Welcome to the Synchrony Financial Second Quarter 2017 Earnings Conference Call. My name is Vanessa, and I will be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. And I will now turn the call over to Mr. Greg Ketron, Director of Investor Relations. Sir you may begin.

Thanks, operator. Good morning, everyone, and welcome to our quarterly earnings conference call. Thanks for joining us. In addition to today's press release, we have provided a presentation that covers the topics we plan to address during our call. The press release, detailed financial schedules, and presentation are available on our website, synchronyfinancial.com. This information can be accessed by going to the Investor Relations section of the website. Before we get started, I want to remind you that our comments today will include forward-looking statements. These statements are subject to risks and uncertainty, and actual results could differ materially. We list the factors that might cause actual results to differ materially in our SEC filings, which are available on our website. During the call, we will refer to non-GAAP financial measures in discussing the Company's performance. You can find a reconciliation of these measures to GAAP financial measures in our materials for today's call. Finally, Synchrony Financial is not responsible for and does not edit nor guarantee the accuracy of our earnings teleconference transcripts provided by third-party. The only authorized webcasts are located on our website. Margaret Keane, President and Chief Executive Officer; and Brian Doubles, Executive Vice President and Chief Financial Officer, will present our results this morning. After we complete the presentation, we will open the call up for questions. Now, it's my pleasure to turn the call over to Margaret.

Thanks, Greg. Good morning, everyone, and thanks for joining us. During the call today, I will provide an overview of the quarter, and then Brian will give details on our financial results. I'll begin on Slide 3. Second quarter net earnings totaled $496 million or $0.61 per diluted share. Consistent execution of our strategy yielded solid performance across our sales platform. Organic growth remains the priority and help to drive double-digit loan receivables and net interest income growth. Additionally, purchase volume was up 6% and average active accounts were up 5% over the second quarter of last year. These metrics are highlighted on Slide 4 of today’s presentation. Our focus on continuing to drive incremental value to our partners and card holders is helping us to generate growth across the business. Particularly, the investments we have been making to extend our digital capabilities are having an impact on our performance. For Retail Card, our online and mobile purchase volume grew 18%, exceeding U.S. growth trends which has been around 14% to 15% and our digital sales penetration was 23% in the second quarter. Moving to credit quality, net charge-offs came in at 5.42% this quarter compared to 4.51% last year. Provision for loan losses was up 30% driven by credit normalization and growth. The reserve build this quarter 325 million in-line with our expectation. Brian will provide more details on credit later in the call. The efficiency ratio was 30.1% for the quarter versus 31.9% last year as we continue to generate positive operating leverage. An important funding objective for us is expanding our deposit base and we continue to execute strong deposit growth this quarter. Overall, deposits increased $6 billion or 14% to $53 billion. deposits now comprise 72% of our funding sources. Competitive rates and customer service should…

Thanks Margaret. I will turn on Slide 6 of the presentation. In the second quarter Synchrony earned $496 million of net income which translates to $0.61 per diluted share. We continue to deliver strong growth with loan receivables up 11% and interest and fees on loan receivables up 12% over last year. Overall, we are pleased with the growth we’ve generated across the business. Purchase volume grew 6% over last year. We had another strong quarter in average active accounts growth which increased 5% year-over-year driven by the strong value propositions and promotional offers on our cards that continue to resonate with consumers. The positive trends continued in average balances and spend with growth in average balance per average active account of 6% compared to last year. The interest and fee income growth was driven primarily by the growth in receivables. While we had strong top-line growth and positive operating leverage in the quarter, which we share with our retailers, RSAs were up only five million from last year. This was due to higher incremental provision expense and loyalty program expense that I will touch on shortly. RSAs as a percentage of average receivables was 3.6% for the quarter, down from 4% last year. Given this, we now think RSAs will run closer to 4% for 2017. The provision for loan losses increased 30% over last year, driven by credit normalization and growth. The reserve build in the quarter was 325 million which was in-line with the expectations we laid out in the first quarter earnings call. I will cover the asset quality metrics in more detail when we will review Slide eight later. Other income was 26 million lower than the prior year due mainly to higher loyalty expense which increased 71 million compared to the prior year. 37…

