Q3 2019 Earnings Call

October 18, 2019

Thank you for joining the synchrony financial third quarter 2019 earnings Conference call. We will begin at about one minute. We appreciate your patience. Please continue to standby.

Welcome to the Synchrony financial third quarter 2019 earnings Conference call.

Name is going Esa 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 answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr., Greg Ticketron 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 todays 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 synchrony financial dotcom. This information can be accessed by going to the Investor Relations section of the web site.

Before we get started I wanted 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 could differ materially and our SEC filings, which are available on our website.

During the call, we will refer to non-GAAP financial measures and 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 add it nor guarantee the accuracy of earnings teleconference. Transcripts provided by third parties. The only authorize webcast are located on our website now it's my pleasure to turn the call over to Margaret.

Thanks, Greg Good morning, everyone and thanks for joining us today I'll begin by providing an overview of our third quarter accomplishments on slide three.

We continued to deliver strong results this quarter earnings of 1.1 billion or $1.60 per share included a reduction in the reserve related to the Walmart consumer portfolio, which positively impacted results by 38 cents in the third quarter.

Loan receivables were down 5%, however, on a core basis, excluding the Walmart portfolio loan receivables grew 6%.

Net interest income grew 4% purchase volume was up 5% and average active accounts increased 2%.

Our efficiency ratio of 30.8% was down from 31% in the prior year and was in line with our expectations.

During the quarter, we grew deposits 3.7 billion or 6% over last year and much of this growth has come through direct deposits.

Our direct deposit platform remains an important funding source for our growth and we are making ongoing investments to help attract new deposits and retain existing customers.

I will detail some of our efforts here shortly.

We are pleased to share our recent partnership renewals and extensions in our retail card sales platform, we announced the expansion and extension of our strategic consumer credit relationship with Paypal.

We will become the exclusive issuer venmo co branded consumer credit card, which will launch in the second half of 2020.

The new Venmo credit card program will combine than most expertise in mobile design and social user experience with synchrony industry, leading technology and data analytics to create personalized shopping and payment experiences for venmo customers. We also extended our existing relationship with Paypal.

This is a new milestone in our 15 year strategic partnership with Paypal in which we continue to leverage our digital technology and expertise to help our partner grow their business through new innovative consumer experiences.

We also renewed our partnership with Dick's Sporting goods, a leading omnichannel sporting goods retailer that office and extensive assortment of sports equipment apparel footwear and accessories.

Building on a nearly two decade partnership. This agreement will continue to provide customers with special financing promotions and accelerated rewards program and digital account management through the score rewards branded credit cards and co branded Mastercard credit programs.

These cars can be used on DSG dotcom and across the 700, plus retail stores, including Dick's Sporting goods golf Galaxy and field and stream.

This strategic partnership strengthens the intersection of digital and in store customer experiences for Dick's cardholders.

In payment solutions, we had another active quarter for renewals.

Recently, signing renewals with Polaris lazy bully and counts.

Growing our network to create broader acceptance and utility for our cards is a key priority.

We have had many recent successes on that front in our cat credit network. We continue to extent credits network of more than 230000 healthcare providers and retailers nationwide that except the cat credit card, including 8500, plus Walgreens and Duane read stores. We also added.

Well, we're in Carecredit will be offered as a payment option on Liao patient financial manager and end to end patient financial engagement platform.

This provides consumers more locations, where they can use the credit cards for their health and wellness needs.

We also signed a new partnership with St Luke's University Health network.

We're also focused on innovative digital technology data analytics, and seamless customer experiences all of which are fundamental to the success of our existing programs and to winning nuanced as we have proven we continue to invest in digital innovation to ensure our cardholders have access to their cars right.

Awards and account information across whatever channel they choose to use.

The digital sales penetration across all of our retail card consumers has been growing.

Digital sales penetration was 35% in the third quarter.

Overall, 50% of our applications are happening online with the mobile channel alone growing 22% over the same quarter of last year.

Capital allocation strategy drive strong growth at attractive risk adjusted returns, while maintaining a strong balance sheet and the ability to return capital to shareholders. During the quarter, we repurchased 550 million of synchrony financial common stock and paid 145 million in dividends.

Overall, it was a strong quarter, we made progress on a strategic initiatives. We continue to develop our digital and data capabilities, which is helping us to win in the marketplace and we are making investments in our direct to consumer business.

We maintained broad based growth growing both organically and via new programs and we continue to expand our network. All of this is happening as we maintain focus on the future and that dynamics that are reshaping the consumer experience.

Earlier this month, we successfully completed the sale and conversion of the Walmart portfolio and program.

I would like to thank our team for working hard to deliver excellent service, ensuring the customer with a top priority throughout the process and executing a seamless transition.

Before I turn the call over to Brian to discuss our progress in our direct to consumer business I will highlight our platform results on slide four.

In retail card strong results were driven by our digital partners, which was largely offset by the reclassification of the Walmart portfolio loans were down 11%, but excluding the Walmart portfolio. They were up 5% interest and fees on loans increased 6% over last year and purchase volume grew 5% and.

Active accounts were up 1%, we're happy to expand and extend our relationship with pay Pal through the addition of of Venmo co branded consumer credit card. We are also happy to renew our relationship with Dick's Sporting goods, which includes their golf Galaxy and field and stream brands.

Payment solutions also delivered another strong quarter, we generated broad based growth across the sales platform with particular strength in home furnishings and power that resulted in loan receivables growth of 7%.

Interest and fees on loans increased 6%, primarily driven by the loan receivables growth purchase volume was up 5% and average active accounts increased 3%.

We renewed key partnerships this quarter continuing to drive growth organically through our partnership and also through our payment solutions card networks, the synchrony home and synchrony Karkare credit cards.

These networks along with other initiatives such as driving higher card, we use which now stands at approximately 29% or purchase volume excluding oil and gas have helped to drive results and further build the payment solutions platform for future growth.

Carecredit also delivered another strong quarter receivables growth of 8% was led by a dental and veterinary specialties.

Interest and fees on loans increased 9%, primarily driven by the loan receivables growth.

Purchase volume was up 10% and average active accounts increased 4%.

We continue to expand our network and the utility of our card helping to drive the reuse rate to 54% our purchase volume in the third quarter, we drove strong growth across our sales platforms, we extended and expanded relationships grew our payment solutions and care credit network, an increase card utility.

All providing a strong base for continued future growth with that I'll turn the call over to Brian doubles.

Thanks, Margaret Good morning, everyone. My comments today will center on our efforts to diversify through our direct to consumer channel starting on slide five.

Among our top strategic priorities is evolving and growing our business through the development of new synchrony branded products and services.

More specifically our objective is to become a leading digital bank with competitive products and capabilities that drive deeper customer relationships and provide an attractive source of funding while also launching innovative lending products.

While we've been introducing synchrony branded consumer products over the past few years through our synchrony car care and synchrony home offerings. We have also recently been focused on the synchrony brand a general purpose card.

Today, I will spend a few minutes outlining how we are progressing on both our banking platform and the general purpose card.

First on our deposit products, we've made significant progress over the last several years and building our consumer banking platform.

Our deposits are growing faster than the U.S. direct banking industry, and we have expanded market share over the last several years.

Deposits currently comprise 76% of our funding profile.

With consumer deposits, becoming an increasingly larger portion of our mix of total funding.

The investments we've made over the past few years have enabled us to rely less on rate to attract new deposit accounts.

Our strategic investments have been focused on enhancing our digital advertising developing the right content and message to the right audiences as well as enhancing our digital experience.

For example, we launched our new native App earlier this year.

As well as redesigned our marketing site with a better user interface and overall customer experience.

On slide six you can see the results of our efforts.

Over the past several years, we have grown deposits, 20% per year versus an industry growth rate of 5%.

During that time period, we have also been less reliant on rate and have successfully reduced our savings product rate below the competition as shown on the slide we've also reduced our acquisition costs by 20% in the last three years.

We remain focused on making investments to reduce rate sensitivity and acquisition costs.

As we look ahead, we plan to invest in additional capabilities products and features.

We will also continue to improve customer service and launched differentiator rewards and loyalty programs all of which not only will drive a better customer experience.

But also allow us to continue to grow efficiently and effectively.

Importantly, we are focused on all aspects of the customer experience starting with a quick seamless account opening process all the way through self servicing features once the account is open.

We are confident that we have built a solid foundation from which to build for future objectives in the deposit platform.

Similarly on the lending side, we've made significant progress with our general purpose card.

As you'll recall, we successfully rebranded toys R. US accounts that qualified for our synchrony Mastercard, which was a substantial portion of the portfolio.

This was a cost effective way to expand into the general purpose card market, while also providing continuous and improved utility for our former cardholders.

Slide seven highlights our initial results with this product.

We had a strong activation rate and repeat usage. In fact, we've also increased sales per account by 40% and balances per account by 50%.

At the same time, where.

Turn as we no longer pay the our assai and use those savings to fund the value prop on the card.

Approaching a general purpose credit card in this manner has allowed us to utilize an iterative test and learn approach to growth, we're leveraging customer insights and data to test general purpose card value propositions and features with consumers.

Launch, we offered an attractive 2% cashback value proposition as well as spend incentives, which delivered a strong card and spend activation rate. We're currently testing different combinations of nprs promotional offers and incentives.

We are taking a very disciplined approach to future product offerings value propositions and features.

Looking ahead, we will target our marketing efforts to customer segments, where we believe we can achieve attractive risk adjusted returns.

While our growth expectations are modest in the short term given the discipline nature of our approach. We are excited about the opportunity in the early results, we've been able to achieve so far.

As we seek to diversify our offerings in the direct to consumer space, We will leverage the strong foundations. We have built we are evaluating opportunities across a large and diverse market. We're very excited about our prospects in the space.

And with that I'll turn the call over to Brian Wenzel.

Thanks, Brian and good morning, everyone I'll start on slide eight of the presentation. This morning, we reported second quarter earnings of $1.1 billion or $1.60 cents per diluted share.

This included the reduction in the reserve related to the sales of one more consumer portfolio in October .

As Margaret noted earlier, the reduction totaled $326 million or $248 million after tax and provided EPS benefit of 38 cents for the quarter.

Now this portfolio sale and program to version is complete I'll provide some details and how this and other factors impact our outlook for the fourth quarter and full year.

We generated strong year over year growth in a number of areas as noted on slide nine.

Excluding the Walmart portfolio loan receivables were up 6%.

Interest disease on loan receivables were also up 6% over last year driven by the growth in receivables.

Overall, we're pleased with the growth we generated across the business as well as the risk adjusted returns on this gross.

Purchase volume growth was 5% and average active accounts increased 2% over last year.

Excluding the impact is Walmart program purchase volume growth was 7% in average active account growth was 3%.

Rcs increased $145 million or 70% from last year.

Improved program performance and growth drove the increase.

Our sees as a percentage of average receivables was 4.5% for the quarter.

The provision for loan losses decreased $432 million or 30% from last year, mainly driven by the reduction in reserve related to the Walmart portfolio.

The cores or build was $124 million in the quarter.

Other expenses increased $10 million, 1% over last year, driven by growth that was partially offset by the cost savings executed advancing the Walmart portfolio sale and program conversion.

Holding expenses essentially flat enabled us to deliver positive operating leverage for the quarter reflected in the prudent in an efficiency ratio from 31% last year to 30.8%. This quarter. So overall the company continue to generate strong results in the third quarter.

I'll move to slide 10 to cover our net interest income and margin trends.

Net interest income was a 4% driven primarily by the growth in loan receivables. The net interest margin was 16.29% compared to last year's margin of 16.41% down 12 basis points.

The main factors driving the margin performance were factors lowering our net interest margin include a slightly lower mix of loan receivables as a percent of total earning assets compared to last year and an increase in total interest bearing liabilities cost of 35 basis points to 2.71%, primarily due to higher benchmark rates.

These impacts were partially offset by an increase in loan receivables yield of 31 basis points to 21.42%, which include the purchase accounting impact related to the Paypal credit program in the prior year.

Later in the call I'll provide more insight on the direction of net interest margin for the fourth quarter.

During the impact from the sale of the Walmart portfolio.

Next I'll cover key credit trends on slide 11.

