Q4 2019 Earnings Call

Welcome to the Synchrony financial fourth 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 the 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, Greg 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 in 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.

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 in 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 our 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 2019 marked another year of significant transformation for synchrony across all of our self platforms, we renewed more than 50 existing partnerships.

Also refining 30, new business deals.

We expanded our credit card network, and our auto and home network.

We significantly enhance the digital experience for cardholders and substantially grow our direct to consumer deposit platform.

During our five years as a public company, we have made significant investments in people and technology and that has propelled the company forward and enabled the development of innovative offerings for our partners and enhanced our capabilities and user experiences for our cardholders.

In the fourth quarter earnings were 731 million or $1.15 per diluted share, which included the remaining reduction in the reserve related to the sale of the Walmart consumer portfolio in October .

The reduction totaled 38 million or 28 million after tax and provide an EPS benefit of five cents the quarter as outlined in slide three of the presentation.

Loan receivables were down 6%, however, on a core basis, which excludes Walmart and the Omaha portfolio that we move to loans held for sale in the fourth quarter loan receivables were up 5%.

On a core basis, the loan receivable growth drove 5% growth in interest and fees.

Purchase volume was up 7% and average active accounts increased 3%.

The efficiency ratio was 34.8%, including a restructuring charge of 21 million for employee costs, which had a 60 basis point impact on the efficiency ratio. This quarter as we continue to drive cost efficiency for the company.

We grew deposits 1.1 billion or 2% over last year and much of this growth has come through direct deposit which grew 10%.

Our direct deposit platform remains an important funding source for our growth and we continue to invest in our bank to help attract new deposits and retain existing customers.

While organic growth continues to present, the largest opportunity for us and we have demonstrated our ability to not only grow our existing programs, but also launched new programs with fast growing partners in new markets.

In our retail card sales platform, we announced a new partnership with Verizon well, we will be the exclusive issue our of Horizons co branded consumer credit card.

Together, we are launching the first credit card designed specifically for iPhone customers.

We are thrilled to be working with horizon as they continue to bring innovation to their customers and this is a great growth opportunity for us as we continue to diversify our portfolio the new rise and credit card is expected to launch during the first half of this year.

We establish new payment solution relationships with more furniture for last Grand home furnishings, Travis industries, and leisure pro and renewed key relationships with rooms to go by Max Alliance.

Jeff Moto and continental tires.

We remain focused on growing our network to create broader acceptance and utility for our cars and we have had many recent successes on that front in our Carecredit network in the fourth quarter Carecredit established a new relationship with Kaiser Permanente, we've been focused on adding health systems to our credit network.

And with the addition of Kaiser Permanente, we now have five health systems under contract.

During the quarter, we also renewed a key credit relationship with them on a global market leader in hearing health. We continue to remain highly focused on digital innovation accelerating our data analytics capabilities, and creating frictionless customer experiences, which are key to the success of our programs and winning.

New partnerships.

Driving digital sales penetration is key to our success.

In retail card digital sales penetration was 39% in the fourth quarter.

We are happy to report that we have reached a new high on digital applications, which were 52% of our total applications in the fourth quarter.

The mobile channel alone grew over 40% compared to the same quarter last year, excluding Walmart.

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 1.4 billion of synchrony financial common stock and paid 141 million in dividends.

We concluded 2019, having made significant advances in our capabilities and winning key partnerships that will generate long term value for the company.

We have a clear vision for our future and what we need to do to get there later in the call Brian doubles will outline our strategic priorities as we move into 2020.

I will take a moment to highlight our platform results on slide four.

In retail card loans were down 12%, but increased 4% on a core basis with solid growth driven by our digital partners. Other metrics were down driven by the sale of the Walmart portfolio.

We are excited about our new partnership with Verizon. In addition to the other partnerships, we announced in 2019 and look forward to launching these new programs this year.

Payment solutions delivered a strong quarter with broad based growth across the south platform and particular strength in home furnishings and home specialty that resulted in loan receivable growth of 4% or 7% on a core basis.

Interest and fees on loans increased 4%, primarily driven by the loan receivables growth purchase volume was up 6% and average active accounts increased 3%.

We signed a number of new programs and renewed key partnerships. This quarter, we continued to drive growth organically through our partnerships and card networks.

These networks along with other initiatives such as driving higher current views, which now stands at approximately 31% of purchase volume excluding oil and gas have helped to drive solid result, and position the payment solutions platform for future growth.

Our credit also delivered another strong quarter receivables growth of 8% was led by our dental and veterinary specialties.

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

Purchase volume was up 12% and average active accounts increased 5%.

We continue to expand our network and the utility of our cart. Most recently through our partnership with Kaiser Permanente, which helped to drive the reuse rate to 54% our purchase volume in the fourth quarter.

Throughout the year, we drove strong growth across our sales platforms, we extended and expanded relationship signed exciting new partnerships launched new program increased utility of our cards and networks and grew our payment solutions platform to over $20 billion and our cat credit network to over 10 billion in receivables.

Our efforts in achievements provide a strong foundation for the future.

With that I'll turn the call over to Brian Wenzel to review, our financial performance for the quarter any year and our outlook for 2020.

Thanks, Margaret Good morning, everyone I'll start on slide five of the presentation. This morning, we reported fourth quarter earnings of $731 million or $1.15 cents per diluted share.

This included the remaining reduction the reserve related to the sale the Walmart consumer portfolio in October .

As Mark noted earlier, the reduction totaled $38 million were $28 million after tax and provide an EPS benefit of five cents to the quarter.

We generated solid year over year growth in several areas as noted on slide six.

Excluding Walmart and the mob portfolio, which was moved to loans held for sale in the fourth quarter loan receivables were up 5% in the core basis.

Interest and fees on loan receivables were also up 5% in the core basis over last year driven by the growth in receivables.

On a core basis purchase volume growth was 7% in average active accounts increased 3% over last year.

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

Rcs increased $174 million were 20% from last year.

Prove program performance and growth primarily drove the increase.

The increase also included the RC impact, resulting from the $17 million release reserves due to the reclassification of loan receivables to held for sale for young.

Rcs as a percent of average receivables was 4.8% for the quarter.

The IRS, 8% was impacted by the sale of the Walmart portfolio, which operated NRC percent below the company average in addition to the factors driving the increase in ours.

The provision for loan losses decreased $348 million were 24% from last year.

The reduction was mainly driven by the lower core reserve build and a reduction in net charge offs.

The core reserve build for the fourth quarter was $50 million.

Other income increased $40 million over last year, mainly due to lower loyalty cost as a result, with Walmart program conversion.

Other expenses were basically flat to last year, but included a restructuring charge of $21 million included employee costs.

So overall the company continues to generate solid results in the fourth quarter.

I'll move to slide seven to cover our net interest income in margin trends.

Net interest income decreased 7% from last year, primarily driven by a 6% decrease in interest and fees on loan receivables due to sales Walmart portfolio.

Core basis interest and fees on loan receivables increased 5%.

The net interest margin was 15.1% compared to last year's margin of 16.26%.

The main factors driving the margin performance were a decline in loan receivables mix as a percent of total earning assets.

The mix declined from 83.5% DD, 0.2% driven by holding excess liquidity of approximately $3 billion, resulting from the proceeds of the sales and Walmart portfolio.

At 33 basis point decrease in the loan receivables yield to 20.87% primarily driven by the sale of the Walmart portfolio.

And a 10 basis point increase in total interest bearing liabilities cost to 2.58% primarily due to higher benchmark rates.

Later in the call provide more insight on the direction of the interest margin for 2020, including the impact from the sale of the Walmart portfolio.

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

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

The 30, plus delinquency rate was 4.44% compared to 4.76% last year and enable us delinquency rate was 2.15% compared to 2.29% last year.

If you exclude the impact of the Paypal credit program and the Walmart portfolio. The 30, plus delinquency rate and the 90 plus delinquency rate were flat compared to last year, reflecting continued stable credit trends.

Focusing on net charge off trends the net charge off rate was 5.15% compared to 5.54% last year.

The reduction in net charge off rate was primarily driven by Walmart and improving credit trends.

This was partially offset by the purchase accounting impact in 2018 related to the Paypal credit program.

Excluding the impact of the Paypal credit program and Walmart portfolio. The net charge off rate was approximately 15 basis points lower than last year.

The allowance for loan losses, as a percent of loan receivables was 6.42%.

The core reserve build in the fourth quarter was $50 million, excluding the impact of the final reduction the reserve related to Walmart portfolio, which was $38 million and release of the reserves of $17 million for the Yamaha portfolio, which was reclassified held for sale in the fourth quarter.

DMR release had no impact on net earnings to the RC offset I discussed earlier.

In summary, the core credit trends of level off or slightly better than our expectations. We expect the core trends to show stability as we move forward assuming stable economic conditions.

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

Later, I will provide an outlook on credit expectations for the year, including the impact of adopting seasonal.

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

Overall expenses came in at $1.1 billion, basically flat compared to last year.

This includes restructuring charge of $21 million, including employee costs in the fourth quarter.

While we did see an increase in expenses driven by growth. This was offset by cost reductions from Walmart.

We achieved our cost reductions goal for Walmart and those cost reductions will be in the expense run rate for 2020.

The efficiency ratio for the fourth quarter increased to 34.8%.

The increase was primarily driven by Walmart, which operated at a lower efficiency ratio than the company average higher RSC. These include the impact from the mob portfolio and also included the restructuring charge.

Moving to slide 10 over the last year, we got our deposits $1.1 billion were 2%.

This puts deposits at 77% refunding compared to 73% last year.

While we slowed overall deposit growth in the second half between 19 in anticipation of the proceeds from the Walmart sale, we do continue to grow lower costs direct deposits and a strong 10% piece in the fourth quarter.

Focusing on capital liquidity.

We ended the quarter at 14.1% C.T., one under the fully phased in Basel III rules, a slight increase over last year.

In November we completed our first preferred stock issuance totaling $750 million at a fixed rate of 5.6% to 5%.

The issuance had strong demand and was significantly oversubscribed.