Thanks, Brian. I will provide a quick wrap up and then we will open the call for Q&A. We continue to execute well on our strategic priorities, driving strong organic growth across each of our sales platforms, renewing several existing programs by also signing a new private label credit card program and launching a new co-brand program. We continue to drive solid deposit growth in support of our business development. We are also pleased to have announced a meaningful increase in our capital return to shareholders through our new dividend and share repurchase program. We remain focused on returning capital to shareholders, not only through dividends and share repurchases but also through the continued growth of our business, with a focus on maintaining strong returns and a solid balance sheet as we do so. I’ll now turn the call back to Greg to open up the Q&A.

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

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

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

Yes sure Bill this Brian. Look it is really isolated to one of our programs where we made a couple of changes to make it easier for our customers to redeem their rewards. We believe this is a positive for the consumer to drive more loyalty to the retailer, more visit, more purchases, it’s going to drive incremental sales over the long run. It is again isolated to the one program we highlighted about 34 million of that related to 2016 rewards in the first quarter of 2017. So when you factor in that change, our redemption rate for the total company now is running above 95%. So, even if we were to get to a 100% redemption across the board, when you factor in the RSA offset the future impact will be pretty small.

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

It would not have a material impact, the impact would be pretty small just given there is an RSA offset as the partners share in those costs. The best way to think about this going forward, if you adjust for that $34 million in the quarter, loyalty as a percent of interchange was around a 100% and that’s probably a good way to think about it going forward.

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

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

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

Yes thanks Bill.

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

Great thanks. I guess first Brian you had mentioned that your expectations for credit losses are pretty much consistent with what you had said three months ago. You had shown us some vintage charge that showed that the second half of 2016 was performing better and can you kind of update that tell us how that’s trending?

Yes, Moshe. We have only gone here a couple months past when we published us back in April, so I would say the vintages are performing very much in-line with our expectations, we are still seeing the benefit from the underwriting changes that we have made in the second half of 2016 flow through, so we still see that can have a 2016 vintage is better than the first half of 2016. And that’s at least in part what is giving us some comfort that losses will start to level off in the back half of 2018. The underwriting changes that we made in the second half of 2016 and that we have continue to make in the first half of 2017 those are largely going to benefit in the 2018 loss rates. So I would say based on an updated those vintage curves everything we are seeing is pretty much in-line with what we showed you in April.

Great. just to kind of follow-up on a similar theme, couple of other private label players City and ADS have reported recently. And seem to be, I guess, maybe get your sense as to whether, your results or kind of leading or lagging, because City had kind of taken up its expectation for credit losses, now as oppose to you guys which had kind of done that a few months back and the ADS had talk about some issues with respect to recovery, something that you had also addressed. So maybe just given that everybody is kind of looking at all of the peers, maybe could you put in context kind of the timing of your disclosures. I mean, do you feel like you have been ahead of those factors?

Yes, I think the general trends are all very similar as you look across issuers. I think credit normalization trends are consistent. But I do think, you are seeing a little bit of variation in terms of which quarter in particular summer starting to see or change our view on the go forward projection. So I think based on - and you can actually, if you go back over the past couple of years and you look at where issuers saw really strong growth, that will differ as well by issuers by a quarter or two. For us, we saw really strong growth in 2015 for first half of 2016. And right now in 2017, we are working our way through the peak kind of loss rates for those vintages. Second half of 2016 will be maturing in the second half of 2018 and so that’s where we will start to see the benefits on the underwriting changes we’ve made. So it’s hard to comment generally, I think the trends across all the issuers are very consistent. But I think everybody is seeing this materialize in maybe a different quarter.

Perfect. Thanks so much.

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

Thank you. Good morning. And thank for giving us the monthly data going forward. I guess, first question back on credit quality and maybe following on most of the questions. As far as recoveries are concern. What is the game plan going forward here, because ADS has talked about bringing all that stuff in-house? Could you maybe just talk about where you are at with the recovery game plan?

