UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172021
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
001-36560
(Commission File Number)
SYNCHRONY FINANCIAL
(Exact name of registrant as specified in its charter)
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| Delaware | | 51-0483352 |
(State or other jurisdiction of
incorporation or organization)
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Identification No.)
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| 777 Long Ridge Road | | |
Stamford, Connecticut | Connecticut | | 06902 |
| (Address of principal executive offices) | | (Zip Code) |
(Registrant’s telephone number, including area code) -(203) 585-2400
Securities Registered Pursuant to Section 12(b) of the Act:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common stock, par value $0.001 per share | SYF | New York Stock Exchange |
| Depositary Shares Each Representing a 1/40th Interest in a Share of 5.625% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A | SYFPrA | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filerNon-Accelerated Filer | ý☐ | Accelerated filerSmaller Reporting Company | o☐ |
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Non-accelerated filer | o(Do not check if a smaller reporting company)
| Smaller reporting companyEmerging Growth Company | o |
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| | Emerging growth company | o☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of October 23, 2017July 15, 2021 was 782,591,569.
569,699,116.
Synchrony Financial
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| PART I - FINANCIAL INFORMATION | Page |
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| Item 1. Financial Statements: | |
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| PART II - OTHER INFORMATION | |
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| Item 6. Exhibits | |
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Certain Defined Terms
Except as the context may otherwise require in this report, references to:
•“we,” “us,” “our” and the “Company” are to SYNCHRONY FINANCIAL and its subsidiaries;
•“Synchrony” are to SYNCHRONY FINANCIAL only;
“GE” are to General Electric Company and its subsidiaries;
•the “Bank” are to Synchrony Bank (a subsidiary of Synchrony);
the “Bank Term Loan” are to the term loan agreement, dated as of July 30, 2014, among Synchrony, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto, as amended;
•the “Board of Directors” or “Board” are to Synchrony's board of directors;
•"CECL" are to the impairment model known as the Current Expected Credit Loss model, which is based on expected credit losses; and
•“FICO” scoreVantageScore” are to a credit score developed by Fair Isaac & Co.,the three major credit reporting agencies which is widely used as a means of evaluating the likelihood that credit users will pay their obligations.
We provide a range of credit products through programs we have established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which, in our business and in this report, we refer to as our “partners.” The terms of the programs all require cooperative efforts between us and our partners of varying natures and degrees to establish and operate the programs. Our use of the term “partners” to refer to these entities is not intended to, and does not, describe our legal relationship with them, imply that a legal partnership or other relationship exists between the parties or create any legal partnership or other relationship. The “average length of our relationship” with respect to a specified group of partners or programs is measured on a weighted average basis by interest and fees on loans for the year ended December 31, 20162020 for those partners or for all partners participating in a program, based on the date each partner relationship or program, as applicable, started.
Unless otherwise indicated, references to “loan receivables” do not include loan receivables held for sale.
For a description of certain other terms we use, including “active account” and “purchase volume,” see the notes to “Item 7. Management’s Discussion and Analysis—Results of Operations—Other Financial and Statistical Data” in our Annual Report on Form 10-K for the year ended December 31, 20162020 (our “2016“2020 Form 10-K”). There is no standard industry definition for many of these terms, and other companies may define them differently than we do.
“Synchrony” and its logos and other trademarks referred to in this report, including CareCredit®, Quickscreen®, Dual Card™, eQuickscreen™, Quickscreen® and Synchrony Car Care™ and SyPI™, belong to us. Solely for convenience, we refer to our trademarks in this report without the ™ and ® symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks. Other service marks, trademarks and trade names referred to in this report are the property of their respective owners.
On our website at www.synchronyfinancial.com, we make available under the "Investors-SEC Filings" menu selection, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports or amendments are electronically filed with, or furnished to, the SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information that we file electronically with the SEC.
Cautionary Note Regarding Forward-Looking Statements:
Various statements in this Quarterly Report on Form 10-Q may contain “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “targets,” “outlook,” “estimates,” “will,” “should,” “may” or words of similar meaning, but these words are not the exclusive means of identifying forward-looking statements.
Forward-looking statements are based on management’s current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include global political, economic, business, competitive, market, regulatory and other factors and risks, such as: the impact of macroeconomic conditions and whether industry trends we have identified develop as anticipated;anticipated, including the future impacts of the novel coronavirus disease (“COVID-19”) outbreak and measures taken in response thereto for which future developments are highly uncertain and difficult to predict; retaining existing partners and attracting new partners, concentration of our revenue in a small number of Retail Card partners, and promotion and support of our products by our partners,partners; cyber-attacks or other security breaches; disruptions in the operations of our and our outsourced partners' computer systems and data centers; the financial performance of our partners; cyber-attacksthe sufficiency of our allowance for credit losses and the accuracy of the assumptions or other security breaches;estimates used in preparing our financial statements, including those related to the CECL accounting guidance; higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings; our ability to grow our deposits in the future; damage to our reputation; our ability to securitize our loans,loan receivables, occurrence of an early amortization of our securitization facilities, loss of the right to service or subservice our securitized loans,loan receivables, and lower payment rates on our securitized loans; our ability to grow our deposits in the future;loan receivables; changes in market interest rates and the impact of any margin compression; effectiveness of our risk management processes and procedures, reliance on models which may be inaccurate or misinterpreted, our ability to manage our credit risk, the sufficiency of our allowance for loan losses and the accuracy of the assumptions or estimates used in preparing our financial statements;risk; our ability to offset increases in our costs in retailer share arrangements; competition in the consumer finance industry; our concentration in the U.S. consumer credit market; our ability to successfully develop and commercialize new or enhanced products and services; our ability to realize the value of acquisitions and strategic investments; reductions in interchange fees; fraudulent activity; failure of third-parties to provide various services that are important to our operations; disruptions in the operations of our computer systems and data centers; international risks and compliance and regulatory risks and costs associated with international operations; alleged infringement of intellectual property rights of others and our ability to protect our intellectual property; litigation and regulatory actions; damage to our reputation; our ability to attract, retain and motivate key officers and employees; tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations; a material indemnification obligation to GE under the Tax Sharing and Separation Agreement with GE (the "TSSA") if we cause the split-off from GE or certain preliminary transactions to fail to qualify for tax-free treatment or in the case of certain significant transfers of our stock following the split-off; regulation, supervision, examination and enforcement of our business by governmental authorities, the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and other legislative and regulatory developments and the impact of the Consumer Financial Protection Bureau's (the “CFPB”) regulation of our business; impact of capital adequacy rules and liquidity requirements; restrictions that limit our ability to pay dividends and repurchase our common stock, and restrictions that limit the Bank’s ability to pay dividends to us; regulations relating to privacy, information security and data protection; use of third-party vendors and ongoing third-party business relationships; and failure to comply with anti-money laundering and anti-terrorism financing laws.
For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this report and in our public filings, including under the heading “Risk Factors”Factors Relating to Our Business” and “Risk Factors Relating to Regulation” in our 20162020 Form 10-K. You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties, or potentially inaccurate assumptions that could cause our current expectations or beliefs to change. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by the federal securities laws.
law.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report and in our 20162020 Form 10-K. The discussion below contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. See “Cautionary Note Regarding Forward-Looking Statements.”
Introduction and Business Overview
Weare one of thea premier consumer financial services companies in the United States.company delivering a wide range of specialized financing programs, as well as innovative consumer banking products, across key industries including digital, retail, home, auto, travel, health and pet. We provide a range of credit products through our financing programs which we have established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which we refer to as our “partners.” For the three and ninesix months ended SeptemberJune 30, 2017,2021, we financed $32.9$42.1 billion and $95.2$76.9 billion of purchase volume, respectively, and had 69.365.8 million and 66.2 million average active accounts, in both periodsrespectively, and at SeptemberJune 30, 2017,2021, we had $76.9$78.4 billion of loan receivables. For the three and nine months ended September 30, 2017, we had net earnings of $555 million and $1,550 million, respectively, representing a return on assets of 2.4% and 2.3%, respectively.
We offer our credit products primarily through our wholly-owned subsidiary, Synchrony Bank (the "Bank").the Bank. In addition, through the Bank, we offer, directly to retail and commercial customers, a range of deposit products insured by the Federal Deposit Insurance Corporation (“FDIC”), including certificates of deposit, individual retirement accounts (“IRAs”), money market accounts and savings accounts. We also take deposits at the Bank through third-party securities brokerage firms that offer our FDIC-insured deposit products to their customers. We have significantly expanded our online direct banking operations in recent years and our deposit base serves as a source of stable and diversified low cost funding for our credit activities. At SeptemberJune 30, 2017,2021, we had $54.5$59.8 billion in deposits, which represented 73%81% of our total funding sources.
Our Sales Platforms
We conduct our operations through a single business segment. Profitability and expenses, including funding costs, loancredit losses and operating expenses, are managed for the business as a whole. Substantially all of our operations are within the United States. We offerIn June 2021, we announced organizational changes aimed to further align the company’s activities with its partners and evolving consumer expectations, while leveraging our innovation, data, expertise and scale to deliver products and capabilities to market faster. As part of these changes, we established a Growth Organization that includes our marketing, data, analytics, customer experience and product development teams in one cohesive group and we also combined our Technology and Operations teams. For our sales activities, we now primarily manage our credit products through threefive sales platforms (Retail Card, Payment Solutions(Home & Auto, Digital, Diversified & Value, Health & Wellness and CareCredit)Lifestyle). Those platforms are organized by the types of products we offer and the partners we work with, and are measured on interest and fees on loans, loan receivables, newactive accounts and other sales metrics.
Home & Auto
Our Home & Auto sales platform provides comprehensive payments and financing solutions with integrated in-store and digital experiences through a broad network of partners and merchants providing home and automotive merchandise and services, and includes partners such as Ashley Homestores LTD and Lowe's, as well as our Synchrony Car Care network and Synchrony HOME credit card offering.
Retail CardOur Digital sales platform provides comprehensive payments and financing solutions with integrated digital experiences through partners and merchants who primarily engage with their consumers through digital channels, including partners such as Amazon and PayPal.
Retail Card isDiversified & Value
Our Diversified & Value sales platform provides comprehensive payments and financing solutions with integrated in-store and digital experiences through partners and merchants who offer a leading providerwide assortment of private label credit cards,merchandise, including partners such as JCPenney and alsoSam's Club.
Health & Wellness
Our Health & Wellness sales platform provides Dual Cards, general purpose co-branded credit cardscomprehensive healthcare payments and small- and medium-sized business credit products. We offer one or more of these products primarilyfinancing solutions, through 29 national and regional retailers with which we have ongoing program agreements. The average length of our relationship with these Retail Card partners is 20 years. Retail Card’s revenue primarily consists of interest and fees on our loan receivables. Other income primarily consists of interchange fees earned when our Dual Card or general purpose co-branded credit cards are used outside of our partners' sales channels and fees paid to us by customers who purchase our debt cancellation products, less loyalty program payments. In addition, the majority of our retailer share arrangements, which generally provide for payment to our partner if the economic performance of the program exceeds a contractually-defined threshold, are with partners in the Retail Card sales platform. Substantially all of the credit extended in this platform is on standard terms.
Payment Solutions
Payment Solutions is a leading provider of promotional financing for major consumer purchases, offering primarily private label credit cards and installment loans. Payment Solutions offers these products through participating partners consisting of national and regional retailers, local merchants, manufacturers, buying groups and industry associations. Substantially all of the credit extended in this platform is promotional financing. Payment Solutions’ revenue primarily consists of interest and fees on our loan receivables, including “merchant discounts,” which are fees paid to us by our partners in almost all cases to compensate us for all or part of foregone interest income associated with promotional financing.
CareCredit
CareCredit is a leading provider of promotional financing to consumers for health and personal care procedures, products or services. We have a network of CareCredit providers and health-focused retailers, the vast majority ofhealth systems, for those seeking health and wellness care for themselves, their families and their pets, and includes key brands such as CareCredit and Pets Best.
Lifestyle
Lifestyle provides comprehensive payments and financing solutions with integrated in-store and digital experiences through partners and merchants who offer merchandise in power sports, outdoor power equipment, and other industries such as sporting goods, apparel, jewelry and music.
Corp, Other
Corp, Other includes activity and balances related to certain program agreements with retail partners and merchants that will not be renewed beyond their current expiry date and certain programs that were previously terminated, which are individualnot managed within the five sales platforms discussed above, and includes amounts associated with our program agreement with Gap Inc. which is scheduled to expire in April 2022. Corp, Other also includes amounts related to changes in the fair value of equity investments and realized gains or small groupslosses associated with sale of independent healthcare providers, through which we offer a CareCredit branded private label credit card. In October 2017, we also announced the launch of our CareCredit Dual Card offering. Substantially all of the credit extended in this platform is promotional financing. CareCredit’s revenue primarily consists of interest and fees on our loan receivables, including merchant discounts.investments.
Our Credit Products
Through our sales platforms, we offer three principal types of credit products: credit cards, commercial credit products and consumer installment loans. We also offer a debt cancellation product.
