as LoopPay to enhance our capabilities and provide options to our customers of mobile payments. We are also working with MCX in deploying their CurrentC app for some of our partners.

We are also forging partnerships with leaders in the mobile space to further enhance our capabilities. Most recently entering into a strategic partnership and investment with GPShopper, a leading, integrated, one-stop mobile commerce platform for retailers and brands. GPShopper builds integrated mobile apps and has significant retail expertise.

Their mobile platform will enable us to launch mobile solutions with even richer features, including deeper credit integration across our whole partner base and facilitate the development of our mobile platforms for small to midsize partners. This will help drive an improved mobile shopping experience, greater customer loyalty and deeper engagement.

We also believe credit is increasingly important as customers' shopping behavior is moved to digital. Our ability to offer instant credit at the time of purchase whether in store or digitally makes Synchrony well-positioned to capitalize on these trends given our competitive strengths and scale.

And we are seeing the results of these efforts materialize in a significant increase in online sales activity I will cover shortly. Additionally, we launched EMV chip-enabled technology to enhance security on certain partners' Dual Cards and we are on track to have all Dual Cards chip-enabled by late 2015.

Needless to say, we've had a lot underway and accomplished several key strategic priorities in 2014. From a performance standpoint, the overall fundamentals of the business remained strong throughout the year. Speaking specifically to the fourth quarter performance as outlined on Slide 3, we reported diluted earnings per share of $0.64.

During the quarter, purchase volume was up 11% with holiday sales supporting this strong growth. Receivables growth was up 7% over the same quarter last year and platform revenue increased a solid 9%. As I noted, our focus on digital strategies has helped drive a significant increase in online purchase volume.

For the fourth quarter, online purchase volume increased over 18% compared to the prior year. Asset quality improved with net charge-offs down 37 basis points and delinquencies down 21 basis points. We continued our strong deposit growth with deposits growing over $9 billion or 36% in 2014. Expenses were in line with our expectations.

They were impacted by investments we made to help grow the business and support the build-out of our standalone infrastructure. Our balance sheet remained strong with Tier 1 common capital of 14.9% and liquidity of $13 billion at quarter end.

Moving to our business highlights, we recently announced a new agreement with BP that will be one of our 20 largest programs when we onboard them midyear. In addition, we extended our partnerships with Rooms To Go and Yamaha, all within our 40 largest programs.

We added over 2,000 partners to our team and solutions platform and over 9,000 CareCredit provider locations since the fourth quarter of last year. I'll cover the performance of our three business platforms in a moment. Lastly, as I outlined earlier, we have partnered with and made a strategic equity investment in GPShopper.

Moving to Slide 4 for a perspective on our key growth metrics, purchase volume for the quarter was $30 billion, an increase of 11% over last year. This helped drive receivables growth of 7% to $61 billion.

Our average active accounts were up to $62 million, a 6% increase from last year and platform revenue was up 9% over the fourth quarter of last year. We did have a gain on portfolio sales in the quarter and excluding this, platform revenue growth was 7%.

Many of our partners had positive growth in purchase volume and we continue to drive incremental growth through our value propositions and promotional financing offers.

On the next slide, I'll spend a few minutes discussing the performance with each of our sales platforms before turning it over to Brian to give you more detail on our financial results. Our three sales platforms, Retail Card, Payment Solutions and CareCredit continue to generate solid results.

Retail Card, which is a leading provider of private label credit cards, also offers our proprietary Dual Cards. Dual Cards are co-branded, but differentiated as they have the capability to act as a private label card within the retailer's sales channel. Retail Card also offers small business products.

Through our Retail Card platform, we partner with 19 national and regional retailers that collectively have over 33,000 locations across U.S. The addition of BP will bring us to 20 partners. Retail Card accounts for nearly 70% of our receivables and platform revenue.

Partner program performance was strong and broad based driving purchase volume growth of 12%, receivables growth of 6% and platform revenue growth of 7% excluding the gain on portfolio sales. Renewing and extending our programs has been a key priority in this business and we have been very successful here as I noted earlier.

We now have nearly 90% of our Retail Card receivables under contract through 2018 and beyond. Our longevity and dedication in the private label space for over 80 years is certainly helpful. The fact that this is our primary business, which we have been in for decades, is very important to our partners.

It is also helping us win new programs, both existing and startup programs. We feel very good about the position we hold in this space and the partnerships we've developed and maintained.

Payment Solutions, which accounts for 20% of our receivables and 16% of our platform revenue, is a leading provider of promotional financing for major consumer purchases primarily in the home furnishing, consumer electronics, jewelry, automotive and power products markets. We have 63,000 partners that collectively have over 119,000 locations.

Purchase volume was up 10% and average active accounts were up 8% over last year driving receivables growth of 11% and platform revenue growth of 8%. The majority of our industries had positive year-over-year growth in both purchase volume and receivables. Performance was particularly strong in home furnishing, automotive products and power equipment.

We extended our Rooms To Go and Yamaha partnerships and we are also actively pursuing a solid pipeline of potential new partnership opportunities as well.