During the quarter, we continue to execute on our capital plan, we announced in May.

We paid a common stock dividend of 22 cents per share and repurchased $1.4 billion or 38.4 million shares of common stock during the fourth quarter.

At the end to the fourth quarter, we have approximately $1.3 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 $23.4 billion, which equated to 22.3% of our total assets.

This is up from 18% last year, reflecting the approximately $3 billion of excess liquidity, we're holding from the proceeds from the sale of the Walmart portfolio.

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.

Next on slide 11, I'll recap, our 2019 performance compared to the outlook we provided last January .

Starting with loan receivables, our core growth of 5% was in line with their outlook range of 5% to 7%.

Organic growth remain the primary driver the solid results strong value props on our cards effective marketing strategies continued investments in technology digital assets and data analytic capabilities are enhancing our ability to drive organic growth as well as when new programs.

We continue to see strong growth of 70% in our payment solutions and care credit sales platforms.

Net interest margin was 15.78% for the year in line with a 15.75% to 16% range we expected.

We did see the margin impact, resulting from the sale the Walmart portfolio in the fourth quarter and the impact will continue into 2020, which I will cover in our 2020 outlook.

Our assays as a percent of average receivables came in higher than our outlook last January .

Our assays were 4.4% for the year compared to our outlook of 4.0% to 4.2% to.

The higher RC percent was mainly driven by improved program and credit performance in 2018 and include the RC impact, resulting from the release of reserves related to Yamaha.

Our net charge off rate of 5.6% was below our 5.7% to 5.9% outlook range for the year.

Credit trends moderately improved in 2019 slightly better than our expectations.

The sale the Walmart portfolio also had a positive impact on net charge off rate in the fourth quarter and that will continue into 2020.

The efficiency ratio for the year was 31.9% slightly above our expectations. This was mainly due to higher Rcs that resulted from improved program and credit performance. During 2018 and also included restructuring charge, we recognized during the fourth quarter.

Finally, excluding the impact of the reductions in the Walmart Reserve, we generated a return on assets of 2.7% versus our expectations of approximately 2.5%.

On slide 12, a recap the estimated impact of adopting Cecil.

The adoption of Cecil was affected on January Onest, So no impact on 2019.

The initial adjustment as recorded through retained earnings it does not impact net earnings or EPS.

The initial impact on the allowance for loan losses from the adoption Ses on January Onest was an increase of approximately $3 billion or 54% of the yearend balance in line with their expectations.

The reduction to retain earnings from the after tax impact is approximately $2.3 billion.

As well as creating a deferred tax asset of approximately $700 million.

On a regulatory basis, we elected to phase in the approximate $2.3 billion impact on capital at 25% per year in each year from 2020 to 2023.

On a C.T. one transition basis. This one back the ratio by approximately 60 basis points per year during the phase in period.

We want to continue to emphasize our view that csos, an accounting versus an economic change.

Cecil does not affect the cash flows generated by the company, how we view the lifetime value and account for the IR our marketing investments.

We are providing 2020 outlook, which includes the anticipated impact the Cecil and have highlighted those specific measures, where we expect to see the impact from seasonal to provide compare ability on how our expectations align with 2019.

Beginning with the first quarter, we expect to provide similar visibility to help with the comparison to the prior year with historical loss method was utilized.

Moving onto our 2020 outlook on slide 13.

Our macro assumptions for 2020 includes stable key benchmark and unemployment rates throughout the year.

Our outlook for receivable growth is in the 5% to 7% range.

As Mark noted, we have new programs, such as Venmo ryzen, there will be launching throughout the year.

As a result, we expect receivables growth to accelerate in the second half of the year. We expect the purchase volume will run at historical rate of two to three times broader retail sales and for online and mobile to continue with strong growth.

We believe our net interest margin will run in the 15.25% to 15.5 old percent range for the year.

Lower than where margin has run historically and with normal seasonality, we see quarter to quarter.

One factor driving lower margin expectation is the excess liquidity of approximately $3 billion that we will be carrying on our balance sheet from the proceeds of the Walmart sale.

We expect the excess liquidity, we will be deployed through growth as the year progresses.

However, it will impact our margin by an estimated 20 basis points in 2020.

The other factors the impact of not having the higher yields the Walmart portfolio contributed.

Regarding the net interest margin performance throughout the year, we expected to run closer to 15% in the first half of the year, then turn back closer to the 15.5 oak present during the second half of the year as we deploy the excess liquidity.

We expect that Rcs as a percent of average receivables will be in the 4.3% to 4.5% range for 2020.

The single largest driver as expected increase in the RC outlook is a sale of the Walmart portfolio, which operated at a lower ours, 8% than our overall rate.

The outlook is more in line with our historical run rate and reflects continued strong performance of our programs.

While there will be no RC offset on the initial seasonal adjustment to reserves the ongoing impact the season will be included in the our say, which provide a partial offsets the reserve increase.

That offset is muted in the first half of 2020, and then more fully realized in the second half of the year in accordance with the calculations of the are saying our program agreements.

In terms of credit we expect the net charge off rate for 2020 will be in the 5.4% to 5.6% range versus.

Versus the 5.6% in 2019.

The sale the Walmart portfolio has a positive impact on the net charge off rate.

Regarding loan loss reserve builds.

We expect to the total reserve build for the year undersea. So we'll be in the $800 million to $900 million range versus $500 million to $600 million. If we continue reserving under the same methodology is 2019.

This represents approximately 300 million dollar increase in reserve provisioning do the implementation of seasonal.

There are factors that can impact these ranges such as changes in economic trends consumer behavior portfolio and product mix and the underlying assumptions used in determining the allowance for loan losses.

We expect to operate the business with an efficiency ratio of approximately 32% in line with 2019.

Also impacting the efficiency ratio will be the technology and people investments necessary to launch new programs. We have noted.

These are upfront investments, we must make to broaden our capabilities and build the infrastructure around the programs ahead of the actual launch.

The total estimated impact on 2020 bps from launching these programs is approximately 20 cents of EPS dilution, which includes investments ahead of the launch operating costs and reserves related to the growth of these new programs.

While starting up these programs has a dilutive effect on EPS in 2020, we're excited about the future potential they provide.

The preferred stock dividends will start this year and will be paid quarterly beginning in mid February .

The dividends for the full year will amount to $42 million or seven cents reduction in es.

Finally, consistent with our track record excluding the impact of Cecil we expect to generate a return on assets of approximately 2.5% in 2020, which includes the dilution related to launching the new programs.

As part of this outlook I want to provide a view uncertainty key earnings drivers for the first quarter.

We expect the net interest margin to remain near 15% in the first quarter due to the factors I noted previously.

Typically we see the net charge off rate trend seasonally higher in the first quarter compared to the fourth quarter do the seasonal decline in receivables.

The increase has historically been in the range of 50 basis points and we expect the trend in the first quarter to be similar.

We expect that Rcs as a percent of average receivables will be in the 4.4% to 4.6% range with and without seasonal impact.

Regarding reserve builds we expect to build to be 75 to 100 million with seasonal and 50 million to 75 million, excluding the impact to seasonal.

We expect the efficiency ratio to be approximately 33% for the first quarter than the ratio to trend down as the year progresses.

With that I'll turn it over to Brian doubles to highlight the strategies that will help drive future results.

Thanks, Brian .

I'll close with a recap of our strategic priorities, which are focused on driving long term value creation, while diversifying for the future.

A top priority as always is the growth of our core partnerships.

Opportunities to grow will continue to be evaluated through the lens of the risk adjusted returns they produce.

To strengthen our relationships, we will seek to continue to deliver innovative new products and capabilities that add value to cardholders and the programs and drive card usage and brandloyalty.

We will also continue to launch new programs, where we believe the partnership can deliver the opportunity for growth at attractive risk adjusted returns.

We will also seek to diversify through targeted strategies and payment solutions, Carecredit and our synchrony branded products.

This will help us to achieve a more diverse revenue base through the acceleration of growth and small programs and new products.

We will focus on growing payment solutions through enhanced point of sale capabilities and innovative product offerings.

And Carecredit, we will continue to work on broader acceptance and further expansion of the network with an emphasis on health systems like our recently announced partnership with Kaiser Permanente.

This is an area, where we see significant opportunity.

We will also continue to invest in our synchrony branded products, the auto and home networks and the synchrony Mastercard.

Lastly, we will leverage our recent acquisitions to develop and grow new revenue sources, and he gifting and pets.

Technology and data analytics remain a key focus as we strive to provide best in class customer experiences.

We believe this customer first approach will be an increasingly important growth driver.

We will continue the expansion of advanced data analytics.

Leverage and customer level performance dynamics, and further develop capabilities to deliver frictionless customer experiences.

We're also focused on alternative data and machine learning to further drive innovation advanced underwriting and authentication.

These investments are critical to driving growth in our existing programs as well as securing renewals and winning new programs like Venmo Verizon.

It remains a key priority to operate our business with a strong balance sheet and financial profile.

We have proven our ability to do this and it will remain a top priority for us in the future.

We expect to maintain strong capital and liquidity to support our operations business growth credit ratings and regulatory targets.

Finally, we will continue to utilize our strong capital position to support growth launched new programs invest in products and capabilities.

And return capital to shareholders through dividends and share repurchases.

We believe we are well positioned for long term growth and we look forward to driving results for our partners cardholders and shareholders in 2020 and beyond.

Ill now turn it over to Greg to begin the Q and a portion of our call.

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 to please limit yourself to one primary and one follow up question. If you have additional questions. The investor relations team will be available after the call operator, please start the QNX session.

Thank you we will now begin the 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 fine or the hash key if you're using a speaker phone you may need to pick up the handset first before pressing the numbers once again if you.

Have a question. Please press Star then one on your Touchtone phone. Our first question comes from Ryan Nash with Goldman Sachs.

Hey, good morning, everyone.

Good morning line morning, though.

I wanted to start off with a question on.

The net interest margin. So it had been running in the call. It 15, 75% to 16% range. Since you went public in deployed all you your liquidity.

Now just to think about the moving pieces. Your tank 15 for the first quarter, which means you need to be 15, and a half plus.

