The phasor diagram of a synchronous machine connected to an infinite bus is shown in the figure below. The machine is acting as, 
The relative position of \(E\) and \(V\) in the phasor diagram tells us the mode (generator or motor), and the size of \(E\) relative to \(V\) tells us the excitation level (leading or lagging).
So the machine is a generator operating at a lagging power factor.
A synchronous machine on an infinite bus can be placed in one of four operating regions depending on two independent facts: whether it delivers or absorbs real power (generator vs motor), and whether it delivers or absorbs reactive power (lagging vs leading, as seen by the bus). These two facts show up separately in the phasor diagram as the power angle between \(E\) and \(V\) (real power direction) and the size of \(E\) relative to \(V\) along with the angle of the current phasor (reactive power direction).
Locating the diagram in this four-region picture places it squarely in the generator, over-excited, lagging power factor region.
Therefore, the correct answer is generator operating at lagging p.f.