Greg Ketron – Director, Investor Relations Margaret Keane - President, Chief Executive Officer Brian Doubles – EVP, Chief Financial Officer, and Treasurer.

Mark DeVries - Barclays John Hecht - Jefferies Eric Wasserstrom - Guggenheim Securities Don Fandetti - Citi Betsy Graseck - Morgan Stanley Ryan Nash - Goldman Sachs David Ho - Deutsche Bank Moshe Orenbuch - Credit Suisse Rick Shane - JPMorgan Sanjay Sakhrani - KBW.

Welcome to the Synchrony Financial Second Quarter 2015 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. Mr. Ketron, you may begin.

Thanks, operator. Good morning, everyone, and welcome to our second 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 website, synchronyfinancial.com. This information can be accessed by going to the Investor Relations section of the website. 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 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. The only authorized webcasts are located on our website.

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 is my pleasure to turn the call over to Margaret..

Thanks, Greg. Good morning, everyone. Thanks for joining us today. I will begin on Slide 3. The overall fundamentals of the business remained strong in the second quarter, with net earnings of $541 million or $0.65 per share.

We drove strong growth again this quarter with purchase volume up 11%, loan receivables growth of 12% and platform revenue growth of 9%.

We continue to see the impact of offering compelling value proposition, including our Sam's Club 531 cash back credit card program and the Amazon 5% reward program, wherein Amazon prime customers receive 5% back every day on their Amazon store card purchases.

In addition, we rolled out an attractive new value proposition through a Driver Rewards and loyalty program with BP, a new partner which we have on-boarded this quarter and we also announced a new rewards program through our extension with Chevron.

Asset quality improved with a 25-basis point decline in the net charge-offs rate and a 29-basis point improvement in delinquencies. Expenses were in line with our expectations, impacted by investments we made to support growth and the build out of our standalone infrastructure.

Our balance sheet remained strong with a common equity Tier 1 ratio of 17.2% and liquidity of $14 billion at quarter end. We continue to generate solid deposit growth, with deposit increasing $7 billion or 24% over the second quarter of last year to $38 billion.

Deposits now comprise 61% of our funding sources within the lower range of our targeted 60% to 70%. Our ongoing efforts to grow deposits and provide increase in value to our depositors, with new features and enhancements are yielding results.

To improve the online experience for our customers, we recently redesigned our online banking platform, building a new technology such as a responsive web design, so that customers can have the same user experience regardless of which device they use.

Popular feature such as mobile check deposit, customized email alerts and account balance snapshots are seamlessly integrated into the site.

We have also streamlined access to our perks, loyalty and rewards program and completely redesigned our online account opening experience, demonstrating our commitment to bringing value and a great experience to our banking customers.

During the quarter, we signed new partners across each of our platforms, extending key existing contracts and made technology investments, which are yielding innovative value-added services for our customers and partners.

In fact, we were recently recognized by InformationWeek for our innovative mobile solutions across the entire credit lifecycle, ranking 48 on this year's InformationWeek Elite 100, a list of the top business technology innovators in the U.S.

We were also recognized by CIO Magazine as part of their 2015 CIO 100 award program, which recognizes organizations worldwide that exemplify operational and strategic excellence in IT.

We announced several new partners; among the biggest were Mattress Firm, the largest seller of bedding in the U.S., Newegg, a leading tech-focused e-tailer and Stash Hotel Rewards, an award-winning loyalty program for independent hotels in the U.S. and Caribbean. As I noted, we extended our partnership with Chevron, one of our 20 largest partners.

With that, we now have nearly 88% of retail card receivables under contract to 2019 and beyond. Additionally, we renewed a CareCredit endorsement with the American Society of Plastic Surgeons. We are excited about these new partnerships and our ability to bring significant value to these relationships.

At the same time, we still have a meaningful opportunity to drive organic growth and we continue to pursue initiatives to promote card usage and deepen penetration across our partnerships. The online and mobile channels are increasingly important channels for our business.

As customer shopping behaviors have migrated to digital, the importance of credit has followed suit. Our digital strategies have helped drive a marked increase in online and mobile purchase volume, which is up 20% from last year and nearly a third of our credit applications are now done through digital channels.

We have been working hard to ensure that the key benefits cardholders enjoy and the data our partners need are retained when transactions move to mobile devices. The big question with enabling private-label credit cards and Apple Pay has been around whether the capture of valuable transaction data would still occur.

I am pleased to report that we have implemented a solution that will provide us and our retailers, access to the same level of data on transactions that go through Apple Pay.

Another key point is that we have developed a mobile platform that can rapidly integrate across retailers and wallets, which will allow us to offer our unique value proposition to Apple Pay users. Benefits such as loyalty and rewards programs and point of sale discounts will be retained for our cardholders.

We were excited to announce this quarter that we will be among the first issuers to offer private label cardholders the ability to add their cards to Apple Pay, and JCPenney will be the first of our partners to offer its private label cardholders the ability to make purchases with Apple Pay.

We are also finalizing preparations to enable our private label and Dual Cards in the currency wallet and anticipate the launch to occur later this year and we are in active discussions regarding the integration of our private label and Dual Cards with Android Pay. We are pleased with the progress we have made on mobile wallets.