Yes. I would say recovery pricing was generally pretty stable this quarter. This is an area that we continue to watch pretty closely. I mentioned last quarter that we run regular analysis on these sales and we compare the results of the debt sales other methods of collecting on the account. So we are always making those trade-off and we are always trying to optimize different strategy. If we start to see the pricing deteriorate further, we may pull back on some of these sales and collect on the accounts for other means but we haven’t made a dramatic shift in our strategy and haven’t reached that decision point yet. But it’s something we evaluate every month internally.

I guess, following on that, maybe one other question is do you have the capacity to do all of the collections in-house or would that be another step-up in costs to build that out. And then just secondly on RSAs, they are obviously tracking below your guidance for the year and as we sort of calculate what the ROA needs to be, to get to the RSA level that you are guiding to. I mean that would probably represent a pretty decent step up in ROAs for the second half for the year. Is that the way to think about it, I mean it’s like a 30 basis point pick-up in the ROA if I calculate it I think? Or is there something else that we should consider, when we are thinking about the RSA level that you are guiding to for the year? Thanks.

Yes, sure, let me do the recovery one first. So on recoveries, we would go through a transition period. Day one, we wouldn’t bring it all in-house. We would be thoughtful around how we manage that transition. Obviously there is a short-term implication, there is a long-term implication. You would be a step-up in cost as move some of that in-house or to other collection strategies. But if we felt like that we are getting a good return on our investment over the long-term that’s something we would certainly consider. But we would have to build out some additional infrastructure and add some cost related to that. On the RSAs, I think if you think about where we started the year, we were 3.7 last quarter, we are 3.6 this quarter. You really have to remember that the second half of the year we had a seasonal high, particularly had a seasonal high in the third quarter that typically coincides with the seasonal low point on net charge-off. So this just that dynamic alone as you move from the second into the third and then into the fourth quarter, RSA percentages come up. And we think that puts us back right around 4% for the full-year.

Thank you.

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

Hey. Good morning, guys. Maybe just a little bit more clarity on the credit outlook. So if my math were correct gross charge-offs are up roughly 70 bps in the first quarter and may be a little bit below that in the second quarter. As we look out through the back half of the year, should we expect that pace to continue and then some variability on the recoveries and when would you expect us to see the gross charge-offs begin to decelerate and maybe any color you can give us in terms of the 4Q build?

Yes, so Ryan. Look I think generally the trends like I said are in-line with our expectations. The one thing that you have to factor in, let’s just talk about seasonality for a bit, we do see a fairly significant seasonal drop in NCOs in the third quarter. So you have to make sure that you are modeling that right. That’s certainly included in our guidance. And then just well around the topic of seasonality its probably just worth a reminder that we also see a seasonal increase in delinquencies in the second half of the year. So you just got to make sure that you are taking that all into account, but we feel pretty good about 2017. like I said this is a transition year. This is where we are kind of hitting the peak of the 2015 and first half of 2016 vintages. The underwriting changes that we have made are largely going to benefit 2018. And so that’s really where we are focused. The reserve build in the quarter gives you a fairly good indication that is in-line with our expectations and now we have picked up the first half of 2018, so that should give you some comfort that things are trending more or less in-line with what we expected.

Got it. Just as a quick follow-up I guess just on a year-over-year basis how should we expect it to trend? And then second just for the NIM, you are obviously running towards the high end of guidance and historically speaking we do see a pickup in the back half of the year as we see lower revenue suppression, an uptick in late fees. If you could maybe just clarify what are some of the offsetting factors that would cause you to not be above the 1625 on NIM? Thanks for taking my question.

Yes, sure. Look other than giving you the full-year and you’ve got the first two quarters to work with, I think that should help you model the third quarter and the fourth quarter pretty closely. I think the thing I just reiterate is you got to factor in the seasonal decrease in the third quarter that comes back up in the fourth. In terms of the margin, look we are very pleased with how we started the year. We are up 26 basis points over last year in the quarter. Receivable yield was up 15 basis points with stronger revolve rate, we got a benefit from the increase in the prime rate, we did have a partial offset from interest and fee reversals which you would expect to see in-line with credit normalization. And then we have done I think a nice job optimizing the liquidity that we are holding on the balance sheet. As you think about the second half for the year, we do typically get a seasonal lift in yield in the second half for the year; however, there is going to be a couple offsets we think. First, I think we will probably see slightly higher deposit betas than we have seen so far in the rate cycle. Nothing dramatic, but probably just a little bit higher than what we have seen so far in the first 100 basis points maybe a little more competition on rates in the second half. And then I think we are also likely to get a little less benefit from higher revolve rate in the second half just getting some of the changes we made on underwriting. So think there will be some puts and takes but that probably puts us back between the 16, 16 and a quarter range for the full-year.