CareCredit, which accounts for 11% of our receivables and 16% of our platform revenue, is a leading provider of financing to consumers for elective healthcare procedures that include dental, veterinary, cosmetic, vision and audiology services. The majority of our partners are individual and small groups of independent healthcare providers.

The remainder are national and regional healthcare providers. We service a broad network of over 156,000 providers with over 186,000 locations. The majority of our specialties showed year-over-year growth in both purchase volume and receivables with dental and veterinary turning the highest receivable growth.

Purchase volume and average active accounts were both up 7% driving receivables and platform revenue growth of 5% over last year. In sum, a strong quarter across each of our sales platforms as our focus on expanding and deepening our partnerships and programs yielded solid performance.

I'm now going to turn the call over to Brian to provide a review of our financial performance for the quarter..

Great, thanks, Margaret. I'll start on Slide 6 of the presentation. The business earned $531 million of net income, which translates to $0.64 per diluted share on the quarter. Overall, as Margaret noted, the company delivered strong top-line growth with purchase volume up 11% and receivables up 7%.

Net interest income was up 5% compared to last year and this includes the impact of higher interest expense driven by the funding that was raised to increase liquidity in the third quarter. The growth in interest income of 7% is in line with our receivables growth. RSAs were up $36 million or 5% driven by growth in the programs.

RSAs as a percentage of average receivables was 4.6% for the quarter and 4.5% for the year, consistent with 2013 and our expectations. The provision decreased $21 million or 3% compared to last year. There are a couple drivers here worth pointing out.

First, as you may recall in the fourth quarter of last year, there was an increase to the provision related to some enhancements to our reserve methodology, which did not repeat this quarter. Second, asset quality trends improved and charge-offs were lower year-over-year, which drove part of the decline.

30 plus delinquencies were 4.14%, down 21 basis points versus last year and the net charge-off rate was 4.32%, down 37 basis points versus last year. These items were largely offset by incremental provisions due to strong loan receivables growth.

Other income increased $32 million versus last year, largely driven by a $46 million gain related to portfolio sales in the quarter. Excluding the gain, other income was down $14 million driven by the following. Interchange was up $31 million, driven by continued growth in out-of-store spend on our Dual Card.

This was offset by loyalty expense that was up $34 million primarily driven by the launch of new value propositions last quarter. Debt cancellation fees of $67 million were consistent with prior quarters; however, they were down $21 million from last year due to the fact that we only offer the product now through our online channel.

Other expenses decreased 2% as the prior year's quarter included charges related to certain regulatory matters. After adjusting for these charges, other expense increased due to three main drivers, which we discussed last quarter. First, we're making investments to support ongoing growth, particularly in our Retail Card program.

As many of you are aware, we recently completed long-term extensions with many of our large partners and as part of those renewals, we set aside more dollars in the marketing and growth funds to support those programs.

Second, we also launched our new branding campaign in September and continued our marketing efforts with a focus on our deposit products. And lastly, we continue to invest in the infrastructure build as we execute our plan to separate from GE. So overall, the business had a good quarter.

We had strong balance sheet growth and solid top-line growth generating an ROA of 2.7%. Next, I'll move to Slide 7 and walk you through net interest income and our margin. Net interest income was up 5% driven by strong receivables growth, which was partially offset by higher funding costs.

The net interest margin declined to 15.6%, which was in line with our expectations. As you look at the net interest margin compared to last year, there are a few dynamics worth highlighting. The majority of the variance, approximately 300 basis points, was driven by the build in our liquidity portfolio.

We increased liquidity on the balance sheet to nearly $13 billion, which is up $11 billion versus last year. We have the cash conservatively invested in short-term treasuries and deposits at the Fed, which results in lower yields than the rest of our earning assets.

The yield on our receivables declined 47 basis points as a result of slightly higher payment rates in the quarter and the impact of portfolio mix given the growth we're seeing in our promotional offers and payment solutions. Lastly, on interest expense, the overall rate increased to 1.8%.

Given the changes in our funding profile, I'll walk you through our breakdown by funding source. First, the cost of our deposits was fairly stable, up 6 basis points to 1.6%. The increase was driven by extending the average tenor of our direct retail CDs, partially offset by strong growth in our lower rate savings account product.

Our deposit base increased over $9 billion year-over-year. We view this as a very attractive source of funds for us and we expect direct depositors to be a larger funding source going forward. Securitization funding costs increased 25 basis points to 1.5%.

This was driven by extending some maturities in our Master Note Trust and the addition of $6 billion of undrawn securitization capacity. Our other debt costs increased by 67 basis points to 2.7%, which is due to the higher rate on the GE Capital and bank loans, as well as the unsecured bond.

It is worth noting here that the new bonds we issued are longer tenor, so we have replaced shorter-term variable rate funding for longer-dated fixed-rate funding. And this should benefit us in a rising rate environment.

Over the past two quarters, our margin has changed significantly due to the factors I just noted, the primary drivers of the liquidity build and the cost of the new funding sources we put in place after the IPO. As we enter 2015, the transition of our balance sheet is largely complete and we expect our margins to be relatively stable going forward.