In terms of specific dynamics for the quarter I'll start with the delinquency trends.

The 30, plus delinquency rate was 4.47% compared to 4.59% last year and the 90, plus delinquency rate was 2.07% versus 2.09% last year.

If you exclude the impact of the Paypal credit program and the one more portfolio. The 30, plus delinquency rate was flat to last year in the 90, plus delinquency rate improved approximately five basis points compared last year, reflecting continued stabilizing credit trends.

Moving onto net charge offs.

Net charge off rate was 5.35% compared to 4.97% last year, and 6.1% last quarter and was somewhat lower than our expectation over 40 to 50 basis point decline from the second quarter.

While credit trends continued to improve this was partially offset by the purchase accounting impact in 2018 relate to the Paypal credit program.

Excluding the impact of the Paypal credit program and the Walmart portfolio net charge off rate was approximately 20 basis points lower than last year.

The allowance for loan losses, as a percent loan receivables was 6.74% and the core reserve build in the third quarter was $124 million, excluding the impact from the reduction in reserve related to the Walmart portfolio.

The reduction related to the Walmart portfolio was $326 million, which was higher than expected $250 million due to timing of the portfolio sale occurring earlier in October .

As a result, the remaining reduction in loan loss reserve in the fourth quarter will be in the $35 million to $40 million range.

We expect the core reserve build for the fourth quarter will be in the 102 $150 million range driven mainly by gross.

Consistent with the outlook, we provided we did see stronger core loan receivable growth in the third quarter, 6% and believe this will continue into the fourth quarter.

The acceleration in growth reflects the opportunities we have in the fast growing digital space and the expansion of our network and except unsecured credit and the auto and home networks in payment solutions.

Regarding net charge offs, we expect the net charge offs for 2019 will be towards the lower end of the 5.7% to 5.9% range with the slight increase compared to 2018, driven mainly by the purchase accounting impact related to the Paypal credit portfolio.

Partially offset by the impact from the sale of the Walmart portfolio in October .

Excluding the effects of people Walmart and then charge off rate for 2019 is expected to be similar to 2018.

Finally regarding the implementations diesel which is effective in 2020 . We believe the initial impact is consistent with what we disclosed last quarter.

We will incorporate the estimated impact of cecil's transition adjustment and impacted nextshares outlook. When we provide our guidance during our fourth quarter earnings call in January .

In summary credit trends of stabilize and are showing improvement we expect the trends to continue to show stability as we move forward assuming stable economic conditions.

We continue to see good opportunities for continued growth and attractive risk adjusted returns.

Moving to slide 12, I'll cover expenses for the quarter.

Overall expenses came in at $1.1 billion, an increase of $10 million or 1% compared to last year.

The increase was driven by growth, but was partially offset by cost savings executed in advance of the Walmart portfolio sale and program conversion.

Operating expenses basically flat enabled us to deliver positive operating leverage for the quarter, reflecting the proven an efficiency ratio from 31% last year to 30.8% this quarter inline with our expectations.

Now to sell the Walmart portfolio. The program conversion has been completed we do expect a final portion of the cost associated with Walmart program to be eliminated in the fourth quarter and be fully reflected in the expense run rate for 2020.

Moving to slide 13.

Over the last year, we've grown our deposits $3.7 billion were 6% primarily through our direct deposit program. This puts deposits at 76% of our funding compared to 72% last year.

In July we issued $750 million in senior unsecured debt.

The issuance has a three year term for the fixed rate of 2.85% that strong demand.

Turning to capital and liquidity, we ended the quarter at 40.5% C.T. one under the fully phased in Basel III rules. This compares to 14.2% on a fully phased in basis last year.

The C.T. one level increased over the past year, even as a company deployed a significant amount of capital through organic growth program acquisitions and continued execution of our capital plans reflect in the company's strong capital generation capabilities.

During the quarter, we continue to execute on the capital plan, we announced in May we paid a common stock dividend of 22 cents per share repurchase $550 million were 15.6 million shares of common stock during the third quarter.

At the end of third quarter, we have approximately $2.7 billion of remaining share repurchase capacity of the $4 billion Board authorized plan, which runs through June Thirtyth 2020.

Total liquidity, including Undrawn credit facilities was $22 billion, which equated to 20.5% of our total assets.

This is down from over 22% last year, reflecting the deployment of some of our liquidity to support growth.

Overall, we continue to execute on the strategy that we outlined previously we're committed to maintaining a very strong balance sheet with diversified funding sources and strong capital and liquidity levels.

We expect to continue deploying capital through growth and further execution of our capital plan in the form of dividends and share repurchases.

Before I conclude I wanted to recap our current view for the fourth quarter in the year as was the impact from the warm where program going forward now the portfolio sale and conversion has been completed.

Starting with an interest margin the margin is seasonally lower in the fourth quarter declining as much as 50 basis points from the third to the fourth quarter in the past two years.

In addition to seasonality the decline will be somewhat more pronounced this quarter due to the excess liquidity from the sale of the Walmart portfolio.

We expect the net interest margins trend towards 50.5% for the fourth quarter.

We still expect the net interest margin will be in a 15.75% to 16% range for the year.

Focusing on our assays.

There are several factors impacting the arse, 8% for the fourth quarter in the year.

First growth and improved program performance will impact our assays.

Also impacting our assays is the sale the Walmart portfolio, specifically, but the timing of the portfolio sale as well as the fact that the Walmart program operated NRC percent below the company average will have an upward impact on the our say percentage.

Considering all these factors, we expect the Rs, 8% will be approximately 4.5% for the fourth quarter and for the full year will be slightly above the 4.0% to 4.2% range we had expected.

Moving to credit we expect the core reserve build for the fourth quarter to be largely driven by growth and we'll be in the $100 million to $150 million range.

As a result of the Walmart portfolio being sold in October the remaining reduction to the loan loss reserves held against this portfolio will occur in the fourth quarter and we'll be in the $35 million to $40 million range.

Regarding net charge offs, we expect net charge offs for 2019 will be towards the lower end of the 5.7% to 5.9% range.

The slight increase in net charge offs for 2019 as compared to 2018 is mainly driven by the purchase accounting impact related to the Paypal credit portfolio, partially offset by the impact from the sale of the Walmart portfolio in October .

Excluding the effects of Paypal and Walmart the net charge off rate is expected to be similar to 2018.

Turning to expenses, we continue to generate positive operating leverage and still expect the efficiency ratio to be around 31% for 2019.

In summary, the business continues to generate strong growth with attractive risk adjusted returns I'll now turn the call back to Greg to open the QNX.

That concludes our comments on the quarter, we will now begin the Q and a session. So that we can accommodate as many of you as possible I'd like to ask participants. 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 QNX session.

You are using a speaker phone you may need to picking the handset up first before pressing the numbers.

Once again, if you have a question. Please press Star then one we have our first question from Sanjay Sakhrani with KBW.

Thanks, Good morning I.

I guess I have first question for Brian Wenzel, just portfolio yield, it's obviously done really well despite the fed rate cuts this quarter and I know you you indicated there was some purchase impacts potentially could we just discuss about how would the trend going forward relative to all these different dynamics occurring with the right.

Ladies and obviously the mix changes.

Great. Good good morning is on Jay.

As you as you think about net interest margin for the quarter a lot of our book, 45% of our book is floating when you think about Transactors is more like 25%. So we're not necessarily as exposed to.

The interest rates. We also think about the margin we have a positive benefit from the purchase accounting last year for for Baby now that's not re occurring again this year as well as the CIA T that we put in place where we purchased the portfolio Thats beginning to bleed in so those are positive impacts on the portfolio as we move forward over.

See with Walmart coming out of the portfolio that there will be a little bit a headwind tinted interest margin because that portfolio operated operated at a higher net interest margin then the overall book, So again being our assets and liabilities are fairly well matched we don't see a lot of pressure from the interest rate environment as we move forward.

Okay.

I guess my second question is for Margaret and Brian doubled on the Synchrony Mastercard I appreciate that the disclosure there just wanted to make sure I understood sort of what the plan was going forward with that product going forward is that product just going to use for bankruptcy transitions for retailers or are you expecting the grow that portfolio.

Independently and then when we think about the success of that portfolio.

Up until now has it been consumers basically transitioning to that card as their primary Carter I didnt have they been transferring balances over thank you.

Yeah sure Thunder. This is Brian So look I'd say overall, we've been pleased with the trends in the performance that we're seeing on that Mastercard portfolio. It's still early.

But we're seeing good activation good usage, we're seeing nice retention of balances good spend on the accounts.

As you know, we put a very strong 2% cashback value proposition on the card.

Given we're not paying the our assai, we're able to offer an attractive value prop and still earn a very attractive return.

So what we're we're pleased with what we're seeing in terms of a broader strategy, we're certainly evaluating that.

We've got a great team in place they've got a lot of general purpose car experience.

Look we are monitoring the uses a performance on the portfolio. We also started to do some new account originations.

So we're testing into different segments, but look I think the thing that's important to note as we're going to be very disciplined around profitability and returns on that so we.

We have some modest growth expectations.

Here in the short term.

Thank you.

Thank you. Our next question comes from Bill Carcache with Nomura.

Hi, good morning.

A question on the recent venmo credit deal with Paypal.

So what are the elements of the venmo modernization strategy for Paypal has been to enable a pay a pay with venmo checkout button for merchants that already except Paypal and would like takes up venmo is it reasonable to conclude that the venmo credit product wont just act like a standalone credit card, but it will also be available digitally to venmo customers who.

Click on a pay with them on checkout button, so basically even more credit is going to be integrated across from the venmo platform.

No I would say that's probably about a question for the venmo Paypal team, but what I can tell you is that as we work with that organization, they're really looking at how do they expand customer choice and ability for their customers. So I would expect them to look at all avenues for growth for the vet the use of the venmo credit card.

And we're going to work closely with them on terms of how we build out the capabilities to digital experience really trying to understand what are the customer.

Frictions that are out there that we want to try to solve to really have what were describing as.

Exclusive in App, great customer credit experience across various channels.

So we're going to work closely with them as we continue to develop both the pay Pal a program that we have with them as wells venmo.

Got it Margaret Thanks, and are there any internal studies that you guys have done that give you any kind of sense of what the demand for the product will be like it just seems like there are lot of competing alternatives out there and on the credit card side and so just wondering if it's reasonable for us to expect that the value prop will include rewards and just looking for a sense of what gives you guys confidence that the.

And for the product will be there.

Sure well first they have 40 million venmo customers. So we think thats a great target market and it's growing secondly, it has a great brand and we know that in particular millennials really love Venmo, and so I think as we look to build out that value proposition, we're going to be looking at one of the type of rewards that those customers.

As a looking for so it could include cash back, but I wouldn't say, it's only it's only going to be cash back I think we really want to get into some deep research with that customer base and then the other piece of this has really as we all know these these particular for this particular segment of customers really look at experiences as a really important element.

Of how they live.

And to select and so we're going to be looking at that both from a value prop perspective, as well as the experience they have themselves on using the app.

Thats great. Thank you so much appreciate it.

Thank you. Our next question is from Don Fandetti with Wells Fargo.

Good morning. So one question is on credit it sounds like the guide for Q4.

The reserve builds fine, but if you look at the delinquencies year over year ex Paypal.

There are sort of flattish from down year over year.

I Wonder if you could talk little bit about your expectation in the near term and then.

Under the Hood, what's going on with Paypal credit in General I guess losses are going up just on growth and normalization can you just talked about those two factors.

Great Great. Thanks, Don first of all we don't provide necessarily if were looking guidance relative to delinquencies are they being consistent and stable throughout the throughout 2019 with regard to pay Pal again, we don't provide specific information on one portfolio, but when you look at the guidance we've guided on net.

Our job basis.

To the low end to the 5.75 0.9 rates. So as we move through the quarter clearly we have seen stabilization to improving credit trends, which was wire reserve rate in the third quarter was below the guidance that we provided back in our second quarter call back in July . So so as we look at the the net charge off environment in credit environment.

We're optimistic we don't see any pressure on the consumer and all the measures that we look at and our collections really outperformed so again, we view credit to be a stabilizing the better.

And expect the net charge off rate for the year to be at the low in the 5759 range then.