The following table sets forth each credit product by type and indicates the percentage of our total loan receivables that are under standard terms only or pursuant to a promotional financing offer at SeptemberJune 30, 2017.2021.
| | | | | | Promotional Offer | | | | Promotional Offer | |
| Credit Product | Standard Terms Only | | Deferred Interest | | Other Promotional | | Total | Credit Product | Standard Terms Only | | Deferred Interest | | Other Promotional | | Total |
| Credit cards | 66.5 | % | | 16.0 | % | | 13.7 | % | | 96.2 | % | Credit cards | 60.6 | % | | 18.6 | % | | 15.8 | % | | 95.0 | % |
| Commercial credit products | 1.8 |
| | — |
| | — |
| | 1.8 |
| Commercial credit products | 1.7 | | | — | | | — | | | 1.7 | |
| Consumer installment loans | — |
| | — |
| | 2.0 |
| | 2.0 |
| Consumer installment loans | — | | | 0.1 | | | 3.1 | | | 3.2 | |
| Other | — |
| | — |
| | — |
| | — |
| Other | 0.1 | | | — | | | — | | | 0.1 | |
| Total | 68.3 | % | | 16.0 | % | | 15.7 | % | | 100.0 | % | Total | 62.4 | % | | 18.7 | % | | 18.9 | % | | 100.0 | % |
Credit Cards
We typically offer the following principal types of credit cards:
•Private Label Credit Cards. Private label credit cards are partner-branded credit cards (e.g., Lowe’s or Amazon) or program-branded credit cards (e.g., Synchrony Car Care or CareCredit) that are used primarily for the purchase of goods and services from the partner or within the program network. In addition, in some cases, cardholders may be permitted to access their credit card accounts for cash advances. In Retail Card, creditCredit under our private label credit cards typically is extended either on standard terms only, and in Payment Solutions and CareCredit, credit under our private label credit cards typically is extendedor pursuant to a promotional financing offer.
•Dual Cards and General Purpose Co-BrandCo-Branded Cards. Our patented Dual Cards are credit cards that function as private label credit cards when used to purchase goods and services from our partners, and as general purpose credit cards when used elsewhere.to make purchases from other retailers wherever cards from those card networks are accepted or for cash advance transactions. We also offer general purpose co-branded credit cards that do not function as private label cards.credit cards, as well as, in limited circumstances, a Synchrony-branded general purpose credit card. Credit extended under our Dual Cards and general purpose co-branded credit cards typically is extended underon standard terms only. We offer either Dual Cards andor general purpose co-branded credit cards are primarily offered through our Retail Card platform. At September 30, 2017, we offered these credit cards through 21across all of our 29sales platforms, spanning 21 ongoing Retailpartners and our CareCredit Dual Card, programs, of which the majority are Dual Cards.
Consumer Dual Cards and Co-Branded cards totaled 23% of our total loan receivables portfolio at June 30, 2021.Commercial Credit Products
We offer private label cards and Dual Cards for commercial customers that are similar to our consumer offerings. We also offer a commercial pay-in-full accounts receivable product to a wide range of business customers. We offer our commercial credit products primarily through our Retail Card platform to the commercial customers of our Retail Card partners.
Installment Loans
In Payment Solutions, weWe originate installment loans to consumers (and a limited number of commercial customers) in the United States, primarily in the power products market (motorcycles, ATVs and lawn and garden). Installment loans are closed-end credit accounts where the customer pays down the outstanding balance in installments. Installment loans are assessed periodic finance charges using fixed interest rates.
Business Trends and Conditions
We believe our business and results of operations will be impacted in the future by various trends and conditions. For a discussion of thesecertain trends and conditions, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Business Trends and Conditions” in our 20162020 Form 10-K. For a discussion of how thesecertain trends and conditions impacted the three and ninesix months ended SeptemberJune 30, 2017,2021, see“—Results of Operations.”
Seasonality
In our Retail Card and Payment Solutions platforms, weWe experience fluctuations in transaction volumes and the level of loan receivables as a result of higher seasonal consumer spending and payment patterns that typically result in an increase of loan receivables from August through a peak in late December, with reductions in loan receivables occurring over the first and second quarters of the following year as customers pay their balances down.
The seasonal impact to transaction volumes and the loan receivables balance typically results in fluctuations in our results of operations, delinquency metrics and the allowance for loancredit losses as a percentage of total loan receivables between quarterly periods.
In addition to the seasonal variance in loan receivables discussed above, we also typically experience a seasonal increase in delinquency rates and delinquent loan receivables balances during the third and fourth quarters of each year due to lower customer payment rates resulting in higher net charge-off rates in the first and second quarters. Our delinquency rates and delinquent loan receivables balances typically decrease during the subsequent first and second quarters as customers begin to pay down their loan balances and return to current status resulting in lower net charge-off rates in the third and fourth quarters. Because customers who were delinquent during the fourth quarter of a calendar year have a higher probability of returning to current status when compared to customers who are delinquent at the end of each of our interim reporting periods, we expect that a higher proportion of delinquent accounts outstanding at an interim period end will result in charge-offs, as compared to delinquent accounts outstanding at a year end. Consistent with this historical experience, we generally experience a higher allowance for loancredit losses as a percentage of total loan receivables at the end of an interim period, as compared to the end of a calendar year. In addition, despite improving credit metrics such as declining past due amounts, we may experience an increase in our allowance for loancredit losses at an interim period end compared to the prior year end, reflecting these same seasonal trends.
While the effects of the seasonal trends discussed above remain evident, we also continue to experience improvements in customer payment behavior, which include the effects of governmental stimulus actions and industry-wide forbearance measures. Customer payments as a percentage of beginning-of-period loan receivables for the three months ended June 30, 2021 were approximately 280 basis points higher than our prior five-year historical average for the second quarter. These higher payment rates have resulted in reductions in loan receivables and delinquency rates beyond our seasonal expectations.
Results of Operations
Highlights for the Three and NineSix Months Ended SeptemberJune 30, 20172021
Below are highlights of our performance for the three and ninesix months ended SeptemberJune 30, 20172021 compared to the three and ninesix months ended SeptemberJune 30, 2016,2020, as applicable, except as otherwise noted.
•Net earnings decreased 8.1%increased to $555$1.2 billion from $48 million and 7.5% to $1,550$2.3 billion from $334 million for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, primarily driven by increases inlower provision for loancredit losses and decreases in other expense, partially offset by higherlower net interest income.
•Loan receivables increased 8.9%slightly to $76,928 million$78.4 billion at SeptemberJune 30, 20172021 compared to September$78.3 billion at June 30, 2016,2020, primarily driven by higher purchase volume, largely offset by improvements in customer payment behavior reflecting the impact of government stimulus, industry-wide forbearance actions and average active account growth.lower discretionary spend during the prior year shutdowns.
•Net interest income increased 11.3%decreased 2.5% to $3,876 million$3.3 billion and 12.1%7.3% to $11,100 million$6.8 billion for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, primarily due to higher average loan receivables.decreases in interest and fees on loans driven by an increase in payment rates and lower delinquencies, partially offset by decreases in interest expense primarily attributed to lower benchmark interest rates.
•Retailer share arrangements increased 6.3%30.1% to $805 million$1.0 billion and 3.2%17.4% to $2,158 million$2.0 billion for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, primarily as a result of growth and margin improvement ofdue to the programsdecrease in which we have retailer share arrangements, partially offset by higherthe provision for loancredit losses, associated with these programs.including lower net charge-offs, and program performance.
•Over-30 day loan delinquencies as a percentage of period-end loan receivables increased 54decreased 102 basis points to 4.80%2.11% at SeptemberJune 30, 2017 from 4.26% at September 30, 2016,2021, and the net charge-off rate increased 56decreased 178 basis points to 4.95%3.57% and 69176 basis points to 5.23%3.59% for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively.
•Provision for loancredit losses increaseddecreased by $324 million,$1.9 billion, or 32.9%111.6%, and $3.2 billion, or 95.8% for the three and six months ended SeptemberJune 30, 2017,2021, respectively, primarily due to higherdriven by lower reserves and lower net charge-offs and loan receivables growth. Provision for loan losses increased by $1,032 million, or 35.5%, for the nine months ended September 30, 2017, primarily due to an increase in net charge-offs and higher loan loss reserve.charge-offs. Our allowance coverage ratio (allowance for loancredit losses as a percent of end of periodperiod-end loan receivables) increaseddecreased to 6.97%11.51% at SeptemberJune 30, 2017,2021, as compared to 5.82%12.52% at SeptemberJune 30, 2016.2020.
•Other expense increaseddecreased by $99$38 million, or 11.5%3.9%, and $279$108 million, or 11.2%5.4%, for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, primarily driven by lower operational losses, partially offset by increases in employee costs, marketing and business growth.development and information processing.
We continue to invest in•At June 30, 2021, deposits represented 81% of our direct banking activities to grow our deposit base.total funding sources. Total deposits increased 4.6%decreased by 4.7% to $54.5$59.8 billion at SeptemberJune 30, 2017,2021, compared to December 31, 2016, driven primarily by growth in2020.
•During the six months ended June 30, 2021, we declared and paid cash dividends on our direct depositsSeries A 5.625% non-cumulative preferred stock of 9.8% to $41.6 billion, partially offset by a reduction in our brokered deposits.
On May 18, 2017, the Board announced plans to increase our quarterly dividend to $0.15$28.12 per share, commencing inor $21 million.
•During the third quarter of 2017 and approval of a share repurchase program of up to $1.64 billion throughsix months ended June 30, 2018. During the nine months ended September 30, 2017,2021, we repurchased $1,066$593 million of our outstanding common stock, and declared and paid cash dividends of $0.41$0.44 per share, or $328$256 million. In May 2021 we announced that the Board of Directors approved a new share repurchase program of up to $2.9 billion for the period which commenced April 1, 2021 through June 30, 2022, subject to market conditions and other factors, including legal and regulatory restrictions and required approvals, if any.
During the nine months ended September 30, 2017,•In February 2021 in our Health & Wellness sales platform, we completed our acquisition of Allegro Credit, a leading provider of point-of-sale consumer financing for audiology products and dental services.
2021 Partner Agreements
•In our Home & Auto sales platform, we announced our acquisition of GPShopper, a developer of mobile applications that offers retailers and brands a full suite of commerce, engagement and analytical tools.
New and Extended Partner Agreements during the nine months ended September 30, 2017
We extended our Retail Card program agreementsnew partnership with Belk, QVC and Evine, and launched our new programs with Cathay Pacific, Nissan and Infiniti, zulily and At Home.
We launched our Synchrony Car Care program in our Payment Solutions sales platformBoxDrop and extended our program agreements with Midas, MEGA Group USA, City Furniture, Yamaha, BrandsMart U.S.A.Ashley HomeStores LTD, CITGO, Mitchell Gold Co. and Nautilus.Phillips 66.
•In our CareCreditDigital sales platform, we acquired the Citiextended our program agreement with Shop HQ.
•In our Diversified & Value sales platform, we extended our program agreement with TJX Companies, Inc.
•In our Health Card portfolio, renewed National Veterinary Associates and Mars Petcare in& Wellness sales platform, we expanded our network of providers and launchedthrough our new partnerships with Emory Healthcare, Mercy Health, Ochsner Health,Prime Health, Southern Veterinary Partners and Sycle. In addition, we also made our CareCredit Dual Card.patient financing app available in the Epic App Orchard, further expanding the availability of CareCredit to healthcare organizations using Epic.
•In our Lifestyle sales platform, we announced our new partnerships with Family Farm & Home and JCB and extended our program agreements with American Eagle, Daniels, Sutherlands and Tacony Corporation.
•In April 2021, we announced that we will not be renewing our program agreement with Gap Inc. when it expires on April 30, 2022. We expect our strategic options will be accretive to dilutive earnings per share relative to renewal terms and if the portfolio is sold we expect to recognize a gain on sale of the portfolio and redeploy approximately $1 billion of capital.
•Excluding our program agreement with Gap Inc., our five largest programs based upon interest and fees on loans for the year ended December 31, 2020 were Amazon, JCPenney, Lowe’s, PayPal and Sam’s Club.
Information About Our Executive Officers and Board of Directors
•The following events were effective April 1, 2021:
•Margaret Keane, 61, Synchrony’s Chief Executive Officer (“CEO”), transitioned roles from CEO to Executive Chair of the Board.
•Brian Doubles, 45, Synchrony’s President, succeeded Ms. Keane to become President and CEO, and joined the Board as a director.
•Rick Hartnack, 75, Non-Executive Chair of the Board, retired.
•Jeffrey Naylor, 62, became Lead Independent Director of the Board.
•The following appointments were effective June 14, 2021:
•Mike Bopp, 48, now leads the Growth organization as EVP, Chief Growth Officer.
•Carol Juel, 48, now leads the Technology and Operations organization as EVP, Chief Technology and Operating Officer.
•Alberto Casellas, 54, now leads the Health & Wellness sales platform as EVP, CEO Health & Wellness.
•Curtis Howse, 57, now leads the Home & Auto sales platform as EVP, CEO Home & Auto.
•Tom Quindlen, 58, now leads the Diversified & Value sales platform and the Lifestyle sales platform as EVP, CEO Diversified & Value and Lifestyle.
•Bart Schaller, 52, now leads the Digital sales platform as EVP, CEO Digital.