I'll cover this in more detail later in our 2015 outlook. On Slide 8, I'll walk through some of our key credit metrics. Before I get to that, I thought it would be helpful to provide some perspective on the seasonal trends we see in the fourth quarter.

We typically see receivables grow during the holiday season and you also see a corresponding increase to the allowance as well.

However, the allowance coverage as a percentage of receivables typically comes down a bit in the fourth quarter just given a significant portion of the holiday balances pay down in the first quarter and don't translate into losses.

So overall, if you look at the trends in the third and fourth quarters last year compared to what we're seeing now, they are fairly consistent.

So turning more specifically to the fourth quarter results, as I noted earlier, we continued to see stable to slightly improving trends on asset quality, 30 plus delinquencies were 4.14%, down 21 basis points versus last year, 90 plus delinquencies were 1.9%, down 6 basis points.

The net charge-off rate also improved to 4.32%, down 37 basis points after excluding the charge-offs associated with the non-core portfolio sale last year. Lastly, the allowance for loan losses as a percent of receivables was 5.28%, which is down 18 basis points from the prior quarter given the seasonal dynamic I mentioned above.

Another metric you can use to measure reserve coverage is to compare the reserve to the last 12 months of charge-offs. We're currently at 1.26x coverage, which equates to roughly 15 months of loss coverage on our reserve. This has been fairly consistent throughout 2014.

So overall, we feel good about the performance of our portfolio and our underwriting approach. And based on what we're seeing today, we think credit trends will continue to be stable. Let me turn to Slide 9 and cover expenses. Overall expenses were in line with our expectations.

Expenses did decline from the prior year, but the fourth quarter last year included $118 million in charges related to regulatory matters.

Excluding these charges, expenses increased $103 million and were driven primarily by incremental investments in our programs and our brand, as well as the infrastructure we're building as part of our separation from GE.

So looking at the key expense line items for the quarter, employee costs were up $37 million as we added additional employees over the past year to support growth in the business and the infrastructure build as we prepare for separation.

Marketing and business development costs were up $48 million as we've increased investment in our programs, continued our marketing efforts around our deposit platform, as well as launching the new brand for the company. Other expenses were down $103 million, mainly due to the charges related to the regulatory matters I mentioned earlier.

So overall, our efficiency ratio was 32.4% for the quarter, which still indicates a very efficient operation compared against other financial institutions. Moving to Slide 10, I'll cover our funding sources, capital and liquidity position.

So looking at our funding profile first, one of the primary drivers of our funding strategy is the continued growth of our deposit base. We view this as a stable, attractive source of funding for the business.

Over the last year, we've grown our deposits by over $9 billion, primarily through our direct deposit program and this puts deposits at 56% of our funding. So we are well-positioned to meet our long-term target of being 60% to 70% deposit-funded.

Funding through our securitization facilities has been fairly stable at around $15 billion or 24% of our funding. We did issue a little over $800 million of new securitization debt in the fourth quarter. Earlier in the year, we extended some of our maturities and added the undrawn capacity to further strengthen our liquidity.

Lastly, I want to walk through some recent developments related to our funding. So first, as we've said in the past, our strategy is to continue to reduce our reliance on the bank term loan facility and GE Capital for funding. These are more expensive forms of financing for us and not part of our long-term funding strategy.

So on January 5th, we made a $1.8 billion prepayment on the bank and GE Capital loans and given this happened outside of the quarter, you don't see it reflected in the numbers, but the net effect is that the bank term loan facility decreased to $6.6 billion and the GE Capital loan decreased to $523 million.

This is a positive result for the business given the bank term loan facility and the GE Capital loan carry higher spreads than our other funding sources. So overall, we feel very good about our access to a diverse set of funding sources.

We'll continue to focus on growing our direct deposit platform and using the proceeds from future unsecured bonds to prepay the bank and GE Capital loans. So turning to capital, we ended the quarter at 14.9% Tier 1 common under Basel I. This level places us among the highest in our peer group.

This translates to 14.5% common equity Tier 1 under the fully phased in Basel III guidance. The only other point I'd make regarding our capital levels is that consistent with prior communications, we do not plan to return capital through dividends or buybacks until we complete the separation from GE.

So we do expect our capital levels will continue to increase during that time. And post-separation, we'd expect to begin returning capital in line with our peers.

So moving to liquidity, total liquidity increased to $19 billion and that's comprised of $12.9 billion in cash and short-term treasuries and an additional $6.1 billion undrawn securitization capacity. This gives us total available liquidity equal to 25% of our total assets.

So overall, we're executing on the strategy that we outlined as part of the IPO. We built a very strong balance sheet with diversified funding sources and strong capital and liquidity levels. Moving to Slide 11, I'll cover our outlook for 2015.

Our macro assumptions for 2015 are consistent with the consensus views on forward rates on unemployment, our framework assumes the Fed beginning to tighten later this year and stable to slightly improving unemployment rate. Our guidance for receivables growth is in the 6% to 8% range compared to the 5% plus we have communicated in the past.