The speed at which we have been able to adapt to ensure our cardholders can use our cards and their wallet of choice while maintaining the benefits for both cardholders and our partners speaks to our commitment to being at the forefront of this evolving landscape.

Lastly, regarding our separation from GE, progress continued in the second quarter and we filed our application to separate on April 30th. The Fed has assigned a dedicated team to us and they have initiated their fieldwork, which we expect will continue through the summer.

After they wrap this up, we expect that their findings will be submitted to the Board of Governors for a review and decision. We believe that obtaining approvals to separate will be focused on our financial strength and the infrastructure we have built to be a standalone business.

Slide 4 highlights the performance of our key growth metrics this quarter. Loan receivables growth remained strong at 12%, primarily driven by purchase volume growth of 11%, and average active account growth of 4%. Additionally, the close of the BP acquisition contributed to the growth. Platform revenue was up 9% over the second quarter of last year.

Many of our partners had positive growth in purchase volume and we continue to drive incremental growth through strong value propositions and promotional financing offers. On the next slide, I will discuss the performance within each of our sales platforms before turning it over to Brian to review the financial results in more detail.

We continue to drive strong performance across all three of our platforms in the second quarter. Through our retail card platform, we offer private label credit cards and our proprietary Dual Cards as well as small business products. The addition of BP, which closed this quarter, brings us to 20 retail card partners nationwide.

Our retail card platform accounts for 69% of our receivables in platform revenue. Retail card performance was exceptionally strong this quarter, with purchase volume growth of 12%, receivables growth of 14% and our platform revenue growth of 10%. We had strong receivables growth across our partner programs and the addition of BP contributed.

However, the majority of our growth continues to be organically-driven. In addition to adding new partners that are a good strategic fit, renewing and extending our programs is a key priority in this business.

During the quarter, we extended another one of our top-20 largest partners with the renewal of the Chevron contract, and now nearly 88% of our retail card receivables are under contract through 2019 and beyond. The strong position we maintain in this space and the engaged partnerships we have developed, provide a solid foundation for future growth.

Payment Solutions, which accounts for 20% of our receivables and 15% of our platform revenue is the leading provider of promotional financing for major consumer purchases, primarily in the home furnishing, consumer electronics, jewelry, automotive and power product markets.

This platform also delivered another quarter of strong performance with purchase volume and average active accounts, each up 8% over the same quarter last year. This drove receivables growth of 11% and platform revenue growth of 7%.

The majority of our industries had positive growth in both, purchase volume and receivables, including home furnishing, automotive products and power equipment. Both, acquisition and renewals are also important in this business.

We have had a lot of success in these fronts with the announcement of new partnerships such as Mattress Firm and Newegg, as well as a number of program extensions.

CareCredit, which accounts for about 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, and vision and audiology services.

Our partners in this platform are largely individual and small groups of independent healthcare providers. The remainders are national and regional healthcare providers. Purchase volume was up 9% and average active accounts increased 6%, helping to drive receivables growth of 5% and platform revenue growth of 8% over the same quarter of last year.

Receivables growth this quarter was led by our dental and veterinary specialties. In addition to the important endorsement, we renewed with American Society of Plastic Surgeons, we also announced a new CareCredit partnership with Vets First Choice.

With this program, CareCredit cardholders will be able to use their cards to pay for online purchases of pet medicines and diet food products at more than 10,000 veterinary practice websites nationwide.

Each platform delivered solid results and continue to make progress in the signing of new partnerships and the extension of existing programs while driving organic growth. I will now turn the call over to Brian to provide a review of our financial performance for the quarter..

Thanks Margaret. I will start on Slide 6 of the presentation. In the second quarter, the business earned $541 million of net income, which translates to $0.65 per diluted share in the quarter. We continued to deliver strong growth this quarter, with purchase up 11%, platform revenue up 9% and receivables up 12%.

Overall, we are pleased with the growth we are seeing across the business. We saw increases in both, purchase volume per active account as well as our average balance per account. These are both good indicator that our value propositions are resonating with consumers and they continue to see real benefits when they use our cards.

We also closed the BP portfolio acquisition in the quarter, which was a little ahead of schedule. Net interest income was up 7% in the quarter. This includes the impact of higher interest expense driven by the funding that was issued to increase liquidity in the third quarter last year.

Interest income was up 9%, which is in line with our average receivables growth. RSAs things were up $31 million or 5% compared to last year. RSAs as a percentage of average receivables were 4.1% for the quarter, which was fairly consistent with the second quarter last year.

Going forward, we would expect RSAs as a percentage of receivables to move back in the 4.5% range for the balance of the year. We typically see RSAs as a percentage of average receivables trend higher in the third quarter as seasonally lower charge-offs lead to a higher RSA level. The provision increased $59 million or 9% compared to last year.

The increase was driven primarily by receivables growth. The key asset quality metrics improved compared to last year, 30-plus delinquencies improved 29 basis points versus last year to 3.53% and the net charge-offs rate fell to 4.63%, which is 25 basis points below last year.