Summary Earnings
The following table sets forth our results of operations for the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Interest income | $ | 3,578 | | | $ | 3,830 | | | $ | 7,320 | | | $ | 8,237 | |
| Interest expense | 266 | | | 434 | | | 569 | | | 951 | |
| Net interest income | 3,312 | | | 3,396 | | | 6,751 | | | 7,286 | |
| Retailer share arrangements | (1,006) | | | (773) | | | (1,995) | | | (1,699) | |
| | | | | | | |
| Provision for credit losses | (194) | | | 1,673 | | | 140 | | | 3,350 | |
| Net interest income, after retailer share arrangements and provision for credit losses | 2,500 | | | 950 | | | 4,616 | | | 2,237 | |
| Other income | 89 | | | 95 | | | 220 | | | 192 | |
| Other expense | 948 | | | 986 | | | 1,880 | | | 1,988 | |
| Earnings before provision for income taxes | 1,641 | | | 59 | | | 2,956 | | | 441 | |
| Provision for income taxes | 399 | | | 11 | | | 689 | | | 107 | |
| Net earnings | $ | 1,242 | | | $ | 48 | | | $ | 2,267 | | | $ | 334 | |
| Net earnings available to common stockholders | $ | 1,232 | | | $ | 37 | | | $ | 2,246 | | | $ | 312 | |
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Interest income | $ | 4,233 |
| | $ | 3,796 |
| | $ | 12,116 |
| | $ | 10,831 |
|
| Interest expense | 357 |
| | 315 |
| | 1,016 |
| | 929 |
|
| Net interest income | 3,876 |
| | 3,481 |
| | 11,100 |
| | 9,902 |
|
| Retailer share arrangements | (805 | ) | | (757 | ) | | (2,158 | ) | | (2,091 | ) |
| Net interest income, after retailer share arrangements | 3,071 |
| | 2,724 |
| | 8,942 |
| | 7,811 |
|
| Provision for loan losses | 1,310 |
| | 986 |
| | 3,942 |
| | 2,910 |
|
| Net interest income, after retailer share arrangements and provision for loan losses | 1,761 |
| | 1,738 |
| | 5,000 |
| | 4,901 |
|
| Other income | 76 |
| | 84 |
| | 226 |
| | 259 |
|
| Other expense | 958 |
| | 859 |
| | 2,777 |
| | 2,498 |
|
| Earnings before provision for income taxes | 879 |
| | 963 |
| | 2,449 |
| | 2,662 |
|
| Provision for income taxes | 324 |
| | 359 |
| | 899 |
| | 987 |
|
| Net earnings | $ | 555 |
| | $ | 604 |
| | $ | 1,550 |
| | $ | 1,675 |
|
Other Financial and Statistical Data
The following table sets forth certain other financial and statistical data for the periods indicated. |
| | | | | | | | | | | | | | | |
| | At and for the | | At and for the |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Financial Position Data (Average): | | | | | | | |
| Loan receivables, including held for sale | $ | 76,165 |
| | $ | 69,316 |
| | $ | 74,803 |
| | $ | 67,364 |
|
| Total assets | $ | 91,121 |
| | $ | 84,874 |
| | $ | 90,004 |
| | $ | 82,939 |
|
| Deposits | $ | 53,526 |
| | $ | 48,099 |
| | $ | 52,555 |
| | $ | 46,130 |
|
| Borrowings | $ | 20,010 |
| | $ | 19,702 |
| | $ | 20,079 |
| | $ | 20,140 |
|
| Total equity | $ | 14,431 |
| | $ | 13,898 |
| | $ | 14,399 |
| | $ | 13,458 |
|
| Selected Performance Metrics: | | | | | | | |
Purchase volume(1) | $ | 32,893 |
| | $ | 31,615 |
| | $ | 95,249 |
| | $ | 90,099 |
|
| Retail Card | $ | 26,347 |
| | $ | 25,285 |
| | $ | 76,400 |
| | $ | 72,246 |
|
| Payment Solutions | $ | 4,178 |
| | $ | 4,152 |
| | $ | 11,794 |
| | $ | 11,447 |
|
| CareCredit | $ | 2,368 |
| | $ | 2,178 |
| | $ | 7,055 |
| | $ | 6,406 |
|
Average active accounts (in thousands)(2) | 69,331 |
| | 66,639 |
| | 69,319 |
| | 66,204 |
|
Net interest margin(3) | 16.74 | % | | 16.34 | % | | 16.38 | % | | 16.05 | % |
| Net charge-offs | $ | 950 |
| | $ | 765 |
| | $ | 2,925 |
| | $ | 2,292 |
|
| Net charge-offs as a % of average loan receivables, including held for sale | 4.95 | % | | 4.39 | % | | 5.23 | % | | 4.54 | % |
Allowance coverage ratio(4) | 6.97 | % | | 5.82 | % | | 6.97 | % | | 5.82 | % |
Return on assets(5) | 2.4 | % | | 2.8 | % | | 2.3 | % | | 2.7 | % |
Return on equity(6) | 15.3 | % | | 17.3 | % | | 14.4 | % | | 16.6 | % |
Equity to assets(7) | 15.84 | % | | 16.37 | % | | 16.00 | % | | 16.23 | % |
Other expense as a % of average loan receivables, including held for sale | 4.99 | % | | 4.93 | % | | 4.96 | % | | 4.95 | % |
Efficiency ratio(8) | 30.4 | % | | 30.6 | % | | 30.3 | % | | 31.0 | % |
| Effective income tax rate | 36.9 | % | | 37.3 | % | | 36.7 | % | | 37.1 | % |
| Selected Period-End Data: | | | | | | | |
| Loan receivables | $ | 76,928 |
| | $ | 70,644 |
| | $ | 76,928 |
| | $ | 70,644 |
|
| Allowance for loan losses | $ | 5,361 |
| | $ | 4,115 |
| | $ | 5,361 |
| | $ | 4,115 |
|
30+ days past due as a % of period-end loan receivables(9) | 4.80 | % | | 4.26 | % | | 4.80 | % | | 4.26 | % |
90+ days past due as a % of period-end loan receivables(9) | 2.22 | % | | 1.89 | % | | 2.22 | % | | 1.89 | % |
Total active accounts (in thousands)(2) | 69,008 |
| | 66,781 |
| | 69,008 |
| | 66,781 |
|
______________________ | |
(1) | Purchase volume, or net credit sales, represents the aggregate amount of charges incurred on credit cards or other credit product accounts less returns during the period. Purchase volume includes activity related to our portfolios classified as held for sale. |
| |
(2) | Active accounts represent credit card or installment loan accounts on which there has been a purchase, payment or outstanding balance in the current month. |
| |
(3) | Net interest margin represents net interest income divided by average interest-earning assets. |
| |
(4) | Allowance coverage ratio represents allowance for loan losses divided by total period-end loan receivables. |
| |
(5) | Return on assets represents net earnings as a percentage of average total assets. |
| |
(6) | Return on equity represents net earnings as a percentage of average total equity. |
| |
(7) | Equity to assets represents average equity as a percentage of average total assets. |
| |
(8) | Efficiency ratio represents (i) other expense, divided by (ii) net interest income, after retailer share arrangements, plus other income. |
| |
(9) | Based on customer statement-end balances extrapolated to the respective period-end date. |
| | | | | | | | | | | | | | | | | | | | | | | |
| At and for the | | At and for the |
| Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Financial Position Data (Average): | | | | | | | |
| Loan receivables, including held for sale | $ | 76,821 | | | $ | 78,697 | | | $ | 77,585 | | | $ | 81,563 | |
| Total assets | $ | 93,389 | | | $ | 97,958 | | | $ | 94,914 | | | $ | 99,340 | |
| Deposits | $ | 61,110 | | | $ | 64,607 | | | $ | 62,085 | | | $ | 64,636 | |
| Borrowings | $ | 14,425 | | | $ | 16,821 | | | $ | 15,039 | | | $ | 17,807 | |
| Total equity | $ | 13,655 | | | $ | 12,181 | | | $ | 13,365 | | | $ | 12,386 | |
| Selected Performance Metrics: | | | | | | | |
Purchase volume(1)(2) | $ | 42,121 | | | $ | 31,155 | | | $ | 76,870 | | | $ | 63,197 | |
| Home & Auto | $ | 12,209 | | | $ | 9,729 | | | $ | 22,124 | | | $ | 18,833 | |
| Digital | $ | 10,930 | | | $ | 8,439 | | | $ | 20,270 | | | $ | 15,833 | |
| Diversified & Value | $ | 11,618 | | | $ | 7,683 | | | $ | 20,838 | | | $ | 17,084 | |
| Health & Wellness | $ | 2,988 | | | $ | 1,952 | | | $ | 5,636 | | | $ | 4,611 | |
| Lifestyle | $ | 1,405 | | | $ | 1,286 | | | $ | 2,559 | | | $ | 2,283 | |
| Corp, Other | $ | 2,971 | | | $ | 2,066 | | | $ | 5,443 | | | $ | 4,553 | |
Average active accounts (in thousands)(2)(3) | 65,810 | | | 64,836 | | | 66,163 | | | 68,401 | |
Net interest margin(4) | 13.78 | % | | 13.53 | % | | 13.88 | % | | 14.35 | % |
| Net charge-offs | $ | 684 | | | $ | 1,046 | | | $ | 1,383 | | | $ | 2,171 | |
| Net charge-offs as a % of average loan receivables, including held for sale | 3.57 | % | | 5.35 | % | | 3.59 | % | | 5.35 | % |
Allowance coverage ratio(5) | 11.51 | % | | 12.52 | % | | 11.51 | % | | 12.52 | % |
Return on assets(6) | 5.3 | % | | 0.2 | % | | 4.8 | % | | 0.7 | % |
Return on equity(7) | 36.5 | % | | 1.6 | % | | 34.2 | % | | 5.4 | % |
Equity to assets(8) | 14.62 | % | | 12.43 | % | | 14.08 | % | | 12.47 | % |
| Other expense as a % of average loan receivables, including held for sale | 4.95 | % | | 5.04 | % | | 4.89 | % | | 4.90 | % |
Efficiency ratio(9) | 39.6 | % | | 36.3 | % | | 37.8 | % | | 34.4 | % |
| Effective income tax rate | 24.3 | % | | 18.6 | % | | 23.3 | % | | 24.3 | % |
| Selected Period-End Data: | | | | | | | |
| Loan receivables | $ | 78,374 | | | $ | 78,313 | | | $ | 78,374 | | | $ | 78,313 | |
| Allowance for credit losses | $ | 9,023 | | | $ | 9,802 | | | $ | 9,023 | | | $ | 9,802 | |
30+ days past due as a % of period-end loan receivables(10) | 2.11 | % | | 3.13 | % | | 2.11 | % | | 3.13 | % |
90+ days past due as a % of period-end loan receivables(10) | 1.00 | % | | 1.77 | % | | 1.00 | % | | 1.77 | % |
Total active accounts (in thousands)(2)(3) | 66,892 | | | 63,430 | | | 66,892 | | | 63,430 | |
______________________(1)Purchase volume, or net credit sales, represents the aggregate amount of charges incurred on credit cards or other credit product accounts less returns during the period.
(2)Includes activity and accounts associated with loan receivables held for sale.
(3)Active accounts represent credit card or installment loan accounts on which there has been a purchase, payment or outstanding balance in the current month.
(4)Net interest margin represents net interest income divided by average interest-earning assets.
(5)Allowance coverage ratio represents allowance for credit losses divided by total period-end loan receivables.
(6)Return on assets represents net earnings as a percentage of average total assets.
(7)Return on equity represents net earnings as a percentage of average total equity.
(8)Equity to assets represents average total equity as a percentage of average total assets.
(9)Efficiency ratio represents (i) other expense, divided by (ii) sum of net interest income, plus other income, less retailer share arrangements.
(10)Based on customer statement-end balances extrapolated to the respective period-end date.
