Greg Ketron - Director of Investor Relations Margaret Keane - President and Chief Executive Officer Brian Doubles - Executive Vice President and Chief Financial Officer.

Bill Carcache - Nomura Securities Moshe Orenbuch - Credit Suisse Sanjay Sakhrani - Keefe, Bruyette & Woods, Inc. Ryan Nash - Goldman Sachs & Co. Elizabeth Lynn Graseck - Morgan Stanley & Co.

LLC James Friedman - Susquehanna Financial Group LLLP Richard Shane - JPMorgan Securities LLC David Scharf - JMP Securities LLC Mark DeVries - Barclays Capital, Inc. Henry Coffey - Wedbush Securities Arren Cyganovich - D. A. Davidson John Hecht - Jefferies LLC.

Welcome to the Synchrony Financial Second Quarter 2017 Earnings Conference Call. My name is Vanessa, and I will be the 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. And I will now turn the call over to Mr.

Greg Ketron, Director of Investor Relations. Sir you may begin..

Thanks, operator. Good morning, everyone, and welcome to our quarterly earnings conference call. Thanks for joining us. 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 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-party. 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's my pleasure to turn the call over to Margaret..

Thanks, Greg. Good morning, everyone, and thanks for joining us. During the call today, I will provide an overview of the quarter, and then Brian will give details on our financial results. I'll begin on Slide 3. Second quarter net earnings totaled $496 million or $0.61 per diluted share.

Consistent execution of our strategy yielded solid performance across our sales platform. Organic growth remains the priority and help to drive double-digit loan receivables and net interest income growth. Additionally, purchase volume was up 6% and average active accounts were up 5% over the second quarter of last year.

These metrics are highlighted on Slide 4 of today’s presentation. Our focus on continuing to drive incremental value to our partners and card holders is helping us to generate growth across the business. Particularly, the investments we have been making to extend our digital capabilities are having an impact on our performance.

For Retail Card, our online and mobile purchase volume grew 18%, exceeding U.S. growth trends which has been around 14% to 15% and our digital sales penetration was 23% in the second quarter. Moving to credit quality, net charge-offs came in at 5.42% this quarter compared to 4.51% last year.

Provision for loan losses was up 30% driven by credit normalization and growth. The reserve build this quarter 325 million in-line with our expectation. Brian will provide more details on credit later in the call. The efficiency ratio was 30.1% for the quarter versus 31.9% last year as we continue to generate positive operating leverage.

An important funding objective for us is expanding our deposit base and we continue to execute strong deposit growth this quarter. Overall, deposits increased $6 billion or 14% to $53 billion. deposits now comprise 72% of our funding sources.

Competitive rates and customer service should help us to continue to grow deposits, so I will note that over the longer term we expect for that growth trends to be more in-line with our receivables growth.

Regarding capital on liquidity, our common equity Tier-1 ratio was 17.4% and liquid assets totaled $15 billion or 17% of total assets at quarter end. During the quarter we announced a new capital plan that meaningfully increases our capital returns to shareholders.

Under the new plan we had increased our dividend to $0.15 per share and can repurchase up to 1.64 billion of our common stock. Looking at the business highlights this quarter, we signed a new partnership with zulily an e-commerce retailer, to launch their first private label credit card program.

The launch of the zulily credit card is expected in late 2017 or early 2018. And will provide millions of customers an additional payment options with added value to card holders. Additionally QBC’s card holders will have expanded card utility as they will be able to use their card to make purchases on zulily.

We continue to seek new partnerships to augment growth and we are excited to launched our new program with Nissan and Infiniti during the quarter. The new co-branded cars enabled qualified card holders to earn points to the purchase or lease of new or certified pre-owned vehicles.

Plan can also be used for the purchase of automotive services and accessories or be redeemed in the form of statement credit. During the quarter, we were happy to a renew existing relationships with MEGA Group USA, City Furniture and National Veterinary Associates. Turning to Slide 5, I’ll spend a few moments on our sales platform performance.

We continue to deliver growth across all three of our sales platforms in the second quarter. In retail card, we grew loan receivables 10% over last year, reflecting broad based growth across our partner programs. Purchase volume grew 7% and average active accounts growth was 3%.

Interest and seasonal loans increased 12%, primarily driven by the loan receivables growth. As I noted earlier, we had an active quarter with the signing of new partnership with zulily and the launch of our Nissan, Infiniti program.

We have developed strong long-term relationship that solidify our position space, helping us to drive strong organic growth and provide the foundation to the addition of new profitable partnerships.

We continue to build out our mobile capabilities and leverage our recent acquisition of GPShopper, who has helped us to develop or Synchrony Plug-In or Sy-Pi capability. Sy-Pi is a native credit feature that plugs into a retailer’s mobile app.

It allows retailers credit card holders easily shop, redeem rewards, and securely manage and make payments to their accounts with their smartphones. Though in the early stages 12 of our retailers’ app are utilizing the technology and we have seen a notable increase in usage by card holders.

Bill payments have increased significantly, to-date approximately 160 million in payments have been processed through the app. In total, we have had over eight million visits to the plug-in since we launch it.

Payment solutions also delivered a solid quarter, broad based growth across the sales platform with particular strength in home furnishing and automotive products resulted in loan receivables growth of 11%. Purchase volume grew 6% excluding the impact in the loss of sales due to the HHGregg bankruptcy.