For the rest of the year to reach the middle of the guide. So I know, it's hard to forecast very far out given all the moving pieces, but should we think about 15 50, plus as a more normal margin range. Once we get beyond this liquidity impact and then second are there any other levers pick on the funding side you could have to drive this back closer to that has.

Starkel range. Thanks.

Yeah. Thanks, Ryan. So so yes, you were trending towards is at the present the front after the year really as we work through the $3 billion of excess liquidity, we have from Walmart coming off the fourth quarter. We obviously are trying to to work the funding profile and manage that to deploy that that liquidity as fast as possible.

Including through organic growth really in the first.

Couple a couple of quarters of 2020 as we guided the back half the year should trend towards that 15, and a half. So when you think about a year over year, there's really two and you know two major impacts right. The first one is burning off this excess liquidity. The second is the impact of the Walmart portfolio, which operated at a higher higher margin.

And then then the company average and other portfolios. So so obviously you know the is Walmart was out for part of the fourth quarter. So when you have those events, we should trend back towards that 15, and a half in the back for the year.

Okay got it and maybe just a squeeze in a question on costs. So I thought I heard you say that you achieved all of the Walmart cost savings and the run rate I just wanted to double check if that with the KFN you, maybe just help us understand the moving pieces on the expense growth going for.

Howard I know, Brian doubles talked about some of them, but Margaret maybe you could expand on what are the some of the big strategic investments that you're making them would you view this as the year up accelerating cost growth than we could potentially get back to something lower beyond this year. Thanks.

Yes, so I'll hand, the first part and then give it over to mortgage. So so you think about that costs are again, where we're guiding to approximately 32%, which is just you know 20 basis points higher than the full year averages 31, eight yes, we did get the did cost reductions that we anticipated for Walmart out and there will be fully baked into the run.

On rate.

As we afford the impact slightly on the efficiency ratio again is is Walmart related because of the high high revenue. They came off of that portfolio. What it generated it ran at a much lower efficiency ratio as a portfolio than the company average that's the this slight pickup.

Good to see there, yeah, and I think Brian on investments, it's really a couple of things so first.

He is really the investment were making and then now on Verizon both of these programs any are going to really be.

Fully digitized in App experiences and so weve added a number of agile teams to really develop a number of npis to really deliver for those partners.

We have the launch fun.

We have people that we need to add so those those are really a big part of the strategic initiative in terms of those two programs more broadly you know we're continuing to invest in a couple of key areas, we talked a little bit about carecredit.

Adding resources and technology enhancements, there, particularly as we go into health system, which we believe is a really great investment and one where we'll get a great return over time.

And just broadly I would say from a technology perspective, we continue on this journey of really driving Digitization and frictionless customer experiences I'd say the other area. We're very focused on is really what I would call. The customer journey. So I think we've done a really good job on the front end, meaning how you apply him by and using your mobile capability.

But we're really looking at how do we get more efficiency out of our back office in terms of using digitization to really an excel that experience for the customer. So it is a bit of investment I think the biggest.

Kind of add to the years really though the varieties and then now investment we're making and.

In our mine.

Those are two great opportunities to for us for future growth and we think that that investment is really going to be the right investments make for the company.

Got it thanks for all the color on seasonal.

Thank you.

Next question comes from Moshe Orenbuch with credit Suisse.

Great I was hoping that and I kind of hate to ask questions. Like this is kind of precise but you did a $4.03 billion of net interest income in the fourth quarter, usually you have a little bit of a seasonal decline in Q1, and then start growing given that you do expect the mark.

Just to be higher and assets to grow in Walmart was almost entirely out of Q4 is it reasonable that other than normal seasonal.

Impacts that we should expect to see growth.

You know in and I, and II and III from the Q4 level.

Yeah. Thanks, Moshe yes, it as you think about the fourth quarter Walmart was in for for approximately you know call. It 15 20 days. So so that impact from when you think about the quarter there will be a slight dilution as relates to that and then really it's the.

The excess liquidity a that we're carrying that's impacting along with normal seasonality. When as you think you know sequentially quarter over quarter.

Right, but that excess liquidity is impacting dollars of net interest income in a material way all right.

Yes, it's also impact yes, it is impacting <unk> dollars.

Okay.

Second question just on the expenses you know you talked about the.

The charge and then you know that was in the Q4 and then some investments maybe just.

Because you did.

Say that you're going to have an improvement.

Over overtime kind of back on the efficiency side, maybe just can you talk a little bit about the approach that you're taking to those investments how you would see them paying back up over what period of time and how we should think about that.

Yes. So if you think about the investments even more in highlighted so you think about the investments in rising and Nemo, there's different pieces right. We have to pre stage people right. So we have team has been up in standing up here to get these programs ready we'll have certain launch costs, you think about research that done on the consumer on the value.

Proposition et cetera that phases, and as Mark talked about where then does standing up the 18 in infrastructure. These are sizable opportunities and we need to be a full scale relative to the launches both rising in the first half in venmo in the second half and given the nature of these two you know opportunities there specific things around data Lake.

You around how we're doing digital servicing is mark talked about apiay, so that cost builds up right as we move through the year. So so that's that pieces the incremental we run with the you know hopefully a very good cost discipline in the business. We got the the cost reduction we wanted from Walmart, we're continuing to try to.

Drive and drive efficiencies in the business in the process is whether it sits in the enterprise operation side or across all our core functions and we look at the business for multiple differ lenses and how we manage expenses in in will be fairly disciplined as we move through.

2020.

Okay. Thanks, so much.

Thank you.

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

Thanks, Good morning, and appreciate all the seasonal commentary thank you.

So when we think about the loan growth expectations that we have in 2020 and the growth that we saw this year correct me, if I'm wrong, but it seems like the core portfolios growing mid single digits, which is is lower than what we've seen in the past can you guys talk about sort of how that will migrate overtime.

Time, because you do have.

A set of more higher growth merchants now in the portfolio and then maybe.

Yeah, I guess, how it would.

Migrate higher over the next several years would be the question there.

Yeah. Thanks, Sanjay So as you think about growth you know, we're projecting five to seven present. This year, we're coming off 5% last year. If you think about from the 17% to 19% range. Our average growth was 4% to 7% ex that that pay Pal acquisition. So we're growing in line with that again.

President Venmo will come in those days in you know again, they're durden Denovo programs, what you know with one launch in the first half one launch in the second half you know, we're not providing long term guidance relative to the growth rate, but obviously they are startup programs and that trajectory, we will obviously provide.

Guys as we move into 2021. So we are inside historical norms. If you look inside the portfolio there or you know.

You know movies, yes, we have some fast growing portfolios. We also have some some pockets that are not growing as fast as I'm sure you can recognize and they work in concert so.

Again, we're we're comfortable with the 5% to 7% range. We had this year, it's within guides and any clearly we'll look at the directory of the new programs that we're launching.

This year.

Okay, and I guess.

To sort of data point related follow ups the preferred stock issuance what drove that drove that was it just diversifying funding sources and then the charge off rate.

The relative charge off rate to this year's guidance, if we weren't takeout Walmart in 2019 do we have the metric around that like what that charge off rate would have been thanks.

Yeah with regard to your first question you know we have talked long term about our capital strategy and really moving our capital levels, you know C.T., one et cetera in line with peers.

Along this journey, we started out with an 18% C.D. one we're down to 14% now.

Part of that that long term capital strategy has been diversification to match our peers. So it was always part of the strategy was included in our capital plan that we filed with the regulators and was approved by our board earlier. This year. So it was part of our diversification efforts really to lower the overall cost of equity.

It was important for is to get it done the timing, which we know the market was very attractive we got a 5.6 to five rate.

For the preferred a significant amount of institutional and retail investors. So is it was simply oversubscribed, we obviously want to access the market in one to due before 2020 and any potential disruptions that may comes in the market from unforeseen is for unforeseen event. So that's really the rationale behind why we did it.

So in your second question was on just remind me, but you have a charge off rate like that we have the equivalent of that charge off rate ex Walmart for 2019.

Yes, we're not gonna provided some do X Walmart, but at what I'd say is this is that you know we gave you an indication of probably 18 months ago about what that Ray was with what's happened. Since then obviously the portfolio has deteriorated from $10 billion to the roughly $8.2 billion that.

We sold that as well as the fact that that the credit refinements that we put in place several years ago, a really helped to start reducing that so the impact. This year was was not as significant rate as what we'd indicated 18 months ago.

Okay. Thank you.

Thank you.

Our next question is from Don Fandetti with Wells Fargo.

Hi, Good morning can you talk a little bit more about the interplay of Cecil and the our aside I mean, just on the surface. The increase in provision seems like a pretty sizable amount, but I guess, there's an offset just talk more about that I know you touched on it earlier.

Yeah. Thanks, Dan Yes, so as you think about the ours. They you know obviously, we've been talking to our partners for several months about that change and how it impacts.

The our assays you know I just want to be clear, we we're passing for those are assays that participate in reserves.

The Rs say the full amount of season will be reflected in the RF say, we did not meant to any of our agreements to either exclude or reduce the amount of.

Reserve provisioning that that those agreements associated with so I just want to be clear on that.

As you think about seasonal in the impact to the our say as these needs to be important to ground things.

The primary.

And the primary platform that uses our stays at retail card platform that platform actually has a lower provisioning relative to c., so given its products and how it how it interacts the payment solutions secured credit business given the longer duration promotional.

Activity to have as they are actually attracts a larger UL larger Cecil increase as you move through.

Also impacting that there's a slight lag that happens dilutes the calculations work as it passes through so again, you'll see that and the full run rate year, particularly in the back after the year as we as we move forward.

Okay. Thank you and then just quickly on underwriting are you, making any changes to your underwriting right. Now are you sort of enough study state are you seeing any competitors.

Loosened up just given the sort of better economic outlook [noise].

Yeah, we have not loosened up what I would say as we've been pretty consistent in our underwriting you know, obviously, we're always making flight changes.