Our allowance for loan losses as a percent of receivables was down 10 basis points compared to the second quarter last year to 5.38%. Measured against the last four quarters of net charge-offs, the reserve coverage was 1.27 times. Overall, our reserve coverage metrics were fairly stable.

Other income increased $8 million or 7% versus last year, driven by strong growth in interchange revenue and a pretax gain of $20 million from two portfolio sales. This was partially offset by higher loyalty and rewards costs associated with program initiatives.

Interchange was up $31 million driven by continued growth in out-of-store spending on our Dual Card. This was offset by loyalty expense that was up $31 million, primarily driven by the new value propositions. As a reminder, the interchange and loyalty expense run back through our RSAs, so there is a partial offset on each of these items.

Debt cancellation fees of $61 million were down $9 million from last year; due to the fact that only offer the product now through our online channel. Other expenses increased $8 million versus the second quarter of last quarter, primarily driven by growth in the infrastructure build, partially offset by a consumer remediation expense last year.

We continue to make investments to support ongoing growth across all platforms and also had expenses related to the launch of the BP program, the EVM rollout, higher marketing in our programs and technology to support our mobile wallet strategy. The efficiency ratio for the quarter was 33.5%, which is in line with our annual guidance of below 34%.

I will cover the expense trends in more detail later. Overall, we had a solid quarter with strong top-line growth generating an ROA of 2.9%. I will move to Slide 7, and walk you through our net interest income and margin trends.

As I noted on the prior slide, net interest income growth was strong at 7%, interest and fees on loan receivables was up 8%, partially offset by higher funding costs related to the additional liquidity we are caring on the balance sheet compared to last year. The net interest margin declined to 15.77%, which was slightly better than 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, 207 basis points was driven by the build in our liquidity portfolio. We increased liquidity on the balance sheet to nearly $14 billion, which is up $7.5 billion versus last year.

We have the cash conservatively invested in short-term treasuries and deposits at the fed, which results in a lower yield than the rest of our earning assets. The yield on our receivables was relatively stable, down three basis points compared to last year. This was a result of slightly higher payment rates in the quarter compared to last year.

Lastly, on interest expense, the overall rate increased to 1.8%, up 20 basis points compared to last year. This was in line with our expectations given the changes in our funding profile. I will walk you through a breakdown by funding source. First, the cost of our deposits was relatively stable, up 10 basis points to 1.6%.

The increase was driven by extending the average tenor [ph] of our direct retail CDs, partially offset by growth in our lower rate savings account product. Our deposit base increased $7 billion or 24% year-over-year. We are pleased with the progress we made growing our direct deposit platform.

Deposits are now 61% of our funding, which is in line with the target we set of between 60% and 70%. Securitization funding cost increased five basis points to 1.5%. This was driven by extending some maturities in our Master Note Trust and the addition of $500 million of undrawn securitization capacity.

Our other debt costs increased 68 basis points to 2.8%, due to the higher rates on the bank term loan facility as well as the unsecured bonds. While the second quarter margin was a little above the range we set out back in January, this was primarily driven by the benefit of using some excess liquidity to pay down the bank term loans.

Looking ahead, we continue to expect that our margin will move back in the 15% to 15.5% range in the second half of the year. Next, I will cover our key credit trends on Slide 8. As I noted earlier, we continued to see stable to improving trends on asset quality, 30-plus delinquencies were 3.53%, down 29 basis points versus last year.

90-plus delinquencies were 1.52%, down 13 basis points. We believe these improvements are driven at least in part by lower gas prices and generally a healthier consumer given the continued improvement in employment trends. Our net charge-offs rate also improve to 4.63%, down 25 basis points versus last year.

Lastly, the allowance for loan losses as a percent of receivables was 5.38%, which was down 10 basis points from the prior year. If you measure the reserve coverage against the last 12 months' charge-offs, we are currently at 1.27 times coverage, which equates to roughly 15 months lost coverage in our reserve.

Overall, we continue to feel good about the performance of our portfolio and the underlying economic trends that we are seeing. Given those factors, we believe that our credit trends will continue to be stable for the balance of the year. Moving to Slide 9, I will cover our expenses for the quarter. Overall, expenses were in line with our expectations.

While reported expenses increased 1% versus last year, as I noted earlier, we did have a $42 million consumer remediation expense in the second quarter of last year.

Adjusting for this, expenses grew 7%, which is more in line with our receivables growth, but also included expenses associated with the infrastructure build as we prepare for separation from GE, as well as startup cost to launch the BP program and our EMV rollout.

More specifically, the largest driver of the increase in expenses were employee costs, which were up $43 million as we added employees over the past year in key areas to support the infrastructure build for separation as well as growth of the business. Professional fees were up $11 million due to both, separation related costs and growth.

Marketing and business development costs were up $11 million as we continue to invest in our partners' program growth as well as marketing associated with our direct deposit products. Information processing was up $21 million, driven by higher IT investment and transaction volumes compared to last year.

Other decreased $78 million versus prior year, primarily driven by the consumer remediation item I mentioned earlier as well as the GE cost allocations last year that were replaced by expenses in other categories The costs associated with the infrastructure build are now largely reflected in our run rate.