Average active accounts were up 11% and interest and fees on loans increased 14%, primarily driven by the loan receivables growth. We are pleased to have renewed programs that MEGA Group USA and City Furniture during the quarter.

And we continue to enhance our Synchrony Car Care program adding additional utility to nearly three million card holders to excess to more than 185,000 fuel stations nationwide and we continue to extent card we use in payment solutions, which represented 27% of purchase volume in the second quarter.

CareCredit also delivered strong quarter, receivables growth of 11% was led by a dental and veterinary specialties, purchase volume grew 11% and average active accounts were up 10%. Interest and fees on loans increased 12%, primarily driven by the loan receivables growth.

We recently renewed our relationship with National Veterinary Associates, the largest owner of free standing veterinary hospitals in the U.S. We also announced in a multi-year agreement with Athletico Physical Therapy.

This relationship provide patients of athletics over 370 physical and occupational therapy facilities across the country full access to CareCredit’s health, wellness and personal care credit card.

We continue to strength in our position in core elective and dental specialties with over 200,000 provider location and over 75% penetration in several key specialties.

CareCredit is moving into additional areas including team management, orthopedics, primary care, medical diagnostics and durable medical equipment with nearly 5,000 practices added over the past 12 months. The provider locator has become an important resource for card holders and we are now seeing over 800,000 hits per month.

The network expansion and increased use of the card has help drive reuse, which represented 53% of purchase volume in the second quarter. Each platform delivered strong results and continue to develop, extend and deepen relationships and drive value to card holders. I will now turn the call over to Brian to provide the details on our results..

Thanks Margaret. I will turn on Slide 6 of the presentation. In the second quarter Synchrony earned $496 million of net income which translates to $0.61 per diluted share. We continue to deliver strong growth with loan receivables up 11% and interest and fees on loan receivables up 12% over last year.

Overall, we are pleased with the growth we’ve generated across the business. Purchase volume grew 6% over last year. We had another strong quarter in average active accounts growth which increased 5% year-over-year driven by the strong value propositions and promotional offers on our cards that continue to resonate with consumers.

The positive trends continued in average balances and spend with growth in average balance per average active account of 6% compared to last year. The interest and fee income growth was driven primarily by the growth in receivables.

While we had strong top-line growth and positive operating leverage in the quarter, which we share with our retailers, RSAs were up only five million from last year. This was due to higher incremental provision expense and loyalty program expense that I will touch on shortly.

RSAs as a percentage of average receivables was 3.6% for the quarter, down from 4% last year. Given this, we now think RSAs will run closer to 4% for 2017. The provision for loan losses increased 30% over last year, driven by credit normalization and growth.

The reserve build in the quarter was 325 million which was in-line with the expectations we laid out in the first quarter earnings call. I will cover the asset quality metrics in more detail when we will review Slide eight later.

Other income was 26 million lower than the prior year due mainly to higher loyalty expense which increased 71 million compared to the prior year. 37 million of the increase in loyalty expense was largely driven by growth.

The remaining 34 million of the increase related to higher redemption rates we experienced over the last few months in one of our programs. This updated estimate relates to rewards that were earned in 2016 through the first quarter of 2017. Adjusting for that, the growth in loyalty program expense was more in-line with our historical run rate.

Going forward we expect loyalty program expense as a percent of interchange revenue to trend near a 100% with some quarterly fluctuations. And as I noted previously we share loyalty program expense with the retailers through the RSA, and this did lower the RSA level in the second quarter as well as our expectation for the year.

Partially offsetting the impact of higher loyalty expense and other income was an $18 million pre-tax gain from a small transaction relating to the sale of merchant acquiring relationships to a third-party during the quarter. Other expenses increased 72 million or 9% versus last year.

We continue to expect expenses going forward to be largely driven by growth including strategic investments in our sales pipelines and our direct deposit program as well as enhancements to our digital and mobile capabilities. Lastly, the efficiency ratio was 30.1%, nearly a 180 basis point improvement over the 31.9% ratio last year.

The business continues to generate a significant degree of positive operating leverage. I will move to Slide 7 and cover our net interest income and margin trend. Net interest income was up 13% driven by the continued strong loan receivables growth. The net interest margin was 16.2% up 26 basis points over last year.

Compared to last year, there are few key drivers worth pointing out. First, we benefited from a slightly higher mix of receivables versus liquidity on average compared to last year, as we continue to optimize the amount of liquidity we are holding and have deployed excess liquidities to support our strong receivables growth.

The yield on receivables was up 15 basis points compared to the prior year. Revolve rate improved compared to the prior year, and we received a modest benefit from the increase in the prime rate over the past year. Lastly funding cost improved by two basis points driven by a slightly more favorable funding mix.

Our deposit base increased by $6 billion and with 72% of our funding sources versus 71% a year-ago. The cost of our deposit base is lower than our other funding sources, so the margin benefited from this shift and the funding mix to lower cost deposit.

So overall we continue to be pleased with our net interest margin performance and given these trends we continue to expect the margin for the full-year to be between 16% and 16.25%. Next, I’ll cover our key credit trends on Slide 8.

As we have noted previously, we continue to anticipate credit will normalize from the levels we experienced over the past couple of years, we expect this normalization to occur overtime driven by a number of factors including the portfolio and channel mix, account maturation and seasoning, and consumer and payment behaviors.

In terms of specific dynamics in the quarter, I'll start with the delinquency trends. 30 plus delinquencies were 4.25% compared to 3.79% last year, and 90 plus delinquencies were 1.06% versus 1.67% last year. Moving on to net charge-offs. The net charge-off rate was 5.42%, compared to 4.51% last year.