I think one other things we've talked about in the past as we've done a lot of investing in how were creating our models in the data that we're using both externally and internally and so I think were much more strategic in how we look at underwriting and that's really helped US I think continue to see the good performance, we're seeing and.

Delinquencies and charge offs. So you know we're being pretty consistent I think this is the time, where you want it just continuing to be very.

Consistent and thoughtful as you think about where we are in the cycle.

Okay.

Thanks, and thank you.

We have our next question from Brian carry with Bank of America.

Morning, guys.

Finally, most the discussion around loan growth acceleration in 2020, resulting from the new program launches like venmo on horizon because of any benefit from pay policy conversion is now behind you and there's been discussion about moving out to more integration phase or is this more likely to benefit is longer more likely to take a little bit longer term to ramp.

No I think look I think paypals, a fast growing portfolio for us it's performing the way we thought we perform I think what we talked about last year was you know getting the portfolio converting what's happened in junior with a failed bank and sophisticated.

Conversion, while we're really focused on now with the pay Pal team is really looking at how we accelerate growth I think than those a little different in the sense that at the start up so we'll take us a little longer to get that growth going but you know I I'd say overall, where we're pretty pleased about the growth that we're seeing it's the kind of growth we want to see.

And I think you know as we add some of these new more digitally driven our partners you know that that'll continue to play into our portfolio I do want to make one point that.

Despite.

You know maybe some of the retail struggling a little more one of the things I think we're definitely winning on is on the mobile side and were definitely seeing growth in mobile and I think as we went to holiday that was a big part of of our when I think with our partners and our partners are continuing to depend on us to really deliver capability to them.

To really drive growth digitally so.

You know I think that's something that we're going to continue to focus on as well.

Let me just images at one point of clarity as you think about the wrote the primary amount of the growth for the year. When you think about the by December is coming off the existing book So while we're launching of rising venmo, given the timing of it bring first and second half when you're thinking about that growth in end of period, it's not going to be a big movement. This year, it's something as we think about future.

Two years, that's going to be accelerate or so so just to make sure we're clear that that that the existing portfolios driving.

That growth.

Okay. Okay.

On to ask one on the GPR card I think you'd said a number of direct mailings in the quarter I'm, just curious about the resulting adoption uptake and how that compared to your expectations do you expect to accelerate direct marketing other GPR card for next year.

Yeah. So look we continue to see really good trends on the card I'd say generally better than our expectations on both of the campaigns that we've done.

We're seeing good activation good usage.

Nice retention of the balances, but you know as I said last quarter, we're being very disciplined around profitability and returns. So you know and then short term we've got modest growth expectations were being very thoughtful.

Look we realize it's a very competitive market and we're trying to target profitable accounts. So we really we like the space, we like what we're saying so far but you know we're going to be disciplined on on how we approached us.

Great. Thank you.

Thank you.

We have our next question from Betsy Graseck with Morgan Stanley .

Hey, good morning.

I wanted to dig in a little bit on the Rs and just make sure I understand I know you gave the range for the full year 4.3 to 4.5, but then you talked about how digging there'll be is lower and ended the year old be higher is that within the range that you're identifying or is this range. The average for the full year and and you know the core.

Italy's could be beyond the range. Thanks.

Yeah, the 4.3 or four to 4.5 is the average for the full year Betsy. So so again, we give you some some projections in the first half, but the real movie piece, you're obviously is the the seasonal impact, which a little bit more muted the way the cat contractual contractual calculations work that then normalizes in the back half of the.

Sure so, but the 4.3 to 4.5 is the full year estimate.

Okay. So we could see the quarterly Spi you know either side of that are within you know you're you're not really telling us Ryan I just want make sure.

Again, it's going to average out the 4.3 to 4.5, it could be with the lower end or could be you know the higher end, obviously, it's going to vary relative to the program performance and the credit performance of the portfolio. So it could vary but again, it's the right across the full year it will get back okay.

And then separately just on Verizon interesting new partner, maybe Margaret you can speak a little bit too.

You know the.

The set of services and products that you're gonna be offering them that was attracted to them as to why they picked you and then could you speak a little bit more to you know what kind of market opportunity. You think is out there you know given what Verizon represents.

Yes. So you know first we're going to be doing there you know that Cobank brand card it will be branded horizon.

Well, we're working very closely with them that really make sure. This is a state of the art digitally driven a card I, we're pretty excited about some of the things. We're working on you know, where we're not going to communicate the value prop and things like that to thats going to happen. When we do the launch in a lot they have about 119 retail.

Ill phone connection. So this is a a pretty big opportunity for us and were excited about the partnership they're highly engaged you know I'd say, we won the deal because at some of the investments we've been making.

I think you know we turn the corner on the question Mark in line line of our we you know digitally savvy and I think based on the winners that we have the programs. We won this year I think we're winning because of these investments that we've made an investment that we're going to continue to make so they're excited about rising.

119 million customers, that's where you're talking about Oh, no retail like phone connection vaccine on phone lines.

Got it okay, how they kept in it.

Alright. Thanks.

Thanks Betsy.

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

Hey, guys. Thanks for taking my questions. This morning.

Margaret Brian you Bill referenced.

The data analytics and machine learning that you're investing in and also commented that you've already started to strategically apply those insights.

I am curious.

What you're seeing right now in terms of consumer behavior Theres, a lot of talk about bifurcation.

Amongst consumers and given the breadth of your portfolio I am wondering what you guys are seen in how you are applying that strategically.

Im not sure what you mean by bifurcation, meaning good customers and back customers on a credit perspective.

Well no more economically that there's such a divergence in the economy and I'm curious if you are seeing greater or lesser opportunity, particularly in the middle lower income.

Brackets.

No I don't think we are underwriting standards and based on you know the consumers capability to pay for the credit card. So that's core to how we underwrite I think the things that were were looking to.

Further enhances leveraging.

Data from our partners for instance, I'd say more on how we set of credit line upfront stuff the partnerships with us at this particular consumers shop now are heavily we might give a higher credit line than we normally would based on that data I think one of the important aspects of our business different than maybe the general purpose credit card spaces, you can apply and by.

Right away. So we got to be very disciplined from a blind size perspective, when we give a an initial line and that's where I think were really learning and and really driving some good customer experience because we're sharing the data between us and the partner.

I think the other area is.

Helping us on fraud and end to name and using identity and things like that that really helping us. So for instance, we've leveraged payphone as an example, where now on our mobile App you only have to fill out three three lines.

And that's really helping us do a better job at identifying that customer and again a lot of this has to do it because where our an applying by company we have to be very diligent and identifying that it's the right customer that's implying.

Eric maybe one thing just add to that I think it's what we've seen so far is now that our partners are sharing things like spend levels number of visits to the store average basket size payment behavior, you know those those metrics, which result in what we call an engagement index really cuts across income levels and so.

We're finding that to be a very powerful predict or in terms of how those accounts are going to perform how they're going to how they're going to behave from of spend perspective, but also a loss perspective and fraud as well so it's benefiting us in a number of different areas.

Great. Okay that that detailed very helpful. Thank you guys very much.

Thanks, Rick.

And we have our next question from Bill Kurkowski with Nomura.

Thanks, Good morning up.

Margaret and Brian doubles I wanted to ask your question about whether you could give us a sense of your interest level and sit greens exposure to.

Potentially merchant receivables and essentially making loans to merchants backed by their sales is there any potential growth opportunity. There that you see for synchrony is it something you haven't given much thought too but would consider any color you can give us on that would be great.

Yeah, that's that's not a space that where I would say we are considering.

I think we have laid out our strategy has nine focused on I think we're going to stick to the things, we really now and grow that way I.

Yeah, I mean look we're a consumer lender. That's that's a were good out we're going to stick to our netting there.

And we see a ton of great growth opportunities in our existing business, which we outlined so I think I'll never say never but it's not on has not on the strategic map right. Now I think we've got a ton of great growth opportunity in all three of our platforms.

We like what we're seeing a direct to consumer space. So we're going full throttle in those areas and.

We will revisit at some point the future, but right now lot of growth opportunity in the core.

Understood and so then perhaps sticking with the consumer is there any interest level and perhaps.

Taking a look at international consumer at some point or or again is the growth opportunity enough.

In the U.S. a that you see that that's probably not something that you would consider near term again any color you can have on that would be helpful. As well yeah. I'll look it's something we've considered we've talked about it leadership team in with the board again, I think we see enough opportunity right now and our current market in the U.S. that we don't feel the need to go internet.

National but.

You know never say never.

The business does work in certain markets overseas, we've seen that.

We'll continue to assess the but nothing in nothing in the short term.

Understood. Thank you for taking my questions.

Very good.

But that's the way of time for one more question.

Thank you Sir our final question comes from John Hecht with Jefferies.

Yeah.

John Your line is open.

Sorry, guys. Thanks for taking my questions.

I guess final question here, maybe talk about the pipeline of different opportunities and then I guess from a broad perspective, it seems like the more recent.

Partner wins have been more technologically based built with Verizon pay Pal venmo and so forth.

And is there any changing dynamics with who you're going after and is there any changing dynamics with respect to the competitive environment.

Yes, I'll start with the second part you know I think the competitive environment is pretty that's been pretty consistent I don't think anyone doing anything too crazy out there. So I think we felt pretty good about where were placed in the competitive environment.

You know I think look we still want to win core retail deals. So this scene on if you look at payment solutions business a lot of what we won was the core of that business I.

I think these opportunities have come a long of a van I think somewhat unique in terms of them coming on the marketplace. There's just not a lot of big retail deals that are out there right now in terms of existing portfolios. We consider we continue to see a number of smaller mid sized deals that we haven't our pipeline I would say all.

Three platforms have a pretty good pipeline.

Of opportunity and you know were very focused on that so you know I think you'll see US you know.

Down the road, you'll see you'll see more retail deals, it's not like walking away from that space. I. Just think this is lot within the market and the opportunity for us to you know and in some cases differentiate our portfolio a little bit.

Great. Thanks very much.

Hi, Thanks, everyone for joining us this morning, the Investor Relations team will be available to answer any further questions. You may have when we hope you have a great day.

Thank you.

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

And.