And then the buybacks there were a little bit light first our model, but they're kind of bounce around I was curious do you still feel like you can buyback a significant amount.

In the open market or in still considering maybe a tender or do you feel like you can just kind of work through that and I would assume Q4 would be potentially heavier.

Yeah, Yeah, you know obviously you know as we look at as we move through the capital plan in the repurchase cadence for the year, There's a base capital plan or base repurchase plan that happens over the four or five quarters.

Then we go out then we had the Walmart they kind of laid in obviously you know we had to have certainty relative to that transaction you have to record the reserves getting into earnings.

We purchased $1.3 billion approximately for the first two quarters under the plan.

We have $2.7 billion remaining under the $4 billion authorized repurchase plan, we feel confident that we will be able to to execute that plan. If you go back in our past history, we're able to execute twice both the fourth quarter of last year first quarter. This year repurchases in the open market of $966 million. So we feel.

We have the execution to get to 2.7 billion done over the next three quarters, almost certainly we evaluate lots of different options to get the best execution on price and we will continue to do that but we feel confident we can execute on the plan that we outlined.

Okay.

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

Hi, good morning.

Good morning.

Couple of questions. One just on the health care credit channel I know you called out Tom dental and veterinary, but I just wanted to understand a little bit more and some of the other verticals there as well as.

Plans to.

You know continued dominance in the feel they see a lot of interest from other new either fintech ease or yeah financials coming after the area. So if you could give us a sense of higher.

Pushing back against our competition. Thanks.

Sure. So you know we said since the beginning here one of our strategy is really to grow the cat credit platform. So in the core business itself. We continued to see really good growth and thats really the dental and that businesses that we highlighted this quarter, but as we look to expand into more what were calling a.

Health and wellness wellness card, we've expanded utility of the card over the year the latest being the Walgreens acceptance and we'll continue to look at those but our other strategy is really in two areas. One is really shifting from what were calling that's to Pat So the acquisition of pets best this year.

<unk> is a function of that and really looking at ways too.

Leverage both the insurance side of settlement and our card product to really.

Ensure that the consumers are getting a really efficient process going forward as they pay their bills.

The other part of this is really going after what I call payment management systems, where we can integrate into those systems and have carecredit as an option in that system. So the loyal example, as is one of those and then lastly is really expanding into what we're calling health.

Network. So hospital network. So I think in the past we described we've gone out and sold dentist office by dentist office that office, but that office.

Weve continued to look at various verticals, where we think our card can be used and are now working with hospital networks to integrate can't Carecredit as the plant payment option in the hospital network. So you know our view is we have a lot of expertise and experience in the space. We've been added for over 30 years.

And we think this is a great growth opportunity for us now.

Loss fintechs or they are we see them, whereas we're still very confident in our capabilities and what we've built out and where we want to go.

Okay.

Did you have anything further.

Oh, yes, sorry about that thanks, so much on our assays to separate question I know you gave us a sense of for Q and what the outlook is for that could you just give us a sense of how we should anticipate it projecting you know a little bit longer term I'm, just basically looking for X Walmart should the fourq run rate be something that you know seasonally it.

It differs.

Obviously, but should that be a good run rate that we should take for the 2020 outlook or is there anything else that we should be considering on that.

Great. Thanks Betsy.

We will provide guidance on our season our call in January encompassing full guidance for the year. When we think about all the other elements as.

As you think about Walmart Walmart did operate at a lower artists a percentage than the company average, which is why we see slightly up in the fourth quarter versus past seasonal trends, obviously that will impact us as we move forward into 2020 , we'll provide that guidance in January .

Okay. Thanks.

Thank you. Our next question we have our next question from Bill Ryan with Compass point.

Thank you and good morning, and thanks for taking my questions also just in relation to the RF say I know, you're not providing 2020 guidance, but just as you kind of think about it structurally and directionally going into next year.

Do you expected to be driven you mentioned, how walmarts get impacted but.

Looking at your contract renewals earlier this year will they have any impact directionally in 2020, or you know given the economics of the renewals arts it pretty much the same.

And let's just call it a nominal mplus next year. Thank you.

Yeah. Thanks, both for the question. So so as you think about the our say well when we were new transactions the economic.

Formulas kind of set at the store. So so those formulas don't change as we move forward. So so really what's going to drive the our as say as we move forward absent absent. The Walmart portfolio is really going to be the underlying performance of the portfolio from growth from net interest margin charge off six there that's going to be the bigger dry.

So as we move forward to the extent that we have you know improved performance on those lines there will be more assays that extend its going to be less than the our assays will decrease so that's the benefit to us as a company, having NRC buffer, but they participate in both sides. So so again the contracts are generally set and won't change is really just the performance and growth.

So the underlying portfolios.

Thank you.

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

Hey, guys. Thanks for taking my questions. This morning, I just want to talk about the general purpose a little bit.

Historically part of the value proposition on private label choose the retailers is that you were providing their customers with spending money that they can use exclusively in their stores.

And I assume that that's part of this sort of which two retailers I'm curious as you sort of.

Dip your toe into and I don't want to overstate the general purpose a proposition, but as you did your tailwind there.

How do you think that will resonate with your existing retail partners.

Yes, Thanks, Rick look we don't we don't see it as a competing product. If you think about who were in there competing against they all have general purpose card portfolios that are much more substantial than what we have here.

While we like this as a product and it does give us some nice diversification. It is it's pretty small today, we're in the very early innings here.

There's a lot of positives I think in terms of what we rolled out we like the trends that we're seeing on the new account originations that we've done so far but.

Look this is still a small piece of the overall portfolio, we're still a partner led business.

That will remain the case for the foreseeable future.

Okay, great. Thanks, Brian .

Yep.

And thank you we have our next question from Matthew O'neil with Autonomous research.

Yeah, Hi, Thanks for taking my question I know, you're not providing 2020 guidance, yet, but I was hoping you could potentially give us a little bit more insights around the.

The the planning ahead of the Cecil implementation. So I know, we know that 50% to 60% initial build but maybe just kind of the knock on effects or any following impacts as far as you know the ongoing provisioning needs.

And or sort of capital levels slash buyback capability once we get through the remaining 2.7 on the current authorization just any thoughts there would be helpful. Thanks.

Yeah, Great first with regard to to see so again, we indicated on the call earlier that you know our our expectation now is consistent with the second quarter in the range. We provided a back then you know as we think about the ultimate Mount that will get posted at the end of the year, that's really going to depend upon the asset.

Ah composition the economy in our kind of view that economies moves forward. So there are some moving pieces in as well as we're finalizing some of the assumptions. So it's a little bit premature to talk about the the seasonal impact as well you know there's going to be NRC offset not for the day one transition adjustment for the two we're still working through that with our partners.

So as we finalize that here in the fourth quarter will provide comprehensive guidance.

With regard to that in January with regard to your second part of your question with how seasonal impact capital first I'd say again, it does not impact our capital plan that runs through June Thirtyth 2020 , we incorporated our view of that with our own submission to the regulators back in in the first quarter. So so from the plant versus plant.

Aspect of its already addressed you know as we think about seasonal and the post above the incremental reserves. We obviously have been in contact in discussing with the regulators and stakeholders. The fact that we should be getting capital credit for the post above.

Of those reserves as we move forward and were in ongoing dialogues and how that should occur.

So it's a little bit premature to talk about that relative to future capital plans, but we plan to incorporated as we move forward and we'll give guidance when we have greater clarity.

That makes a lot of sense. Thanks, and you kind of front ran my follow up which is going to be around need the there's the discrete contracts and the Rs a structured with respect to cease all it sounds like that that will require kind of a discussion at least with some if not all of the the reap the main partners is that Dave.

Say.

Yeah, you know obviously, we're in discussions with them first of all educating them on the Cecil standard make sure they understand it and as we finalize our adjustment how that impacts on flows through the DRC structures again, I think we said in the past the day, one transition adjustment that there'll be no impact from Norris eight perspective, I mean, it does not go through the piano.

But as we move today to we're going through and really working with the partners explain the implications to them and then we'll come back with again in January with with the complete guidance with how it impacts our as say as well as the the provision line.

Alright, great. Thanks, Oh wait a little well wait till then.

Thank you.

And thank you. Our next question comes from Dominic Gabriel with Oppenheimer.

Hi, Thanks, so much for taking my questions.

When we just think about the general purpose card initiatives and given your efficiency is pretty stable for quite some time.

Should we expect some of the initiatives on for general purpose, a build out if there is any to fresh or the efficiency ratio as we look forward in any way or is this just part of his is so small and part of your kind of normal investment.

Build when you think about it moving forward any way that it shouldn't have any material impact on your efficiency ratio moving forward.

Yeah, I don't think in the short term certainly you're going to see this pressure the efficiency ratio at all I think just going back to you know one important thing I said earlier, we're testing into new account originations were testing into different customer segments different nprs et cetera, but it's very important to note that we're going to be very disciplined around profitability and return.

Burns.

So we're being very disciplined here in the short term as we as we run new tests were trying to find those cells, where we can one where we can compete it's obviously a very competitive market.

We're trying to find those areas, where we can compete but still earn a very attractive return. So that's our primary focus here.

It sounds like a great run rate for expansion and then just separately.

Can you talk about the retail card segment exposure to home improvement outside of lows. When you think about the total retail card Eni in fees and then we've seen a spike in mortgage applications can you talk about what you've seen in the past even for even pre IPO of your spending trends.

As mortgage applications ramp it seems like there's a really good opportunity that's unique to synchrony right now.

Holding.

Were you may see some accelerated and I growth in the future due to some of this home improvement possible ramp from mortgage applications. You just talked about the pre IPO trends you see.

Sure so.

I would say that you know obviously, we have lows, which is a big you know retail related to the home, but our payment solutions businesses really where.

The verticals are really dedicated to a lot of the home, particularly furniture home improvement H. fact, 10 or you know all those types of things and I think you've seen us.

Talk about the fact that home has definitely helped us I would say over the last probably 18 months.

And we're seeing people invest in their homes. So we're seeing that on the payment solution side for sure and in loans I think the other thing. We did this here is we launched the home network, which is a card that allows you to purchase in a number of our retail partners and others.

It's a network heart, particularly dedicated to purchase at home, which now the launch was very good were continuing to invest in that network. So to your point, we see the home as a critical element of growth as me look forward in this business and feel that we have a number of merchants across.

A system that would that have particularly is dedicated to that that vertical so I'm definitely a a nice opportunity for us as we see home purchasing a increase in home improvement being a day part of that.

Excellent congrats on the quarter. Thank you.

Thank you.

Thank you. Our next question is from Eric Wasserstrom with yes.

[noise] [laughter], thanks, very much Jude, maybe just getting back to the.

To the pay Pal venmo relationship.

One phenomenon that I'm sure you guys have also noticed is the the growing use of by now per liter functionality, which in many ways is similar to what you do on promotional finance. So I'm wondering if there's any.

Discussion that you're having about maybe integrating those functionalities and capabilities.

In two into into your relationship with Paypal.

So we actually have a product out there already called that pay that weve tested a pilot in the market that is a product like that you know what I would say is from afar pay Pal and then my perspective first of all their obviously, a very customer focused digitally focused organization.

And I would say they look at all opportunities as a way to grow their business, which is a benefit to us growing our business. So were in talks with them on a bunch of different things both on the paper I like to remind everyone. We only converted pay Pal in June so.

So just on a PR pay Pal side, we have a list of initiatives that we want to work on and execute on particularly from a growth marketing product design perspective going forward and now we have they added opportunity of then miles. So I would say the teams are looking at all different types of ways to really leverage.

The opportunity that's out there in the marketplace and really make sure we have the right offer for the right product than for the customer they're making their purchases.

And that would all be in App and that'll.

Thanks, and if I can just follow up and I know theres been a series of question. This already.

It just respect to the to the general purpose.

Product picture that you're experimenting with <unk>.

What.

Maybe just at a high level, what what is the thesis there that that you're pursuing given as I think other so pointed out it's reasonably crowded marketplace, particularly in and cashback, where there has been an acceleration towards the 2% level and and such but you know as applecart. Another is kind of demonstrate in of itself does not really my driving consumers to.