While we will have incremental expense in the second half of the year related to growth in the EMV rollout, as well as investment in our digital capabilities, we expect our efficiency ratio will be in line with our annual guidance of below 34% for the year. Moving to Slide 10, I will cover our funding sources, capital and liquidity position.

Looking at our funding profile first, one of the primary drivers of our funding strategy has been the growth of our deposit base. We view this as a stable and attractive source of funding for the business. Over the last year, we have grown our deposits by $7 billion, primarily through our direct deposit program.

This puts deposits at 61% of our funding, which is in line with our target of being 60% to 70% deposit funded.

While we have now moved within our target range, we expect to continue to drive growth in our direct deposit program by continuing to offer attractive rates and great customer service as well as building out our digital and mobile capabilities.

We are also looking at additional ways to increase the stickiness of this deposit base, including the rollout of new products later next year such as checking and bill pay capabilities. Funding through our securitization facilities has been fairly stable in the $14 billion the $15 billion range, which is approximately 23% of our funding.

As we have said in the past, our strategy is to continue to reduce our reliance on the bank term loan facility as this is a more expensive source of funding for the business. We have continued to pay this down during the quarter making a $500 million prepayment on May 5th.

Since the IPO, we have paid down the bank term loan facility from $8.2 billion last year to $5.2 billion today. We also completely paid off the $1.5 billion GE Capital loan last quarter.

Overall, we feel very good about our access to a diverse set of funding sources; we will continue to focus on growing our direct deposit platform and using the proceeds from future unsecured bonds to further prepay the bank term loan facility.

Turning to capital, we ended the quarter at 17.2% CET1 under the Basel III transition rules and 16.4% CET1 under the fully phased in Basel III rules.

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. Post separation, we would expect to begin returning capital in line with our peers.

Moving to liquidity, total liquidity increased to $19.8 billion and is comprised of $13.7 billion in cash and short-term treasuries and an additional $6.1 billion in undrawn securitization capacity. This gives us total available liquidity equal to 26% of our total assets.

We expect to be subject to the modified LCR approach and these liquidity levels put us well above the required LCR levels. Overall, we are executing on the strategy that we outlined previously, we have built a very strong balance sheet with diversify funding sources and strong capital liquidity levels. With that, I will turn it back over to Margaret..

Thanks Brian. I will close with the summary of the quarter on Slide 11, and then we will begin the Q&A portion of the call. During the quarter, we exhibited strong growth across several key areas, making progress on several fronts and continuing the momentum we have generated over the last several quarters.

We continue to make our products valuable to our retail partners, merchants, providers and consumers by enhancing our capabilities, developing compelling value propositions and creating innovative technologies such as our digital wallet capabilities.

We are happy to see our digital wallet strategy take hold, we will be one of the first issuers to offer private-label credit cards and Apple Pay, and we recently launched our BP Dual Card in this digital wallet.

We continue to win and renew important partnership and maintain a healthy pipeline of additional opportunities and we are pleased with the ongoing success of our fast-growing deposit platform. With the application now filed, we look forward to providing you updates as we continue to move closer to our separation from GE.

I will now turn the call back to Greg to open up the Q&A..

Thanks Margaret. That concludes our comments on the quarter. Operator, we are now ready to begin the Q&A session..

Thank you. [Operator Instructions] We have our first question from Mark DeVries with Barclays. Please go ahead..

Yes. Thank you. First question, I am interested to get any updated thoughts you may have on whether you will be included in the CCAR process following the separation from GE..

Yes. Sure Mark. This is Brian. We are not technically subject to CCAR just given our charter. We are a savings and loan holding company, not a bank holding company, so we are not technically subject to CCAR.

With that said, we are certainly preparing is therefore going to be subject to the same oversight by the Fed, the same processes, so when the CCAR scenarios come out, we run those scenarios, we are developing our models in such a way that we believe they are CCAR compliant and meet the regulators' expectations.

That is how we think about, governance of our capital, so we are building those processes, but it is unclear as of right now as to whether or not we will be formally subject to CCAR. Obviously, that is part of the application and the approval to separate.

The Fed can subject us to CCAR or something that looks a lot like it, so that is how we are preparing..

Okay, but no communication yet from them on whether they seem inclined to do that?.

Well, we can't comment specifically on our discussions with our regulators, but I think what is important here is, we are preparing is therefore going to be regulated just like other banks of similar size.

You know you should assume that whether it is through CCAR or another means that the Fed is going to regulate our capital levels in a similar way..

Okay. Fair enough. Then for Margaret, do you have any sense for when Amazon may start to more aggressively market the new 5% cash back rewards for prime customers? I got to tell you I am an active prime customer and I had to find out about the offer through Greg, so they are clearly not doing a great job of getting it out there..

He is our great marketing guy. Isn't he? Yes. We rolled this out a couple of weeks ago and I think with any new offer, we really want to make sure that the offer is working.

Obviously, the prime customer is an incredibly important customer to Amazon, so working jointly together with them, we wanted, one, to make sure the offer was working, two, that all of our processes and Amazon's processes were working really well to really give the best experience to the customer, so I would stay tuned.