Welcome to the Synchrony financial fourth quarter 2019 earnings Conference call. My name is spin off and I will be your operator for today's call.

This time all participants are in to listen only mode. Later, well conduct a question answer session. Please note that this conference is being recorded.

Well now turn the call over to Mr., Greg catch on director of Investor Relations, Greg 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 Dot com. 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 in 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 at 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 July 29, P. marked another year of significant transformation for synchrony across all of our self platforms, we renewed more than 50 existing partnerships.

Also finding 30 new business deals.

We expanded our cat credit card network, and our auto and home network.

We significantly enhance the digital experience for cardholders and substantially grew our direct to consumer deposit platform.

During our five years as a public company, we have made significant investments in people and technology and that has propelled the company for it and enabled the development of innovative offerings for our partners and enhanced our capabilities and user experiences for our cardholders.

In the fourth quarter earnings were 731 million or $1.15 particular did share which included the remaining reduction and the reserve related to the sale of the Walmart consumer portfolio in October .

The reduction totaled 38 million or 20 million after tax and provide an EPS benefit of five cents the quarter as outlined in slide three of the presentation.

Loan receivables were down 6%, however, on a core basis, which excludes Walmart and the Omaha portfolio that we moved to loans held for sale in the fourth quarter loan receivables were up 5%.

On a core basis, the loan receivable growth drove 5% growth in interest and fees.

Purchase volume was up 7% and average active accounts increased 3%.

The efficiency ratio was 34.8%, including a restructuring charge of 21 million for employee costs, which had a 60 basis point impact on the efficiency ratio. This quarter as we continue to drive cost efficiency for the company.

We grew deposits 1.1 billion or 2% over last year and much of this growth has come through direct deposit which grew 10%.

Our direct deposit platform remains an important funding source for our growth and we continue to invest in our bank to help attract new deposits and retain existing customers.

While organic growth continues to present, the largest opportunity for us and we have demonstrated our ability to not only grow our existing programs, but also launched new programs with fast growing partners in new markets.

In our retail card sales platform, we announced a new partnership with horizon, well, we will be the exclusive issue our operations co branded consumer credit card.

Together, we are launching the first credit card designed specifically for iPhone customers.

We are thrilled to be working with ryzen as they continue to bring innovation to their customers and this is a great growth opportunity for us as we continue to diversify our portfolio the new rise and credit card is expected to launch during the first half of this year.

We establish new payment solution relationships with more furniture for last Grand home furnishings, Travis industries, and leisure pro and renewed key relationships with rooms to go by Max Alliance.

Jeff Mono and continental tires.

We remain focused on growing our network to create broader acceptance and utility for our cars and we have had many recent successes on that front not carecredit network in the fourth quarter Carecredit established a new relationship with Kaiser Permanente, we've been focused on adding health systems to our credit network.

And with the addition of Kaiser Permanente, we now have five health systems under contract.

During the quarter, we also renewed a key credit relationship with them on a global market leader in hearing health. We continue to remain highly focused on digital innovation accelerating our data analytics capabilities, and creating frictionless customer experiences, which are key to the success of our programs and winning new.

Partnerships.

Driving digital sales penetration is key to our success.

In retail card digital sales penetration was 39% in the fourth quarter.

We are happy to report that we have reached a new high on digital applications, which were 52% of our total applications in the fourth quarter.

Mobile channel along grew over 40% compared to the same quarter last year, excluding Walmart.

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 1.4 billion of synchrony financial common stock and paid 141 million in dividends.

We concluded 2019, having made significant advances in our capabilities and winning key partnerships that will generate long term value for the company.

I have a clear vision for our future and what we need to do to get there later in the call Brian doubles will outline our strategic priorities as we move into 2020.

I will take a moment to highlight our platform results on slide four.

In retail card loans were down 12%, but increased 4% on a core basis with solid growth driven by our digital partners.

Other metrics were down driven by the sale of the Walmart portfolio.

We are excited about our new partnership with Verizon. In addition to the other partnerships, we announced in 2019 and look forward to launching these new programs this year.

Payment solutions delivered a strong quarter with broad based growth across the south platform and particular strength in home furnishings and home specialty that resulted in loan receivable growth up 4% or 7% on a core basis.

Interest and fees on loans increased 4%, primarily driven by the loan receivables growth.

Purchase volume was up 6% an average active accounts increased 3%.

We signed a number of new programs and renewed key partnerships this quarter.

Continued to drive growth organically through our partnership and card networks.

These networks along with other initiatives such as driving higher current views, which now stands at approximately 31% of purchase volume excluding oil and gas have helped to drive solid result, and position the payment solutions platform for future growth.

Carecredit also delivered another strong quarter receivables growth of 8% was led by our dental and veterinary specialties interesting fees on loans increased 9%, primarily driven by the loan receivables growth.

Purchase volume was up 12% an average active accounts increased 5%.

We continue to expand our network and the utility of arc heart.

Most recently through our partnership with Kaiser Permanente, which helped to drive the reuse rate to 54% our purchase volume in the fourth quarter.

Throughout the year, we drove strong growth across our sales platform, we extended and expanded relationships signed exciting new partnerships launched new program.

Increased utility of our cards and networks and grow our payment solutions platform to over 20 billion and our cat credit network to over 10 billion in receivables.

Our efforts and achievements provide a strong foundation for the future.

With that I'll turn the call over to Brian Wenzel to review, our financial performance for the quarter anywhere and our outlook for 2020.

Thanks, Good morning, everyone I'll start on slide five of the presentation.

This morning, we reported fourth quarter earnings of $731 million or $1.15 cents per diluted share.

This includes the remaining reduction the reserve related to the sale of the Walmart consumer portfolio in October .

As Mark noted earlier, the production totaled $38 million or $28 million after tax and provide an EPS benefit of five cents to the quarter.

We generated solid year over year growth in several areas as noted on slide six.

Excluding Walmart and the mob portfolio, which has moved to loans held for sale in the fourth quarter loan receivables were up 5% on the core basis.

Interest and fees on loan receivables were also up 5% on the core basis over last year driven by the growth in receivables.

On a core basis purchase volume growth was 7% in average active accounts increased 3% over last year.

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

Our sales increased $174 million or 20% from last year.

Improved program performance and growth primarily drove the increase.

The increase also included the RC impact, resulting from the $17 million release reserves due to the reclassification of loan receivables to held for sale for yes.

Rcs as a percent of average receivables was 4.8% for the quarter.

The IRS, 8% was impacted by the sale of the Walmart portfolio, which operated NRC percent below the company average in addition to the factors driving the increase in our assays.

The provision for loan losses decreased $348 million or 24% from last year.

Action was mainly driven by the lower core reserve build and a reduction in net charge offs.

The core reserve build for the fourth quarter was $50 million.

Other income increased $40 million over last year, mainly due to lower loyalty cost as a result of the Walmart program conversion.

Other expenses were basically flat to last year, but included restructuring charge of $21 million, including employee costs.

So overall the company continues to generate solid results in the fourth quarter.

I'll move to slide seven to cover our net interest income in margin trends.

Net interest income decreased 7% from last year, primarily driven by a 6% decrease in the interest and fees on loan receivables due the sale of the Walmart portfolio.

Core basis interest and fees on loan receivables increased 5%.

The net interest margin was 15.1% compared to last year's margin of 16.6%.

The main factors driving the margin performance were.

Decline and loan receivables mix as a percent of total earning assets.

The mix decline from 83.5%, 80.2% driven by holding excess liquidity approximately $3 billion, resulting from the proceeds of the sales and Walmart portfolio.

At 33 basis point decrease in a loan receivables yield to 20.87%.

I'm really driven by the so the Walmart portfolio.

And a 10 basis point increase in total interest bearing liabilities cost to 2.58% primarily due to higher benchmark rates.

Later in the call provide more insight on the direction of the interest margin for 2020, including the impact from the sale of the Walmart portfolio.

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

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

30, plus delinquency rate was 4.44% compared to 4.76% last year and enable us delinquency rate was 2.15% compared to 2.29% last year.

If you exclude the impact of the Paypal credit program and the Walmart portfolio. The 30, plus delinquency rate and the 90, plus Lincoln Sea Ray were flat compared to last year, reflecting continued stable credit trends.

Focusing on net charge off trends.

Charge off rate was 5.15% compared to 5.54% last year.

The reduction in net charge off rate was primarily driven by Walmart and improving credit trends.

This was partially offset by the purchase accounting impact in 2018 related to the Paypal credit program.

Excluding the impact of the Paypal credit program and the Walmart portfolio. The net charge off rate was approximately 15 basis points lower than last year.

The allowance for loan losses, as a percent of loan receivables was 6.42%.

Core reserve build in the fourth quarter was $50 million, excluding the impact of the final reduction in the reserve related to the Walmart portfolio, which was $38 million.

At least the reserves of $17 million for the portfolio, which was reclassified held for sale in the fourth quarter.

Hi release had no impact on net earnings to the RC offset I discussed earlier.

In summary, the core credit trends have leveled off or slightly better than our expectations.

We expect the core trends to show stability as we move forward assuming stable economic conditions.

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

Later, I'll provide an outlook on credit expectations for the year, including the impact of adopting seasonal.

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

Overall expenses came in at $1.1 billion, basically flat compared to last year.

This includes a restructuring charge of $21 million, including employee costs in the fourth quarter.

While we did see an increase in expenses driven by growth. This was offset by cost reductions from Walmart.

We achieved our cost reductions go for Walmart and those cost reductions will be in expense run rate for 2020.

The efficiency ratio for the fourth quarter increased to 34.8%.

The increase was primarily driven by Walmart, which operated at a lower efficiency ratio than the company average higher our assays, including the impact from the mob portfolio and also included the restructuring charge.

Moving to slide 10 over the last year, we got our deposits $1.1 billion were 2%.

This puts deposits at 77% refunding compared to 73% last year.

While we slowed overall deposit growth in the second half of 2019 anticipation of the proceeds from the Walmart sale, we continue to grow lower costs direct deposits at a strong 10% piece in the fourth quarter.

Focusing on capital liquidity.