Two adoption.

Yeah look first I'd say this is a very close adjacency to what we do today and our core business. We have very experienced underwriting credit teams very experienced marketing teams. We have had a dual card product, which is a top a wallet general purpose card like product for years. So this is a space we actually no really.

Well.

We actually have a great team in place that has a lot of general purpose card expertise.

And this is part of part of strategy is emerging kinda practical reality.

With a with future long term objectives and when.

We had the opportunity to convert the toys R. US portfolio that was a great way to kind of maintain utility for those cardholders given attractive value proposition and as frankly provided us with a great test bed.

Now to kinda learn and see how we want to enter into the space.

No it's been on our strategic roadmap for years I think.

The conversion allowed us to accelerate that and we're pretty excited but we're also cautious we're not confuse it this is a very competitive market.

We're very focused on targeting profitable accounts that have a good risk adjusted return.

And so were you know I would say our growth expectations in the short term are modest, but we're excited about getting some nice diversification.

But laser like focused on maintaining our return profile as well.

Thanks very much.

[noise] and thank you. Our last question comes from Moshe Orenbuch with credit Suisse.

Great. Thanks, most of my questions have been asked and answered but picking up on your comments Margaret on Paypal credit.

Could you talk a little bit about maybe that this that the priorities as you go forward because it is really I mean, it's sort of greenfield in terms of allowing you kind of the ability to access.

Retailers either deeper penetrate retailers that are your partners are retailers that arent and maybe how we should think about the opportunities and how you're going to prioritize them.

Yeah, I think I think the opportunities are in a couple of key areas. One is just pure marketing.

In the past, we will kind of on the tape outs I competing because they had.

Their product we have our product so I think from our emerge on how we're kind of targeting customers I think thats a real opportunity. The second thing I think has been and has proven to be very beneficial is the sharing of data on both sides, meaning we have a lot of information they have a lot of information. So how do we leveraged I didn't.

Permission both from a.

A growth perspective, which I think as most exciting part, but then also making sure from an underwriting perspective, we're making the right decisions and more importantly is protecting on the fraud side. So we see lots of opportunity to just be I, what I would say more efficient on the marketing side and then more robust on the credit underwriting.

Okay and protecting the consumer I think we're still in early days as we've laid out the conversion on which was up as you know big one we have a bunch of what I would call technological advances that we're going to make together that were really driving and that's really going to be more around the customer merchant experience.

I'm really trying to make that as seamless as possible and ensure that you know that customer and never leaves the pay Pal App. If you will and it's all done within the App and so we have teams of people and I mean team.

Looking on a bunch initiatives to really drive all of that and it's all around what I would say two key things growth and experience.

Both on the consumer side and the merchant side, which is very important here.

For pay Pal.

Great. Thanks, and you kind of in a similar vein you talked a little bit about some of the health care and pet type networks.

Is there any thought given to kind of just kind of talking about these in terms of the networks that you've kind of built yourself as a as a vertical that you would that you would give disclosure on because I think one of the things that that I heard during the call was this idea that there's some concern about incursion by fin techs and you know when sort of thing seems like the opposite that you.

The ability to build those networks and so whether that's something you think about kind of outlining enough in greater detail.

Yeah, that's something we'll probably look at as we talk about the strategy for for 2020 going forward, but generally speaking you know we have.

First of all I would say this the space itself is fairly fragmented right. So one of the advantages. We have is just the fact that we've created a brand name for ourselves and our recognized by a lot of folks in that space, but were still <unk> honestly I would say, we're still learning, particularly on the Big Hospital network.

Side each of these networks operate very differently and I think you now that we brought on our board an expert in this area is helping us think through how to target and where to go. After so we'll talk more about that as we go into 2020, great. Thanks, So much.

Thank you.

Okay. Thanks, everyone for joining us this morning, and your interest in Synchrony financial.

Besser relations team will be available to answer any further questions. You may have we hope you have a great day.

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

[noise] Oh.

[noise].

And.

[noise].

Welcome to the Synchrony financial third quarter 2019 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 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 todays press release, we've 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 synchrony financial Dot com. This information can be accessed by going to the Investor Relations section of the website.

Finally, synchrony financial is not responsible for and does not add at nor guarantee the accuracy of earnings teleconference. Transcripts provided by third parties. The only authorize webcasts are located on our website.

It's my pleasure to turn the call over to Margaret.

Thanks, Greg Good morning, everyone and thanks for joining us today I'll begin by providing an overview of our third quarter accomplishments on site right.

We continue to deliver strong results this quarter earnings of 1.1 billion or $1.60 per share included a reduction in the reserve related to the Walmart consumer portfolio, which positively impacted results by 38 cents in the third quarter.

Loan receivables were down 5%, however, on a core basis, excluding the Walmart portfolio loan receivables grew 6%.

Net interest income grew 4% purchase volume was up 5% and average active accounts increased 2%.

Our efficiency ratio of 30.8% was down from 31% in the prior year and was in line with our expectation.

During the quarter, we grew deposits 3.7 billion or 6% over last year and much of this growth has come through direct deposit.

Our direct deposit platform remains an important funding source for our growth and we are making ongoing investments to help attract new deposit and retain existing customers find will detail some of our efforts here shortly.

We are pleased to share our recent partnership renewals and extensions.

Our retail card sales platform, we announced the extension and expansion of our strategic consumer credit relationship with pay Pal.

We will become the exclusive issuer venmo co branded consumer credit card, which will launch in the second half of 2020.

The new Venmo credit card program will combine then most expertise in mobile design and social user experience with synchrony industry, leading technology and data analytics to create personalized shopping and payment experiences for venmo customers. We also extended our existing relationship with paper.

Yeah.

We also renewed our partnership with Dick's Sporting goods.

Leading omnichannel sporting goods retailers that office, an extensive assortment of sports equipment apparel footwear and accessories.

Building on a nearly two decade partnership disagreement will continue to provide customers with special financing promotions and accelerated rewards program and digital account management through the score rewards branded credit card and co branded Mastercard credit programs.

These cars can be is on DSG dotcom and across the 700, plus retail stores, including Dick's Sporting goods golf Galaxy and field <unk> stream.

This strategic partnership it strengthens the intersection of digital and install customer experiences for decks cardholders.

In payment solutions, we had another active quarter for renewals.

Recently, signing renewals with Polaris basically income.

Growing our network to create broader acceptance and utility for our cards is a key priority.

We have had many recent successes on that front in our cat credit network. We continue to expand credits network of more than 230000 healthcare providers and retailers nationwide that except the cat credit card, including 8500, plus Walgreens and Duane greet stores. We also added.

Lay out we're in Carecredit will be often has a payment option on lay outpatient financial manager and end to end patient financial engagement platform.

This provides consumers more locations, where they can use to credit card for their health and wellness needs.

We also signed a new partnership with St Luke's University Health network.

They also focus on innovative digital technology data analytics and seamless customer experiences.

Which are fundamental to the success of our existing programs and to winning new ones. As we have proven we continue to invest and digital innovation to ensure our cardholders had access to their cars rewards and account information across but ever channel they choose to use.

The digital sales penetration across all of our retail card consumers has been growing.

Digital sales penetration was 35% in the third quarter.

Overall, 50% of our applications are happening online with the local channel alone growing 22% over the same quarter of last year.

Capital allocation strategy type strong growth at attractive risk adjusted returns, while maintaining a strong balance sheet and the ability to return capital to shareholders. During the quarter, we purchased 550 million synchrony financial common stock and paid 145 million in dividends.

Overall, it was a strong quarter, we made progress on our strategic initiatives, we continue to develop by digital and data capabilities, which is helping us to win in the marketplace and we are making investments in our direct to consumer business.

Earlier this month, we successfully completed the sale and conversion of the Walmart portfolio and program.

I would like to thank our team for working hard to deliver excellent service, ensuring the customer with a top priority throughout the process and executing a seamless transition.

Before I turn the call over to Brian to discuss our progress in our direct to consumer business I will highlight our platform results on slide four.

Active accounts were up 1%, we're happy to expand and extend our relationship with pay Pal through the addition of the Venmo co branded consumer credit card. We also happy to renew our relationship with Dick's Sporting goods, which includes the golf Galaxy and field and stream brands.

Payment solutions also delivered another strong quarter, we generated broad based growth across the south platform with particular strength in home furnishings and power that resulted in loan receivables growth of 7%.

Interest and fees on loans increased 6%, primarily driven by the loan receivables growth purchase volume was up 5% an average active accounts increased 3%.

We renewed key partnerships this quarter continuing to drive growth organically through our partnership and also through our payment solutions card network, the synchrony home and synchrony Karkare credit cards.

These networks along with other initiatives such as driving higher card, we use which now stands at approximately 29% purchase volume excluding oil and gas have helped to drive results and further down the payment solutions platform for future growth.

Carecredit also delivered another strong quarter.

Even those growth of 8%, we're glad bad dental and veterinary specialties.

Interest and fees on loans increased 9%, primarily driven by the loan receivables growth.

Purchase volume was up 10% an average active account increased 4%.

We continue to expand our network and the utility if our card helping to drive to reuse rate to 54% of purchase volume in the third quarter.

We drove strong growth across ourselves platforms, we extended and expanded relationships grew up payment solutions and can't credit network and increase cards utility all providing a strong base for continued future growth with that I'll turn the call over to Brian doubles.

Thanks, Margaret Good morning, everyone. My comments today will center on our efforts to diversify through our direct to consumer channel starting on slide five.

Among our top strategic priorities is evolving and growing our business through the development of new synchrony branded products and services.

While we've been introducing synchrony branded consumer products over the past few years through our synchrony car care and synchrony home offerings. We've also recently been focused on a synchrony brand a general purpose card.

Today, I will spend a few minutes outlining how we are progressing on both our banking platform and the general purpose card.

First on our deposit products, we've made significant progress over the last several years and building our consumer banking platform.

Our deposits are growing faster than the U.S. direct banking industry, and we have expanded market share over the last several years.

Deposits currently comprised 76% of our funding profile.

Consumer deposits, becoming an increasingly larger portion of our mix of total funding.

The investments we've made over the past few years have enabled us to rely less on rate to attract new deposit accounts.

Our strategic investments have been focused on enhancing our digital advertising developing the right content and message to the right audiences as well as enhancing our digital experience.

For example, we launched our new native App earlier this year.

As well as redesigned our marketing site with a better user interface and overall customer experience.

On slide six you can see the results of our efforts.

Over the past several years, we have grown deposits 20 per cent per year versus an industry growth rate of 5%.

We remain focused on making investments to reduce rate sensitivity and acquisition costs.

As we look ahead, we plan to invest an additional capabilities products and features.

We will also continue to improve customer service and launch differentiator rewards and loyalty programs all of which not only will drive a better customer experience, but also allow us to continue to grow efficiently and effectively.

Importantly, we are focused on all aspects of the customer experience.

Starting with a quick seamless account opening process all the way through self servicing features once the account as open.

We are confident that we have built a solid foundation from which to build for our future objectives in the deposit platform.

Similarly on the lending side, we've made significant progress with our general purpose card.

You'll recall, we successfully rebranded toys R. Us accounts that qualified for our synchrony Mastercard, which was a substantial portion of the portfolio.

This was a cost effective way to expand into the general purpose card market, while also providing continuous and improved utility for our former cardholders.

Slide seven highlights our initial results with this product.

We had a strong activation rate and repeat usage. In fact, we've also increased sales per account by 40% and balances per account by 50%.

At the same time, where.

As we no longer pay the our assai and use those savings to fund the value prop on the card.

Approaching a general purpose credit card in this manner has allowed us to utilize an iterative test and learn approach to growth.

We're leveraging customer insights and data to test general purpose car value propositions and features with consumers.

At launch, we offered an attractive 2% cashback value proposition as well as spend incentives, which delivered a strong card and spend activation rate. We're currently testing different combinations of nprs promotional offers and incentives.

We are taking a very disciplined approach to future product offerings value propositions and features.

Looking ahead, we will target our marketing efforts to customer segments, where we believe we can achieve attractive risk adjusted returns.

While our growth expectations are modest in the short term given the discipline nature of our approach. We are excited about the opportunity and the early results we've been able to achieve so far.