The plan is for this to be a big part of what Amazon is looking to do in the future. Obviously, as we said it is a great offer, so we are pretty excited about the potential..

Okay. Great. Thank you..

Thank you. Our next question is from John Hecht with Jefferies..

Good morning, guys. Thanks very much. One question, I think you said, you purchased the BP portfolio in the quarter.

Can you tell us what the dollar amount of that was? In addition to that, when should we see the impact of the new partnerships in the BP coming into the receivables volume?.

Sure John. We acquired BP towards the end of May, so it is in the EOP, but you do not have a full quarter's worth of purchase volume. I can't give you the exact size of BP. I can't disclose it, but I can tell you that our entire oil and gas portfolios are less than 3% of our receivables, so that will give you kind of an upper bound.

That includes BP, Chevron, P66..

Okay. Great. Then I wonder if you guys can give us maybe an update of the prioritization of your deployment of excess capital once the split-off is complete and you either go through a CCAR-like process or at least work with the regulators to determine appropriate capital levels..

Sure. The prioritization has not changed. Organic growth is first and foremost the top priority along with portfolio acquisitions. We think that we have got a robust pipeline in all three of our platforms. We will continue to look to bring on new relationships.

We brought on the BP portfolio, we just talked about we announced MattressFirm, which we think will be a great deal for us. That is going to launch in April of our 2016, so we will continue to compete and try and grow the business organically, so that is first priority.

Second priority would be to establish a regular dividend and share repurchase program. Then I would say lastly, we will look at M&A. We are always looking at M&A opportunities. I will tell you, we will be a lot more disciplined around M&A compared to the other three alternatives as a use for capital just given the risk profile.

I think if you see us do something on the M&A front, it will most likely be a very close adjacency to what we do today, so it will be something that will help us build out our capabilities, help our partners drive incremental sales in the programs, so that type of acquisition opportunity..

Great, appreciate the color. Thanks guys..

Thank you. Our next question is from Eric Wasserstrom with Guggenheim Securities..

Thanks very much. Just a couple of follow ups related to separation. In terms of the costs, I know at the end of the first quarter, there was about an incremental $40 million of annualized costs still to come.

Did that fully make it into the second quarter run rate or is there still an incremental portion in the back half?.

Yes. I did make it into the second quarter, so you should assume that the second quarter reflects kind of the end of that infrastructure build cost, so that is in the run rate of the second quarter.

As you think about the second half as I mentioned earlier, we are going to have - there will be some incremental cost in the second half, but not tied to the infrastructure build. We are going to complete the rollout of EMV.

You typically see marketing expense increase in the second half of year, so we would expect to see that again this year, so you are going to have those types of things that happen in the second half of the year, but I would not expect anything material incremental on the infrastructure built..

Has anything changed in your view about the $470 million sort of sustainable incremental post-separation cost?.

Yes. If we look at what is in the second quarter run rate, we came in very close to that estimate that we provided last year..

To the extent that the timing of the approval comes later than the year end, does that have any meaningful implication for your cost base?.

No. It does not..

Okay. Great. Thanks very much..

Yup..

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

Yes, Brian. A couple questions on interest rate sensitivity. It is my understanding that your estimates for rate sensitivity do not include any pass-through of higher funding cost to the retail.

Can you talk a little bit about your ability to push some of that through specifically in your retail partnership business?.

Yes. Sure. Don, you are right. The shock scenarios that we publish, and there hasn't really been a change to those. We are still mildly asset-sensitive, so 100 basis points shock interest rates takes our net interest income up about $75 million, which is less than 1%, so that profile has remained relatively consistent.

We do have the opportunity in some of our agreements to pass-through higher funding cost.

I will tell you that each one of these agreements is different, so I cannot give you a rule of thumb, because every deal works a little bit differently, but generally you should think about the deals working similarly and the fact that we calculate an after-tax return, funding cost is typically a component of that as well as credit costs and revenue and all the other P&L line items.

We earn up to a hurdle and we share above that hurdle, so that dynamic holds true for the most part on interest expense, but every deal does work a little bit differently..

Okay. Then secondly, can you talk about loan growth expectations, I may have missed it, but I did not hear guidance discussion..

Yes. Obviously, we had a very strong quarter. I think, we are performing ahead of where we thought would be back in January, so we are very happy with the growth that we are seeing so far. I think the results are particularly good considering retail sales overall were somewhat sluggish.

Retail sales in the second quarter were up 1.7% year-over-year and our purchase volume was up 11, so we are very encouraged by what we are seeing so far this year. In terms of the remainder of the year, you got a couple of big factors that you have to take into account. We have got back-to-school.

That will give us a good indication on how consumers are spending. We have obviously got the holiday season that will largely determine where we end up for the year, but generally the growth trends are all moving in the right direction. We look at purchased volume. Proactive account was up 6%.

We saw an increase in average balance per account as well, so those are both good indicator that consumers are seeing real value on our cards. You know Margaret mentioned that online sales were up 20%.