Average Balance Sheet
The following tables set forth information for the periods indicated regarding average balance sheet data, which are used in the discussion of interest income, interest expense and net interest income that follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | |
| Three months ended June 30 ($ in millions) | Average
Balance | | Interest
Income /
Expense | | Average Yield / Rate(1) | | Average
Balance | | Interest
Income/
Expense | | Average Yield / Rate(1) | | |
| Assets | | | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | | | |
Interest-earning cash and equivalents(2) | $ | 13,584 | | | $ | 4 | | | 0.12 | % | | $ | 15,413 | | | $ | 3 | | | 0.08 | % | | |
| Securities available for sale | 5,988 | | | 7 | | | 0.47 | % | | 6,804 | | | 19 | | | 1.12 | % | | |
Loan receivables, including held for sale(3): | | | | | | | | | | | | | |
| Credit cards | 72,989 | | | 3,484 | | | 19.15 | % | | 75,942 | | | 3,740 | | | 19.81 | % | | |
| Consumer installment loans | 2,417 | | | 59 | | | 9.79 | % | | 1,546 | | | 37 | | | 9.63 | % | | |
| Commercial credit products | 1,363 | | | 23 | | | 6.77 | % | | 1,150 | | | 30 | | | 10.49 | % | | |
| Other | 52 | | | 1 | | | NM | | 59 | | | 1 | | | NM | | |
| Total loan receivables, including held for sale | 76,821 | | | 3,567 | | | 18.62 | % | | 78,697 | | | 3,808 | | | 19.46 | % | | |
| Total interest-earning assets | 96,393 | | | 3,578 | | | 14.89 | % | | 100,914 | | | 3,830 | | | 15.26 | % | | |
| Non-interest-earning assets: | | | | | | | | | | | | | |
| Cash and due from banks | 1,559 | | | | | | | 1,486 | | | | | | | |
| Allowance for credit losses | (9,801) | | | | | | | (9,221) | | | | | | | |
| Other assets | 5,238 | | | | | | | 4,779 | | | | | | | |
| Total non-interest-earning assets | (3,004) | | | | | | | (2,956) | | | | | | | |
| Total assets | $ | 93,389 | | | | | | | $ | 97,958 | | | | | | | |
| Liabilities | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | |
| Interest-bearing deposit accounts | $ | 60,761 | | | $ | 146 | | | 0.96 | % | | $ | 64,298 | | | $ | 293 | | | 1.83 | % | | |
| Borrowings of consolidated securitization entities | 7,149 | | | 44 | | | 2.47 | % | | 8,863 | | | 59 | | | 2.68 | % | | |
| | | | | | | | | | | | | |
| Senior unsecured notes | 7,276 | | | 76 | | | 4.19 | % | | 7,958 | | | 82 | | | 4.14 | % | | |
| | | | | | | | | | | | | |
| Total interest-bearing liabilities | 75,186 | | | 266 | | | 1.42 | % | | 81,119 | | | 434 | | | 2.15 | % | | |
| Non-interest-bearing liabilities: | | | | | | | | | | | | | |
| Non-interest-bearing deposit accounts | 349 | | | | | | | 309 | | | | | | | |
| Other liabilities | 4,199 | | | | | | | 4,349 | | | | | | | |
| Total non-interest-bearing liabilities | 4,548 | | | | | | | 4,658 | | | | | | | |
| Total liabilities | 79,734 | | | | | | | 85,777 | | | | | | | |
| Equity | | | | | | | | | | | | | |
| Total equity | 13,655 | | | | | | | 12,181 | | | | | | | |
| Total liabilities and equity | $ | 93,389 | | | | | | | $ | 97,958 | | | | | | | |
Interest rate spread(4) | | | | | 13.47 | % | | | | | | 13.11 | % | | |
| Net interest income | | | $ | 3,312 | | | | | | | $ | 3,396 | | | | | |
Net interest margin(5) | | | | | 13.78 | % | | | | | | 13.53 | % | | |
| | | | | | | | | | | | | | | | 2021 | | 2020 | |
| | 2017 | | 2016 | |
| Three months ended September 30 ($ in millions) | Average Balance | | Interest Income / Expense | | Average Yield / Rate(1) | | Average Balance | | Interest Income/ Expense | | Average Yield / Rate(1) | |
| Six months ended June 30 ($ in millions) | | Six months ended June 30 ($ in millions) | Average
Balance | | Interest
Income /
Expense | | Average Yield / Rate(1) | | Average
Balance | | Interest
Income/
Expense | | Average Yield / Rate(1) | |
| Assets | | | | | | | | | | | | Assets | | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | | Interest-earning assets: | | |
Interest-earning cash and equivalents(2) | $ | 11,895 |
| | $ | 37 |
| | 1.23 | % | | $ | 12,480 |
| | $ | 16 |
| | 0.51 | % | Interest-earning cash and equivalents(2) | $ | 14,094 | | | $ | 8 | | | 0.11 | % | | $ | 14,158 | | | $ | 45 | | | 0.64 | % | |
| Securities available for sale | 3,792 |
| | 14 |
| | 1.46 | % | | 2,960 |
| | 9 |
| | 1.21 | % | Securities available for sale | 6,378 | | | 13 | | | 0.41 | % | | 6,379 | | | 44 | | | 1.39 | % | |
Loan receivables(3): | | | | | | | | | | | | |
| Credit cards, including held for sale | 73,172 |
| | 4,111 |
| | 22.29 | % | | 66,519 |
| | 3,705 |
| | 22.16 | % | |
Loan receivables, including held for sale(3): | | Loan receivables, including held for sale(3): | | |
| Credit cards | | Credit cards | 73,921 | | | 7,141 | | | 19.48 | % | | 78,830 | | | 8,012 | | | 20.44 | % | |
| Consumer installment loans | 1,543 |
| | 35 |
| | 9.00 | % | | 1,333 |
| | 31 |
| | 9.25 | % | Consumer installment loans | 2,319 | | | 112 | | | 9.74 | % | | 1,489 | | | 72 | | | 9.72 | % | |
| Commercial credit products | 1,392 |
| | 36 |
| | 10.26 | % | | 1,401 |
| | 35 |
| | 9.94 | % | Commercial credit products | 1,297 | | | 44 | | | 6.84 | % | | 1,196 | | | 63 | | | 10.59 | % | |
| Other | 58 |
| | — |
| | — | % | | 63 |
| | — |
| | — | % | Other | 48 | | | 2 | | | 8.40 | % | | 48 | | | 1 | | | 4.19 | % | |
| Total loan receivables | 76,165 |
| | 4,182 |
| | 21.78 | % | | 69,316 |
| | 3,771 |
| | 21.64 | % | |
| Total loan receivables, including held for sale | | Total loan receivables, including held for sale | 77,585 | | | 7,299 | | | 18.97 | % | | 81,563 | | | 8,148 | | | 20.09 | % | |
| Total interest-earning assets | 91,852 |
| | 4,233 |
| | 18.28 | % | | 84,756 |
| | 3,796 |
| | 17.82 | % | Total interest-earning assets | 98,057 | | | 7,320 | | | 15.05 | % | | 102,100 | | | 8,237 | | | 16.22 | % | |
| Non-interest-earning assets: | | | | | | | | | | | | Non-interest-earning assets: | | | | | | | | | | | | |
| Cash and due from banks | 877 |
| | | | | | 862 |
| | | | | Cash and due from banks | 1,597 | | | 1,468 | | | |
| Allowance for loan losses | (5,125 | ) | | | | | | (3,933 | ) | | | | | |
| Allowance for credit losses | | Allowance for credit losses | (10,012) | | | (8,965) | | | |
| Other assets | 3,517 |
| | | | | | 3,189 |
| | | | | Other assets | 5,272 | | | 4,737 | | | |
| Total non-interest-earning assets | (731 | ) | | | | | | 118 |
| | | | | Total non-interest-earning assets | (3,143) | | | (2,760) | | | |
| Total assets | $ | 91,121 |
| | | | | | $ | 84,874 |
| | | | | Total assets | $ | 94,914 | | | $ | 99,340 | | | |
| Liabilities | | | | | | | | | | | | Liabilities | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | Interest-bearing liabilities: | | |
| Interest-bearing deposit accounts | $ | 53,294 |
| | $ | 219 |
| | 1.63 | % | | $ | 47,895 |
| | $ | 188 |
| | 1.56 | % | Interest-bearing deposit accounts | $ | 61,737 | | | $ | 316 | | | 1.03 | % | | $ | 64,332 | | | $ | 649 | | | 2.03 | % | |
| Borrowings of consolidated securitization entities | 11,759 |
| | 65 |
| | 2.19 | % | | 12,254 |
| | 63 |
| | 2.05 | % | Borrowings of consolidated securitization entities | 7,420 | | | 95 | | | 2.58 | % | | 9,425 | | | 132 | | | 2.82 | % | |
| Senior unsecured notes | 8,251 |
| | 73 |
| | 3.51 | % | | 7,448 |
| | 64 |
| | 3.42 | % | Senior unsecured notes | 7,619 | | | 158 | | | 4.18 | % | | 8,382 | | | 170 | | | 4.08 | % | |
| | Total interest-bearing liabilities | 73,304 |
| | 357 |
| | 1.93 | % | | 67,597 |
| | 315 |
| | 1.85 | % | Total interest-bearing liabilities | 76,776 | | | 569 | | | 1.49 | % | | 82,139 | | | 951 | | | 2.33 | % | |
| Non-interest-bearing liabilities: | | | | | | | | | | | | Non-interest-bearing liabilities: | | | | | | | | | | | | |
| Non-interest-bearing deposit accounts | 232 |
| | | | | | 204 |
| | | | | Non-interest-bearing deposit accounts | 348 | | | 304 | | | |
| Other liabilities | 3,154 |
| | | | | | 3,175 |
| | | | | Other liabilities | 4,425 | | | 4,511 | | | |
| Total non-interest-bearing liabilities | 3,386 |
| | | | | | 3,379 |
| | | | | Total non-interest-bearing liabilities | 4,773 | | | 4,815 | | | |
| Total liabilities | 76,690 |
| | | | | | 70,976 |
| | | | | Total liabilities | 81,549 | | | 86,954 | | | |
| Equity | | | | | | | | | | | | Equity | | | | | |
| Total equity | 14,431 |
| | | | | | 13,898 |
| | | | | Total equity | 13,365 | | | 12,386 | | | |
| Total liabilities and equity | $ | 91,121 |
| | | | | | $ | 84,874 |
| | | | | Total liabilities and equity | $ | 94,914 | | | $ | 99,340 | | | |
Interest rate spread(5)(4) | | | | | 16.35 | % | | | | | | 15.97 | % | | | 13.56 | % | | | | 13.89 | % | |
| Net interest income | | | $ | 3,876 |
| | | | | | $ | 3,481 |
| | | Net interest income | | $ | 6,751 | | | $ | 7,286 | | | |
Net interest margin(6)(5) | | | | | 16.74 | % | | | | | | 16.34 | % | | | | 13.88 | % | | | | 14.35 | % | |
_______________________
(1)Average yields/rates are based on total interest income/expense over average balances.
(2)Includes average restricted cash balances of $538 million and $645 million for the three months ended June 30, 2021 and 2020, respectively, and $481 million and $813 million for the six months ended June 30, 2021 and 2020, respectively.
(3)Interest income on loan receivables includes fees on loans of $489 million and $448 million for the three months ended June 30, 2021 and 2020, respectively, and $1.0 billion and $1.1 billion for the six months ended June 30, 2021 and 2020, respectively.
(4)Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities.
(5)Net interest margin represents net interest income divided by average total interest-earning assets.
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2017 | | 2016 |
| Nine months ended September 30 ($ in millions) | Average Balance | | Interest Income / Expense | | Average Yield / Rate(1) | | Average Balance | | Interest Income/ Expense | | Average Yield / Rate(1) |
| Assets | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | |
Interest-earning cash and equivalents(2) | $ | 11,073 |
| | $ | 86 |
| | 1.04 | % | | $ | 12,132 |
| | $ | 46 |
| | 0.51 | % |
| Securities available for sale | 4,732 |
| | 44 |
| | 1.24 | % | | 2,932 |
| | 22 |
| | 1.00 | % |
Loan receivables(3): | | | | | | | | | | | |
| Credit cards, including held for sale | 71,920 |
| | 11,780 |
| | 21.90 | % | | 64,701 |
| | 10,573 |
| | 21.83 | % |
| Consumer installment loans | 1,465 |
| | 101 |
| | 9.22 | % | | 1,240 |
| | 86 |
| | 9.26 | % |
| Commercial credit products | 1,363 |
| | 104 |
| | 10.20 | % | | 1,367 |
| | 103 |
| | 10.06 | % |
| Other | 55 |
| | 1 |
| | 2.43 | % | | 56 |
| | 1 |
| | 2.39 | % |
| Total loan receivables | 74,803 |
| | 11,986 |
| | 21.42 | % | | 67,364 |
| | 10,763 |
| | 21.34 | % |
| Total interest-earning assets | 90,608 |
| | 12,116 |
| | 17.88 | % | | 82,428 |
| | 10,831 |
| | 17.55 | % |
| Non-interest-earning assets: | | | | | | | | | | | |
| Cash and due from banks | 836 |
| | | | | | 1,041 |
| | | | |
| Allowance for loan losses | (4,774 | ) | | | | | | (3,752 | ) | | | | |
| Other assets | 3,334 |
| | | | | | 3,222 |
| | | | |
| Total non-interest-earning assets | (604 | ) | | | | | | 511 |
| | | | |
| Total assets | $ | 90,004 |
| | | | | | $ | 82,939 |
| | | | |
| Liabilities | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | |
| Interest-bearing deposit accounts | $ | 52,325 |
| | $ | 615 |
| | 1.57 | % | | $ | 45,915 |
| | $ | 539 |
| | 1.57 | % |
| Borrowings of consolidated securitization entities | 12,096 |
| | 193 |
| | 2.13 | % | | 12,441 |
| | 180 |
| | 1.93 | % |
Bank term loan(4) | — |
| | — |
| | — | % | | 742 |
| | 31 |
| | 5.58 | % |
| Senior unsecured notes | 7,983 |
| | 208 |
| | 3.48 | % | | 6,957 |
| | 179 |
| | 3.44 | % |
| Total interest-bearing liabilities | 72,404 |
| | 1,016 |
| | 1.88 | % | | 66,055 |
| | 929 |
| | 1.88 | % |
| Non-interest-bearing liabilities: | | | | | | | | | | | |
| Non-interest-bearing deposit accounts | 230 |
| | | | | | 215 |
| | | | |
| Other liabilities | 2,971 |
| | | | | | 3,211 |
| | | | |
| Total non-interest-bearing liabilities | 3,201 |
| | | | | | 3,426 |
| | | | |
| Total liabilities | 75,605 |
| | | | | | 69,481 |
| | | | |
| Equity | | | | | | | | | | | |
| Total equity | 14,399 |
| | | | | | 13,458 |
| | | | |
| Total liabilities and equity | $ | 90,004 |
| | | | | | $ | 82,939 |
| | | | |
Interest rate spread(5) | | | | | 16.00 | % | | | | | | 15.67 | % |
| Net interest income | | | $ | 11,100 |
| | | | | | $ | 9,902 |
| | |
Net interest margin(6) | | | | | 16.38 | % | | | | | | 16.05 | % |
15
______________________ | |
(1) | Average yields/rates are based on total interest income/expense over average balances. |
| |
(2) | Includes average restricted cash balances of $816 million and $313 million for the three months ended September 30, 2017 and 2016, respectively and $659 million and $461 million for the nine months ended September 30, 2017 and 2016, respectively. |
| |
(3) | Interest income on loan receivables includes fees on loans of $692 million and $645 million for the three months ended September 30, 2017 and 2016, respectively, and $1,945 million and $1,799 million for the nine months ended September 30, 2017 and 2016, respectively. |
| |
(4) | The effective interest rate for the Bank term loan for the nine months ended September 30, 2016 was 2.48%. The Bank term loan's effective rate excludes the impact of charges incurred in connection with prepayments of the loan. |
| |
(5) | Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities. |
| |
(6) | Net interest margin represents net interest income divided by average total interest-earning assets. |
For a summary description of the composition of our key line items included in our Statements of Earnings, see Management's Discussion and Analysis of Financial Condition and Results of Operations in our 20162020 Form 10-K.