As we seek to diversify our offerings in the direct to consumer space, we will leverage the strong foundations, we have bill.

We are evaluating opportunities across a large and diverse market. We're very excited about our prospects in this space.

With that I'll turn the call over to Brian Wenzel.

Thanks, Brian and good morning, everyone I'll start on slide eight of the presentation.

This morning, we reported second quarter earnings of $1.1 billion or $1.60 cents per diluted share.

This included the reduction in the reserve related to the sales of one more consumer portfolio in October .

As Margaret noted earlier, the reduction totaled $326 million were $248 million after tax and provided EPS benefit of 38 cents for the quarter.

Now this portfolio sale and program to version is complete.

I had some details on how this and other factors impact or outlook for the fourth quarter and full year.

We generate strong year over year growth in a number of areas as noted on slide nine.

Excluding the Walmart portfolio loan receivables were up 6%.

Interest the season loan receivables were also up 6% over last year driven by the growth in receivables.

Overall, we're pleased with the growth we generated across the business as well as the risk adjusted returns on this gross.

Purchase volume growth was 5%.

Average active accounts increased 2% over last year.

Excluding the impact is Walmart program purchase volume growth was 7% and average active account growth was 3%.

Rcs increased $145 million or 70% from last year.

Improved program performance and growth drove the increase.

Our sees as a percentage of average receivables was 4.5% for the quarter.

The provision for loan losses decreased $432 million or 30% from last year, mainly driven by the reduction in reserve related to the Walmart portfolio.

The core reserve build was $124 million in the quarter.

Other expenses increased $10 million, 1% over last year, driven by growth that was partially offset by the cost savings executed in advance of the Walmart portfolio sale and program conversion.

Holding expenses essentially flat enabled us to deliver positive operating leverage for the quarter reflected in the improvement in an efficiency ratio from 31% last year to 30.8%. This quarter. So overall the company continue to generate strong results in the third quarter.

I'll move to slide tend to cover our net interest income and margin trends.

Net interest income was a 4% driven primarily by the growth in loan receivables.

The net interest margin was 16.29% compared to last year's margin of 16.41% down 12 basis points.

The main factors driving the margin performance were.

Factors lowering our net interest margin include a slightly lower mix of loan receivables as a percent of total earning assets compared to last year and an increase in total interest bearing liabilities cost of 35 basis points to 2.71%, primarily due to higher benchmark rates.

These impacts were partially offset by an increase in loan receivables yield of 31 basis points to 21.42%, which included the purchase accounting impact related to the Paypal credit program in the prior year.

Later in the call out by more insight on the direction interest margin for the fourth quarter, including the impact from the sale of the Walmart portfolio.

Next I'll cover key credit trends on slide 11.

In terms of specific dynamics for the quarter I'll start with the delinquency trends.

The 30, plus delinquency rate was 4.47% compared to 4.59% last year and the 90, plus delinquency rate was 2.07% versus 2.09% last year.

If you exclude the impact of the Paypal credit program and the Walmart portfolio 30, plus delinquency rate was flat to last year and the 90, plus delinquency rate improved approximately five basis points compared to last year, reflecting continued stabilizing credit trends.

Moving onto net charge offs.

Net charge off rate was 5.35% compared to 4.97% last year and 6.1% last quarter.

Somewhat lower than our expectation over 40 to 50 basis point decline from the second quarter.

Well credit trends continued to improve this was partially offset by the purchase accounting impact in 2018 relate to the Paypal credit program.

Excluding the impact of the Paypal credit program and the Walmart portfolio net charge off rate was approximately 20 basis points lower than last year.

The allowance for loan losses, as a percent alone receivables was 6.74% and the core reserve build in the third quarter was $124 million, excluding the impact from the reduction in reserve related to the Walmart portfolio.

The reduction related to the Walmart portfolio was $326 million, which was higher than expected $250 million due to timing of the portfolio sale occurring earlier in October .

As a result, the remaining reduction in loan loss reserve in the fourth quarter will be in the $35 million to $40 million range.

We expect to core reserve build for the fourth quarter will be in the 100 $250 million range driven mainly by gross.

Consistent with the outlook, we provided we did see stronger core loan receivable growth in the third quarter, 6% and believe this will continue into the fourth quarter.

Acceleration in growth reflects the opportunities we have in fast growing digital space and expansion of our network and except unsecured credit and the auto and home networks and payment solutions.

Regarding net charge offs, we expect an a charge offs for 2019 will be towards the lower end of the 5.7% to 5.9% range with the slight increase compared to 2018, driven mainly by the purchase accounting impact related to the Paypal credit portfolio, partially offset by the impact from the sale of the one more portfolio in October .

Excluding the effects of paper on Longhorn net charge off rate for 2019 is expected to be similar to 2018.

Finally regarding the implementation of Cecil which is effective in 2020, we believe the initial impact is consistent with what we disclosed last quarter.

Incorporate the estimated impact of cecil's transition adjustment and impacted Nextshares outlook, when we provide our guidance during our fourth quarter earnings call in January .

In summary credit trends of stabilize and are showing improvement we expect the trends to continue to show stability as we move forward assuming stable economic conditions.

We continue to see good opportunities for continued growth and attractive risk adjusted returns.

Moving to slide 12 cover expenses for the quarter.

Overall expenses came in at $1.1 billion, an increase of $10 million or 1% compared to last year.

The increase was driven by growth, but was partially offset by cost savings excuse advance the Walmart portfolio sale and program conversion.

All the expenses basically flat enable us to deliver positive operating leverage for the quarter, reflecting the improvement in efficiency ratio from 31% last year to 30.8% this quarter in line with their expectations.

Not to sell the one more portfolio. The program conversion has been completed we do expect a final portion of the cost associated with Walmart program to be eliminated the fourth quarter and be fully reflected in the expense run rate for 2020.

Moving to slide 13.

Over the last year, we've grown our deposits $3.7 billion were 6% primarily through our direct deposit program. This puts deposits at 76% of our funding compared to 72% last year.

In July we issued $750 million in senior unsecured debt.

The issuance has a three year term for the fixed rate of 2.85% that's strong demand.

Turning to capital and liquidity, we ended the quarter at 14.5% CPT one under the fully phased in Basel III rules. This compares to 14.2% on a fully phased in basis last year.

During the quarter, we continue to execute on the capital plan, we announced in May we paid a common stock dividend of 22 cents per share repurchase $550 million or 15.6 million shares of common stock during the third quarter.

At the end of third quarter, we have approximately $2.7 billion of remaining share repurchase capacity of the 4 billion dollar board authorized plan, which runs through June Thirtyth 2020.

Total liquidity, including Undrawn credit facilities was $22 billion, which equated to 20.5% of a total assets.

This is down from over 22% last year, reflecting the deployment of some of our liquidity to support growth.

We expect to continue deploying capital through growth and further execution of our capital plan in the form of dividends and share repurchases.

Starting with an interest margin the margin is seasonally lower in the fourth quarter declining as much as 50 basis points from the third to the fourth quarter in the past two years.

In addition to seasonality the decline will be somewhat more pronounced this quarter due to the excess liquidity from the sale of the Walmart portfolio.

We expect an interest margins trend towards 15.5% for the fourth quarter.

We still expect the net interest margin will be in the 15.75% to 16% range for the year.

Focusing on our assays.

There are several factors impacting the RC person for the fourth quarter in the year.

First growth and improved program performance will impact or assays.

Also impacting Rcs is the sale of the Walmart portfolio, specifically, but the timing of the portfolio sale as well as the fact that the Walmart program operated NRC percent below the company average will have an upward impact on the our say percentage.

Considering all these factors we expect the our as a percent will be approximately 4.5% for the fourth quarter and for the full year will be slightly above the 4.0% to 4.2% range we had expected.

Moving to credit we expect to core reserve build for the fourth quarter to be largely driven by growth it will be in the $100 million to $150 million range.

As a result of the wall more portfolio being sold in October the remaining reduction to the loan loss reserves held against this portfolio will occur in the fourth quarter and we'll be in the $35 million to $40 million range.

Regarding net charge offs, we expect net charge offs for 2019 will be towards the lower end of the 5.7% to 5.9% range.

Excluding the effects of Paypal and Walmart to net charge off rate is expected to be similar to 2018.

Turning to expenses, we continue to generate positive operating leverage and still expect the efficiency ratio to be around 31% for 2019.

In summary, the business continues to generate strong growth with attractive risk adjusted returns on now turn the call back to Greg to open the QNX.

If you're using a speaker phone you may need to take on handset up first before pressing the numbers. Once again, if you have a question. Please press Star then one we have our first question from Sanjay Sakhrani with KBW.

Thanks, Good morning I.

I guess I have my first question for Brian Wenzel, just portfolio yield, it's obviously done really well despite the fed rate cuts this quarter and I know you you indicated there were some purchase impacts potentially could we just discuss about how it.

Trend going forward relative to all these different dynamics occurring with the rates and obviously the mix changes.

Great. Good good morning is on Jay.

As you think about net interest margin for the quarter a lot of our book, 45% of our book is floating when you think about Transactors is more like 25%. So we're not necessarily as exposed to.

To interest rates. We also think about the margin we have a positive benefit from the purchase accounting last year for paper now that's not recurring again this year as well as the CIA T that we put in place where we purchased the portfolio Thats beginning to bleed in so those are positive impacts on the portfolio as we move forward.

See with Walmart coming as a portfolio that there will be a little bit of headwind that interest margin because that portfolio operated operated at a higher net interest margin than the overall book, So again being our assets and liabilities or fairly well matched we don't see a lot of pressure from the interest rate environment as we move forward.

Okay.

I guess my second question is for Margaret and Brian doubles on the Synchrony Mastercard.

Appreciate that the disclosures there just wanted to make sure I understood sort of what the plan was going forward with that product.

Going forward is that product just going to be used for bankruptcy transitions for retailers or are you expecting the grow that portfolio independently and then when we think about the success of that portfolio up until now has it been consumers basically transitioning to that card as their primary Carter I didnt have they been transfer.

During balances over thank you.

Yeah sure assigned as Brian So look I'd say overall, we've been pleased with the trends and the performance that we're seeing on that Mastercard portfolio. It's still early.

But we're seeing good activation good usage.

I see a nice retention of balances good spend on the accounts.

As you know, we put a very strong 2% cashback value proposition on the card.

Given we're not paying the our say we're able to offer an attractive value prop and still earn a very attractive return.

So what we're pleased with what we're seeing in terms of a broader strategy, we're certainly evaluating that.

We've got a great team in place they've got a lot of general purpose car experience.

No look we're monitoring the uses a performance on the portfolio. We also started to do some new account originations.

So we're testing into different segments, but look I think the thing that's important to note as we're going to be very disciplined around profitability and returns on that so we.

We have some modest growth expectations.

Here in the short term.

Thank you.

Thank you. Our next question comes from Bill Carcache with Nomura.

Hi, good morning.

A question on the recent venmo credit deal with Paypal.

So what are the elements of the venmo monetization strategy for Paypal has been to enable a pay with venmo checkout button for merchant said already except Paypal and would like picks up but is it reasonable to conclude that the venmo credit product want just act like a standalone credit card, but it will also be available digitally to venmo customers who.

Click on the pay with them on checkup button. So basically it's been more credit is going to be integrated across the venmo platform.

You know I would say that's probably about a question for the venmo Paypal team, but what I can tell you is that as we work with that organization, they're really looking at how did they expand customer choice and ability for their customers.

So I would expect them to look at all avenues for growth for the vet. The use of the then all credit card and you know we're going to work closely with them on terms of how we build out the capabilities to digital experience really trying to understand what are the customer.

Friction that are out there that we want to try to solve to really have what were describing as a exclusive in app, great customer credit experience across various channels.

So we're going to work closely with them as we continue to develop both the pay Pal.

Program that we have with them as well then now.

We will include rewards and just looking for a sense of what gives you guys confidence that the demand for the product will be there.

Sure well first half 40 million venmo customer. So we think thats, a great target market and it's growing secondly, it has a great brand and we now that in particular millennials really loss and now and so I think as we look to build out that value proposition, we're going to be looking at one of the type of rewards that those customers alone.