We believe a majority of the growth will be organic and we will continue to grow sales volume at two to three times the industries we operate in. This guidance includes our new relationship with BP, but doesn't assume any other new portfolio acquisitions.

We believe our margin will be in the 15% to 15.5% range this year compared to our prior guidance of near 15%. Aside from normal seasonality, we believe the receivables yield and funding costs will be relatively stable in 2015.

If rates do increase later this year, we expect our neutral to slightly asset sensitive position would provide a small benefit to our net interest income. In terms of our funding plan more broadly, we'll continue to grow our direct deposits and expect to achieve our target of 60% to 70% deposit funding in 2015.

We will also continue to be a regular issuer in the unsecured debt markets and we will use the proceeds to continue to pay down both the bank term loan and the GE Capital loan well in advance of the contractual maturity in 2019.

In terms of credit, given the view that unemployment will be stable to slightly improving throughout 2015 and our plan not to change our underwriting profile, we believe our credit metrics will continue to be stable, which is consistent with our prior guidance. Our net charge-off ratio for the full year of 2014 was 4.5%.

We tightened up our expectations on efficiency ratio from below 35% to below 34% as we have more visibility on 2015. This includes the incremental run rate costs associated with the separation, as well as the startup costs related to the BP program launch.

We do expect to see some variation in this measure throughout 2015 driven by timing of the separation-related expenditures and some seasonality.

Finally, we continue to expect to generate a return on assets between 2.5% and 3% in 2015, which is consistent with earlier guidance and reflects the full impact of the changes to the funding profile and the balance sheet, as well as the separation costs. With that, I'll turn it back over to Margaret..

Thanks, Brian. I'll close with a summary of the quarter and our key priorities for 2015 on Slide 12 and then let Greg begin the Q&A portion of the call. During the quarter, we exhibited strong broad based growth across several key areas. We signed a new agreement with BP and this will be one of our 20 largest programs.

We also continued our success in extending a number of key partnerships and now have extended a large number of our relationships to 2018 and beyond.

Looking ahead to this year, our strategic priorities are focused on generating growth across all three of our platforms with our partner-focused business model bringing value through mobile, marketing, analytics and loyalty capabilities. We have attractive growth opportunities in several forms.

There is also ample opportunity to better penetrate our existing programs and we have a healthy pipeline, which provides potential beyond our organic growth opportunity.

We will look to capitalize on opportunities to further leverage data analytics and mobile and e-capabilities as we continue to seek ways to provide even more value to our partners and consumers and stay at the forefront of emerging payment trends.

We will continue executing on our direct deposit strategy continuing the substantial growth we have generated on the platform and driving our deposits to the target range of 60% to 70% of funding.

And while we are focused on the strategies that drive our business, we will also be executing on our plans to separate from GE, including the filing of our application in the first half of this year and continuing the build-out of our standalone infrastructure.

As you can see by our 2015 outlook, we expect to continue to operate with a strong financial profile and balance sheet this year. To conclude, we like our position and the prospects we have to leverage our deep expertise, solid foundation and track record of success with our distinctive market position.

We are also very excited about the future of Synchrony Financial and look forward to continued progress towards our objectives. This concludes our comments on the quarter, so I will now turn the call back to Greg to open up the Q&A..

Thanks, Margaret. Operator, we are now ready to begin the Q&A session. As we do so, I'd like to ask participants to please limit yourself to one primary and one follow-up question so that we can accommodate as many of you as possible..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And we have our first question from Sanjay Sakhrani with KBW..

Thank you, good morning. Congrats on the BP portfolio win. I guess I was just wondering if you could just talk about the nature of the pipeline of new deals both in terms of size and pricing. Obviously, we're hearing that it's pretty competitive out there. And then I have got one follow-up..

Sure, Sanjay. It's Margaret. So I would say that overall we have a solid pipeline in all three of our platforms. As you mentioned, we won BP. The other positives, nearly 90% of our receivables in Retail Card are already locked up till 2018 and beyond. We added a bunch of new partners last year in Payment Solutions and CareCredit.

So I would say the competitive environment is a little more competitive than we've seen over the last three years, but I think a couple of things.

I think one, our retailers and our partners are still looking for capabilities, people who are really going to come in and actually build their sales and help them build out their platforms and I think we have a key advantage there. I think the other thing is going through this process you really have to maintain discipline.

We don't have to win every deal nor would we want to win every deal and I think you know this. Our number one opportunity is still organic growth. So our biggest opportunity is to continue to grow with the portfolios we have. So I think we can be patient and we can be smart about which of these portfolios we really want to go after..

That makes sense. And then just my follow-up question is on the ROA trajectory. I guess there's some seasonality to that on a quarterly basis. Could you just walk us through that? Thank you..

Yes. Sure, Sanjay, this is Brian. So in terms of the seasonality and I guess I'd start with kind of where we ended in the fourth quarter.

If you think about the first quarter and second quarter, I'd probably use the midpoint of the ROA guidance that we provided for 1Q and 2Q and then typically we see the ROA come up a bit in the third quarter and that's where we see the low point on charge-offs.