The other thing that we should just highlight, we have talked about in prior calls the reuse that we are seeing in both CareCredit and Payment Solutions. CareCredit reuse was at 50% for the quarter that is up from 47% a year ago and payment solutions reuse was 27%. That is up from 26%.

You know breakdown the quarter and look at the growth trends, they are all moving in the right direction and we are really pleased with where we are for the first half of the year..

Got you. Thank you..

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

Hi. Good morning..

Good morning, Betsy..

We have talked in the past quite a bit about mobile and I know you are doing a lot on mobile for the card and the reward programs that you have.

I am just wondering are you also thinking about developing mobile products for the deposits business, your overall banking business as well?.

Yes.

Actually in my opening comments I mentioned we have a new mobile platform, so we just rolled that out, so we took the learnings and capability we have on our card side and rolled it over to the mobile platform for our deposit customer and that is going extraordinary well, so the ability to open an account on a mobile phone is much better than it was and we have added a whole bunch of features on the mobile phone and we will continue to build that out as we add additional products..

Clearly your cardholders could also be managing their payments through deposits they have with you..

Most of what they have with us is CDs and savings product. I think, as we move to adding checking accounts later next year that will be a definite positive there..

Okay. Then just one kind of ticky-tacky question on credit trends, I think you mentioned, Brian, that you expect credit trends to continue to be stable for the balance of the year.

I guess I just wanted to make sure I understood, are you talking about ratios or dollars?.

More ratios, you know, credit is going to grow in line with growth in receivables, but we would expect the ratios to hold pretty consistent. We have said that all year. I think in the first and second quarter credit in a little better than we expected, we think, primarily driven by lower gas prices..

Right..

It is just a little unclear how much of that is going to continue, but I think everything we look at still feels like credit will be stable..

Right, so NCO ratios stable and provisions moving up with balances as you do the reserve build associated with the balance growth?.

That is exactly right. We would expect to continue to build reserves for the new receivable growth..

Got it. Okay. Thank you..

Thank you. Our next question is from Ryan Nash with Goldman Sachs..

Good morning, Margaret. Good morning, Brian..

Good morning..

Good morning, Ryan..

Maybe a question on a comment you made, Margaret, about a healthy pipeline for additional opportunities for business wins.

When I look back historically, I think somewhere around 200 to 300 basis points of loan growth has been added via portfolio purchases, can you just talk about your appetite for further portfolio acquisitions at this point for maybe the next 6 months to 12 months? Given that you have added a couple of start-up programs over the past couple of quarters, how much capacity is there to add more of those?.

The first thing I would say is, we have an opportunity to continue to grow organically, so I would start out by saying we can really be selective about what we go after. You know, our appetite to grow with new acquisitions whether it is an existing portfolio or a start-up is very strong. We reorganized our development team well over a year ago.

We now have very dedicated resources in all three platforms, so we have a very healthy pipeline that we are looking at and it is really great to have a mix between existing portfolio and start-ups. Some of our biggest programs today were start-ups, so we are very bullish on start-ups. We know how to do them.

Obviously it takes a little bit of time to get them to grow out of the gate, but once you get that engine going it really takes off, so we are very focused on both, driving the organic side, but more importantly, winning new opportunities in the market..

Got it. Then if I could just ask a follow-up on, related to split up on a comment that you made. I think you mentioned, Margaret, that there is an on-site team and they were going to submit something to the Board.

Can you just help us understand, you know, the process from here? What should we be looking for in terms of milestones? Obviously, they are going to make their presentation and then how should we think about the timing of that? Is it a back and forth dialogue? If you were to think about areas where you could potentially have concern that could cause us to delay into 2016, what would some of those concerns be?.

Yes. Overall, I would say, the team is on the ground. I can't really comment on the specifics, but I would say it has been a very good process. I think, you all know that we had done a pre-application well over a year ago and got very good guidance through a pre-application process of things we had to focus on.

Obviously, we would not have filed the application if we did not think we were ready.

Brian already mentioned that the cost of the infrastructure is already in our second quarter, so we feel that the things that we needed to focus on, corporate governance, risk management, our whole capital planning process, you know, model developing government and you know, IT infrastructure, which was a big one, are in place.

They are in here, they will work through the summer. The question then becomes how quickly can a write-up their recommendation.

Then it goes to the Board of Governors, which it is a little open to how that process is going to work, whether they do it in an existing meeting or they have a separate meeting, but our view right now is we are still targeting the end of the year.

I think if it does slip into the first quarter, it really is just around the ability of the fed to get through everything that they have, the application is fairly significant, and getting this in front of the Board of Governors in the right timeframe, and I will have Brian comment a little bit about the timing at the end of the year, because we have certain windows, we have to do this within..

Yes. Our expectation, Ryan, would be that we receive the approval that will be public. Very shortly thereafter, we would launch the exchange offer. We do have to manage around earnings blackout period for us and for GE, so there are specific windows that we can target for the exchange offer. It has got to be open 20 days.

It could be extended another 10 days, so those are the things that we are managing as we look at when exactly we could get this completed..

Very helpful. Thank you..

Thank you. Our next question is from David Ho with Deutsche Bank..