The largest contributing factor to the increase in NCO continues to be normalization. The second quarter of last year also included approximately 15 basis points of benefit from higher recoveries which did not repeat. Given what we have seen so far, we expect NCOs to be in the low 5% range for 2017 with normalization being a key driver.

This is consistent with what we noted last quarter. It’s important to note that while NCO rate was 5.33% last quarter and 5.42% this quarter, we do see a fairly significant seasonal impact that typically results in a lower NCO levels in the third quarter.

The allowance to the loan losses is percent of receivables with 6.63% and the reserve build from the first quarter was 325 million in-line with our expectation.

Looking forward, based on what we are seeing across the portfolio and assuming economic conditions are stable, our expectation continues to be a loss rate in the low to mid 5% range for 2018 with lot just trending somewhat higher into the first half of 2018 then starting to level off in the second half of the year.

This is consistent with what we noted last quarter. Regarding loan loss reserve builds going forward, given credit normalization and strong growth, we continue to believe the reserve build for the third quarter will likely be in a similar range on a dollar basis to what we saw in the first and second quarter of this year.

As we move into 2018, we expect that reserve build will transition to be more growth driven given our expectation that loses began to level off in the second half of 2018.

In summary, while credit will continue to normalize form here and impact our near-term operating results, we continue to see very good opportunities for continued growth and attractive risk adjusted return. Moving to Slide 9, I’ll cover our expenses for the quarter. Overall, expenses came in at 911 million up 9% over last year.

Expenses continue to be mainly driven by growth and strategic investment. As I noted earlier efficiency ratio is 30.1% nearly 180 basis point improvement over last year as we continue to drive operating leverage in the core business.

Moving to Slide 10, I’ll cover our funding sources, capital and liquidity position, as well as our capital plan we announced in May. Looking at our funding profile first. One of the primary drivers of our funding strategy has been the continued strong growth of our deposit base.

We continue to view this as a stable attractive source of funding for the business. Over the last year, we’ve grown our deposits by 6 billion, primarily to our direct deposit program. This puts deposit at 72% of our funding slightly higher than the 71% level were operating at last year.

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 capability. Longer term, we would expect to grow deposits more in-line with our receivables growth.

Overall, we are pleased with our ability to attract and retain our deposit customers. We had two very successful debt transactions during the quarter, a 750 million five-year fixed rate senior note issuance and 822 million in ADS issuance, we saw strong demand on both transaction. In terms of our funding plan going forward.

We will continue to grow our direct deposits and expect total deposits to be 70% to 75% of our funding mix in 2017. Funding through securitizations with 17% of our funding consistent with our target of 15% to 20%. Our third-party debt now total 11% of our funding sources within our 10% to 15% target.

So overall, we saw very good about our mix of funding and our access to a diverse set of funding sources. Turning to capital and liquidity, we ended the quarter at 17.4% CET1 under the transition rules and 17.2% CET1 under the fully phased-in Basel III rules.

This compares to 18% on a fully phased-in basis last year reflecting the impact of capital deployment through our previous capital plans and growth. Total liquidity was 21.9 billion, which is equal to 24% of our total assets. This is down from 25.5% last year, reflecting the deployment of some of our liquidity.

We expect to be subject to the modified LCR approach, and these liquidity levels put us well above the required LCR levels.

During the quarter, we completed the capital plan we announced last July and paid a common stock dividend of $0.13 per share and repurchased 238 million of common stock fulfilling the 952 million in share purchases, our board authorized through the four quarters ending June 30, 2017.

In May, were pleased to announce our new capital plan through June 30, 2018.

Our board approved an increase in the quarterly common stock dividend of $0.15 per share and a share repurchase program of up to 1.64 billion, which we began to execute in May repurchasing 200 million during the quarter in addition to the 238 million repurchase technically to prior program for a total of 438 million of repurchases in the second quarter.

This represented 15.7 million shares repurchased during the quarter slightly more than double what we have been averaging in the prior three quarters. We will continue to execute the new share repurchase plan subject to market conditions and other factors including any legal and regulatory restrictions and acquired approvals.

Overall, we continue to execute on the strategy that we outlined previously. We have built a very strong balance sheet with diversify funding sources, a strong capital and liquidity levels and we expect to continue deploying capital to the growth and further execution of our capital plan in the form of dividend and share repurchases.

Before I conclude, I wanted to recap our current view on 2017.

Given the strong receivables growth and higher revolve rates we’ve seen so far this year, we continue to believe the margin for the full-year will be in the 16 to 16 and a quarter range, this demonstrates one of the natural offsets in the business, some are the same factors driving credit normalization also resolved in the higher receivables yield.

So we are seeing a partially offset on the revenue line. We expect NCOs to be in the low-5% range for the full -year 2017 normalization will continue to be a largest factor.

Regarding loan loss reserve builds going forward, given credit normalization and strong growth; we continue to believe the reserves build for the third quarter will likely be in a similar range on a dollar basis to what we saw in the first and second quarter this year.

As we move into 2018, we expect the reserve builds will transition to be more growth driven, given our expectation that losses will begin to level off in the second half of 2018.

We now think RSAs will run closer to 4% given the impact of reserve build and somewhat higher loyalty program expenses due to higher redemption expectations which are also shared with retailers through the RSA. And while we continue to generate positive operating leverage, it is favorably impacting the efficiency ratio.