Thanks for the color Brian.

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

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

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

Okay, and then on the outlook for RSA, I know you had a couple conversations on this already, but question is coming into this quarter you indicated the reserve that you were looking for to hit that, that was great and expecting that reserve build again in 3Q. I understand that the credit improves in 3Q, but should we expect that that there is a like for like improvement in RSA even with what is going to be still a little bit higher reserve build in the third quarter or is there some cushion in the RSA outlook that you are giving us?

No, we started the year remember around 4.5%, we took it down last quarter to 4.1% to 4.2% and now we are staying around 4%. Part of that is a combination of what we are seeing on credit, plus the additional loyalty costs that we had in the quarter, those are really the two driver. And then how you get from 3.6%, 3.7% range to 4% for the full-year is really seasonality. Go back over the last three years and you look at the increase from the second quarter to the third quarter and then into the fourth you always see an increase in the RSA, some of that is driven by lower net charge offs, some of that is program specific but that increase will be there in the third quarter and we think combination of those things puts us background 4% for the full-year.

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

Yes I mean we were about a month early I think, we got through our process with our board and with our regulators and we were very pleased to be able to announce the capital plan when we did. We were able to take advantage some of that in the quarter. We repurchased about 200 million of the allotment in the quarter. So where we have a little bit of flexibility, we are trying to be opportunistic around that and we will continue to do that. But I don’t think, we are going to be much ahead of timing wise, what we announced this quarter. I think we are still following a very similar process, we are using the same scenarios that gets published early in the year. We run our models, we review it with obviously the Management Team, the Risk Committee and the Board. And our Regulators and this year that put us right around the May timeframe that’s probably not a bad way to think about it going forward, but it could lag a month and we could be close sort of where the peers are in that.

Right okay. All right, thanks a lot Brian.

And our next question comes from Jamie Friedman with Susquehanna.

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

Brian really appreciates that.

I was going to ask you about the Sy-Pi that you had mentioned at the outset. So where should we be seeing that show-up the most significantly, you mentioned a number of retailers that you have that have adopted it, I think you gave another volume based metric. But where in the financials, do you think that that will show up most significantly? And then I have one quick follow-up.

Sure. You will see that in growth in particularly kind of our mobile growth. So the way the Sy-Pi works, it’s an App that easily integrates to the retailer’s App that’s why we call it plug-in. So it’s very easy to the retailer to execute upon, because most of the work is on our side. And it integrates [indiscernible] so it’s a very seamless smooth process for the customer as they are going through their process of credit and using their credit card and paying and all those types of things getting their reward. So you will see it in growth and our engagement from a mobile perspective just continues to grow and that’s really where you will see that.

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

Not necessary as Brian said there was one program in particular where we need to change. But I would say that in general, the way we think about loyalty is the real positive for us. So the more the customers are aware of the rewards. Our analytic show that if we get them to go back any unused reward, they tend to have a bigger basket and shop more. So for us this circular process of issuing rewards make it easy for the customer, having them go back into our partners to shop is a real class. And as Brian said, the rewards are offset in RSA. So it’s really a win-win for both of us. Right we are helping to generate sales for the customer this higher engagement of that customer with our retailer and in the recent environment we are in, anything we can do to make that customer more sticky is a real positive.

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

It’s more wallet penetration across our retail base. I would just generally say, I know everyone looks at the one retailer, but we have a lot of retailers who have online mobile capability and that’s just an area with everything else is growing. So things like having Sy-Pi to help integrate through the App, as I dais we have 12 retailers already involved in that. We are going to continue roll out more, I think you are going to continue to see this be a big part of how customer shop.

Got it. Thank you.

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

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

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

And you will see it in the third quarter.

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

No Rick I think.

No, we can’t one partner.

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

We have some big partners in that.

Right.

Okay. Thanks guys.