That's been pretty consistent over time, so you see the ROA pick up a bit in the third quarter and then it comes down a bit in the fourth quarter and that's driven by just the higher marketing spend that we have, as well as some incremental provisions for the growth in the balance sheet.

So that should give you a pretty good way to think about it for the year..

Great, thank you..

Yes..

Thanks..

Thank you. Our next question is from Betsy Graseck with Morgan Stanley..

Good morning..

Good morning, Betsy..

A couple of questions.

One, could you update us on how you're thinking about how the MCX launch this year is going to play into your strengths and maybe a little bit about what you intend to do to capitalize on it?.

Sure. So I think we've said before that we think mobile wallets are a key part of what we want to play in going forward. And our goal is really to be in as many wallets as we possibly can. And as you know, many of our partners are working with MCX, so our team is working with our partners, as well as MCX to be part of that platform..

Okay.

And expectation is that's a midyear release?.

I really can't comment on that. I think our team is still working through. I don't know if we have definitive dates, but I would say definitely within this year, you will see us in a couple of wallets and MCX would be one of them..

Okay. And then follow-up question is just on the reserving outlook. I know there was a bit of a built here. I just wanted to understand given the fact that you're looking for stable NCOs next year, the reserve build is largely likely to be a function of loan growth.

Is that an accurate assumption?.

Yes. I think that's the way to think about it, Betsy. The provisions in the quarter and what we saw last quarter are really driven by growth. The credit trends really across the board continue to be stable to slightly improving.

If you look at just the quarter year-over-year, 30 plus was better, charge-offs were better, 90 plus was a little bit better as well. So we feel good about the overall credit trends that we're seeing. And similar to what we said last quarter, we don't think they are going to get a lot better from here.

We certainly don't see them getting worse than where they are. At least as we look out to 2015, we feel like we've got fairly good visibility that far out. Again, we're calling for stable to slightly improving unemployment. That's a driver for us.

We're also not planning to make any changes to how we're underwriting today, so those are the two biggest inputs and how we think credit is going to trend next year and we think that if those are going to be stable to slightly improving that gives us some comfort that we think the charge-off trends and delinquency should be pretty stable as well..

Okay, that's super. Thanks..

Yes..

Thank you. Our next question is from Moshe Orenbuch with Credit Suisse..

Great, thanks. I guess you kind of gave us a little bit higher metrics for a couple of the key factors and a little bit better growth, a little bit better net interest margin, a little lower expenses.

I mean could you talk a little bit about what's underlying that because some of your competitors I think kind of have been going in opposite directions on some of those metrics?.

Yes. I think, Moshe, I'd say the key thing for us is when we provided the prior guidance, it was kind of a mix of short-term and long-term targets for the business. I think we've got better line of sight to what we think 2015 is going to look like.

If you compare the guidance that we're providing for 2015, it's not that far off of what we actually delivered in 2014. So I think that gives us some comfort. We continue to see pretty solid growth. We don't have anything really bullish in there on retail sales. We're still assuming that we trend along at 2% to 3%.

Our goal, as we've talked about in the past, is to grow two to three times the retail environment in the industries that we operate in. So that gives us some comfort that we'll continue to be in that 6% to 8% range. That lines up pretty closely with where we were in the fourth quarter.

And I'd call the rest of the adjustments kind of slight enhancements to where we were previously and that's just really attributable to continuing to execute on the things that we have to execute on and just having a little bit better line of sight to 2015..

Certainly, all right.

And just following up on the asset growth, anything that you can tell us about the consumers' willingness, ability and willingness to kind of carry debt that you're seeing?.

Yes. It's remained pretty stable. We're not seeing any big movements there at all. I would tell you that overall the consumers definitely continue to show positive momentum in terms of spending. I think consumer confidence is up, employment is up, certainly gas prices are going to help because people have more discretionary dollars.

So we're not really seeing a big shift in how they are revolving with us..

Great, thank you..

Thank you. Our next question is from Don Fandetti with Citigroup..

Yes, Brian, you guys have made some very good progress with your online bank. There is some concern around what happens to the online franchises when the Fed raises rates. I was wondering if you could talk about how you factored in a deposit beta and what your overall thought on that risk is as you look out into potential rate hike..

Yes, sure, Don. It's something obviously we're spending a lot of time working on right now and there's not a lot of history that you can draw from. Obviously, if you go back to 2004 to 2007, that was the last kind of rising rate environment where we had online banks.

There's been quite a bit published around that time period and online banks had a deposit beta of 60 to 70. Branch-based banks were around 40. We expect to be in that 60 to 70 kind of range. To the extent that we're still trying to grow, it may be closer to 70 than 60. I think time will tell.

I think there's a couple of things that you should factor in though first. Given the fact that we don't have expensive branch infrastructure to support, we feel like that's a pretty affordable deposit beta given our margins. So that's kind of how we've thought about it. That's factored into the net interest margin guidance that we provided for 2015.

So we feel like we can manage a rising rate environment with the online deposit platform..

Okay. And one housekeeping item.

Were there two extra days of income in the quarter?.

I think one extra day..

One extra day. Okay. Thank you..

Yes..