We expect the efficiency ratio to run closer to 31.5% for the full-year. We expect to continue to drive operating leverage in the core business; however, this will be partially offset by an increase in spending on strategic investments as well as holiday marketing campaigns that run in the second half.

In summary, the business continues to generate strong growth with attractive long-term returns.

Assuming economic conditions and the health of the consumer consistent going forward, our expectations that reserve builds will moderate into 2018 which combined with the continued growth of the business and the impact on the substantial increase in our share repurchase program will help us generate EPS growth in 2018.

Before I turn the call over to Margaret, I wanted to let you know that we will begin filing an 8-K showing our managed data for delinquencies, net charge-offs and end of period as well as average loan balances on a monthly basis.

For the last month of each quarter we will provide the monthly data in conjunction with the filing of our quarterly financial results.

We will be filing the first 8-K with this data after the market closes today which will provide you historical monthly information dating back to January of 2015 you can see the monthly trend and in August we will start filing the 8-K in conjunction with our monthly Master Trust filing. I know many of you will find this helpful.

And with that, I will turn it back over to Margaret..

Thanks, Brian. I will provide a quick wrap up and then we will open the call for Q&A. We continue to execute well on our strategic priorities, driving strong organic growth across each of our sales platforms, renewing several existing programs by also signing a new private label credit card program and launching a new co-brand program.

We continue to drive solid deposit growth in support of our business development. We are also pleased to have announced a meaningful increase in our capital return to shareholders through our new dividend and share repurchase program.

We remain focused on returning capital to shareholders, not only through dividends and share repurchases but also through the continued growth of our business, with a focus on maintaining strong returns and a solid balance sheet as we do so. I’ll now turn the call back to Greg to open up the Q&A..

Thanks, Margaret. That concludes our comments on the quarter. We will now begin the Q&A session. So that we can accommodate as many of you as possible, I would like to ask participants to please limit yourself to one primary and one follow-up question. If you have additional questions, the Investor Relations team will be available after the call.

Operator, please start the Q&A session..

Thank you. We will now begin our question-and-answer session. [Operator Instructions]. And we have our first question from Bill Carcache with Nomura. Please go ahead..

Thank you. Good morning. I wanted to ask if you guys could give a little bit more color on what is behind that change that we saw in loyalty rewards expense exceeding interchange this quarter and I had a couple of related follow-ups on that, but perhaps maybe we could start there..

Yes sure Bill this Brian. Look it is really isolated to one of our programs where we made a couple of changes to make it easier for our customers to redeem their rewards. We believe this is a positive for the consumer to drive more loyalty to the retailer, more visit, more purchases, it’s going to drive incremental sales over the long run.

It is again isolated to the one program we highlighted about 34 million of that related to 2016 rewards in the first quarter of 2017. So when you factor in that change, our redemption rate for the total company now is running above 95%.

So, even if we were to get to a 100% redemption across the board, when you factor in the RSA offset the future impact will be pretty small..

Got it, okay.

So the redemption rate assumption is 95% even if that went to a 100% that’s not - that would have a material impact?.

It would not have a material impact, the impact would be pretty small just given there is an RSA offset as the partners share in those costs.

The best way to think about this going forward, if you adjust for that $34 million in the quarter, loyalty as a percent of interchange was around a 100% and that’s probably a good way to think about it going forward..

Okay, great and we have kind of spent a lot of time talking about that relationship RSAs and credit and hadn’t necessarily been thinking about RSAs in relation to the reward expense as much, but it sounds like that is a permanent relationship, it’s like loyalty resets permanently higher, I guess is a question is that reasonable to expect that the RSAs will also reset permanently lower?.

That you know, again the RSAs I know keep the like to focus on the RSAs as an offset to credit, we have been pretty clear that the RSAs are really based on the entire P&L, so it includes revenue, it includes loyalty expense, it includes credit, and all that, a couple of cases it includes the reserve build, it includes expenses and so it really is a complete sharing of the entire profitability of the program and so, the RSAs that we saw adjustments to our estimate in the quarter absolutely ramped to the RSA and it was an offset there..

That’s great, very helpful. Thank you for taking my questions..

Yes thanks Bill..

We have our next question from Moshe Orenbuch with Credit Suisse..

Great thanks. I guess first Brian you had mentioned that your expectations for credit losses are pretty much consistent with what you had said three months ago.

You had shown us some vintage charge that showed that the second half of 2016 was performing better and can you kind of update that tell us how that’s trending?.

Yes, Moshe.

We have only gone here a couple months past when we published us back in April, so I would say the vintages are performing very much in-line with our expectations, we are still seeing the benefit from the underwriting changes that we have made in the second half of 2016 flow through, so we still see that can have a 2016 vintage is better than the first half of 2016.

And that’s at least in part what is giving us some comfort that losses will start to level off in the back half of 2018. The underwriting changes that we made in the second half of 2016 and that we have continue to make in the first half of 2017 those are largely going to benefit in the 2018 loss rates.

So I would say based on an updated those vintage curves everything we are seeing is pretty much in-line with what we showed you in April..

Great. just to kind of follow-up on a similar theme, couple of other private label players City and ADS have reported recently.

And seem to be, I guess, maybe get your sense as to whether, your results or kind of leading or lagging, because City had kind of taken up its expectation for credit losses, now as oppose to you guys which had kind of done that a few months back and the ADS had talk about some issues with respect to recovery, something that you had also addressed.