Interest Income
Interest income increaseddecreased by $437$252 million, or 11.5%6.6%, and by $1,285$917 million, or 11.9%11.1%, for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, primarily driven primarily by growthdecreases in our average loan receivables.interest and fees on loans attributed to improvements in customer payment behavior and lower delinquencies.
Average interest-earning assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30 ($ in millions) | 2021 | | % | | 2020 | | % | | | | |
| Loan receivables, including held for sale | $ | 76,821 | | | 79.7 | % | | $ | 78,697 | | | 78.0 | % | | | | |
| Liquidity portfolio and other | 19,572 | | | 20.3 | % | | 22,217 | | | 22.0 | % | | | | |
| Total average interest-earning assets | $ | 96,393 | | | 100.0 | % | | $ | 100,914 | | | 100.0 | % | | | | |
|
| | | | | | | | | | | | | |
| Three months ended September 30 ($ in millions) | 2017 | | % | | 2016 | | % |
| Loan receivables, including held for sale | $ | 76,165 |
| | 82.9 | % | | $ | 69,316 |
| | 81.8 | % |
| Liquidity portfolio and other | 15,687 |
| | 17.1 | % | | 15,440 |
| | 18.2 | % |
| Total average interest-earning assets | $ | 91,852 |
| | 100.0 | % | | $ | 84,756 |
| | 100.0 | % |
| | | Nine months ended September 30 ($ in millions) | 2017 | | % | | 2016 | | % | |
| Six months ended June 30 ($ in millions) | | Six months ended June 30 ($ in millions) | 2021 | | % | | 2020 | | % |
| Loan receivables, including held for sale | $ | 74,803 |
| | 82.6 | % | | $ | 67,364 |
| | 81.7 | % | Loan receivables, including held for sale | $ | 77,585 | | | 79.1 | % | | $ | 81,563 | | | 79.9 | % |
| Liquidity portfolio and other | 15,805 |
| | 17.4 | % | | 15,064 |
| | 18.3 | % | Liquidity portfolio and other | 20,472 | | | 20.9 | % | | 20,537 | | | 20.1 | % |
| Total average interest-earning assets | $ | 90,608 |
| | 100.0 | % | | $ | 82,428 |
| | 100.0 | % | Total average interest-earning assets | $ | 98,057 | | | 100.0 | % | | $ | 102,100 | | | 100.0 | % |
The increasesdecreases in average loan receivables, including held for sale, of 9.9%2.4% and 11.0%4.9% for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, were primarily driven primarily by higherimprovements in customer payment behavior. These decreases were partially offset by growth in purchase volume of 4.0%35.2% and 5.7% and average active account growth of 4.0% and 4.7%, respectively.
Average active accounts increased to 69.3 million21.6% for both the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, reflecting the impacts of stimulus, the lifting of remaining government restrictions and the average balances per these active accounts increased 5.6% and 6.1%, respectively.consumer confidence.
Yield on average interest-earning assets
The yield on average interest-earning assets increaseddecreased for the three and ninesix months ended SeptemberJune 30, 2017. The increase in the three and nine months ended September 30, 2017 was2021, primarily due to an increase in the percentage of interest-earning assets attributable to loan receivables and an increasedecreases in the yield on our average loan receivables of 14receivables. The decrease in loan receivable yield was 84 basis points to 21.78%18.62% and 8 basis points112 basis points to 21.42%, respectively. The increase in yield was18.97% for the three and six months ended June 30, 2021, respectively, primarily driven by higher revolvepayment rates as well as a higher benchmark interest rate.and lower delinquencies.
Interest Expense
Interest expense increaseddecreased by $42$168 million, or 13.3%38.7%, and by $87$382 million, or 9.4%40.2%, for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, driven primarily by the growth in our deposit liabilities. Our cost of funds increased slightlyattributed to 1.93% for the three months ended September 30, 2017, compared to 1.85% for the three months ended September 30, 2016, primarily due to higherlower benchmark interest rates. Our cost of funds remained flat at 1.88% for both the nine months ended September 30, 2017decreased to 1.42% and 2016.
Average interest-bearing liabilities
|
| | | | | | | | | | | | | |
| Three months ended September 30 ($ in millions) | 2017 | | % | | 2016 | | % |
| Interest-bearing deposit accounts | $ | 53,294 |
| | 72.7 | % | | $ | 47,895 |
| | 70.9 | % |
| Borrowings of consolidated securitization entities | 11,759 |
| | 16.0 | % | | 12,254 |
| | 18.1 | % |
| Third-party debt | 8,251 |
| | 11.3 | % | | 7,448 |
| | 11.0 | % |
| Total average interest-bearing liabilities | $ | 73,304 |
| | 100.0 | % | | $ | 67,597 |
| | 100.0 | % |
|
| | | | | | | | | | | | | |
| Nine months ended September 30 ($ in millions) | 2017 | | % | | 2016 | | % |
| Interest-bearing deposit accounts | $ | 52,325 |
| | 72.3 | % | | $ | 45,915 |
| | 69.5 | % |
| Borrowings of consolidated securitization entities | 12,096 |
| | 16.7 | % | | 12,441 |
| | 18.8 | % |
| Third-party debt | 7,983 |
| | 11.0 | % | | 7,699 |
| | 11.7 | % |
| Total average interest-bearing liabilities | $ | 72,404 |
| | 100.0 | % | | $ | 66,055 |
| | 100.0 | % |
The increase in average interest-bearing liabilities1.49% for the three and ninesix months ended SeptemberJune 30, 2017 was driven primarily by growth in our direct deposits.2021, respectively, compared to 2.15% and 2.33% for the three and six months ended June 30, 2020, respectively.
Average interest-bearing liabilities
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30 ($ in millions) | 2021 | | % | | 2020 | | % | | | | |
| Interest-bearing deposit accounts | $ | 60,761 | | | 80.8 | % | | $ | 64,298 | | | 79.3 | % | | | | |
| Borrowings of consolidated securitization entities | 7,149 | | | 9.5 | % | | 8,863 | | | 10.9 | % | | | | |
| Senior unsecured notes | 7,276 | | | 9.7 | % | | 7,958 | | | 9.8 | % | | | | |
| | | | | | | | | | | |
| Total average interest-bearing liabilities | $ | 75,186 | | | 100.0 | % | | $ | 81,119 | | | 100.0 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30 ($ in millions) | 2021 | | % | | 2020 | | % |
| Interest-bearing deposit accounts | $ | 61,737 | | | 80.4 | % | | $ | 64,332 | | | 78.3 | % |
| Borrowings of consolidated securitization entities | 7,420 | | | 9.7 | % | | 9,425 | | | 11.5 | % |
| Senior unsecured notes | 7,619 | | | 9.9 | % | | 8,382 | | | 10.2 | % |
| | | | | | | |
| Total average interest-bearing liabilities | $ | 76,776 | | | 100.0 | % | | $ | 82,139 | | | 100.0 | % |
Net Interest Income
Net interest income increaseddecreased by $395$84 million, or 11.3%2.5%, and by $1,198$535 million, or 12.1%7.3%, for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, primarily driven by higher average loan receivables.the decreases in interest and fees on loans discussed above, partially offset by the decreases in interest expense.
Retailer Share Arrangements
Retailer share arrangements increased 6.3% to $805by $233 million, or 30.1%, and 3.2% to $2,158$296 million, or 17.4%, for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, driven primarily by growth and margin improvement ofdue to the programsdecrease in which we have retailer share arrangements, partially offset by higher provision for loancredit losses, associated with these programs.including lower net charge-offs, and program performance.
Provision for LoanCredit Losses
Provision for loancredit losses increaseddecreased by $324$1.9 billion, or 111.6%, and $3.2 billion, or 95.8%, for the three and six months ended June 30, 2021, respectively, primarily driven by lower reserves in the current year and lower net charge-offs. The reduction in reserves for credit losses were $878 million and $1.2 billion for the three and six months ended June 30, 2021, respectively.
Other Income
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Interchange revenue | $ | 223 | | | $ | 134 | | | $ | 394 | | | $ | 295 | |
| Debt cancellation fees | 66 | | | 69 | | | 135 | | | 138 | |
| Loyalty programs | (247) | | | (134) | | | (426) | | | (292) | |
| Other | 47 | | | 26 | | | 117 | | | 51 | |
| Total other income | $ | 89 | | | $ | 95 | | | $ | 220 | | | $ | 192 | |
Other income decreased by $6 million, or 32.9%6.3%, for the three months ended SeptemberJune 30, 2017,2021, primarily duedriven by higher loyalty program costs during the period related to higher net charge-offs and loan receivables growth. Provision for loan lossespurchase volume, partially offset by an increase in interchange revenue. Other income increased by $1,032$28 million, or 35.5%14.6%, for the ninesix months ended SeptemberJune 30, 2017,2021, primarily due todriven by an increase in net charge-offsinterchange revenue and gains related to investment securities, partially offset by higher loan loss reserve.loyalty costs.
Our allowance coverage ratio increased to 6.97% at September 30, 2017, as compared to 5.82% at September 30, 2016, reflecting the increase in forecasted losses inherent in our loan portfolio.
Other IncomeExpense
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Employee costs | $ | 359 | | | $ | 327 | | | $ | 723 | | | $ | 651 | |
| Professional fees | 189 | | | 189 | | | 379 | | | 386 | |
| Marketing and business development | 114 | | | 91 | | | 209 | | | 202 | |
| Information processing | 137 | | | 116 | | | 268 | | | 239 | |
| Other | 149 | | | 263 | | | 301 | | | 510 | |
| Total other expense | $ | 948 | | | $ | 986 | | | $ | 1,880 | | | $ | 1,988 | |
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Interchange revenue | $ | 164 |
| | $ | 154 |
| | $ | 474 |
| | $ | 435 |
|
| Debt cancellation fees | 67 |
| | 67 |
| | 203 |
| | 194 |
|
| Loyalty programs | (168 | ) | | (145 | ) | | (511 | ) | | (390 | ) |
| Other | 13 |
| | 8 |
| | 60 |
| | 20 |
|
| Total other income | $ | 76 |
| | $ | 84 |
| | $ | 226 |
| | $ | 259 |
|
Other incomeexpense decreased by $8$38 million, or 9.5%3.9%, and by $33$108 million, or 12.7%5.4%, for the three and ninesix months ended SeptemberJune 30, 2017, respectively. These decreases were2021, primarily due to higher loyalty costs,driven by lower other expense, partially offset by increased interchange revenue driven by increased purchase volume outside of our retail partners' sales channels. The decrease for the nine months ended September 30, 2017 was also partially offset by a pre-tax gain of $18 million associated with the sale of contractual relationships related to processing of general purpose card transactions for certain merchants.
Other Expense
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Employee costs | $ | 335 |
| | $ | 311 |
| | $ | 981 |
| | $ | 892 |
|
| Professional fees | 161 |
| | 174 |
| | 470 |
| | 474 |
|
| Marketing and business development | 124 |
| | 92 |
| | 342 |
| | 293 |
|
| Information processing | 96 |
| | 87 |
| | 274 |
| | 250 |
|
| Other | 242 |
| | 195 |
| | 710 |
| | 589 |
|
| Total other expense | $ | 958 |
| | $ | 859 |
| | $ | 2,777 |
| | $ | 2,498 |
|
Other expense increased by $99 million, or 11.5%, and by $279 million, or 11.2%, for the three and nine months ended September 30, 2017, respectively, primarily due to increases in employee costs, marketing and business development and other expenses.information processing.
The "other" component decreased primarily due to lower operational losses. The increases in employee costs werewas primarily due to new employees added to support the continued growth of the business and replacement of certain third-party services. Marketinghigher stock-based compensation expense. The increases in marketing and business development expense increasedwas primarily due to strategic investments in our sales platforms, card re-issuances for somethe timing of our partner programs and increased marketingprogram spend aligned with the lifting of remaining government restrictions on in-person retail deposits.experiences. The increases in "other" wereinformation processing was primarily driven bydue to higher operational losses and business growth.software costs.