We ended the quarter at 14.1% CPT, one under the fully phased in Basel III rules, a slight increase over last year.

In November we completed our first preferred stock issuance totaling $750 million at a fixed rate of 5.6% to 5%.

The issuance had strong demand and were significantly oversubscribed.

During the quarter, we continue to execute our capital plan, we announced in May.

We paid a common stock dividend 22 cents per share and repurchased $1.4 billion or 38.4 million shares of common stock during the fourth quarter.

At the end the fourth quarter, we have approximately $1.3 billion remaining share repurchase capacity or the $4 billion Board authorized plan, which runs through June Thirtyth 2020.

Total liquidity, including Undrawn credit facilities was $23.4 billion, which equated to 22.3% of our total assets.

This is up from 18% last year, reflecting the approximate $3 billion of excess liquidity, we're holding from the proceeds from the sale of the Walmart portfolio.

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.

Next on slide 11, I'll recap, our 2019 performance compared to the outlook we provided last January .

Starting with loan receivables, our core growth of 5% was in line with their outlook range of 5% to 7%.

Organic growth remain the primary driver the solid results strong value props on our cards effective marketing strategies continued investments in technology digital assets and data analytic capabilities are enhancing our ability to drive organic growth as well as when new programs.

We continue to see strong growth of 70% in our payment solutions and care credit sales platforms.

Net interest margin was 15.78% for the year in line with a 15.75% to 16% range we expected.

We did see the margin impact, resulting from the sale of the Walmart portfolio in the fourth quarter and the impact will continue into 2020, which I will cover in our 2020 outlook.

Our assays as a percent of average receivables came in higher than our outlook last January .

Our assays were 4.4% for the year compared to our outlook of 4.0% to 4.2%.

Higher RC percent was mainly driven by improved program and credit performance in 2018 and include the RC impact, resulting from the release of reserves related to Yamaha.

Our net charge off rate of 5.6% was below our 5.7% to 5.9% outlook range for the year.

Credit trends moderately improved in 2018 slightly better than our expectations.

The sale the Walmart portfolio also had a positive impact on net charge off rate in the fourth quarter and that will continue into 2020.

The efficiency ratio for the year was 31.9% slightly above our expectations.

This was mainly due to higher Rcs that resulted from improved program and credit performance. During 2018 and also included the restructuring charge, we recognized during the fourth quarter.

Finally, excluding the impact of the reductions in the Walmart Reserve, we generated a return on assets of 2.7% versus our expectations of approximately 2.5%.

On slide 12, a recap the estimated impact of adapting Cecil.

The option of Cecil was affected on January Onest. So no impact on 2019. The initial adjustment as recorded through retained earnings and does not impact net earnings or EPS.

The initial impact on the allowance for loan losses from the adoption to cease on January Onest was an increase of approximately $3 billion or 54% of the year end bounce in line with our expectations.

The reduction to retain earnings from the after tax impact is approximately $2.3 billion as well as creating a deferred tax asset of approximately $700 million.

On a regulatory basis, we elected to phase in the approximately $2.3 billion impact on capital at 25% per year in each year from 2020 to 2023.

On a CPT one transition basis. This one back the ratio by approximately 60 basis points per year during the phase in period.

We want to continue to emphasize our view that seasonals and accounting versus an economic change.

Cecil does not affect the cash flows generated by the company, how we view the lifetime value and account for the IR our marketing investments.

We are providing 2020 outlook, which includes the anticipated impact the Cecil and have highlighted those specific measures, where we expect to see the impact from Cecil to provide comparability on how our expectations align with 2019.

Beginning with the first quarter, we expect to provide similar visibility to help with the comparison to the prior year with historical loss method was utilized.

Moving onto our 2020 outlook on slide 13.

Our macro assumptions for 2020 include stable key benchmark in unemployment rates throughout the year.

Our outlook for receivable growth is in the 5% 7% range.

As Mark noted, we have new programs such as Venmo horizon.

Launching throughout the year.

As a result, we expect receivables growth to accelerate in the second half of the year. We expect the purchase volume will run at historical rate of two to three times broader retail sales and from online and mobile to continuous strong growth.

We believe our net interest margin will run in the 15.25% to 15.5% range for the year.

Lower than where margin has run historically and with normal seasonality, we see quarter to quarter.

One factor driving lower margin expectation, because the excess liquidity of approximately $3 billion that we will be carrying on our balance sheet from the proceeds of the Walmart sale.

We expect the excess liquidity will be deployed through growth as the year progresses.

However, it will impact on margin by an estimated 20 basis points in 2020.

The other factors the impact of not having the higher yields the Walmart portfolio contributed.

Regarding the net interest margin performance throughout the year, we expected to run closer to 15% in the first half of the year, then turn back closer to the 15.5 oak percent during the second half of the year as we deploy the excess liquidity.

We expect that ourselves as a percent of average receivables will be in the 4.3% to 4.5% range for 2020.

The single largest driver as expected increase in the RC outlook is a sale of the Walmart portfolio, which operated at a lower Rs, 8% than our overall rate.

The outlook is more in line with our historical run rate and reflects continued strong performance of our programs.

While there will be no RC offset on the initial seasonal adjustment to reserves the ongoing impact to see so we'll be included in the our say, which provide a partial offset to the reserve increase.

That offset is muted in the first half of 2020, and then more fully realized in the second half of the year in accordance with the calculations of the are saying our program agreements.

In terms of credit we expect the net charge off rate for 2020 will be in the 5.4% to 5.6% range.

Versus the 5.6% in 2019.

To sell the Walmart portfolio has a positive impact on the net charge off rate.

Regarding loan loss reserve builds.

We expect to the total reserve build for the year under Cecil will be the $800 million to $900 million range versus $500 million to $600 million. If we continue reserving under the same methodology is 2019.

This represents approximately 300 million dollar increase in reserve provisioning do the implementation the season.

There are factors that can impact these ranges such as changes in economic trends consumer behavior portfolio and product mix and the underlying assumptions used in determining the allowance for loan losses.

We expect to operate the business with an efficiency ratio of approximately 32% in line with 2019.

Also impacting the efficiency ratio will be the technology and people investments necessary to launch new programs. We have noted.

These are upfront investments, we must make to broaden our capabilities and build the infrastructure around the programs ahead of the actual launch.

The total estimated impact on 2020 EPS from launching these programs is approximately 20 cents of EPS dilution, which includes investments ahead of the launch operating costs and reserves related to the growth of these new programs.

Well starting up these programs has a dilutive effect on EPS in 2020, we're excited about the future potential they provide.

The preferred stock dividends will start this year and will be paid quarterly beginning in mid February .

The dividends for the full year will amount to $42 million or seven cents reduction in EPS.

Finally, consistent with our track record excluding the impact of Cecil we expect to generate a return on assets of approximately 2.5% in 2020, which includes the dilution related to launching the new programs.

As part of this outlook I want to provide a view on certain key earnings drivers for the first quarter.

We expect an interest margin to remain near 15% in the first quarter due to the factors I noted previously.

Typically we see the net charge off rate trend seasonally higher in the first quarter compared to the fourth quarter do the seasonal decline in receivables.

The increase has historically been in the range of 50 basis points and we expect the trend in the first quarter to be similar.

We expect that Rcs as a percent of average receivables will be in the 4.4% to 4.6% range with and without seasonal impact.

Regarding reserve builds we expect to build to be 75 to 100 million with seasonal and 50 million to 75 million, excluding the impact of season.

We expect the efficiency ratio to be approximately 33% for the first core than the ratio to trend down as the year progresses.

With that I'll turn over to Brian doubles to highlight the strategies that will help drive future results.

Thanks, Brian .

I'll close with a recap of our strategic priorities, which are focused on driving long term value creation, while diversifying for the future.

A top priority as always is the growth of our core partnerships.

Opportunities to grow will continue to be evaluated through the lens of the risk adjusted returns they produce.

To strengthen our relationships, we will seek to continue to deliver innovative new products and capabilities that add value to cardholders and the programs and drive card usage and brand loyalty.

We will also continue to launch new programs, where we believe the partnership can deliver the opportunity for growth at attractive risk adjusted returns.

We will also seek to diversify through targeted strategies and payment solutions, Carecredit and our synchrony branded products.

This will help us to achieve a more diverse revenue base through the acceleration of growth and small programs and new products.

We will focus on growing payment solutions through enhanced point of sale capabilities and innovative product offerings.

And Carecredit, we will continue to work on broader acceptance and further expansion of the network with an emphasis on health systems like our recently announced partnership with Kaiser Permanente.

This is an area, where we see significant opportunity.

We will also continue to invest in our synchrony branded products, the auto and home networks and the synchrony Mastercard.

Lastly, we will leverage our recent acquisitions to develop and grow new revenue sources and gifting and pets.

Technology and data analytics remain a key focus as we strive to provide best in class customer experiences.

We believe this customer first approach will be an increasingly important growth driver.

We will continue the expansion of advanced data analytics.

Leveraging customer level performance dynamics, and further develop capabilities to deliver frictionless customer experiences.

We're also focused on alternative data and machine learning to further drive innovation advanced underwriting and authentication.

These investments are critical to driving growth in our existing programs as well as securing renewals and winning new programs like Venmo Verizon.

It remains a key priority to operate our business with a strong balance sheet and financial profile.

We have proven our ability to do this and it will remain a top priority for us in the future.

We expect to maintain strong capital and liquidity to support our operations business growth credit ratings and regulatory targets.

Finally, we will continue to utilize our strong capital position to support growth launch new programs invest in products and capabilities and return capital to shareholders through dividends and share repurchases.

We believe we are well positioned for long term growth and we look forward to driving results for our partners cardholders and shareholders in 2020 and beyond.

I'll now turn it over to Greg to begin the Q and a portion of our call.

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.

Thank you we will now begin the 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 fine or the hash key if you're using a speaker phone you may need to pick up the handset first before pressing the numbers once again if you.

Have a question. Please press Star then one on your Touchtone phone. Our first question comes from Ryan Nash with Goldman Sachs.

Hey, good morning, everyone.