So maybe just given that everybody is kind of looking at all of the peers, maybe could you put in context kind of the timing of your disclosures.

I mean, do you feel like you have been ahead of those factors?.

Yes, I think the general trends are all very similar as you look across issuers. I think credit normalization trends are consistent. But I do think, you are seeing a little bit of variation in terms of which quarter in particular summer starting to see or change our view on the go forward projection.

So I think based on - and you can actually, if you go back over the past couple of years and you look at where issuers saw really strong growth, that will differ as well by issuers by a quarter or two. For us, we saw really strong growth in 2015 for first half of 2016.

And right now in 2017, we are working our way through the peak kind of loss rates for those vintages. Second half of 2016 will be maturing in the second half of 2018 and so that’s where we will start to see the benefits on the underwriting changes we’ve made.

So it’s hard to comment generally, I think the trends across all the issuers are very consistent. But I think everybody is seeing this materialize in maybe a different quarter..

Perfect. Thanks so much..

Thank you. Our next question is from Sanjay Sakhrani with KBW..

Thank you. Good morning. And thank for giving us the monthly data going forward. I guess, first question back on credit quality and maybe following on most of the questions. As far as recoveries are concern.

What is the game plan going forward here, because ADS has talked about bringing all that stuff in-house? Could you maybe just talk about where you are at with the recovery game plan?.

Yes. I would say recovery pricing was generally pretty stable this quarter. This is an area that we continue to watch pretty closely. I mentioned last quarter that we run regular analysis on these sales and we compare the results of the debt sales other methods of collecting on the account.

So we are always making those trade-off and we are always trying to optimize different strategy. If we start to see the pricing deteriorate further, we may pull back on some of these sales and collect on the accounts for other means but we haven’t made a dramatic shift in our strategy and haven’t reached that decision point yet.

But it’s something we evaluate every month internally..

I guess, following on that, maybe one other question is do you have the capacity to do all of the collections in-house or would that be another step-up in costs to build that out.

And then just secondly on RSAs, they are obviously tracking below your guidance for the year and as we sort of calculate what the ROA needs to be, to get to the RSA level that you are guiding to. I mean that would probably represent a pretty decent step up in ROAs for the second half for the year.

Is that the way to think about it, I mean it’s like a 30 basis point pick-up in the ROA if I calculate it I think? Or is there something else that we should consider, when we are thinking about the RSA level that you are guiding to for the year? Thanks..

Yes, sure, let me do the recovery one first. So on recoveries, we would go through a transition period. Day one, we wouldn’t bring it all in-house. We would be thoughtful around how we manage that transition. Obviously there is a short-term implication, there is a long-term implication.

You would be a step-up in cost as move some of that in-house or to other collection strategies. But if we felt like that we are getting a good return on our investment over the long-term that’s something we would certainly consider. But we would have to build out some additional infrastructure and add some cost related to that.

On the RSAs, I think if you think about where we started the year, we were 3.7 last quarter, we are 3.6 this quarter. You really have to remember that the second half of the year we had a seasonal high, particularly had a seasonal high in the third quarter that typically coincides with the seasonal low point on net charge-off.

So this just that dynamic alone as you move from the second into the third and then into the fourth quarter, RSA percentages come up. And we think that puts us back right around 4% for the full-year..

Thank you..

And thank you. Our next question comes from Ryan Nash with Goldman Sachs..

Hey. Good morning, guys. Maybe just a little bit more clarity on the credit outlook. So if my math were correct gross charge-offs are up roughly 70 bps in the first quarter and may be a little bit below that in the second quarter.

As we look out through the back half of the year, should we expect that pace to continue and then some variability on the recoveries and when would you expect us to see the gross charge-offs begin to decelerate and maybe any color you can give us in terms of the 4Q build?.

Yes, so Ryan. Look I think generally the trends like I said are in-line with our expectations. The one thing that you have to factor in, let’s just talk about seasonality for a bit, we do see a fairly significant seasonal drop in NCOs in the third quarter. So you have to make sure that you are modeling that right.

That’s certainly included in our guidance. And then just well around the topic of seasonality its probably just worth a reminder that we also see a seasonal increase in delinquencies in the second half of the year. So you just got to make sure that you are taking that all into account, but we feel pretty good about 2017.

like I said this is a transition year. This is where we are kind of hitting the peak of the 2015 and first half of 2016 vintages. The underwriting changes that we have made are largely going to benefit 2018. And so that’s really where we are focused.

The reserve build in the quarter gives you a fairly good indication that is in-line with our expectations and now we have picked up the first half of 2018, so that should give you some comfort that things are trending more or less in-line with what we expected..

Got it. Just as a quick follow-up I guess just on a year-over-year basis how should we expect it to trend? And then second just for the NIM, you are obviously running towards the high end of guidance and historically speaking we do see a pickup in the back half of the year as we see lower revenue suppression, an uptick in late fees.

If you could maybe just clarify what are some of the offsetting factors that would cause you to not be above the 1625 on NIM? Thanks for taking my question..

Yes, sure. Look other than giving you the full-year and you’ve got the first two quarters to work with, I think that should help you model the third quarter and the fourth quarter pretty closely. I think the thing I just reiterate is you got to factor in the seasonal decrease in the third quarter that comes back up in the fourth.

In terms of the margin, look we are very pleased with how we started the year. We are up 26 basis points over last year in the quarter.

Receivable yield was up 15 basis points with stronger revolve rate, we got a benefit from the increase in the prime rate, we did have a partial offset from interest and fee reversals which you would expect to see in-line with credit normalization.