Provision for Income Taxes
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 | ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Effective tax rate | 36.9 | % | | 37.3 | % | | 36.7 | % | | 37.1 | % | Effective tax rate | 24.3 | % | | 18.6 | % | | 23.3 | % | | 24.3 | % |
| Provision for income taxes | $ | 324 |
| | $ | 359 |
| | $ | 899 |
| | $ | 987 |
| Provision for income taxes | $ | 399 | | | $ | 11 | | | $ | 689 | | | $ | 107 | |
The effective tax rate for the three and nine months ended SeptemberJune 30, 20172021 increased compared to the same period in the prior year primarily due to significantly lower pre-tax income in the prior year, which led to a larger impact related to discrete tax benefits. The effective tax rate for the six months ended June 30, 2021 decreased compared to the same periodsperiod in the prior year primarily due to the impactresolution of research and development credits recordedcertain tax matters in the current year periods. In each periodyear. For both periods presented, the effective tax rate differs from the applicable U.S. federal statutory tax rate of 35% primarily due to state income taxes.
Platform Analysis
As discussed above under “—Our Sales Platforms,” we now offer our credit products primarily through threefive sales platforms (Retail Card, Payment Solutions(Home & Auto, Digital, Diversified & Value, Health & Wellness and CareCredit)Lifestyle), which management measures based on their revenue-generating activities. The following is a discussion of certain supplemental information for the three and ninesix months ended SeptemberJune 30, 2017,2021, for each of our five sales platforms.platforms and Corp, Other.
Home & Auto
Retail Card | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Purchase volume | $ | 12,209 | | | $ | 9,729 | | | $ | 22,124 | | | $ | 18,833 | |
| Period-end loan receivables | $ | 26,111 | | | $ | 25,875 | | | $ | 26,111 | | | $ | 25,875 | |
| Average loan receivables, including held for sale | $ | 25,624 | | | $ | 25,792 | | | $ | 25,704 | | | $ | 26,396 | |
| Average active accounts (in thousands) | 17,958 | | | 18,213 | | | 17,906 | | | 18,465 | |
| | | | | | | |
| Interest and fees on loans | $ | 1,014 | | | $ | 1,079 | | | $ | 2,073 | | | $ | 2,250 | |
| Other income | $ | 15 | | | $ | 20 | | | $ | 30 | | | $ | 32 | |
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Purchase volume | $ | 26,347 |
| | $ | 25,285 |
| | $ | 76,400 |
| | $ | 72,246 |
|
| Period-end loan receivables | $ | 52,119 |
| | $ | 48,010 |
| | $ | 52,119 |
| | $ | 48,010 |
|
| Average loan receivables | $ | 51,817 |
| | $ | 47,274 |
| | $ | 51,002 |
| | $ | 46,119 |
|
| Average active accounts (in thousands) | 54,471 |
| | 52,959 |
| | 54,639 |
| | 52,834 |
|
| | | | | | | | |
| Interest and fees on loans | $ | 3,102 |
| | $ | 2,790 |
| | $ | 8,890 |
| | $ | 7,989 |
|
| Retailer share arrangements | $ | (795 | ) | | $ | (752 | ) | | $ | (2,133 | ) | | $ | (2,069 | ) |
| Other income | $ | 61 |
| | $ | 70 |
| | $ | 163 |
| | $ | 218 |
|
Retail CardDigital
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Purchase volume | $ | 10,930 | | | $ | 8,439 | | | $ | 20,270 | | | $ | 15,833 | |
| Period-end loan receivables | $ | 19,233 | | | $ | 18,945 | | | $ | 19,233 | | | $ | 18,945 | |
| Average loan receivables, including held for sale | $ | 18,783 | | | $ | 19,062 | | | $ | 19,108 | | | $ | 19,408 | |
| Average active accounts (in thousands) | 17,258 | | | 16,414 | | | 17,298 | | | 16,462 | |
| | | | | | | |
| Interest and fees on loans | $ | 891 | | | $ | 913 | | | $ | 1,794 | | | $ | 1,910 | |
| Other income | $ | (28) | | | $ | (8) | | | $ | (40) | | | $ | (12) | |
Digital interest and fees on loans decreased by $22 million, or 2.4%, and $116 million, or 6.1%, for the three and six months ended June 30, 2021, primarily driven by lower loan receivables yield as a result of higher payment rates.
Other income decreased by $20 million, or 250.0%, and $28 million, or 233.3%, for the three and six months ended June 30, 2021, primarily driven by higher program loyalty costs associated with the increase in purchase volume.
Diversified & Value
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Purchase volume | $ | 11,618 | | | $ | 7,683 | | | $ | 20,838 | | | $ | 17,084 | |
| Period-end loan receivables | $ | 14,357 | | | $ | 15,177 | | | $ | 14,357 | | | $ | 15,177 | |
| Average loan receivables, including held for sale | $ | 14,101 | | | $ | 15,425 | | | $ | 14,336 | | | $ | 16,485 | |
| Average active accounts (in thousands) | 17,301 | | | 16,626 | | | 17,446 | | | 18,806 | |
| | | | | | | |
| Interest and fees on loans | $ | 729 | | | $ | 849 | | | $ | 1,518 | | | $ | 1,897 | |
| Other income | $ | (2) | | | $ | 17 | | | $ | 3 | | | $ | 32 | |
Diversified & Value interest and fees on loans decreased by $120 million, or 14.1%, and $379 million, or 20.0%, for the three and six months ended June 30, 2021, primarily driven by lower average loan receivables reflecting the impact of store closures in 2020, as well as prior year government restrictions and higher payment rates.
Health & Wellness
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Purchase volume | $ | 2,988 | | | $ | 1,952 | | | $ | 5,636 | | | $ | 4,611 | |
| Period-end loan receivables | $ | 9,515 | | | $ | 9,222 | | | $ | 9,515 | | | $ | 9,222 | |
| Average loan receivables, including held for sale | $ | 9,334 | | | $ | 9,387 | | | $ | 9,387 | | | $ | 9,823 | |
| Average active accounts (in thousands) | 5,585 | | | 5,966 | | | 5,642 | | | 6,153 | |
| | | | | | | |
| Interest and fees on loans | $ | 523 | | | $ | 535 | | | $ | 1,081 | | | $ | 1,132 | |
| Other income | $ | 36 | | | $ | 23 | | | $ | 76 | | | $ | 48 | |
Health & Wellness interest and fees on loans decreased by $12 million, or 2.2%, for the three months ended June 30, 2021, primarily driven by lower loan receivables yield as a result of higher payment rates. Interest and fees on loans decreased $51 million, or 4.5%, for the six months ended June 30, 2021, primarily driven by lower average loan receivables.
Other income increased by $13 million, or 56.5%, and $28 million, or 58.3%, for the three and six months ended June 30, 2021, respectively, primarily due to commission fees earned by Pets Best.
Lifestyle
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Purchase volume | $ | 1,405 | | | $ | 1,286 | | | $ | 2,559 | | | $ | 2,283 | |
| Period-end loan receivables | $ | 5,158 | | | $ | 4,718 | | | $ | 5,158 | | | $ | 4,718 | |
| Average loan receivables, including held for sale | $ | 5,050 | | | $ | 4,551 | | | $ | 5,027 | | | $ | 4,607 | |
| Average active accounts (in thousands) | 2,442 | | | 2,462 | | | 2,510 | | | 2,634 | |
| | | | | | | |
| Interest and fees on loans | $ | 182 | | | $ | 172 | | | $ | 363 | | | $ | 367 | |
| Other income | $ | 6 | | | $ | 4 | | | $ | 11 | | | $ | 9 | |
Lifestyle interest and fees on loans increased by $312$10 million, or 11.2%5.8%, for the three months ended June 30, 2021, primarily driven by an increase in average loan receivables reflecting continued strength in power sports. Interest and fees on loans decreased slightly by $4 million, or 1.1%, for the six months ended June 30, 2021, primarily driven by lower late fees and lower merchant discount, largely offset by an increase in average loan receivables.
Corp, Other
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Purchase volume | $ | 2,971 | | | $ | 2,066 | | | $ | 5,443 | | | $ | 4,553 | |
| Period-end loan receivables | $ | 4,000 | | | $ | 4,376 | | | $ | 4,000 | | | $ | 4,376 | |
| Average loan receivables, including held for sale | $ | 3,929 | | | $ | 4,480 | | | $ | 4,023 | | | $ | 4,844 | |
| Average active accounts (in thousands) | 5,266 | | | 5,155 | | | 5,361 | | | 5,881 | |
| | | | | | | |
| Interest and fees on loans | $ | 228 | | | $ | 260 | | | $ | 470 | | | $ | 592 | |
| Other income | $ | 62 | | | $ | 39 | | | $ | 140 | | | $ | 83 | |
Corp, Other interest and fees on loans decreased by $32 million, or 12.3%, and by $901$122 million, or 11.3%20.6%, for the three and ninesix months ended SeptemberJune 30, 2017, respectively. These increases were2021, primarily the result of growth indriven by lower average loan receivables.
Retailer share arrangementsOther income increased by $43$23 million, or 5.7%59.0%, and by $64$57 million, or 3.1%,68.7% for the three and ninesix months ended SeptemberJune 30, 2017, respectively,2021, primarily as a result of the factors discussed under the heading “Retailer Share Arrangements” above.due to gains related to investment securities.
Other income decreased by $9 million, or 12.9%, and by $55 million, or 25.2%, for the three and nine months ended September 30, 2017, respectively, primarily as a result of higher loyalty costs, partially offset by increased interchange revenue driven by increased purchase volume outside of our retail partners' sales channels.
Payment Solutions
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Purchase volume | $ | 4,178 |
| | $ | 4,152 |
| | $ | 11,794 |
| | $ | 11,447 |
|
| Period-end loan receivables | $ | 16,153 |
| | $ | 14,798 |
| | $ | 16,153 |
| | $ | 14,798 |
|
| Average loan receivables | $ | 15,848 |
| | $ | 14,367 |
| | $ | 15,538 |
| | $ | 13,786 |
|
| Average active accounts (in thousands) | 9,183 |
| | 8,461 |
| | 9,108 |
| | 8,261 |
|
| | | | | | | | |
| Interest and fees on loans | $ | 559 |
| | $ | 505 |
| | $ | 1,607 |
| | $ | 1,429 |
|
| Retailer share arrangements | $ | (9 | ) | | $ | (3 | ) | | $ | (19 | ) | | $ | (17 | ) |
| Other income | $ | 2 |
| | $ | 3 |
| | $ | 12 |
| | $ | 10 |
|
Payment Solutions interest and fees on loans increased by $54 million, or 10.7%, and by $178 million, or 12.5%, for the three and nine months ended September 30, 2017, respectively. These increases were primarily driven by growth in average loan receivables.
CareCredit
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Purchase volume | $ | 2,368 |
| | $ | 2,178 |
| | $ | 7,055 |
| | $ | 6,406 |
|
| Period-end loan receivables | $ | 8,656 |
| | $ | 7,836 |
| | $ | 8,656 |
| | $ | 7,836 |
|
| Average loan receivables | $ | 8,500 |
| | $ | 7,675 |
| | $ | 8,263 |
| | $ | 7,459 |
|
| Average active accounts (in thousands) | 5,677 |
| | 5,219 |
| | 5,572 |
| | 5,109 |
|
| | | | | | | | |
| Interest and fees on loans | $ | 521 |
| | $ | 476 |
| | $ | 1,489 |
| | $ | 1,345 |
|
| Retailer share arrangements | $ | (1 | ) | | $ | (2 | ) | | $ | (6 | ) | | $ | (5 | ) |
| Other income | $ | 13 |
| | $ | 11 |
| | $ | 51 |
| | $ | 31 |
|
CareCredit interest and fees on loans increased by $45 million, or 9.5%, and by $144 million, or 10.7%, for the three and nine months ended September 30, 2017, respectively. These increases were primarily driven by growth in average loan receivables.
Investment Securities
The following discussion provides supplemental information regarding our investment securities portfolio. All of our investment securities are classified as available-for-sale at September 30, 2017 and December 31, 2016, and are held to meet our liquidity objectives and to comply with the Community Reinvestment Act. Investment securities classified as available-for-sale are reported in our Condensed Consolidated Statements of Financial Position at fair value.
The following table sets forth the amortized cost and fair value of our portfolio of investment securities at the dates indicated:
|
| | | | | | | | | | | | | | | |
| | At September 30, 2017 | | At December 31, 2016 |
| ($ in millions) | Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
| Debt: | | | | | | | |
| U.S. government and federal agency | $ | 1,725 |
| | $ | 1,725 |
| | $ | 3,676 |
| | $ | 3,676 |
|
| State and municipal | 44 |
| | 44 |
| | 47 |
| | 46 |
|
| Residential mortgage-backed | 1,321 |
| | 1,302 |
| | 1,400 |
| | 1,373 |
|
| Asset-backed | 231 |
| | 231 |
| | — |
| | — |
|
| Equity | 15 |
| | 15 |
| | 15 |
| | 15 |
|
| Total | $ | 3,336 |
| | $ | 3,317 |
| | $ | 5,138 |
| | $ | 5,110 |
|
Unrealized gains and losses, net of the related tax effects, on available-for-sale securities that are not other-than-temporarily impaired are excluded from earnings and are reported as a separate component of comprehensive income (loss) until realized. At September 30, 2017, our investment securities had gross unrealized gains of $3 million and gross unrealized losses of $22 million. At December 31, 2016, our investment securities had gross unrealized gains of $3 million and gross unrealized losses of $31 million.