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

Hi, good morning. Thanks for taking my questions. Just a couple of follow-up on credit. One, I know you don’t provide loss data by product, but just curious Payment Solutions continues to be a fastest growing product, it’s over 20% balances now, and those are obviously all promotional balances. Brian, as you look at overall normalization in your commentary about second half 2016 has been performing better than first half. Had there been any meaningful changes in the magnitude of promotions over the last 12, 18 months that maybe impacting the pace of normalization? Just trying to get a sense for whether or not those promotional balances are consisting of the typical interest rate period or whether there were any changes that have contributed to the pace of normalization?

Yes, no I wouldn’t attribute it to promotional balances. We have seen strong growth in the Payment Solutions, but I would say the trends in Payment Solutions are similar to what we are seeing across the total company in terms of normalization. The one thing I have pointed out in the past is we do underwrite differently by platform, so we are actually slightly more conservative in how we underwrite in Payment Solutions just given if you look at the margins there and the top-line yield, we are working with a little bit less there than we are in CareCredit and Retail Card. So we underwrite a little more conservatively in Payment Solutions, given the margin in CareCredit we will underwrite a little bit deeper. CareCredit and Retail Card is fairly close to the average. So portfolio mix is absolutely a driver, but I would not attribute it to promotional balances.

Got it, that’s helpful and then lastly just another quick question on the recovery side. In terms of the mix to the degree of that sales has risen in the last couple of years given pricing trends and those are reversing now has been discussed. How much of your recoveries are actually accomplished through the third channel which is outsource contingency collection, so much is focused on the debt sale side, but are you seeing - A, do use outsource collection agencies and B, are there any changes to the contingency fees, the pricing in that channel?

Yes, we do use third-parties as well, we try and optimize across all of the recoveries strategies in the various channels and like I said earlier, we are looking at that on a monthly basis. We have run champion challenger to see where we are getting the best results and we modify and adjust the strategies as we go. I would say the majority of the impact that we have seen has largely been attributable to the market pricing on the debt sales and lesser impact in other strategies.

Okay, got it. Thank you.

And our next question comes from Mark DeVries with Barclays.

Yes, thanks. Brian I believe you indicated, we should expect to see a seasonal drop in charge-offs in 3Q and we certainly saw a significant drop in 2014 and 2015. But last year when delinquencies were actually rising which tends to mute seasonal improvements, you had a much smaller seasonal improvement in the third quarter, was there anything to call out in that that also outside of the rising delinquencies that might have dampened the seasonal improvement that are not present this year and would suggest another kind of large drop in 3Q?

Yes, it’s a good question Mark. The one thing I would highlight, in the second quarter of 2016 we spiked out of 15 basis points of incremental recoveries that we had in the second quarter of 2016 which obviously didn’t repeat it either in the third quarter of 2016 or repeat this quarter obviously. So that’s one thing I would point to, so maybe take the second quarter of 2016 charge-offs up by 15 basis points and then you would see more of a seasonal decline as you move from the second quarter to the third quarter.

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

I think you are seeing I would say to some degree in the purchase volume, we have obviously tightened, we made incremental changes here in the first half, we do expect that to have a modest impact on growth, if you look at purchase volume we were right around 7% when you adjust for HHGregg this quarter versus a run rate that was probably closer to 9% or a little above 9%. So I think that’s where you are seeing it. We are not seeing it quite yet in the receivables still, because there is an offset on incremental revolve which is more of a consumer behavioral element that continues to drive good receivables growth. So we think there is still really good opportunities to continue to grow but I think, we are not seeing the same opportunities to grow that we saw in 2015 and at least in the first half of 2016. So I think, there will be a modest impact going forward. But generally as we look across the programs in the platforms, we are still seeing good growth opportunities that are attractive returns, just maybe not we are seeing couple of years ago.

Okay. Great. Thank you.

Our next question comes from Henry Coffey with Wedbush Securities.

Yes. Good morning, everyone. Thanks for taking my question. And, again, the monthly data is going to be extremely helpful for, so thanks for that step forward. When you talk to about rising net charge-offs, it seem to be either a geographical or channel component to it. There were certain spots to either the store mix or the country that we were struggling more than others. Now that you have had another quarter of looking at that. Can you really comment on two related things one that and two how is the dual purpose card holding up on the credit side?