And then we have done I think a nice job optimizing the liquidity that we are holding on the balance sheet. As you think about the second half for the year, we do typically get a seasonal lift in yield in the second half for the year; however, there is going to be a couple offsets we think.

First, I think we will probably see slightly higher deposit betas than we have seen so far in the rate cycle. Nothing dramatic, but probably just a little bit higher than what we have seen so far in the first 100 basis points maybe a little more competition on rates in the second half.

And then I think we are also likely to get a little less benefit from higher revolve rate in the second half just getting some of the changes we made on underwriting. So think there will be some puts and takes but that probably puts us back between the 16, 16 and a quarter range for the full-year..

Thanks for the color Brian..

And our next question comes from Beth Lynn Graseck with Morgan Stanley..

Hi, good morning.

On just probably with [indiscernible] you mentioned slightly higher due to the revolve rate you said you expect given your changes that you have slightly lower revolve rate, could you just explain what changes you made to drive to that outcome?.

Well the revolve rate tends to ebb and flow in-line with credit normalization, so we have seen a fairly substantial benefit on revolve rate starting in the second half of last year. We continue to see that through the first half and I think that will just moderate a bit heading into the second half of this year..

Okay, and then on the outlook for RSA, I know you had a couple conversations on this already, but question is coming into this quarter you indicated the reserve that you were looking for to hit that, that was great and expecting that reserve build again in 3Q.

I understand that the credit improves in 3Q, but should we expect that that there is a like for like improvement in RSA even with what is going to be still a little bit higher reserve build in the third quarter or is there some cushion in the RSA outlook that you are giving us?.

No, we started the year remember around 4.5%, we took it down last quarter to 4.1% to 4.2% and now we are staying around 4%. Part of that is a combination of what we are seeing on credit, plus the additional loyalty costs that we had in the quarter, those are really the two driver.

And then how you get from 3.6%, 3.7% range to 4% for the full-year is really seasonality.

Go back over the last three years and you look at the increase from the second quarter to the third quarter and then into the fourth you always see an increase in the RSA, some of that is driven by lower net charge offs, some of that is program specific but that increase will be there in the third quarter and we think combination of those things puts us background 4% for the full-year..

Okay and then lastly, on the capital return and a dividend hike that you announced earlier this quarter, could you just give us a sense as to whether the timing of your decisions on capital returns has now changed going forward, should we expect that you are going to be making these kind of decisions shortly after second quarter is over timeframe or will you go back to releasing at the same time as the rest of the industry even though you are not CCAR required?.

Yes I mean we were about a month early I think, we got through our process with our board and with our regulators and we were very pleased to be able to announce the capital plan when we did. We were able to take advantage some of that in the quarter. We repurchased about 200 million of the allotment in the quarter.

So where we have a little bit of flexibility, we are trying to be opportunistic around that and we will continue to do that. But I don’t think, we are going to be much ahead of timing wise, what we announced this quarter. I think we are still following a very similar process, we are using the same scenarios that gets published early in the year.

We run our models, we review it with obviously the Management Team, the Risk Committee and the Board. And our Regulators and this year that put us right around the May timeframe that’s probably not a bad way to think about it going forward, but it could lag a month and we could be close sort of where the peers are in that..

Right okay. All right, thanks a lot Brian..

And our next question comes from Jamie Friedman with Susquehanna..

Hi. Brian I let you take breath and Margaret I was going to ask you couple of questions if I could..

Brian really appreciates that..

I was going to ask you about the Sy-Pi that you had mentioned at the outset. So where should we be seeing that show-up the most significantly, you mentioned a number of retailers that you have that have adopted it, I think you gave another volume based metric.

But where in the financials, do you think that that will show up most significantly? And then I have one quick follow-up..

Sure. You will see that in growth in particularly kind of our mobile growth. So the way the Sy-Pi works, it’s an App that easily integrates to the retailer’s App that’s why we call it plug-in. So it’s very easy to the retailer to execute upon, because most of the work is on our side.

And it integrates [indiscernible] so it’s a very seamless smooth process for the customer as they are going through their process of credit and using their credit card and paying and all those types of things getting their reward.

So you will see it in growth and our engagement from a mobile perspective just continues to grow and that’s really where you will see that..

Okay.

Is it fair that say that sort of technology maybe influencing the loyalty observation that you are making more company-wide, if it’s easier to use your rewards people will?.

Not necessary as Brian said there was one program in particular where we need to change. But I would say that in general, the way we think about loyalty is the real positive for us. So the more the customers are aware of the rewards. Our analytic show that if we get them to go back any unused reward, they tend to have a bigger basket and shop more.

So for us this circular process of issuing rewards make it easy for the customer, having them go back into our partners to shop is a real class. And as Brian said, the rewards are offset in RSA. So it’s really a win-win for both of us.

Right we are helping to generate sales for the customer this higher engagement of that customer with our retailer and in the recent environment we are in, anything we can do to make that customer more sticky is a real positive..

Okay. I just had one more. On the digital side, you gave that disclosure, 18% increase, I thought you said online. I get this question a lot is that because you happen to have one extremely prominent ecommerce retailer or is that more of an observation about wallet penetration throughout your retail base? Thank you..

It’s more wallet penetration across our retail base. I would just generally say, I know everyone looks at the one retailer, but we have a lot of retailers who have online mobile capability and that’s just an area with everything else is growing.