Our investment securities portfolio had the following maturity distribution at September 30, 2017. Equity securities have been excluded from the table because they do not have a maturity.
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Due in 1 Year or Less | | Due After 1 through 5 Years | | Due After 5 through 10 Years | | Due After 10 years | | Total |
| Debt: | | | | | | | | | |
| U.S. government and federal agency | $ | 1,450 |
| | $ | 275 |
| | $ | — |
| | $ | — |
| | $ | 1,725 |
|
| State and municipal | — |
| | — |
| | 2 |
| | 42 |
| | 44 |
|
| Residential mortgage-backed | — |
| | — |
| | — |
| | 1,302 |
| | 1,302 |
|
| Asset-backed | 160 |
| | 71 |
| | — |
| | — |
| | 231 |
|
Total(1) | $ | 1,610 |
| | $ | 346 |
| | $ | 2 |
| | $ | 1,344 |
| | $ | 3,302 |
|
Weighted average yield(2) | 0.9 | % | | 1.7 | % | | 3.3 | % | | 2.8 | % | | 1.8 | % |
______________________
| |
(1) | Amounts stated represent estimated fair value. |
| |
(2) | Weighted average yield is calculated based on the amortized cost of each security. In calculating yield, no adjustment has been made with respect to any tax-exempt obligations. |
At September 30, 2017, we did not hold investments in any single issuer with an aggregate book value that exceeded 10% of equity, excluding obligations of the U.S. government.
Loan Receivables
The following discussion provides supplemental information regarding our loan receivables portfolio.
Loan receivables are our largest category of assets and represent our primary source of revenue. The following discussion provides supplemental information regarding our loan receivables portfolio. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 4. Loan Receivables and Allowance for Credit Losses to our condensed consolidated financial statements for additional information related to our Loan Receivables, including troubled debt restructurings (“TDR’s”).
The following table sets forth the composition of our loan receivables portfolio by product type at the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | At June 30, 2021 | | (%) | | At December 31, 2020 | | (%) |
| Loans | | | | | |
| Credit cards | $ | 74,429 | | | 95.0 | % | | $ | 78,455 | | | 95.9 | % |
| Consumer installment loans | 2,507 | | | 3.2 | % | | 2,125 | | | 2.6 | |
| Commercial credit products | 1,379 | | | 1.7 | % | | 1,250 | | | 1.5 | |
| Other | 59 | | | 0.1 | % | | 37 | | | — | |
| Total loans | $ | 78,374 | | | 100.0 | % | | $ | 81,867 | | | 100.0 | % |
|
| | | | | | | | | | | | | |
| ($ in millions) | At September 30, 2017 | | (%) | | At December 31, 2016 | | (%) |
| Loans | | | | | |
| Credit cards | $ | 73,946 |
| | 96.2 | % | | $ | 73,580 |
| | 96.4 | % |
| Consumer installment loans | 1,561 |
| | 2.0 |
| | 1,384 |
| | 1.8 |
|
| Commercial credit products | 1,384 |
| | 1.8 |
| | 1,333 |
| | 1.7 |
|
| Other | 37 |
| | — |
| | 40 |
| | 0.1 |
|
| Total loans | $ | 76,928 |
| | 100.0 | % | | $ | 76,337 |
| | 100.0 | % |
Loan receivables increased slightly by $591 million, or 0.8%,to $78.4 billion at SeptemberJune 30, 20172021 compared to December 31, 2016, primarily driven by business growth partially offset by the impacts from the seasonality of our business.
Loan receivables increased by $6,284 million, or 8.9%,$78.3 billion at SeptemberJune 30, 2017 compared to September 30, 2016,2020, primarily driven by higher purchase volume, and average active account growth.
offset by the impacts of improvements in customer payment behavior.
Our loan receivables portfolio had the following geographic concentration at SeptemberJune 30, 2017.2021.
|
| | | | | | | |
| ($ in millions) | | Loan Receivables Outstanding | | % of Total Loan Receivables Outstanding |
| State | |
| Texas | | $ | 7,880 |
| | 10.2 | % |
| California | | $ | 7,751 |
| | 10.1 | % |
| Florida | | $ | 6,302 |
| | 8.2 | % |
| New York | | $ | 4,320 |
| | 5.6 | % |
| Pennsylvania | | $ | 3,246 |
| | 4.2 | % |
Impaired Loans and Troubled Debt Restructurings
Our loss mitigation strategy is intended to minimize economic loss and at times can result in rate reductions, principal forgiveness, extensions or other actions, which may cause the related loan to be classified as a Troubled Debt Restructuring (“TDR”) and also be impaired. We use long-term modification programs for borrowers experiencing financial difficulty as a loss mitigation strategy to improve long-term collectability of the loans that are classified as TDRs. The long-term program involves changing the structure of the loan to a fixed payment loan with a maturity no longer than 60 months and reducing the interest rate on the loan. The long-term program does not normally provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee assessments. We also make loan modifications for some customers who request financial assistance through external sources, such as a consumer credit counseling agency program. The loans that are modified typically receive a reduced interest rate but continue to be subject to the original minimum payment terms and do not normally include waiver of unpaid principal, interest or fees. The determination of whether these changes to the terms and conditions meet the TDR criteria includes our consideration of all relevant facts and circumstances.
Loans classified as TDRs are recorded at their present value with impairment measured as the difference between the loan balance and the discounted present value of cash flows expected to be collected, discounted at the original effective interest rate of the loan.
Interest income from loans accounted for as TDRs is accounted for in the same manner as other accruing loans. We accrue interest on credit card balances until the accounts are charged-off in the period the accounts become 180 days past due. The following table presents the amount of loan receivables that are not accruing interest, loans that are 90 days or more past-due and still accruing interest, and earning TDRs for the periods presented.
|
| | | | | | | |
| ($ in millions) | At September 30, 2017 | | At December 31, 2016 |
| Non-accrual loan receivables | $ | 4 |
| | $ | 4 |
|
| Loans contractually 90 days past-due and still accruing interest | 1,703 |
| | 1,542 |
|
Earning TDRs(1) | 902 |
| | 802 |
|
| Non-accrual, past-due and restructured loan receivables | $ | 2,609 |
| | $ | 2,348 |
|
______________________
| |
(1) | At September 30, 2017 and December 31, 2016, balances exclude $84 million and $66 million, respectively, of TDRs which are included in loans contractually 90 days past-due and still accruing interest on the balance. See Note 4. Loan Receivables and Allowance for Loan Losses to our condensed consolidated financial statements for additional information on the financial effects of TDRs for the three and nine months ended September 30, 2017 and 2016.
|
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Gross amount of interest income that would have been recorded in accordance with the original contractual terms | $ | 58 |
| | $ | 46 |
| | $ | 162 |
| | $ | 131 |
|
| Interest income recognized | 13 |
| | 12 |
| | 36 |
| | 36 |
|
| Total interest income foregone | $ | 45 |
| | $ | 34 |
| | $ | 126 |
| | $ | 95 |
|
| | | | | | | | | | | |
| ($ in millions) | Loan Receivables
Outstanding | | % of Total Loan
Receivables
Outstanding |
| State |
| Texas | $ | 8,124 | | | 10.4 | % |
| California | $ | 8,036 | | | 10.3 | % |
| Florida | $ | 6,849 | | | 8.7 | % |
| New York | $ | 4,260 | | | 5.4 | % |
| North Carolina | $ | 3,237 | | | 4.1 | % |
Delinquencies
Over-30 day loan delinquencies as a percentage of period-end loan receivables increaseddecreased to 4.80%2.11% at SeptemberJune 30, 20172021 from 4.26%3.13% at SeptemberJune 30, 2016,2020, and increaseddecreased from 4.32%3.07% at December 31, 2016.2020. The 54 basis point increasedecrease compared to the same period in the prior year period was primarily driven by the factors discussedan improvement in "Business Trends and Conditions — Stable Asset Quality" in our 2016 Form 10-K.customer payment behavior. The increasecurrent quarter decrease as compared to December 31, 2016, was primarily driven by the various factors referenced above, partially offset by2020 reflects these same improvements as well as the seasonality of our business.
Net Charge-Offs
Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine are uncollectible, net of recovered amounts. We exclude accrued and unpaid finance charges and fees and third-party fraud losses from charge-offs. Charged-off and recovered finance charges and fees are included in interest and fees on loans while third-party fraud losses are included in other expense. Charge-offs are recorded as a reduction to the allowance for loancredit losses and subsequent recoveries of previously charged-off amounts are credited to the allowance for loancredit losses. Costs incurred to recover charged-off loans are recorded as collection expense and included in other expense in our Condensed Consolidated Statements of Earnings.
The table below sets forth the ratio of net charge-offs to average loan receivables, including held for sale, (“net charge-off rate”) for the periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Net charge-off rate | 3.57 | % | | 5.35 | % | | 3.59 | % | | 5.35 | % |
|
| | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Ratio of net charge-offs to average loan receivables, including held for sale | 4.95 | % | | 4.39 | % | | 5.23 | % | | 4.54 | % |
Allowance for LoanCredit Losses
The allowance for loancredit losses totaled $5,361 million$9.0 billion at SeptemberJune 30, 20172021, compared with $4,344 millionto $10.3 billion at December 31, 20162020 and $4,115 million$9.8 billion at SeptemberJune 30, 2016, representing2020, and reflects our best estimate of probableexpected credit losses inherent infor the portfolio. life of the loan receivables on our consolidated statement of financial position.
Our allowance for loancredit losses as a percentage of total loan receivables increaseddecreased to 6.97%11.51% at SeptemberJune 30, 2017,2021, from 5.69%12.54% at December 31, 20162020 and 5.82%from 12.52% at SeptemberJune 30, 2016,2020.
The decrease compared to June 30, 2020 is primarily driven by improvements in customer payment behavior, which resulted in a reduction in our estimate of expected credit losses. The decrease compared to December 31, 2020 reflects the increase in forecasted net charge-offs overlower reserves, partially offset by the next twelve months. See "Business Trends and Conditions — Stable Asset Quality" inseasonality of our 2016 Form 10-K for discussion of the various factors that contribute to forecasted net charge-offs over the next twelve months.business.
The following tables provide changes in our allowance for loan losses for the periods presented:
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Balance at July 1, 2017 |
| | Provision charged to operations |
| | Gross charge-offs |
| | Recoveries |
| | Balance at
September 30, 2017 |
|
| | | | | | | | | | |
| Credit cards | $ | 4,906 |
| | $ | 1,287 |
| | $ | (1,140 | ) | | $ | 211 |
| | $ | 5,264 |
|
| Consumer installment loans | 34 |
| | 14 |
| | (12 | ) | | 3 |
| | 39 |
|
| Commercial credit products | 60 |
| | 9 |
| | (14 | ) | | 2 |
| | 57 |
|
| Other | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
| Total | $ | 5,001 |
| | $ | 1,310 |
| | $ | (1,166 | ) | | $ | 216 |
| | $ | 5,361 |
|
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Balance at July 1, 2016 |
| | Provision charged to operations |
| | Gross charge-offs |
| | Recoveries |
| | Balance at
September 30, 2016 |
|
| | | | | | | | | | |
| Credit cards | $ | 3,800 |
| | $ | 964 |
| | $ | (919 | ) | | $ | 172 |
| | $ | 4,017 |
|
| Consumer installment loans | 39 |
| | 11 |
| | (11 | ) | | 4 |
| | 43 |
|
| Commercial credit products | 53 |
| | 12 |
| | (13 | ) | | 2 |
| | 54 |
|
| Other | 2 |
| | (1 | ) | | — |
| | — |
| | $ | 1 |
|
| Total | $ | 3,894 |
| | $ | 986 |
| | $ | (943 | ) | | $ | 178 |
| | $ | 4,115 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| ($ in millions) | Balance at January 1, 2017 |
| | Provision charged to operations |
| | Gross charge-offs |
| | Recoveries |
| | Balance at September 30, 2017 |
|
| | |
| Credit cards | $ | 4,254 |
| | $ | 3,866 |
| | $ | (3,518 | ) | | $ | 662 |
| | $ | 5,264 |
|
| Consumer installment loans | 37 |
| | 28 |
| | (37 | ) | | 11 |
| | 39 |
|
| Commercial credit products | 52 |
| | 48 |
| | (48 | ) | | 5 |
| | 57 |
|
| Other | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
| Total | $ | 4,344 |
| | $ | 3,942 |
| | $ | (3,603 | ) | | $ | 678 |
| | $ | 5,361 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | Balance at January 1, 2016 |
| | Provision charged to operations |
| | Gross charge- offs |
| | Recoveries |
| | Balance at
September 30, 2016 |
|
| ($ in millions) | |
| Credit cards | $ | 3,420 |
| | $ | 2,836 |
| | $ | (2,820 | ) | | $ | 581 |
| | $ | 4,017 |
|
| Consumer installment loans | 26 |
| | 38 |
| | (31 | ) | | 10 |
| | 43 |
|
| Commercial credit products | 50 |
| | 36 |
| | (39 | ) | | 7 |
| | 54 |
|
| Other | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
| Total | $ | 3,497 |
| | $ | 2,910 |
| | $ | (2,890 | ) | | $ | 598 |
| | $ | 4,115 |
|
Funding, Liquidity and Capital Resources
We maintain a strong focus on liquidity and capital. Our funding, liquidity and capital policies are designed to ensure that our business has the liquidity and capital resources to support our daily operations, our business growth, our credit ratings and our regulatory and policy requirements, in a cost effective and prudent manner through expected and unexpected market environments.