Good morning. Just circling back on the loan growth from Dual Card, I know it is about 20% to 25% of your receivable balances.

How quickly is that growing relative to the non- Dual Card portion of your portfolio?.

Yes. Dual Card growth, we do not break it out specifically, but it is growing and it will always grow faster than private-label credit cards. Let me just spend a minute and explain the dynamics there. We have, what we call, loan growth strategy. We start new accounts out with a smaller PLCC line.

We increase that line over time as they demonstrate payment behavior and we get more comfortable with the credit worthiness of that consumer.

Then ultimately, we upgrade them into a Dual Card account, so just that dynamic of the upgrade from a PLCC to a Dual Card, will give you higher growth rate, faster growth rate in Dual Card than what we see in PLCC. I cannot tell you that the Dual Card growth rates have been relatively consistent more or less in line with our expectations.

I think, right now we have Dual Card programs in 14 of our 20 relationships, so there are still an opportunity I think to launch some Dual Card programs in the rest of the portfolio..

Okay. Given that the Sam's Club 531 card has very attractive, kind of similar value prop versus the Costco card.

Do you expect any benefits from any kind of ongoing Costco card uncertainty as that potentially plays out and make it delayed? Are you baking in any kind of attrition into your core card op [ph] there?.

We are not baking anything in for that. I think, The Sam's Club value props stands on its own, it is a very attractive value prop, 531 and we have been very pleased with the results so far since we launched it..

Okay. Then separately on the deposit beta is obviously a lot of discussion this quarter across from your banking peers. It seems like you guys should be running closer to one versus some of your peers.

Do you still think you could run near 75 or what kind of gets you confident that you could see and deposit betas will maybe a little lower than kind of what you are running at now?.

Well, I think there are a couple things. There is not a lot of history here, so I do not think anybody knows as rates start to rise what deposit betas are going to look like. The landscapes are a lot different than the last. The only time period you can really look at is 2004 to 2007 and deposit betas for online platforms were between 60 and 70.

Are they going to be higher this time around? They could be. I think as we look at it, first, we do not have any significant investment, no investment tied up in brick-and-mortar branches. I think that helps us offset the impact if deposit betas come in higher.

We have obviously got pretty healthy margins, so I think if deposit betas come in on a high-end or a little bit higher, that is still fairly manageable for us, so time will tell where this thing plays out. The other thing that we are doing, we have talked about this I think in prior calls.

Right now, we are competing to some extent on rate and I think customer service. To the extent that we can rollout some of these new capabilities, Margaret mentioned, demand checking accounts, online bill pay, that will help us lower the deposit beta over time and that is absolutely in the plans and we are looking at rolling those out next year..

Okay.

None of that is baked into you are kind of published asset sensitivity scenarios?.

No. It is not..

Okay. Great. Thanks..

Thanks..

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

Great. Thanks. Most of my question actually have been asked and answered, but I actually was kind of intrigued that you had both, loan growth that was better than your spending volume growth and I guess a little bit of that was the acquisition of the portfolio, but still better and stable yield year-on-year.

Could you talk a little bit about that? I would have thought that it is just a natural decay because of the stuff you talked about with respect to the way that portfolio has evolved?.

Yes. Again, I would attribute a big chunk of that to BP, in fact that we only had a month worth of purchase volume, but we had obviously brought on all the receivables at the end of the quarter. I think that is part of the biggest driver to think about. Other than that, I do not know that there are any other underlying trends to highlight..

With respect to just the yield on the portfolio, I mean, I would assume that like Dual Cards and other things like that probably have lower yields than some of your pure retail programs or some of the CareCredit things, right?.

Yes. Typically in a Dual Card product, you get back to the net return, but you get there differently. If I just compare a private-label return to a Dual Card return, Dual Card tends to be higher FICO customer, so you will see less revolve on your accounts, you see lower financed charges, but that is largely offset by lower losses.

When you kind of net those to how you get back to a similar return that we earn on PLCC. Again, on Dual Card, obviously, you are earning on a higher balance, so you are getting incremental earnings..

Sure. Then just separately, you had addressed this partway to Ryan's question before about portfolio acquisitions. Maybe just talk a little bit about what you see out there.

You said almost 90% of your business is contracted for the next four years, but what is out there in terms of portfolios that could be available over the next year or two?.

There is a plenty of portfolios. First of all the way we look at this is, just things coming up for us is always a natural set of portfolio that come up. I would not say Moshe, there is anything big out there..

Right..

I think the big portfolios, there is not a lot of over $1 billion portfolios out there, but there is plenty in the $250 million up to $1 billion that I think we are looking at and going after. I think the other is just looking at the start-ups.

I mean, it is interesting to note that a number of retails still do not have a program and believe it or not we are seeing more activity of people actually reaching out to us enquiring about doing a portfolio, so there has been a little more activity there.

I think some of that is driven by the fact that as retail sales struggle a bit, having a program certainly helps and we have proven that by the programs that we do have. Then there is the whole online space and things that are happening there.

From an activity perspective, we are actually going after all of those things and I would say that we are fine with, and you know that is going for smaller deal to a bigger deal, so I think it gives us an opportunity to look more broadly..