Thank you. Our next question is from Jeff Lengler with Goldman Sachs..

Hi, good morning..

Good morning, Jeff..

Good morning..

At least on the surface, it looks like the BP partnership is another contract that will have the Dual Card or co-brand capabilities.

I guess as you think about new partnerships you could add, how much of an emphasis on these co-brand partnerships do you have versus traditional private label and can you just talk about the economics or margins as they compare to just the traditional private label?.

Sure. So we like co-brand and I think it's fair to say that our co-brand works a little different than our competitors in the sense that a traditional co-brand runs on the network when they are at the pump, if you will.

And for us, our Dual Card runs on our closed loop network, so one of the big positives for us is we really get additional data as we work with those partners, as well as we don't charge interchange. So there is I think a difference there.

In terms of our pricing, I think the way to think – they're actually very close in pricing, they just get there a little differently. I think there's higher receivables, loan losses and interchange on the Dual Card. Private label has more evolved, so that's really the difference..

Okay. And then just on liquidity, I think it was at like $13.4 billion or 18% of assets and it looks like you started to deploy a modest amount into investment securities.

I know you're not subject to the LCR right now, but can you just remind us how you think about what is the right level of liquidity on your balance sheet, how much do you need to set aside for dry powder and do you have any preliminary estimates on where you would shake out on the LCR? Thanks..

Yes. So we use a variety of metrics to size the liquidity portfolio for the business. First, we run internal liquidity stress scenarios. We also look at our maturities coverage, wholesale maturity coverage and we manage to some metrics there and then we look at LCR and any other applicable regulatory guidance.

And it's really a combination of those factors that help us size liquidity for the business. I'll tell you we're comfortably above LCR. LCR is not a constraint. We don't expect it to be a constraint going forward.

The only thing I'd point out on liquidity, the fourth quarter tends to be a low point for liquidity for us just given the growth in the receivables balance. You'll see it come up a little bit in the first, second and third quarters as a percentage of assets..

Okay. Thanks for taking my questions..

Yes..

And our next question comes from Brad Ball with Evercore..

Thank you.

With respect to the separation application you said you're applying first half 2015, is it still reasonable to expect that you could gain approval from the Fed sometime in the second half and complete the separation from GE by year-end 2015?.

Sure. Let me give you a little flavor on that. So as I said, we'll submit the first half. We're making very good progress on the infrastructure build-out. We've hired a team. Our forward governance is in place. We brought up our IT data center, so we're moving our applications and infrastructure into the new data center.

Treasury, risk, infrastructure are all there. So the way it's going to work is once we submit the application, the Fed will come in and do a review and what they're really going to be looking for is are we standalone ready. That process is new to the Fed in a way because we'll be the first company coming out after the crisis and it will be new for us.

So our goal and our target is the end of the year, but the reality is it will be up to the Fed to give us that approval..

Great, very helpful. And then my follow-up question is on oil prices and gas prices at the pump.

Are you seeing any notable impacts on either sales volume or on receivables and credit in the quarter, or so far this quarter and what's your outlook for the impact of lower gas prices in the business? Then just real quickly what's the size of the BP business? What's the size of the opportunity there?.

Sure. So let me start on your first question. I think it's still a little bit too early to tell if we're seeing any real impact from gas prices where they are. We expect this to be a positive for the consumer. Obviously, it should be a positive for us.

We think with that additional discretionary income, they are going to certainly spend a portion of that – we believe they will spend a portion of that on our cards, so that's a positive for us.

We haven't factored in any real lift there in terms of our outlook for 2015 just because I think it's still a little bit too early to tell, but it's hard to view it as anything but positive. So I think that's good.

Then in terms of BP, we're not in a position to disclose the size of the portfolio, but even after we bring on BP, if we look at our concentration of oil and gas in the portfolio, it's less than 3% of receivables. So this is a space where we have continued opportunity to grow. It's a space we like..

Great, thank you..

Yes..

And our next question comes from Mark DeVries with Barclays..

Yes, thanks. I had a follow-up on the separation question.

Assuming you are able to get the separation approved at year-end, can you remind us what that means for the timing of your ability to do a dividend and buybacks?.

Yes. So we're speculating to some extent.

I think we've got to file the application, we've got to get through the process and then we will have a little bit better line of sight to how it's going to work post-separation, but our expectation is that after we receive the approval to separate, we would get a capital plan on file with our regulators very shortly thereafter and then subject to their approval, we would begin to deploy capital and start a regular dividend.

So the timing is definitely post-separation, but it's a little difficult to get any more precise around it..

Okay.

And am I correct in thinking that the dividend would come first and then buybacks would be a subsequent event?.

That's right, that's right. Our priorities are dividend first and establishing a regular dividend for our shareholders and then looking at a buyback program..

Okay, got it. And then I just wanted to clarify something about the guidance. I think you indicated that on the 6% to 8% outlook for receivable growth, a majority of that will be organic.

Although is most of the delta between the 6% and the 8% and the prior 5% plus the BP, or are you also more optimistic on your organic growth outside of BP?.

Yes. I'd say we've got a little bit better line of sight to our organic growth too and we're feeling more optimistic there as well. But the 6% to 8% does include BP..