For so it could include cash back, but I wouldn't say, it's only only gonna be cash back I think we really want to get into some deep research with that customer base and then the other piece of this has really as we all know these these particular, but this particular segment of customers really look at experiences as a really important element of.

How they live.

And to select and so we're going to be looking at that both from a value prop perspective, as well as the experience they have themselves on using the app.

That's great. Thank you so much appreciate it.

Thank you. Our next question is from Don Fandetti with Wells Fargo.

Good morning. So one question is on credit it sounds like the guide for Q4.

The reserve builds fun, but if you look at the delinquencies year over year ex Paypal.

They are sort of flattish from down year over year.

I was wondering if you could talk little bit about your expectation in the near term and then you know under the Hood, what's going on with Paypal credit in General I guess losses are going up just on growth and normalization can you just talked about those two factors.

Great great. Thanks, Don.

First of all we don't provide necessarily if were looking guidance relative to delinquencies they'd be consistent and stable throughout throughout 2019 with regard to pay Pal again, we don't provide specific information on one portfolio, but when you look at the guidance, we've guided on net charge off basis.

To the low end to the 5.75 0.9 rates. So as we move through the quarter clearly we have seen stabilization to improving credit trends, which was wire reserve rate in the third quarter was below the guidance that we provided back in our second quarter called back in July . So so as we look at the the net charge off environment in credit environment.

We're optimistic we don't see any pressure on the consumer and all the measures that we look at and our collections really have performed so again, we view credit to be a stabilizing the better.

And expect the net charge off rate for the year to be at the low end. The 5759 range then.

Then the buybacks there were a little bit like first Saar model, but they're kind of bounce around I was curious do you still feel like you can buy back a significant amount.

In the open market or in still considering maybe a tender or do you feel like you can just kind of work through that and I would assume Q4 would be potentially heavier.

Yes, obviously, you know as we look at as we move through the capital plan and the repurchase cadence for the year, There's a base capital plan or base repurchase plan that happens over the four or five quarters.

We go out then we had the Walmart they kind of laid in obviously, we have to have certainty relative to that transaction you have to record the reserves getting into earnings.

We purchased $1.3 billion approximately for the first two quarters under the plan.

We have $2.7 billion remaining under the $4 billion authorized repurchase plan, we feel confident that we will be able to to execute that plan. If you go back in our past history, we're able to execute ways. Both the fourth quarter of last year first quarter. This year repurchases the open market of $966 million. So we feel.

We have the execution to get the 2.7 billion done over the next three quarters, almost certainly we evaluate lots of different options to get the best execution on price and we will continue to do that but we feel confident we can execute on the plan that we outlined.

Thank you.

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

Hi, good morning.

Morning.

A couple of questions. One just on the health care credit channel I know you called out Tom dental and veterinary, but I just wanted to understand a little bit more and some of the other verticals there as well as plans to.

Continued dominance in the field I see a lot of.

Interest from other new either fintech ease or.

You know financials coming after the areas. So if you could give us a sense of higher.

Welcome to the Synchrony financial third quarter 2019 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 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.

Addition to todays 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 synchrony financial dotcom. This information can be accessed by going to the Investor Relations section of the web site.

Before we get started I wanted 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 and our SEC filings, which are available on our website.

Thanks, Greg Good morning, everyone and thanks for joining us today I'll begin by providing an overview of our third quarter accomplishments on slide three.

Loan receivables were down 5%, however, on a core basis, excluding the Walmart portfolio loan receivables grew 6%.

Net interest income grew 4% purchase volume was up 5% and average active accounts increased 2%.

Our efficiency ratio of 30.8% was down from 31% in the prior year and was in line with our expectations.

During the quarter, we grew deposits 3.7 billion or 6% over last year and much of this growth has come through direct deposits.

Our direct deposit platform remains an important funding source for our growth and we are making ongoing investments to help attract new deposits and retain existing customers.

Ryan will detail some of our efforts here shortly.

We're pleased to share our recent partnership renewals and extensions.

And our retail card sales platform, we announced the expansion and extension of our strategic consumer credit relationship with Paypal.

We will become the exclusive issuer venmo co branded consumer credit card, which will launch in the second half of 2020.

The new Venmo credit card program will combine venmo his expertise in mobile design and social user experience with synchrony industry, leading technology and data analytics to create personalized shopping and payment experiences for venmo customers.

We also extended our existing relationship with Paypal.

We also renewed our partnership with Dick's Sporting goods, a leading omnichannel sporting goods retailer that office, an extensive assortment of sports equipment apparel footwear and accessories.

The 700, plus retail stores, including Dick's Sporting goods golf Galaxy and field and stream.

This strategic partnership strengthens the intersection of digital and in store customer experiences for Dick's cardholders.

In payment solutions, we had another active quarter for renewals recently, signing renewals with Polaris Lazy boy and counts.

Growing our network to create broader acceptance and utility for our cards is a key priority.

Well, we're in Carecredit will be offered as a payment option on Liao patient financial manager and end to end patient financial engagement platform.

This provides consumers more locations, where they can use to carecredit card for their health and wellness needs. We also signed a new partnership with St. Luke's University Health network.

We're also focused on innovative digital technology data analytics, and seamless customer experiences all of which are fundamental to the success of our existing programs and to winning new ones. As we have proven we continue to invest in digital innovation to ensure our cardholders have access to their cars right.

Awards and account information across whatever channel they choose to use the digital sales penetration across all of our retail card consumers has been growing.

Digital sales penetration was 35% in the third quarter.

Overall, 50% of our applications are happening online with the mobile channel alone growing 22% over the same quarter of last year.

Our capital allocation strategy drive strong growth at attractive risk adjusted returns, while maintaining a strong balance sheet and the ability to return capital to shareholders. During the quarter, we repurchased 550 million of synchrony financial common stock and paid $145 million in dividends.

Overall, it was a strong quarter, we made progress on our strategic initiatives, we continue to develop our digital and data capabilities, which is helping us to win in the marketplace and we are making investments in our direct to consumer business.

Earlier this month, we successfully completed the sale and conversion of the Walmart portfolio and program.

I would like to thank our team for working hard to deliver excellent service, ensuring the customer was a top priority throughout the process and executing a seamless transition.

Before I turn the call over to Brian to discuss our progress in our direct to consumer business I will highlight our platform results on slide four.

Active accounts were up 1%, we're happy to expand and extend our relationship with pay Pal through the addition of a venmo co branded consumer credit card. We are also happy to renew our relationship with Dick's Sporting goods, which includes their golf Galaxy and field and stream brands.

Interest and fees on loans increased 6%, primarily driven by the loan receivables growth purchase volume was up 5% and average active accounts increased 3%.

Carecredit also delivered another strong quarter receivables growth of 8% was led by a dental and veterinary specialties.

Interest and fees on loans increased 9%, primarily driven by the loan receivables growth.

Purchase volume was up 10% and average active accounts increased 4%.

We continue to expand our network and the utility of our card helping to drive the reuse rate to 54% of purchase volume in the third quarter, we drove strong growth across ourselves platforms, we extended and expanded relationships grew our payment solutions and care credit network and increase card utility.

All providing a strong base for continued future growth with that I'll turn the call over to Brian doubles.

Thanks, Margaret Good morning, everyone. My comments today will center on our efforts to diversify through our direct to consumer channel starting on slide five.

Among our top strategic priorities is evolving and growing our business through the development of new synchrony branded products and services.

More specifically our objective is to become a leading digital bank with competitive products and capabilities. They drive deeper customer relationships and provide an attractive source of funding while also launching innovative lending products.

Today, I will spend a few minutes outlining how we are progressing on both our banking platform and the general purpose card.

First on our deposit products, we've made significant progress over the last several years and building our consumer banking platform.

Our deposits are growing faster than the U.S. direct banking industry, and we have expanded market share over the last several years.

[noise] deposits currently comprise 76% of our funding profile.

With consumer deposits, becoming an increasingly larger portion of our mix of total funding.

The investments we've made over the past few years have enabled us to rely less on rate to attract new deposit accounts.

Our strategic investments have been focused on enhancing our digital advertising developing the right content and message to the right audiences as well as enhancing our digital experience.

For example, we launched our new native App earlier this year.

As well as redesigned our marketing site with a better user interface and overall customer experience.

On slide six you can see the results of our efforts.

Over the past several years, we have grown deposits 20 per cent per year versus an industry growth rate of 5%.

We remain focused on making investments to reduce rate sensitivity and acquisition costs.

As we look ahead, we plan to invest in additional capabilities products and features.

Importantly, we are focused on all aspects of the customer experience starting with a quick seamless account opening process all the way through self servicing features once the account is open.

We are confident that we have built a solid foundation from which to build for a future objectives in the deposit platform.

Similarly on the lending side, we've made significant progress with our general purpose card.

As you'll recall, we successfully rebranded toys R. US accounts that qualified for our synchrony Mastercard, which was a substantial portion of the portfolio.

This was a cost effective way to expand into the general purpose card market, while also providing continuous and improved utility for our former cardholders.

Slide seven highlights our initial results with this product.

We had a strong activation rate and repeat usage. In fact, we've also increased sales per account by 40% and balances per account by 50%.

At the same time, where.

Turn as we no longer pay the our assai and use those savings to fund the value prop on the garden.

Launch, we offered an attractive 2% cashbag value proposition as well as spend incentives, which delivered a strong card and spend activation rate. We're currently testing different combinations of nprs promotional offers and incentives.

We are taking a very disciplined approach to future product offerings value propositions and features.

Looking ahead, we will target our marketing efforts to customer segments, where we believe we can achieve attractive risk adjusted returns.

While our growth expectations are modest in the short term given the disciplined nature of our approach. We're excited about the opportunity in the early results, we've been able to achieve so far.

And with that I'll turn the call over to Brian Wenzel.

Thanks, Brian and good morning, everyone I'll start on slide eight of the presentation.

This morning, we reported second quarter earnings of $1.1 billion or $1.60 cents per diluted share.

This included the reduction in the reserve related to the sales of one more consumer portfolio in October .

As Margaret noted earlier, the reduction totaled $326 million were $248 million after tax and provided EPS benefit of 38 cents for the quarter.

Now this portfolio sale and program conversion is complete I'll provide some details and how this and other factors impact our outlook for the fourth quarter in full year.

We generate strong year over year growth in a number of areas as noted on slide nine.

Excluding the Walmart portfolio loan receivables were up 6%.

Interested fees on loan receivables were also up 6% over last year driven by the growth in receivables.

Overall, we're pleased with the growth we generated across the business as well as the risk adjusted returns on this gross.

Purchase volume growth was 5% in average active accounts increased 2% over last year.

Excluding the impact is Walmart program purchase volume growth was 7% and average active account growth was 3%.

Rcs increased $145 million or 70% from last year.

Improve program performance and growth drove the increase.

Our sees as a percentage of average receivables was 4.5% for the quarter.

The provision for loan losses decreased $432 million or 30% from last year, mainly driven by the reduction in reserve related to the Walmart portfolio.

The core reserve build was $124 million in the quarter.

Other expenses increased $10 million, 1% over last year, driven by growth that was partially offset by the cost savings executed advancing the warm where portfolio sale and program conversion.

Holding expenses essentially flat enabled us to deliver positive operating leverage for the quarter reflected in the proven in an efficiency ratio from 31% last year to 30.8%. This quarter. So overall the company continue to generate strong results in the third quarter.

I'll move to slide 10 to cover our net interest income and margin trends.

Net interest income was a 4% driven primarily by the growth in loan receivables.

The net interest margin was 16.29% compared to last year's margin of 16.41% down 12 basis points.

Later in the call I'll provide more insight on the direction of net interest margin for the fourth quarter.

During the impact from the sale the Walmart portfolio.

Next I'll cover key credit trends on slide 11.

In terms of specific dynamics for the quarter I'll start with the delinquency trends.

The 30, plus delinquency rate was 4.47% compared to 4.59% last year and the 90, plus delinquency rate was 2.07% versus 2.09% last year.

If you exclude the impact of the Paypal credit program and the one more portfolio. The 30, plus delinquency rate was flat to last year and the 90, plus delinquency rate improved approximately five basis points compared to last year, reflecting continued stabilizing credit trends.