Good morning, Ryan warning.

So I wanted to start off with a question on the.

Net interest margin. So it had been running in the call. It 15, 75% to 16% range. Since you went public in deployed all yield your liquidity.

Now just to think about the moving pieces you are saying 15 for the first quarter, which means you need to be 15, and a half plus.

The rest of the year to reach the middle of the guide so I know, it's hard to forecast very far out given all the moving pieces, but should we think about 15 50, plus as a more normal margin range. Once we get beyond this liquidity impact and then second are there any other levers pick on the funding side you could have to drive this back closer to that historic.

Range. Thanks.

Yes, thanks, Ryan so so yes.

You were trending towards is at the present the front after the year really as we work through the $3 billion of excess liquidity, we have from Walmart coming off the fourth quarter. We obviously are trying to to work the funding profile and manage that to deploy that that liquidity as fast as possible, including through organic growth really in the first.

Couple a couple of quarters of 2020 as we guided the back half the year should trend towards that 15, and a half. So when you think about a year over year, there's really two and two major impacts right. The first one is burning off this excess liquidity. The second is the impact of the Walmart portfolio, which operated at a higher higher margin.

And then than the company average and other portfolios. So so obviously the is Walmart was out for part of the fourth quarter. So when you have those events, we should trend back towards that 15, and a half in the back part of the year.

Okay got it and maybe just to squeeze in a question on costs. So I thought I heard you say that you achieved all of the Walmart cost savings and the run rate I just wanted to double check if that was the KFN you maybe just help us understand the moving pieces on the expense growth going for.

Howard I know, Brian doubles talked about some of them, but Margaret maybe you could expand on one of the some of the big strategic investments that you're making and would you view this as the era accelerating cost growth and we could potentially get back to something lower beyond this year. Thanks.

Yes, so I'll hand, the first part and then give it over to mortgage so as you think about that costs.

Again, we're we're guiding to approximately 32%, which is 20 basis points higher than the full year average of 31 eight yes, we did get the did cost reductions that we anticipated for Walmart out and there will be fully baked into the run rate.

As we afford the impact slightly on the efficiency ratio again is Walmart related because of the high.

Hi revenue they came off of that portfolio, what it generated it ran at a much lower efficiency ratio as a portfolio than the company average that's the this slight tick up.

That you'll see there, yes, I think Brian on investments, it's really a couple of things so first.

It's really the investment were making and then on Verizon both of these programs any are going to really be.

Fully digitized in App experiences and so weve added a number of agile teams to really develop a number of npis to really deliver for those partners.

We have to launch fun.

We have people that we need to add so those those are really a big part of the strategic initiative in terms of those two programs more broadly.

Continuing on Das in a couple of key areas, we talked a little bit about Carecredit, you know, we're adding resources and technology enhancements there, particularly as we go into health systems, which we believe is a really great investment and Manuel will get a great return over time.

And just broadly I would say from a technology perspective, we continue on this journey of really driving Digitization and frictionless customer experiences I'd say the other area were very focused on is really what I would call. The customer journey. So I think we've done a really good job on the front end, meaning how you apply and buy and using your mobile capability.

But we're really looking at how do we get more efficiency out of our back office in terms of using digitization to really an excel that experience for the customer. So it is a bit of investment I think the biggest.

Kind of add to the years really though the varieties and then now investment were making and.

In our mine.

Those are two great opportunities for us for future growth and we think that that investment is really going to be the right investments make for the company.

Got it and thanks for all the color on seasonal.

Thank you.

Our next question comes from Moshe Orenbuch with credit Suisse.

Great I was hoping that and I kind of hate to ask questions. Like this this kind of precise but you did $4.03 billion of net interest income in the fourth quarter, usually you have a little bit of a seasonal decline in Q1, and then start growing given that you do expect the mom.

And to be higher and assets to grow in Walmart was almost entirely out of Q4 is it reasonable that other than normal seasonal.

Impacts that we should expect to see growth.

And I.

And I from the Q4 level.

Yes, Thanks, Moshe Yes, as you think about the fourth quarter Walmart was in for for approximately.

15, 20 days, so so that impact from when you think about the quarter there'll be a slight dilution as relates to that and then relates the the excess liquidity.

That we're carrying thats impacting along with normal seasonality, which you think sequentially quarter over quarter.

Right, but that excess liquidity is impacting dollars of net interest income in a material right.

Yes, it's also impact yes, it is impacting the dollars.

Okay.

Second question just on the expenses you know you talked about.

The charge and that was in the Q4 and then some investments maybe just.

Because you did.

Say that youre going to have an improvement.

Mover overtime kind of back on the efficiency side, maybe just can you talk a little bit about the approach that you're taking to those investments how you would see them paying back over what period of time and how we should think about them.

Yes. So if you think about the investments even more in highlighted so you think about the investments in rising and venmo.

There's different piece of right we have to pre stage people right. So we have team had been up and standing up here to get these programs ready we'll have certain launch cost. So you think about research that done on the consumer on the value proposition et cetera that phases and as Mark talked about we're then does standing up the 18 in infrastructure.

These are sizable opportunities and we need to be at full scale relative to the launches both rising in the first half and venmo in the second half and given the nature of these two opportunities there specific things around data lake around how we're doing digital servicing is mark talked about apiay. So that cost builds up right is.

As we move through the year.

So so that's that pieces the incremental we run with the hopefully a very good cost discipline in the business. We got the cost reduction we wanted from Walmart, we're continuing to try to drive and drive efficiencies in the business and the processes, whether it's in the enterprise operation side or across all our core functions and we look at the business.

For multiple differ lenses, and how we manage expenses and will be fairly disciplined as we move through.

2020.

Okay. Thanks, so much thank you.

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

Thanks, Good morning, and I appreciate all the CFO commentary. Thank you. So when we think about the loan growth expectations that we have in 2020 and the growth that we saw this year correct me, if I'm wrong, but it seems like the core portfolios growing mid single digits, which is is lower than what we've seen in the.

Past can you guys talk about.

Sort of how that will migrate over time, because you do have.

A set of more higher growth merchants now in the portfolio and then maybe.

I guess, how it wouldn't.

Migrate higher over the next several years would be the question there.

Yes, thanks, Sanjay so as you think about growth.

We are projecting five to seven present this year, we're coming off 5% last year. If you think about from the 17% to 19% range. Our average growth was 4% to 7% ex that Paypal acquisition. So we're growing in line with that again ryzen Venmo will come in they will phase in again, they're dirt denovo programs.

With one launch in the first half one launch in the second half, we're not providing long term guidance relative to the growth rate, but obviously they are startup programs and that trajectory will obviously provide.

Lines as we move into 2021. So we are inside historical norms. If you look inside the portfolio that there are.

Movies, Yes, we have some fast growing portfolios. We also have some some pockets that are not growing as fast that I'm sure you can recognize and they work in concert so.

Again, we're we're comfortable with the 5% to 7% range. We have this year, it's within guidance and then clearly we'll look at trajectory of the new programs that we're launching.

This year.

Okay, and I guess to sort of data point related follow ups. The preferred stock issuance what drove that drove that was it just diversifying funding sources and then the charge off rate.

The relative charge off rate to this year's guidance, if we weren't takeout Walmart in 2019 do we have the metric around that like what that charge off rate would have been thanks.

Yeah with regard to your first question you know we have talked long term about our capital strategy and really moving our capital levels CPT, one et cetera in line with peers.

Along this journey, we started out with an 18% CTG one we're down to 14% now.

Part of that long term capital strategy has been diversification to match our peers. So is always part of the strategy was included our capital plan that we filed with the regulation was approved by our board earlier. This year. So it was part of our diversification efforts really to lower the overall cost of equity.

So it's important for is to get it done the timing of which we did mark who is very attractive we got to 5.6 to five rate.

For the preferred a significant amount of institutional and retail investors. So those is simply oversubscribed, we obviously want to access the market in one of the do it before 2020 in a potential disruptions that may comes in the market from unforeseen is for unforeseen events. So that's really the rationale behind why we did it.

So in your second question was on just remind me.

Yes, they charge off rate, but we have the equivalent of that charge off rate ex Walmart for 2019.

Yes, we're not gonna provided Sanjay X Walmart, but at what I'd say is this is that we gave you an indication.

Probably 18 months ago about what that Ray was with what's happened. Since then obviously the portfolio has deteriorated from $10 billion to the roughly $8.2 billion that we sold to that as well as the fact that that the credit refinements that we put in place several years ago.

So really helps to start reducing that so the impact this year was was not as significant.

As what we'd indicated 18 months ago.

Okay. Thank you.

Thank you.

Our next question is from Don Fandetti with Wells Fargo.

Hi, good morning.

Can you talk a little bit more about the interplay of Cecil and the our aside I mean, just on the surface.

Increase in provision seems like a pretty sizable about but I guess theres, an offset just talk more about that I know you touched on earlier.

Yes. Thanks.

Yes, so as you think about.

The RC obviously, we've been talking to our partners for several months about that change in how it impacts.

Our assays.

I just want to be clear, we we're passing for those rcs that participate in reserves.

The Rs say the format of season will be reflected in the RF say, we did not meant to any of our agreements to either exclude or reduce the amount of.

Reserve provisioning that that those agreements associated with so I just want to be clear on that.

As you think about seasonal in the impact to the our say as these needs to be important to ground things.

The primary.

The primary platform that uses our stays at retail card platform that platform actually has a lower provisioning relative to c., so given its products and how and how it interacts the payment solutions, a cure credit business given the longer duration promotional.

Activity to have as they are actually attracts a larger will larger Cecil increase as you move through.

Also impacting that there's a slight lag that happens dilutes the calculations work as it passes through so again, you'll see that and the full run rate in the year, particularly in the back half of the year as we as we move forward.

Okay. Thank you and then just quickly on underwriting.

Are you, making any changes to your underwriting right. Now are you sort of at a steady state are using any competitors.

Loosened up just given the sort of better economic outlook.

Yes, we have not loosened up what I would say as we've been pretty consistent in our underwriting obviously, we're always making flight changes I.