So things like having Sy-Pi to help integrate through the App, as I dais we have 12 retailers already involved in that. We are going to continue roll out more, I think you are going to continue to see this be a big part of how customer shop..

Got it. Thank you..

Thank you. Our next question comes from Rick Shane with JP Morgan..

Hey, guys. Actually Jamey’s question was a pretty good segway.

I know you are not going to comment too specifically, but can you help us think about any seasonal impacts that we might see in the third quarter results related to Amazon Prime Day, obviously it’s a pretty significant event, I just want to make sure we understand how it runs through the numbers?.

Sure. We can’t really comment on one particular retailer. What I will tell you is that we initiated Amazon 5% off back in second quarter 2015. We are very pleased with the overall programs to-date. It continues a positive growth story for us. And you could read through Amazon had a great day. So we are very pleased with the partnership..

And you will see it in the third quarter..

Such that might be impacted by that we should be thinking about?.

No Rick I think..

No, we can’t one partner..

Look it’s, you will see whatever impact is there in the growth numbers for the company. But I would highlight that we are pretty diversified across all of our retail partners and its where that you would see even and I am as significant as Amazon Prime Day have a dramatic impact on our overall results..

We have some big partners in that..

Right..

Okay. Thanks guys..

And our next question comes from David Scharf with JMP Securities..

Hi, good morning. Thanks for taking my questions. Just a couple of follow-up on credit. One, I know you don’t provide loss data by product, but just curious Payment Solutions continues to be a fastest growing product, it’s over 20% balances now, and those are obviously all promotional balances.

Brian, as you look at overall normalization in your commentary about second half 2016 has been performing better than first half.

Had there been any meaningful changes in the magnitude of promotions over the last 12, 18 months that maybe impacting the pace of normalization? Just trying to get a sense for whether or not those promotional balances are consisting of the typical interest rate period or whether there were any changes that have contributed to the pace of normalization?.

Yes, no I wouldn’t attribute it to promotional balances. We have seen strong growth in the Payment Solutions, but I would say the trends in Payment Solutions are similar to what we are seeing across the total company in terms of normalization.

The one thing I have pointed out in the past is we do underwrite differently by platform, so we are actually slightly more conservative in how we underwrite in Payment Solutions just given if you look at the margins there and the top-line yield, we are working with a little bit less there than we are in CareCredit and Retail Card.

So we underwrite a little more conservatively in Payment Solutions, given the margin in CareCredit we will underwrite a little bit deeper. CareCredit and Retail Card is fairly close to the average. So portfolio mix is absolutely a driver, but I would not attribute it to promotional balances..

Got it, that’s helpful and then lastly just another quick question on the recovery side. In terms of the mix to the degree of that sales has risen in the last couple of years given pricing trends and those are reversing now has been discussed.

How much of your recoveries are actually accomplished through the third channel which is outsource contingency collection, so much is focused on the debt sale side, but are you seeing - A, do use outsource collection agencies and B, are there any changes to the contingency fees, the pricing in that channel?.

Yes, we do use third-parties as well, we try and optimize across all of the recoveries strategies in the various channels and like I said earlier, we are looking at that on a monthly basis. We have run champion challenger to see where we are getting the best results and we modify and adjust the strategies as we go.

I would say the majority of the impact that we have seen has largely been attributable to the market pricing on the debt sales and lesser impact in other strategies..

Okay, got it. Thank you..

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

Yes, thanks. Brian I believe you indicated, we should expect to see a seasonal drop in charge-offs in 3Q and we certainly saw a significant drop in 2014 and 2015.

But last year when delinquencies were actually rising which tends to mute seasonal improvements, you had a much smaller seasonal improvement in the third quarter, was there anything to call out in that that also outside of the rising delinquencies that might have dampened the seasonal improvement that are not present this year and would suggest another kind of large drop in 3Q?.

Yes, it’s a good question Mark. The one thing I would highlight, in the second quarter of 2016 we spiked out of 15 basis points of incremental recoveries that we had in the second quarter of 2016 which obviously didn’t repeat it either in the third quarter of 2016 or repeat this quarter obviously.

So that’s one thing I would point to, so maybe take the second quarter of 2016 charge-offs up by 15 basis points and then you would see more of a seasonal decline as you move from the second quarter to the third quarter..

Okay, great that’s helpful. And then second question, I mean it sounds like you guys have done some pretty meaningful tightening to give you some comfort and the guidance around losses leveling off in the half of last year, but we haven’t really seen that reflected - the growth your loan growth so far.

When if it all might we expect to see growth moderate as a result of some of the underwriting moves?.

I think you are seeing I would say to some degree in the purchase volume, we have obviously tightened, we made incremental changes here in the first half, we do expect that to have a modest impact on growth, if you look at purchase volume we were right around 7% when you adjust for HHGregg this quarter versus a run rate that was probably closer to 9% or a little above 9%.

So I think that’s where you are seeing it. We are not seeing it quite yet in the receivables still, because there is an offset on incremental revolve which is more of a consumer behavioral element that continues to drive good receivables growth.

So we think there is still really good opportunities to continue to grow but I think, we are not seeing the same opportunities to grow that we saw in 2015 and at least in the first half of 2016. So I think, there will be a modest impact going forward.

But generally as we look across the programs in the platforms, we are still seeing good growth opportunities that are attractive returns, just maybe not we are seeing couple of years ago..

Okay. Great. Thank you..

Our next question comes from Henry Coffey with Wedbush Securities..