Yes. Sure. We have highlighted for a number of quarters now that portfolio mix component as part of normalization. For us, as we talked about our underwriting is customized and we underwrite differently whether it’s by platform, by program, we target different loss rates depending on the overall profitability of those programs. So just depending on the growth rates in those different areas mix can certainly be a driver and that’s mix by program, it can be mix by channel, it’s really multi-variant, it’s not as simple as just one program, one product, one retailer, it’s a combination of factors. And I would say, what we are seeing in that regard is largely in-line with our expectation. I wouldn’t attribute it as much to a geographical slice or a geographical split that’s driving, it really is more portfolio mix on our side. And then did you have a second question?

Yes. Just unrelated, but in terms of margin. I think one everybody heard about asset sensitivity, they were looking for fairly large boost though, now we are seeing fairly small boost. What is the real dynamic there, is it just timing or is it more of funding competitive issue?

Look, for us, yields and margins are ahead of our expectations so far this year. If you remember, when we started a year back in January, we guided to a net interest margin of 15.75 to 16. We took that up 90 days in. We now think we will be between 16, 16 and a quarter for the year. So we continue to be slightly asset sensitive, its right around 1% under 100 basis points shock. And that’s been very consistent over the last three years. That 1% kind of range hasn’t really moved much. I do think as we get into the second half year that we may see a little more competition on deposit rate. We have seen just in the last four to six weeks, we have seen some competitors move. We have been very fortunate so far with the first 100 basis points. I think on our CDs and savings, I think we haven’t moved more than 10 or 15 basis points across all those products. So we have had a nice little lag her. The margins have improved as a result of it. But I do think the things will get a little more competitive and we are ready to respond to that if we have to.

Great. Thank you very much.

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

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

Yes, we really can’t comment on what we have started or not started. But what I would say is we have to win every day, so part of the process we deal here is really making sure we are delivering for the customers and the retailers now. In many cases usually something will come up where the retailers wants to either change the value prop or expand in a certain way which will allow us the opportunities to open up the dialogue. So we are constantly in those discussions and we feel pretty positive about the relationship that’s are coming up. The relationships we have had for very, very long time. And we are hoping and confident that we will be able to renew those relationships.

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

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

Thank you.

Vanessa, we have time for one more question.

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

Thanks very much guys. Margaret, you talked about the pipeline in the last question. I’m wondering maybe can you give us kind of just a commentary on any changes I guess to competitive dynamics in the marketplace?

Yes, sure. I think competitors have been pretty stable as we have gone through this year. I would say, there is not many big deals out there. We tend to compete more on the $1 billion and below in that space, there is plenty of opportunity. We continue to look at existing programs from competitors as well as start-ups. I think I have mentioned in the past we have dedicated resources in all three platforms. So we are feeling pretty good about the pipeline that we have in place and how we are winning and playing in marketplace. We are not going to win every deal. We try to really work on the deals that we think meet our returns and are going to be accretive to our overall portfolio. And that’s kind of how we have approached it and we will continue to approach. But I don’t think anyone seeing particularly crazy out there in terms of competition.

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

Yes, sure, John. Look I think our expectation is that any move in deposit pricing is going to be pretty modest. I just think it’s been almost non-existent so far with the first 100 basis points that’s going to be slightly above that. We have seen some competitors, we have to figure in a high yield savings with more attractive offers out there, whether it’s the one-time bonus or slightly better rate than they have been offering, and I think we are going to have to step-up our pricing a little bit more in the second half than we did in the first half. But I’m talking about basis points here, not a wholesale change from what we have been seeing.

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

We have always tried to kind of match the duration of our assets with our liabilities that’s part of our funding strategy. We have been very successful in growing the high yield savings book. I would say anywhere where we can grow the longer tenure CDs right now in this environment, we are looking to do that. Obviously given where rates are there is not a lot of demand for a five year CD, where they are priced today. So we are trying to take advantage of that where we can, there is just as not much demand there as we would like to see.

Great. Thanks for the color guys.

Yes. Thanks John.

Thank you.

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

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