I think one other things we've talked about in the past as we've done a lot of investing in how were creating our models and the data that we're using both externally and internally and so I think were much more strategic and how we look at underwriting and that's really helped US I think continue to see the good performance, we're seeing and.

Delinquencies and charge offs so.

We are being pretty consistent I think this is the time, where you wanted just continuing to be very.

Consistent and thoughtful as you think about where we are in the cycle.

Okay.

Thanks, Thank you.

We have our next question from Ryan carry with Bank of America.

Morning, guys.

Finally, most the discussion around loan growth acceleration in 2020, resulting from the new program launches like venmo on horizon because of any benefit from pay polishing conversion is now behind you and there's been discussion about moving out to more of an integration phase or is this more likely to benefit is longer more likely to take a little bit longer term their ramp.

No I think look I think paypals, a fast growing portfolio for us it's performing the way we thought would perform I think what we talked about last year was getting the portfolio converting what's happened in June it with a failed bank and sophisticated.

Comparison, what we're really focused on now with the pay Pal team is really looking at how we accelerate growth I think than those a little different in the sense that at the start up so we'll take us a little longer to get that growth going.

I'd say overall, where we're pretty pleased about the growth that we're seeing it's the kind of growth we want to see and I think.

As we add some of these new more digitally altered our partners.

That will continue to play into our portfolio I do want to make one point that.

Despite.

You know maybe some of the retail struggling a little more one of the things I think we're definitely waiting on is on the mobile side and were definitely seeing growth in mobile and I think as we went to holiday.

That was a big part of of our when I think with our partners and our partners a continuing to depend on us to really deliver capability to them to really drive growth digitally so.

I think that's something that we're going to continue to focus on as well.

Yes, let me just images at one point of clarity as you think about the wrote the primary amount of the growth for the year. When you think about the by December is coming off the existing book, So while we're launching Verizon venmo, given the timing of it bring first and second half when you're thinking about that growth in end of period, it's not going to be a big movement. This year, it's something as we think about future.

Sure years, that's going to be accelerate or so so just to make sure we're clear that that the existing portfolios driving.

That growth.

Okay. Okay.

Wanted to ask one on the GPR card I think you'd said at a number of direct mailings in the quarter I'm, just curious about the resulting adoption uptake and how that compared to your expectations do you expect to accelerate direct marketing on the GPR card for next year.

Yeah. So look we continue to see really good trends on the card I'd say.

Generally better than our expectations on both of the campaigns that we've done.

We're seeing good activation good usage.

Nice retention of the balances, but as I said last quarter, we're being very disciplined around profitability and returns. So and then short term we've got modest growth expectations were being very thoughtful.

Look we realize it's a very competitive market and we're trying to target profitable accounts. So we really we liked the space, we like what we're seeing so far but we're going to be disciplined on on how we approach us.

Great. Thank you.

Thank you.

We have our next question from Betsy Graseck with Morgan Stanley .

Hey, good morning.

I wanted to dig in a little bit on the Rx and just make sure I understand I know you gave the range for the full year 4.3 to 4.5, but then you talked about how digging LT is lower and ended the year old be higher is that within the range that you're identifying or is this range. The average for the full year and you know the quarterly.

These could be beyond the range. Thanks.

Yes, the 4.3 or four to 4.5 is the average for the full year Betsy. So so again, we give you some some projections in the first half of it the real moving piece, you're obviously is the the seasonal impact which is a little bit more muted the way the cat contractual contractual calculations work that then normalizes in the back half of the year.

So, but the 4.3 to 4.5 is the full year estimate.

Okay. So we could say the quarterly is be.

Either side of that are within you know, you're you're not really telling us Ryan I just wanted make sure.

Again, it's going to average out the 4.3 to 4.5, it could be with the lower end or could be the higher end, obviously, it's going to vary relative to the program performance and the credit performance of the portfolio. So it could vary but again as they vary across the full year it will get back okay.

And then separately just on Verizon interesting new partner, maybe Margaret you could speak a little bit too.

You know the.

The set of services and products that you're going to be offering them that was attractive to them as to why they picked you and then could you speak a little bit more to what kind of market opportunity you think is out there.

You know given what Verizon represents.

Yes so.

First we are going to be doing that they're cobank brand card it will be branded horizon.

Well, we're working very closely with them that really make sure. This is a state of the our digitally driven card I, we're pretty excited about some of the things. We're working on we're not going to communicate the value prop and things like that to set is going to happen when we do the launch.

You know look they have.

About 119 retail phone connection. So this is a pretty big opportunity for us and were excited about the partnership they're highly engaged.

I'd say, we won the deal because at some of the investments we've been making.

Thank you know we turn the corner on the question Mark and line of our we digitally savvy and I think based on the winners that we have the programs. We won this year I think we're winning because of these investments that we've made and the investments that we're going to continue to make so very excited about rising.

119 million customers, that's where you're talking about Oh, no retail like fallen connections taxing on fall line.

Got it okay. They kept in it.

All right. Thanks.

Thanks Betsy.

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

Hey, guys. Thanks for taking my questions. This morning.

Margaret Brian you Bill referenced.

The data analytics and machine learning that you're investing in.

And also commented that you've already started to strategically apply those insights.

Im curious.

What you're seeing right now in terms of consumer behavior Theres, a lot of talk about bifurcation.

Amongst consumers and given the breadth of your portfolio I am wondering what you guys are seen in how youre applying that strategically.

I'm not sure what you mean by bifurcation, meaning good customers and that customers are credit perspective.

Well no more economically that there's such a divergence in the economy and I'm curious if you are seeing greater or lesser opportunity, particularly in the middle and lower income.

Yes.

No I don't think we are underwriting standards and based on.

Now the consumers capability to pay for the credit card. So that's core to how we end the right I think the things that were were looking to.

Further enhances leveraging.

Data from our partners for instance, I'd say more on how we set of credit line upfront. So if the partnerships with us that this particular consumers shop very heavily we might give a higher credit line than we normally what date based on that data I think one of the important aspects of our business different than maybe the general purpose credit card spaces, you can apply and by right away.

Okay. So we got to be very disciplined from a blind size perspective, when we give an initial line and that's where I think were really learning and and really driving some good customer experience because we're sharing the data between us and the partner.

I think the other area is.

Helping us on fraud, and ensure name and using identity and things like that that a really helping us.

So for instance, we've leveraged payphone as an example, where now on our mobile App you only have to fill out three three lines.

And that's really helping us to a better job at identifying that customer and again a lot of this has to do it because where an applying by company we have to be very diligent and identifying that if the right customer that supply.

Eric maybe one thing just add to that I think it's what we've seen so far is now that our partners are sharing things like spend levels number of visits to the store average basket size payment behavior. Those those metrics, which result in what we call an engagement index really cuts across income levels and so.

We're finding that to be a very powerful predictor in terms of how those accounts are going to perform how they're going to how they're going to behave from a spend perspective, but also a loss perspective.

Fraud as well so it's benefiting us in a number of different areas.

Great. Okay that that detailed very helpful. Thank you guys very much.

Thanks, Rick.

And we have our next question from Bill Kurkowski with Nomura.

Thanks, Good morning up.

Margaret and Brian doubles I wanted to ask your question about whether you could give us a sense of your interest level and sit greens exposure to.

Potentially merchant receivables and essentially making loans to merchants backed by their sales is there any potential growth opportunity. There that you see for synchrony is it something you haven't given much thought too but would consider any color you can give us on that would be great.

Yes, thats not a space that where I would say we are considering I.

I think we have laid out our strategy as mine focused on I think we're going to stick to the things we really now.

And grow that way.

Yeah, I mean look we're a consumer lender. That's that's a were good out we're going to stick to our netting there.

And we see a ton of great growth opportunities in our existing business, which we outlined so I think I'll never say never but if not on as not on the strategic map right. Now I think we've got a ton of great growth opportunity in all three of our platforms.

We like what we're seeing a direct to consumer space. So we're going full throttle in those areas and.

We will revisit at some point the future, but right now lot of growth opportunity in the core.

Understood and so then perhaps sticking with the consumer is there any interest level and perhaps.

Taking a look at international consumer at some point or again is the growth opportunity enough.

In the U.S. that you see that that's probably not something that you would consider near term again any color you can give on that would be helpful. As well yeah. I'll look it's something we've considered we've talked about it leadership team and with the board again, I think we see enough opportunity right now and our current market in the U.S. that we don't feel the need to go internet.

Optional but.

Never say never.

The business does work in certain markets overseas, we've seen that.

Well continue to assess it but nothing nothing in the short term.

Understood. Thank you for taking my questions.

Yes.

But that's the way uptime for one more question.

Thank you Sir our final question comes from John Hecht with Jefferies.

John Your line is open.

Sorry, guys. Thanks for taking my questions.

I guess part of question here, maybe talk about the pipeline of different opportunities and then I guess from a broad perspective, it seems like the more recent.

Partner wins have been more technologically based.

With Verizon pay Pal venmo and so forth.

And is there any.

Changing dynamics with who you're going after and is there any changing dynamics with respect to the competitive environment.

I'll start with the second part I think the competitive environment is pretty.

It's been pretty consistent I don't think anyone doing anything too crazy out there. So I think we felt pretty good about where were placed in the competitive environment.

I think outlook, we still want to win core retail deals. So this scene on if you look at payment solutions business a lot of what we won was the core of that business.

I think these opportunities have come a long of a ban.

I think somewhat unique in terms of them coming in the marketplace.

There's just not a lot of big retail deals that are out there right now in terms of existing portfolios. We consider we continue to see a number of smaller mid sized deals that we have in our pipeline I would say all three platforms have a pretty good pipeline.

Of opportunity and we're very focused on that so I think you'll see US you know.

Down the road Yeltsin, you'll see more retail deals it's not like we're walking away from that space I. Just think this is lot within the market.

And the opportunity for us to.

In some cases differentiate our portfolio a little bit.

Great. Thanks very much.

Hi, Thanks, everyone for joining us this morning, the Investor Relations team will be available to answer any further questions. You may have when we hope you have a great day.

Thank you.

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