Okay, got it. Thank you..

Yes..

And our next question is from David Ho with Deutsche Bank..

Good morning.

You noted that you plan to be about neutral to maybe slightly asset-sensitive towards the end of the year when most people expect rates to rise, but as you grow loans, do you anticipate some of the asset sensitivity rising given some of the more variable-rate loans? And how confident are you at increasing repricing opportunities in Payment Solutions and CareCredit purchase volumes, which tend to be a little more fixed?.

Yes. So there's a couple of things to think about, just where we ended the fourth quarter will again be slightly asset-sensitive so 100 basis point parallel shock to interest rates would take our net interest income up about $50 million. So that's fairly consistent with where we have been in the past. That's very slight from our perspective.

Overall, our goal is to minimize the interest rate risk that we're taking. So we try and match our assets and liabilities by duration. We also look at fixed versus variable.

The one thing, more specific to your question, to factor in for CareCredit and Payment Solutions is that those are fixed-rate assets to the consumer, but as rates rise, given the highly promotional nature in those businesses, we charge the merchants what we call a merchant discount and that is variable rate.

So as we're bringing new business on the books, there's definitely an offset there in how we price those promotions to the merchants..

Okay. So the asset sensitivity could be a little understated.

In terms of the strong volumes that you were seeing on the purchase volume side, how much of that was from Dual Card and how do you size that opportunity over time because we're seeing a nicer translation of the interchange fees versus some of your peers?.

Yes. We continue to see good Dual Card growth. We don't break that out separately, but part of the reason is if you think about our overall strategy for the most part is a low and grow strategy. We talked about this in the past. So we start out consumers with a smaller line PLCC card.

And then over time we watch them and then we upgrade them to a larger PLCC line and then ultimately we upgrade them into a Dual Card. We like that strategy. We think its prudent risk management, but just given that dynamic of transferring an existing PLCC customer into a Dual Card product, you're always going to see higher growth rates in Dual Card.

That's been fairly consistent. So I think that's one of the – that's certainly one of the drivers driving the Dual Card growth. The other thing I'd point out is we did launch some very attractive value propositions last quarter. The new value prop on the Sam's Club card, the 531 has been very well-received.

That's performing probably a little bit better than our expectations, so we've been pleased to see that. So that's driving some of the interchange growth that you see as well..

Great, thanks..

And our next question comes from Rick Shane with JPMorgan..

Hey, guys, thanks for taking my question. You've essentially raised the outlook modestly in terms of asset growth. Asset growth is really derivative of purchase volumes.

Just curious if you're assuming the correlation is exactly the same or there's any change there because I'm assuming a lot of this has to do with the BP contract, as you had mentioned before and just wondering if there's anything in the nature of that contract where that correlation is different..

I would think about it similarly. I don't think when it comes to purchase volume receivables I would think about it different than our historic trends even with BP. Some of the oil and gas portfolios turn a little bit quicker so you'd see higher purchase volume and a little less translate into receivables.

But generally, we like to provide receivables guidance for you guys just given that's how we earn the vast majority of our income. Interchange isn't as impactful for us, so that's why we thought the receivables guidance would be a little bit more helpful..

Perfect, thanks, Brian. And just to follow up on that, again, that contract – the cards will go into place in the second quarter. Should we assume that, and again you've talked about the fact that there are incremental reasons why you raised the asset growth guidance.

We should assume, however, that a lot of that is going to be back-end loaded in the year..

I don't know if I'd necessarily assume that, Rick. The majority of the growth continues to be organic growth. So I wouldn't make the assumption that it's back-half loaded. I would – it is probably easiest to model it with BP starting at the beginning of the third quarter, but I wouldn't, I wouldn't….

Got it..

Assume that that's dramatically different than what we've been seeing on the organic side..

Brian and I apologize, I should have been clearer. The incremental on top of what you had previously given will be a little bit more back-end-loaded, not for the overall year..

Yes. Specific to BP, I would build it in second half..

Okay, great. Thank you..

Yes..

And our next question comes from Bill Carcache with Nomura Securities..

Thank you. Good morning. There's been a lot of focus recently among the general purpose card issuers surrounding growth driven reserve building and in particular how growth tends to drive charge-off rates higher into the season and approach peak losses somewhere around year two.

For you guys, your allowance as a percentage of period end losses seems very stable, but I was hoping that you could talk about how that growth dynamic is impacting you and whether there are any notable differences in the normal seasoning effects that you observe in private label versus general purpose card lending?.

Yes. Bill, I'd say the seasoning that we see in private label is pretty consistent to what you'd see in general purpose card. I think 18 to 30 months for peak charge-offs is pretty consistent whether you look at general purpose or you look at PLCC or Dual Card. So I think that's fairly consistent. There is some seasoning impact I think in our book.

We're not seeing it as a big driver though and one of the things I think you have to take into account is that our growth rates have been very consistent over the last three, four years. And to the extent that you are putting on new business at the same rate that you put on business the year prior, you shouldn't see a big impact from seasoning.