Moving onto net charge offs.

Net charge off rate was 5.35% compared to 4.97% last year, and 6.1% last quarter and was somewhat lower than our expectation over 40 to 50 basis point decline from the second quarter.

While credit trends continued to improve this was partially offset by the purchase accounting impact in 2018 relate to the Paypal credit program.

Excluding the impact of the Paypal credit program and the Walmart portfolio net charge off rate was approximately 20 basis points lower than last year.

The reduction related to the Walmart portfolio was $326 million, which was higher than expected $250 million due to timing of the portfolio sale occurring earlier in October .

As a result, the remaining reduction in loan loss reserve in the fourth quarter will be in the $35 million to $40 million range.

We expect the core reserve build for the fourth quarter will be in the 100 $250 million range driven mainly by gross.

Consistent with the outlook, we provided we did see stronger core loan receivable growth in third quarter, 6% and believe this will continue into the fourth quarter.

The acceleration in growth reflects the opportunity as we have in the fast growing digital space and expansion of our network and acceptance in care credit and the auto and home networks and payment solutions.

Regarding net charge offs, we expect the net charge offs for 29 fee will be towards the lower end of the 5.7% to 5.9% range with the slight increase compared to 2018, driven mainly by the purchase accounting impact related to the payback credit portfolio, partially offset by the impact from the sale of the Walmart portfolio in October .

Excluding the effects of people Walmart and the charge off rate for 2019 is expected to be similar to 2018.

Finally regarding the implementations diesel which is effective in 2020 . We believe the initial impact is consistent with what we disclosed last quarter.

We will incorporate the estimated impact of cecil's transition adjustment and impacted nextshares outlook. When we provide our guidance during our fourth quarter earnings call in January .

In summary credit trends of stabilize and are showing improvement we expect the trends to continue to show stability as we move forward assuming stable economic conditions.

We continue to see good opportunities for continued growth and attractive risk adjusted returns.

Moving to slide 12, I'll cover expenses for the quarter.

Overall expenses came in at $1.1 billion, an increase of $10 million or 1% compared to last year.

Increase was driven by growth, but was partially offset by cost savings executed advance of the wall more portfolio sale and program conversion.

Holding expenses basically flat enabled us to deliver positive operating leverage for the quarter, reflecting the proven and efficiency ratio from 31% last year to 30.8% this quarter inline with our expectations.

Now the sale of the warmer portfolio. The program conversion has been completed we do expect the final portion of the cost associated with Walmart program to be eliminated the fourth quarter and be fully reflected in the expense run rate for 2020.

Moving to slide 13.

Over the last year, we've grown our deposits $3.7 billion were 6% primarily through our direct deposit program.

This puts deposits at 76% of our funding compared to 72% last year.

In July we issued $750 million in senior unsecured debt.

The issuance has a three year term for the fixed rate of 2.85% that strong demand.

Turning to capital and liquidity, we ended the quarter at 14.5% C.T. one under the fully phased in Basel III rules. This compares to 14.2% on a fully phased in basis last year.

The C.T. one level increased over the past year, even as the company deployed a significant amount of capital through organic growth program acquisitions and continued execution of our capital plans reflect in the company's strong capital generation capabilities.

At the end of third quarter, we have approximately $2.7 billion of remaining share repurchase capacity of the $4 billion Board authorized plan, which runs through June Thirtyth 2020.

Total liquidity, including Undrawn credit facilities was $22 billion, which equated to 20.5% of our total assets.

This is down from over 22% last year, reflecting the deployment of some of our liquidity to support growth.

We expect to continue deploying capital through growth and further execution of our capital plan in the form of dividends and share repurchases.

Before I conclude I wanted to recap our current view for the fourth quarter in the year as well as the impact from the Walmart program going forward now the portfolio sale and conversion has been completed.

Starting with an interest margin the margin is seasonally lower in the fourth quarter declining as much as 50 basis points from the third to the fourth quarter in the past two years.

In addition to seasonality the decline will be somewhat more pronounced this quarter due to the excess liquidity from the sale of the Walmart portfolio.

We expect the net interest margins trend towards 50.5% for the fourth quarter.

We still expect the net interest margin will be in a 15.75% to 16% range for the year.

Focusing on our assays.

There are several factors impacting the ours, 8% for the fourth quarter in the year.

First growth and improved program performance will impact our assays.

Also impacting our assays is the sale the Walmart portfolio, specifically, both the timing of the portfolio sale as was the fact that the Walmart program operated NRC percent below the company average will have an upward impact on the RBC percentage.

Considering all these factors we expect the our as a percent will be approximately 4.5% for the fourth quarter and for the full year will be slightly above the 4.0% to 4.2% range we had expected.

Moving to credit we expect the core reserve build for the fourth quarter to be largely driven by growth and we'll be in the $100 million to $150 million range.

Regarding net charge offs, we expect net charge offs for 29 team will be towards the lower end of the 5.7% to 5.9% range.

Excluding the effects of Paypal and Walmart the net charge off rate is expected to be similar to 2018.

Turning to expenses, we continue to generate positive operating leverage and still expect the efficiency ratio to be around 31% for 2019.

In summary, the business continues to generate strong growth with attractive risk adjusted returns on now turn the call back to Greg to open the QNX.

Thank you Sir we will now begin our question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the Q. Please press the pound sign or the hash key if you're using a speaker phone you may need to pick an handset up first before pressing the numbers.

Once again, if you have a question. Please press Star then one we have our first question from Sanjay Sakhrani with KBW.

Thanks, Good morning I.

I guess I have first question for Brian Wenzel, just portfolio yield, it's obviously done really well despite the fed rate cut this quarter and I know you do you indicated there was some purchase impacts potentially could we just discuss about how would the trend going forward relative to all these different dynamics occurring with the right.

Ladies and obviously the mix changes.

Great. Good good morning is on Jay.

As you as you think about net interest margin for the quarter a lot of our booked 45% of our book is floating when you think about Transactors is more like 25%. So we're not necessarily as exposed to.

To interest rates. We also think about the margin we have a positive benefit from the purchase accounting last year for for Baby now that's not recurring again this year as well as the CIA T that we put in place where we purchased the portfolio. That's beginning to bleed in so those are positive impacts on the portfolio as we move forward obvious.

I see with Walmart coming out of the portfolio that there will be a little bit of headwind tinted interest margin because that portfolio operated operated at a higher net interest margin then the overall book, So again being our assets and liabilities are fairly well matched we don't see a lot of pressure from the interest rate environment as we move forward.

Okay.

I guess my second question is for Margaret and Brian doubled on the Synchrony Mastercard I appreciate that the disclosures there just wanted to make sure I understood sort of what the plan was going forward with that product going forward is that product just going to be used for bankruptcy transitions from retailers are are you expecting the grow that portfolio.

Independently and then when we think about the success of that portfolio.

Up until now has it been consumers basically transitioning to that card as their primary Carter I didnt have they been transferring balances over thank you.

Yeah sure signed as Brian So look I'd say overall, we've been pleased with the trends in the performance that we're seeing on that Mastercard portfolio. It's still early.

But we're seeing good activation good usage, we're seeing nice retention of balances good spend on the accounts.

As you know, we put a very strong 2% cashback value proposition on the card.

Given we're not paying the our say we're able to offer an attractive value prop and still earn a very attractive return.

So what we're we're pleased with what we're saying in terms of a broader strategy, we're certainly evaluating that.

We've got a great team in place.

They've got a lot of general purpose car experience.

No look we're monitoring the usage of performance on the portfolio. We also started to do some new account originations.

So we're testing into different segments, but look I think the thing that's important to note is we're going to be very disciplined around profitability and returns on that so we.

We have some modest growth expectations.

Here in the short term.

Thank you.

Thank you. Our next question comes from Bill Carcache with Nomura.

Hi, good morning.

A question on the recent venmo credit deal with Paypal.

So one of the elements of the Venmo modernization strategy for Paypal has been to enable a pay it appeared with venmo checkout button for merchant said already except Paypal and would like to except venmo is it reasonable to conclude that the venmo credit product wanted just to act like a standalone credit card, but it will also be available digitally to venmo customers who.

Click on a pay was that mobile checkout button, so basically even more credit is going to be integrated across the venmo platform.

You know I would say that's probably about a question for the venmo Paypal team, but what I can tell you is that as we work with that organization, they're really looking at how do they expand customer choice and ability for their customers.

So I would expect them to look at all avenues for growth for the vet the use of the venmo credit card and we're going to work closely with them on terms of how we build out the capabilities to digital experience really trying to understand what are the customer you know frictions that are out there that we want to try to solve.

To really have what were describing as.

Exclusive in App, great customer credit experience across various channels.

So we're going to work closely with them as we continue to develop both the pay Pal a program that we have with them as well venmo.

Got it Margaret Thanks, and are there any internal studies that you guys have done that give you any kind of sense of what the demand for the product will be like it just seems like there are lot of competing alternatives out there on on the credit card side and so just wondering if it's reasonable for us to expect that the value prop will include rewards and just looking for a sense of what gives you guys confidence that the Doe.

And for the product will be there.

Sure well you know first they have 40 million venmo customer. So we think thats a great target market and it's growing secondly, it has a great brand and we now that in particular millennials really love Venmo, and so I think as we look to build out that value proposition, we're going to be looking at one of the type of rewards that those customers.

So looking for so it could include cash back, but I wouldn't say, it's only it's only going to be cash back I think we really want to get into some deep research with that customer base and then the other piece of this has really as we all know these these particular or this particular segment of customers really look at experiences as a really important element.

Of how they lists.

And twos the live and so we're going to be looking at that both from a value prop perspective, as well as the experience they have themselves on using the app.

Thats great. Thank you so much appreciate it.

Thank you. Our next question is from Don Fandetti with Wells Fargo.

Hi, Good morning. So one question is on credit it sounds like the guide for Q4.

The reserve builds upon but if you look at the delinquencies year over year ex Paypal.

They're sort of flattish from down year over year.

I Wonder if you could talk little bit about your expectation in the near term and then.

Under the Hood, what's going on with Paypal credit in General I guess losses are going up just on growth and normalization can you just talked about those two factors.

Great great. Thanks, Don.

First of all we don't provide necessarily if were looking guy he's relative to delinquencies are they being consistent and stable throughout the throughout 2019 with regard to pay Pal a again, we don't provide specific information on one portfolio, but when you look at the guidance, we've guided on net charge off basis.

To the low end to the 5.75 0.9 range. So as we move through the quarter clearly, we've seen stabilization to improving credit trends, which was wire reserve rate in the third quarter was below the guidance that we provided back in our second quarter called back in July . So so as we look at the the net charge off environment in credit environment.

We're optimistic we don't see any pressure on the consumer and all the measures that we look at and our collections really outperformed so again, we view credit to be a stabilizing the better.

And expect the net charge off rate for the year to be at the low end. The 5759 range then.

And then the buybacks there were a little bit light first Saar model, but you know there kind of bounce around I was curious do you still feel like you can buy back a significant amount.

In the open market are you still considering maybe a tender or do you feel like you can just kind of work through that and I would assume Q4 would be potentially heavier.

We go out then we had the Walmart they kind of late in obviously you know we have to have certainty relative to that transaction you have to record the reserves getting into earnings.

We purchased $1.3 billion approximately for the first two quarters under the plan.

We have the execution to get the 2.7 billion done over the next three quarters, almost certainly we evaluate lots of different options to get the best execution on price and we'll continue to do that but we feel confident we can execute on the plan that we outlined.

Thank you.

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

Hi, good morning.

Morning.

You know continued dominance in the feel they see a lot of.

Interest from other new either fantasies or you know financials coming after the area. So if you could give us a sense of higher.

Pushing back against our competition. Thanks.

Sure. So we said since the beginning year one of our strategy is really to grow the carecredit platform. So in the core business itself. We continued to see really good growth and thats really the dental and that businesses that we highlighted this quarter, but as we look to expand into more what were calling.

A health and wellness wellness card, we've expanded utility of the card over the year the latest being the Walgreens acceptance and we'll continue to look at those but our other strategy is really in two areas. One is really shifting from what were calling that's to Pat So the acquisition of pets bass.