Great. Thanks so much..

Thank you. Our next question is from Rick Shane with JPMorgan..

Thanks, guys, for taking my question.

When we look back, I think it is easy to explain the post-crisis growth as a function of Synchrony was in the market providing capital when in general the supply was decreasing and we are now in an environment that is intensely competitive, supply has increased, we are seeing peers and one of the things we have noted is line limit increases, so a lot of the consumers with general purpose cards had sort of been unshackled, but you guys are still really generating strong organic growth.

Brian, you talked about this a little bit, but what do you guys really think is driving this.

Are we seeing a behavioral shift between general purpose and private label?.

Well, I think, I would attribute it to really two things. One, I think, we are seeing this in terms of consumer behavior. The consumers are still being conservative about how they expand.

I think the value propositions on our cards, in fact that we have I think got a good machine running around how we are putting out the next software, how we are using data and analytics, when you talk about or what Brian mentioned earlier about the re use of our cards and Payments Solution and CareCredit, those are things that we have really put in place over the last couple of years.

I would say the other big win for us is really our whole digital strategy. If Brian mentioned this or I mentioned this in my opening, our online sales were up 20% year-over-year. If you look at the overall industry, U.S. sales are growing at 14%, so we are getting a big greater share of those online sales. Our mobile applications are really growing.

About a third of our applications now come through mobile. Then 42% of our active customers are actually interacting with us some way using our digital channels, so I think as the consumer behavior shifts to mobile.

I think one big advantage that we have versus many other general purpose credit cards is you can apply and buy immediately and you could do it on your mobile phone.

I think our ability to capture that customer at the sites of purchase I think is really a big, big opportunity for us, and one that as we continue to build out our data and analytics team to really drive that and I think I mentioned in the past, we have partnered with GPShopper, who actually has some great mobile asset that we are integrating our cards programs with, particularly true for the smaller retailers maybe do not have a team sitting there to help them build out a mobile application.

We are working with them to have that happen, so I think the whole digital pieces is going to become a bigger part of who we are and important part of how we go to market..

Got it. Just to follow-up on that, I mean, as we enter into reporting season for peers as well, there are going to be a lot of questions over the next week about rewards and reward expenses. That's really where the competition seems to be playing out.

We do not see that particularly in your margin or is there anything there that you are concerned about in terms of competitor behavior?.

You know, there is nothing we are concerned about. You do see our loyalty costs are up, driven by the new value props that we have launched, but I think we look at these costs fundamentally just different than I think you look at them for general purpose card player in that the partner shares a significant portion of these costs.

What we like is that we can offer a very attractive value proposition like we launched at Sam's Club, and like we just recently launched with Amazon, and when it nets through with the RSA offset, we still earn a very attractive return on that program. These new value props that we have launched are good things.

They are driving growth, they are driving incremental finance charge revenue for the business, the partner share and part of the cost, so if we have the opportunity to launch better value props in our other programs, we are going to continue to look to do that.

So we do not feel it necessarily as competitive pressure so much as we do a real opportunity to drive growth going forward..

Got it. Great. Thank you guys..

Thanks..

Okay.

Vanessa, we have time for one more question?.

Thank you. Our final question comes from Sanjay Sakhrani with KBW..

Thank you. I guess, I have one question on Payment Solutions. It seems like you guys are definitely ramping up there in terms of the new relationships.

Is there something there in terms of the economy that we can infer from, just the acceleration in new relationships there and should we expect more of that to occur as things get better in a broader sense? Then I have another question just on the digital strategy.

To the extent that you are able to enhance your capabilities, can that help you ask for more from your merchants in terms of revenues? Thanks..

Sure. Let me answer the first on Payment Solutions. I think interestingly enough, Sanjay, I think, one of the things that has worked to our benefit, believe it or not, is the separation from GE. In fact that many of these partners are seeing us as this is all we are going to be doing.

We are 100% dedicated to the retail market so our activity overall and Payment Solution has really picked up and some of it is, obviously, I said we dedicated resources and they are going after that.

Even more importantly, we are getting people calling us, so I think there is a focus now that they know this is the business where are in and this is the business we are going to go after.

We are very strong in that business, we have a lot and that is really the heritage of our business, right? We have a strong team there and I think, we have invested in things that I think have really help us from a technology perspective, which many of those retailers, you have the bigger guys, they have a lot of smaller retailers there who really look to us to help them really bring capabilities and I think that is something that has really played well for us.

In terms of looking for more economics out of payment and mobile wallet, our goal is really to work with our partners to grow sales and we really see the wallet as really the final step in the process, so for us it is really building out the whole spectrum of the credit cycle applying, buying, getting a reward, getting your messaging and text messaging from us and then making a payment.

I would not anticipate us looking to get more from our partners.

We really want to work with them together in the overall relationship to grow the business, so that is how we are thinking about it and that is our business model, right, bringing capabilities and making it a better experience for their customers to really help drive volume growth for them..

All right. Thank you..

Thank you..

Thanks..

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 further answer any questions you may have. Have a great day..

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