And so we're not seeing that I think to the same extent that maybe others are. We think the charge-offs and the growth rates are going to be fairly consistent and fairly stable..

Thank you. That's really helpful. And as a follow-up, I had a question, a follow-up on Dual Card and your comments there.

Can you talk about whether you guys expect the longer term or how you're thinking about the longer-term credit performance of your private label versus your Dual Card products? I don't believe that in the last cycle that you guys were growing as much in Dual Card and I guess I'm thinking of that in the context of how in past cycles we've seen the greater utility in Dual Card generally result in higher credit losses while the limited utility of private label has actually been a positive.

So I'm wondering how you're thinking about all that from an underwriting perspective on those products..

Yes. I think one of the positives is the fact that in many of our retailers, we offer both products and I think that gives us some flexibility if we were to enter a cycle, particularly on origination. But I think the bottom line here is just how we do our underwriting.

We talked about the low and grow strategy, so we start you out with a private label, give you a little bigger private label card and then offer you the Dual Card. So I think just how we go to market on our Dual Card is different than the traditional co-brand and gives us some flexibility in a crisis or a deteriorating credit environment..

I think the other thing just to point out is that we're pretty disciplined on Dual Card around line sizes. So even though a Dual Card will carry a larger line than PLCC, we are not talking about the same kind of lines that you'd see in a general purpose card..

Got it. That's very helpful. Thank you..

Sure..

Thank you. Our next question is from Dan Werner with Morningstar..

Good morning. Thanks for taking my question.

Could you give me a little color on the deposit funding in terms of how much is brokered versus how much is through the direct bank and where do you see the growth rates for each of those going forward?.

Sure. I think we had a little over $12 billion of broker deposit funding. Our strategy with broker deposits, there are some advantages to broker deposits I think if you use them the right way and I'll just maybe spend a minute describing how we think about the brokered versus retail deposits.

First, our goal is not to really increase broker deposits from where they are today, so we'll hold that relatively flat. We'll probably shrink it a little bit. You'll see that come down as a percentage of the overall funding stack.

And right now, one of the advantages of broker deposits is that you can originate longer tenors and you can do it at attractive rates. I think the other advantage of broker deposits is there's no early termination or early withdrawal provisions on broker deposits.

So it provides a very predictable funding base for the company and it works very similarly – looks very similar to a term loan, if you will. And so that's why we think it will continue to have a place in our funding stack, but it's not a funding source that we're looking to grow. So it will continue to shrink and it has over the last couple of years..

Okay. And this is as a follow-up.

In terms of acquiring other card portfolios or other deposit bases, is that pretty much limited due to the fact that you're going through the separation process with the Fed?.

No. I think portfolio acquisitions that are in our core and align very well with one of our three sales platforms, we're definitely pursuing those. BP is a great example of that. So we don't feel like we're restricted on normal course portfolio acquisitions at all.

We've been very active, as Margaret mentioned earlier, we've got a very active BD pipeline, so we continue to pursue those opportunities and we will continue to do so..

Okay. Thank you..

Sure..

Thank you. Our last question comes from John Hecht with Jefferies..

Yes. Thanks very much. Most of my questions have been asked, but a couple nuance questions.

Number one, with respect to the NIM guidance, which is slightly up, what are the drivers of that, is there anything going on with yields or is it primarily related to the early January payoff of the debt?.

That's certainly part of it. I wouldn't read it as a significant change from the earlier guidance. We were guiding to near 15%. This is 15% to 15.5%. I think we've got better line of sight to how we think 2015 is going to play out.

Maybe a slightly different expectation on interest rates played through there a little bit and I think we're optimistic that we'll be able to pay down the bank loan and the GE Capital loan well ahead of the contractual maturity. Just given those are more expensive forms of debt, we think we'll save a little bit of money there on interest expense.

Those are related factors we were just able to tighten that up a bit..

Okay. That's helpful.

And then with respect to the RSA, given the composition of the partners, the consideration of BP, anything that we should expect in terms of changing that as a percentage of receivables or should that be pretty consistent throughout the year?.

Well, it's been very consistent. In 2013, it was around 4.5% of average receivables. It was 4.5% in 2014. A couple small changes as we think about 2015. First, just given some of the value proposition launches, loyalty expense is up, that runs through the retailer share, so there was a partial offsets there.

The two programs that exited in the fourth quarter we paid a disproportionately higher share in both of those programs. And so just by nature of those going away, that will save us a little bit on the RSA line. So I would think about it running just under that 4.5% range for 2015..

Great. Thanks very much..

Sure..

So before we conclude the call today, I want to thank the investment community and especially our shareholders for their continued support. I also want to thank our team for a remarkable 2014. We really accomplished a great deal together this year.

And the hard work will continue in 2015 as we seek to further leverage our distinctive market position and enhance our capabilities to help our partners and to grow our business. We like our position and prospects and we're very excited about the future of Synchrony Financial and look forward to continued progress towards our objectives..

Okay. Thanks everyone for joining us on the conference call this morning and your interest in Synchrony Financial. The Investor Relations team will be available to answer any further questions you may have and have a great day..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..