Here is a function of that I'm really looking at ways too.

Leverage both the insurance side of settlement and our card product to really.

Ensure that the consumers are getting a really efficient process going forward as they pay their bills.

The other part of this is really going after what I call payment management systems, where we can integrate into those systems and half carecredit as an option in that system. So the loyal example is is one of those and then lastly is really expanding into what we're calling health.

Network. So hospital network. So I think in the past we've described we've gone out and sell dentist office by dentist office that office, but that office.

Weve continued to look at various verticals, where we think our card can be used and are now working with hospital networks to integrate can't Carecredit as the plant payment option in the hospital network. So you know our view is we have and a lot of expertise and experience in the space. We've been added for over 30 years and we think this.

Great growth opportunity for us now.

Loss centex or they are we see them, whereas we're still very confident in our capability is and what we've built out and where we want to go.

Okay.

Did you have anything further.

It differs <unk> you know, obviously, but should that be a good run rate that we should take for the 2020 outlook or is there anything else that we should be considering that.

Great. Thanks Betsy.

We will provide guidance on artist season, our call in January .

Encompassing full guidance for the year, when we think about all the other elements a as you think about Walmart Walmart did operate at a lower artists a percentage than the company average, which is why we see slightly up in the fourth quarter versus past seasonal trends, obviously that will impact is as we move forward into 2020.

I will provide that guidance in January .

Okay.

Thank you. Our next question we have our next question from Bill Ryan with Compass point.

Thank you and good morning, and thanks for taking my questions also just in relation to the our I say I know, you're not providing 2020 guidance, but just as you kind of think about it structurally and directionally going into next year.

Do you expected to be driven you mention how walmarts can impact it but.

Looking at your contract renewals earlier this year will they have any impact for actually in 2020 or given the economics of the renewals arts it pretty much the same.

And let's just call the nominal Mplus next year. Thank you.

Yeah. Thanks, both for the question. So so as you think about the or say when we were new transactions the economic.

Formulas kind of set at the stores. So so those formulas don't change as we move forward, so really what's going to drive the our as say as we move forward absent absent the Walmart.

Portfolio is really going to be the underlying performance of the portfolio from growth from net interest margin charge off six there that's going to be the bigger drivers me move forward did extend the we have you know improved performance on those lines there will be more assays that extend its going to be less than the art assays will decrease so that's the benefit to us as a company having.

That RC buffer, but they participate in both sides. So so again the contracts are generally said and won't change is really just the performance and growth of the underlying portfolios.

Thank you.

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

Hey, guys. Thanks for taking my questions. This morning, I just want to talk about the general purpose a little bit.

Historically part of the value proposition on private label choose the retailers is that you were providing their customers with spending money that they can use exclusively in their stores.

And I assume that Thats part of this sort of which two retailers.

Curious as you sort of.

Dip your toe into and I don't want to overstate the general purpose a proposition, but as you did your tell in there.

How you think that will resonate with your existing retail partners.

Yes, Thanks, Rick look we don't we don't see it as a competing product a if you think about who were in there competing against they all have general purpose card portfolios that are much more substantial than what we have here.

While we like this as a product and it does give us a nice diversification. It is it's pretty small today, we're in the very early innings here.

There's a lot of positives I think in terms of what we rolled out we like the trends that we're seeing on the new account originations that we've done so far but.

No look this is still a small piece of the overall portfolio, we're still a partner led business.

It will remain the case for the foreseeable future.

Okay, great. Thanks, Brian .

Yep.

And thank you we have our next question from Matthew O'neil with Autonomous research.

Yeah, Hi, Thanks for taking my question.

I know, you're not providing 2020 guidance, yet, but I was hoping you could potentially give us a little bit more insights around the.

And or sort of capital levels slash buyback capability once we get through the remaining 2.7 on the current authorization just any thoughts there would be helpful. Thanks.

Yeah, Great first with regard to to see so again, we indicated on the call earlier that you know our our expectation now is consistent with second quarter in the range. We provided a back then you know as we think about the ultimate Mount that will get posted at the end of the year, that's really going to depend upon the acid.

A composition the economy in our kind of view that economies moves forward. So there are some moving pieces in as well as we're finalizing some of the assumptions. So it's a little bit premature to talk about the the seasonal impact as well you know there's going to be NRC offset not for the day one transition adjustment for the two we're still working through that with our partners.

So as we finalize that here in the fourth quarter will provide comprehensive guidance.

In the first quarter. So so from the plant first plant perspective, it's already addressed.

As we think about Cecil and the post above the incremental reserves. We obviously have been in contact in discussing with the regulators and stakeholders. The fact that we should be getting capital credit for the post above.

Of those reserves as we move forward and were in ongoing dialogues and how that should occur.

So it's a little bit premature to talk about that relative to future capital plans, but we plan to incorporated as we move forward and we'll give guidance when we have greater clarity.

Okay.

Yeah, you know obviously, we're in discussions with them first of all educating them on the Cecil standard make sure they understand it as we finalize our adjustment how that impacts that flows through the DRC structures again, I think we said in the past the day, one transition adjustment that there'll be no went back from Norris eight perspective, I mean, it does not go through the PNM.

But as we moved to the two we're going through in really working with the partners explaining the implications to them and then we'll come back with again in January with with the complete guidance would how it impacts our as say as well as the the provision line.

Alright, great. Thanks to wait a little we'll wait till then.

Thank you.

And thank you. Our next question comes from Dominic Gabriel with Oppenheimer.

Hi, Thanks, so much for taking my questions. When we just think about the general purpose card initiatives and given your efficiency is pretty stable for quite some time.

Shouldn't have.

Any material impact on your efficiency ratio moving forward.

Yeah, I don't think in the short term certainly you're going to see this pressure the efficiency ratio at all I think they're just going back to you know one important thing I said earlier, we're testing into new account originations were testing into different customer segments different nprs et cetera, but it's very important to note that we're going to be very disciplined around profitability and return.

Yes.

So we're being very disciplined here in the short term as we as we run new tests were trying to find those cells, where we can one where we can compete it's obviously a very competitive market.

We're trying to find those areas, where we can compete but still earn a very attractive return. So that's our primary focus here.

It sounds like a great run rate for expansion and then just separately.

As mortgage applications wrap it seems like there's a really good opportunity that's unique to synchrony right now.

Holding.

Were you may see some accelerated and I growth in the future due to some of this home improvement possible ramp for mortgage applications. You just talked about the pre IPO trends you see.

Sure so.

I I would say that you know obviously, we have lows, which is a big you know retailer related to the home, but our payment solutions businesses really where the verticals are really dedicated to a lot of the home, particularly furniture home improvement eight fact, 10 or you know all those types of things and I think you've seen us.

Talk about the fact that home has definitely helped us I would say over the last probably 18 months.

And we're seeing people invest in their homes. So were seeing that on the payment solution side for sure and in loans I think the other thing. We did this here is we launched the home network, which is a card that allows you to purchase in a number of our retail partners and others.

It's a network heart, particularly dedicated to purchase at home, which no. The launch was very good were continuing to invest in that network.

So to your point, we see the home as a critical element of growth as me look forward in this business and feel that you know we have a number of merchants across the system that data, particularly is dedicated to that that vertical so I'm definitely a a nice opportunity for us as we see home purchasing a anchor.

Ladies and home improvement thing that they part of that.

Excellent congrats on the quarter. Thank you.

Thank you.

Thank you. Our next question is from Eric Wasserstrom with yes.

[noise] [laughter], thanks, very much Gee, maybe just getting back to the.

To the pay Pal.

Venmo relationship.

You know one phenomenon that I'm sure you guys have also noticed is the the growing use of by now pay later functionality, which in many ways is similar to what you do on promotional finance. So I'm wondering if there's any.

Discussion that you're having about maybe integrating those functionalities and capabilities.

In two you know into into your relationship with Paypal.

So we actually have a product out there already called sat pay that wary of test in a pilot in the market that is a product like that you know what I would say is from afar pay Pal and then my perspective first of all their obviously, a very customer focused digitally focused organization.

And I would say they look at all opportunities as a way to grow their business, which is a benefit to us growing our business. So were in talks with them on a bunch of different things both on the paper I'd like to remind everyone. We only converted pay Pal in June so.

So just on a PR pay Pal side, we have a list of initiatives that we want to work on and execute on particularly from a growth marketing product design perspective going forward and now we have the added opportunity of then now so I would say the teams are looking at all different types of ways to really leverage or the opportunity that's all.

They're in the marketplace and really make sure we have the right offer for the right product in front of the customer they're making their purchases.

And that would all be in App and capital.

Thanks, and if I can just follow up and I know theres been a series of question. This already but just with respect to the to the general purpose.

Product picture that you're experimenting with.

What maybe just at a high level, what what is the thesis there that that you're pursuing given as I think others have pointed out it's reasonably crowded marketplace, particularly in and cashback, where there has been an acceleration towards the 2% level and and such but at you know as Applecart. Another is kind of demonstrate in of itself, that's not really Mike driving.

Consumers to two adoption.

We actually have a great team in place that has a lot of general purpose card expertise.

And this is part of part of strategy is emerging kinda practical reality.

With a with future long term objectives and win.

Now to kinda learn and see how we want to enter into the space.

No it's down on our strategic roadmap for years, I think a the conversion allowed us to accelerate that and we're pretty excited but we're also cautious you know we're not confuse it this is a very competitive market.

We're very focused on targeting profitable accounts that have a good risk adjusted return.

And so were you know I would say our growth expectations in the short term are modest, but we're excited about getting some nice diversification.

But laser like focused on maintaining our return profile as well.

Thanks very much.

[noise] and thank you. Our last question comes from Moshe Orenbuch with credit Suisse.

Great. Thanks, most of my questions have been asked and answered but picking up on your comments Margaret on Paypal credit.

Could you talk a little bit about maybe the this that the priorities as you go forward because it is really I mean, it's sort of greenfield in terms of allowing you kind of the ability to access.

Retailers either deeper penetrate retailers that are your partners are retailers that arent and maybe how we should think about the opportunities and how you're going to prioritize them.

Yeah, I think I think the opportunities are in a couple of key areas. One is just pure marketing you know in the past, we will kind of on the tape outs I competing because they had their product we have our product. So I think from our emerge on how we're kind of targeting customers I think thats a real opportunity. The second thing I think has been and has proven to.

Okay very beneficial is the sharing of data on both sides, meaning we have a lot of information they have a lot of information. So how do we leverage that information both from a.

Okay and protecting the consumer I think we're still in early days as we've laid out the conversion, which was up as you know a big one.

We have a bunch of what I'd call technological advances that we're going to make together that were really driving and that's really going to be more around the customer and merchant experience I'm really trying to make that as seamless as possible and ensure that you know that customer never leaves the pay Pal App if you will.

And it's all done within the App and so we have teams of people and I mean team.

Working on a bunch initiatives to really drive all of that and it's all around what I would say two key things growth and experience.

Both on the consumer side and the merchant side, which is very important here.

Well pay Pal.

Great. Thanks, and you kind of in a similar vein you talked a little bit about some of the health care and pet type networks.

Is there any thought given to kind of just kind of talking about for use in terms of the networks that you've kind of built yourself as a as a vertical that you would that you would give disclosure on because I think one of the things that I heard during the call was this idea that there's some concern about incursion by fin techs and you know when sort of thing seems like the opposite.

Of the ability to build those networks and so whether that's something you think about kind of outlining it in greater detail.

Yeah, that's something we'll probably look at as we talk about the strategy for for 2020 going forward, but generally speaking you know we have.

First of all I would say this the space itself is fairly fragmented right. So one of the advantages. We have is just the fact that we've created a brand name for ourselves and our recognized by a lot of folks in that space, but were still I would think honestly I would say, we're still learning, particularly on the Big Hospital network.

Side each of these networks operate very differently and I think you now that we brought on our board an expert in this area is helping us think through how to target and where to go after so well talk more about that as we go into two anyway.

Thanks, so much.

Thank you.

Okay. Thanks, everyone for joining us this morning, and your interest in Synchrony financial the Investor Relations team will be available to answer any further questions. You may have we hope you have a great day.

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

Q3 2019 Earnings Call

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