Yes. Good morning, everyone. Thanks for taking my question. And, again, the monthly data is going to be extremely helpful for, so thanks for that step forward. When you talk to about rising net charge-offs, it seem to be either a geographical or channel component to it.

There were certain spots to either the store mix or the country that we were struggling more than others. Now that you have had another quarter of looking at that.

Can you really comment on two related things one that and two how is the dual purpose card holding up on the credit side?.

Yes. Sure. We have highlighted for a number of quarters now that portfolio mix component as part of normalization. For us, as we talked about our underwriting is customized and we underwrite differently whether it’s by platform, by program, we target different loss rates depending on the overall profitability of those programs.

So just depending on the growth rates in those different areas mix can certainly be a driver and that’s mix by program, it can be mix by channel, it’s really multi-variant, it’s not as simple as just one program, one product, one retailer, it’s a combination of factors.

And I would say, what we are seeing in that regard is largely in-line with our expectation. I wouldn’t attribute it as much to a geographical slice or a geographical split that’s driving, it really is more portfolio mix on our side.

And then did you have a second question?.

Yes. Just unrelated, but in terms of margin. I think one everybody heard about asset sensitivity, they were looking for fairly large boost though, now we are seeing fairly small boost.

What is the real dynamic there, is it just timing or is it more of funding competitive issue?.

Look, for us, yields and margins are ahead of our expectations so far this year. If you remember, when we started a year back in January, we guided to a net interest margin of 15.75 to 16. We took that up 90 days in. We now think we will be between 16, 16 and a quarter for the year.

So we continue to be slightly asset sensitive, its right around 1% under 100 basis points shock. And that’s been very consistent over the last three years. That 1% kind of range hasn’t really moved much. I do think as we get into the second half year that we may see a little more competition on deposit rate.

We have seen just in the last four to six weeks, we have seen some competitors move. We have been very fortunate so far with the first 100 basis points. I think on our CDs and savings, I think we haven’t moved more than 10 or 15 basis points across all those products. So we have had a nice little lag her. The margins have improved as a result of it.

But I do think the things will get a little more competitive and we are ready to respond to that if we have to..

Great. Thank you very much..

And our next question comes from Arren Cyganovich with D. A. Davidson..

Thank you.

Just wondering if you could talk a little bit about the 2019 renewal with your retailers if you have started those discussions and if so how they have been progressing?.

Yes, we really can’t comment on what we have started or not started. But what I would say is we have to win every day, so part of the process we deal here is really making sure we are delivering for the customers and the retailers now.

In many cases usually something will come up where the retailers wants to either change the value prop or expand in a certain way which will allow us the opportunities to open up the dialogue. So we are constantly in those discussions and we feel pretty positive about the relationship that’s are coming up.

The relationships we have had for very, very long time. And we are hoping and confident that we will be able to renew those relationships..

Fair enough thanks.

And then just from a modeling perspective, was the 34 million higher redemption rate that caused the loyalty - is it more of a one-time item, is that something that’s going to be consistent going forward?.

Yes, that’s really more of a one-time item that related to 2016 rewards in first quarter 2017. And in terms of a run rate going forward, if you adjust that to 34 million and put loyalty as a percentage of interchange right around a 100% that’s not a bad way to think about it going forward..

Thank you..

Vanessa, we have time for one more question..

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

Thanks very much guys. Margaret, you talked about the pipeline in the last question.

I’m wondering maybe can you give us kind of just a commentary on any changes I guess to competitive dynamics in the marketplace?.

Yes, sure. I think competitors have been pretty stable as we have gone through this year. I would say, there is not many big deals out there. We tend to compete more on the $1 billion and below in that space, there is plenty of opportunity. We continue to look at existing programs from competitors as well as start-ups.

I think I have mentioned in the past we have dedicated resources in all three platforms. So we are feeling pretty good about the pipeline that we have in place and how we are winning and playing in marketplace. We are not going to win every deal.

We try to really work on the deals that we think meet our returns and are going to be accretive to our overall portfolio. And that’s kind of how we have approached it and we will continue to approach. But I don’t think anyone seeing particularly crazy out there in terms of competition..

Okay, thanks for the color.

And then last question is, Brian you talked about deposit data in the second half, maybe just give a little bit more color on that in terms of your outlook and then where are you going on deposit duration just to give us a sense of the pricing changes?.

Yes, sure, John. Look I think our expectation is that any move in deposit pricing is going to be pretty modest. I just think it’s been almost non-existent so far with the first 100 basis points that’s going to be slightly above that.

We have seen some competitors, we have to figure in a high yield savings with more attractive offers out there, whether it’s the one-time bonus or slightly better rate than they have been offering, and I think we are going to have to step-up our pricing a little bit more in the second half than we did in the first half.

But I’m talking about basis points here, not a wholesale change from what we have been seeing..

And then duration, where are you guys trying to issue deposit at this point?.

We have always tried to kind of match the duration of our assets with our liabilities that’s part of our funding strategy. We have been very successful in growing the high yield savings book. I would say anywhere where we can grow the longer tenure CDs right now in this environment, we are looking to do that.

Obviously given where rates are there is not a lot of demand for a five year CD, where they are priced today. So we are trying to take advantage of that where we can, there is just as not much demand there as we would like to see..

Great. Thanks for the color guys..

Yes. Thanks John..

Thank you..

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 we hope you have a great day..

Thank you. Ladies and gentlemen, this concludes today’s conference call, we thank you for participating. You may now disconnect..