Funding Sources
Our primary funding sources include cash from operations, deposits (direct and brokered deposits), securitized financings and third-party debt.senior unsecured notes.
The following table summarizes information concerning our funding sources during the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| Three months ended June 30 ($ in millions) | Average
Balance | | % | | Average
Rate | | Average
Balance | | % | | Average
Rate |
Deposits(1) | $ | 60,761 | | | 80.8 | % | | 1.0 | % | | $ | 64,298 | | | 79.3 | % | | 1.8 | % |
| Securitized financings | 7,149 | | | 9.5 | | | 2.5 | | | 8,863 | | | 10.9 | | | 2.7 | |
| Senior unsecured notes | 7,276 | | | 9.7 | | | 4.2 | | | 7,958 | | | 9.8 | | | 4.1 | |
| | | | | | | | | | | |
| Total | $ | 75,186 | | | 100.0 | % | | 1.4 | % | | $ | 81,119 | | | 100.0 | % | | 2.2 | % |
______________________ (1)Excludes $349 million and $309 million average balance of non-interest-bearing deposits for the three months ended June 30, 2021 and 2020, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the three months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| Six months ended June 30 ($ in millions) | Average
Balance | | % | | Average
Rate | | Average
Balance | | % | | Average
Rate |
Deposits(1) | $ | 61,737 | | | 80.4 | % | | 1.0 | % | | $ | 64,332 | | | 78.3 | % | | 2.0 | % |
| Securitized financings | 7,420 | | | 9.7 | | | 2.6 | | | 9,425 | | | 11.5 | | | 2.8 | |
| Senior unsecured notes | 7,619 | | | 9.9 | | | 4.2 | | | 8,382 | | | 10.2 | | | 4.1 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | $ | 76,776 | | | 100.0 | % | | 1.5 | % | | $ | 82,139 | | | 100.0 | % | | 2.3 | % |
______________________(1)Excludes $348 million and $304 million average balance of non-interest-bearing deposits for the six months ended June 30, 2021 and 2020, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the six months ended June 30, 2021 and 2020.
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| Three months ended September 30 ($ in millions) | Average Balance | | % | | Average Rate | | Average Balance | | % | | Average Rate |
Deposits(1) | $ | 53,294 |
| | 72.7 | % | | 1.6 | % | | $ | 47,895 |
| | 70.9 | % | | 1.6 | % |
| Securitized financings | 11,759 |
| | 16.0 |
| | 2.2 |
| | 12,254 |
| | 18.1 |
| | 2.0 |
|
| Senior unsecured notes | 8,251 |
| | 11.3 |
| | 3.5 |
| | 7,448 |
| | 11.0 |
| | 3.4 |
|
| Total | $ | 73,304 |
| | 100.0 | % | | 1.9 | % | | $ | 67,597 |
| | 100.0 | % | | 1.9 | % |
22
______________________ | |
(1) | Excludes $232 million and $204 million average balance of non-interest-bearing deposits for the three months ended September 30, 2017 and 2016, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the three months ended September 30, 2017 and 2016. |
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| Nine months ended September30 ($ in millions) | Average Balance | | % | | Average Rate | | Average Balance | | % | | Average Rate |
Deposits(1) | $ | 52,325 |
| | 72.3 | % | | 1.6 | % | | $ | 45,915 |
| | 69.5 | % | | 1.6 | % |
| Securitized financings | 12,096 |
| | 16.7 |
| | 2.1 |
| | 12,441 |
| | 18.9 |
| | 1.9 |
|
| Senior unsecured notes | 7,983 |
| | 11.0 |
| | 3.5 |
| | 6,957 |
| | 10.5 |
| | 3.4 |
|
| Bank term loan | — |
| | — |
| | — |
| | 742 |
| | 1.1 |
| | 5.6 |
|
| Total | $ | 72,404 |
| | 100.0 | % | | 1.9 | % | | $ | 66,055 |
| | 100.0 | % | | 1.9 | % |
______________________ | |
(1) | Excludes $230 million and $215 million average balance of non-interest-bearing deposits for the nine months ended September 30, 2017 and 2016, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the nine months ended September 30, 2017 and 2016. |
Deposits
We obtain deposits directly from retail and commercial customers (“direct deposits”) or through third-party brokerage firms that offer our deposits to their customers (“brokered deposits”). At SeptemberJune 30, 2017,2021, we had $41.6$50.3 billion in direct deposits (which includes deposits from banks and financial institutions) and $12.9$9.5 billion in deposits originated through brokerage firms (including network deposit sweeps procured through a program arranger that channels brokerage account deposits to us). A key part of our liquidity plan and funding strategy is to continue to expandutilize our direct deposits base as a source of stable and diversified low costlow-cost funding.
Our direct deposits include a range of FDIC-insured deposit products, including certificates of deposit, IRAs, money market accounts and savings accounts.
Brokered deposits are primarily from retail customers of large brokerage firms. We have relationships with 1011 brokers that offer our deposits through their networks. Our brokered deposits consist primarily of certificates of deposit that bear interest at a fixed rate and at SeptemberJune 30, 2017,2021, had a weighted average remaining life of 2.82.4 years. These deposits generally are not subject to early withdrawal.
Our ability to attract deposits is sensitive to, among other things, the interest rates we pay, and therefore, we bear funding risk if we fail to pay higher rates, or interest rate risk if we are required to pay higher rates, to retain existing deposits or attract new deposits. To mitigate these risks, our funding strategy includes a range of deposit products, and we seek to maintain access to multiple other funding sources, including securitized financings (including our undrawn committed capacity) and unsecured debt.
The following table summarizes certain information regarding our interest-bearing deposits by type (all of which constitute U.S. deposits) for the periods indicated:
| | | Three months ended September 30 ($ in millions) | 2017 | | 2016 | |
Average Balance | | % of Total | | Average Rate | | Average Balance | | % of Total | | Average Rate | |
| Three months ended June 30 ($ in millions) | | Three months ended June 30 ($ in millions) | 2021 | | 2020 |
| Average
Balance | | % | | Average
Rate | | Average
Balance | | % | | Average
Rate |
| Direct deposits: | | | | | | | | | | | | Direct deposits: | | | | | | | | | | | |
| Certificates of deposit (including IRA certificates of deposit) | $ | 23,331 |
| | 43.8 | % | | 1.6 | % | | $ | 20,256 |
| | 42.3 | % | | 1.6 | % | Certificates of deposit
(including IRA certificates of deposit) | $ | 22,352 | | | 36.8 | % | | 1.3 | % | | $ | 31,806 | | | 49.5 | % | | 2.2 | % |
| Savings accounts (including money market accounts) | 17,522 |
| | 32.9 |
| | 1.2 |
| | 14,658 |
| | 30.6 |
| | 1.0 |
| Savings accounts
(including money market accounts) | 28,391 | | | 46.7 | | | 0.5 | | | 21,023 | | | 32.7 | | | 1.3 | |
| Brokered deposits | 12,441 |
| | 23.3 |
| | 2.3 |
| | 12,981 |
| | 27.1 |
| | 2.2 |
| Brokered deposits | 10,018 | | | 16.5 | | | 1.6 | | | 11,469 | | | 17.8 | | | 1.8 | |
| Total interest-bearing deposits | $ | 53,294 |
| | 100.0 | % | | 1.6 | % | | $ | 47,895 |
| | 100.0 | % | | 1.6 | % | Total interest-bearing deposits | $ | 60,761 | | | 100.0 | % | | 1.0 | % | | $ | 64,298 | | | 100.0 | % | | 1.8 | % |
| | | | | | | | | | | | | | | |
| Nine months ended September 30 ($ in millions) | 2017 | | 2016 | |
Average Balance | | % of Total | | Average Rate | | Average Balance | | % of Total | | Average Rate | |
| Six months ended June 30 ($ in millions) | | Six months ended June 30 ($ in millions) | 2021 | | 2020 |
| Average
Balance | | % of
Total | | Average
Rate | | Average
Balance | | % of
Total | | Average
Rate |
| Direct deposits: | | | | | | | | | | | | Direct deposits: | | | | | | | | | | | |
| Certificates of deposit (including IRA certificates of deposit) | $ | 22,138 |
| | 42.3 | % | | 1.6 | % | | $ | 19,326 |
| | 42.1 | % | | 1.5 | % | Certificates of deposit (including IRA certificates of deposit) | $ | 23,813 | | | 38.6 | % | | 1.4 | % | | $ | 32,913 | | | 51.2 | % | | 2.4 | % |
| Savings accounts (including money market accounts) | 17,492 |
| | 33.4 |
| | 1.1 |
| | 13,669 |
| | 29.8 |
| | 1.0 |
| Savings accounts (including money market accounts) | 27,603 | | | 44.7 | | | 0.5 | | | 20,333 | | | 31.6 | | | 1.5 | |
| Brokered deposits | 12,695 |
| | 24.3 |
| | 2.2 |
| | 12,920 |
| | 28.1 |
| | 2.2 |
| Brokered deposits | 10,321 | | | 16.7 | | | 1.6 | | | 11,086 | | | 17.2 | | | 2.1 | |
| Total interest-bearing deposits | $ | 52,325 |
| | 100.0 | % | | 1.6 | % | | $ | 45,915 |
| | 100.0 | % | | 1.6 | % | Total interest-bearing deposits | $ | 61,737 | | | 100.0 | % | | 0.5 | % | | $ | 64,332 | | | 100.0 | % | | 2.0 | % |
Our deposit liabilities provide funding with maturities ranging from one day to ten years. At SeptemberJune 30, 2017,2021, the weighted average maturity of our interest-bearing time deposits was 1.81.1 years. See Note 7. Deposits to our condensed consolidated financial statements for more information on their maturities.the maturities of our time deposits.
The following table summarizes deposits by contractual maturity at SeptemberJune 30, 2017.2021:
| | | ($ in millions) | 3 Months or Less | | Over 3 Months but within 6 Months | | Over 6 Months but within 12 Months | | Over 12 Months | | Total | ($ in millions) | 3 Months or
Less | | Over
3 Months
but within
6 Months | | Over
6 Months
but within
12 Months | | Over
12 Months | | Total |
U.S. deposits (less than $100,000)(1) | $ | 6,722 |
| | $ | 2,695 |
| | $ | 2,805 |
| | $ | 11,209 |
| | $ | 23,431 |
| |
| U.S. deposits ($100,000 or more) | | | | | | | | | | |
U.S. deposits (less than FDIC insurance limit)(1)(2) | | U.S. deposits (less than FDIC insurance limit)(1)(2) | $ | 29,955 | | | $ | 2,674 | | | $ | 7,465 | | | $ | 6,964 | | | $ | 47,058 | |
U.S. deposits (in excess of FDIC insurance limit)(2) | | U.S. deposits (in excess of FDIC insurance limit)(2) | |
| Direct deposits: | | | | | | | | | | Direct deposits: | |
| Certificates of deposit (including IRA certificates of deposit) | 1,745 |
| | 2,127 |
| | 4,083 |
| | 7,798 |
| | 15,753 |
| Certificates of deposit
(including IRA certificates of deposit) | 1,107 | | | 745 | | | 2,091 | | | 1,253 | | | 5,196 | |
| Savings accounts (including money market accounts) | 13,665 |
| | — |
| | — |
| | — |
| | 13,665 |
| Savings accounts
(including money market accounts) | 7,560 | | | — | | | — | | | — | | | 7,560 | |
| Brokered deposits: | | | | | | | | | | Brokered deposits: | |
| Sweep accounts | 1,605 |
| | — |
| | — |
| | — |
| | 1,605 |
| Sweep accounts | 27 | | | — | | | — | | | — | | | 27 | |
| Total | $ | 23,737 |
| | $ | 4,822 |
| | $ | 6,888 |
| | $ | 19,007 |
| | $ | 54,454 |
| Total | $ | 38,649 | | | $ | 3,419 | | | $ | 9,556 | | | $ | 8,217 | | | $ | 59,841 | |
______________________
| |
(1) | Includes brokered certificates of deposit for which underlying individual deposit balances are assumed to be less than $100,000. |
(1)Includes brokered certificates of deposit for which underlying individual deposit balances are assumed to be less than $250,000.
(2)The standard deposit insurance amount is $250,000 per depositor, for each account ownership category. Deposits in excess of FDIC insurance limit presented above include partially uninsured accounts.
Securitized Financings
We have been engaged in the securitization of our credit card receivables since 1997. We access the asset-backed securitization market using the Synchrony Credit Card Master Note Trust (“SYNCT”) and the Synchrony Card Issuance Trust (“SYNIT”) through which we may issue asset-backed securities through both public transactions and private transactions funded by financial institutions and commercial paper conduits. In addition, we issue asset-backed securities in private transactions through the Synchrony Sales Finance Master Trust (“SFT”).
The following table summarizes expected contractual maturities of the investors’ interests in securitized financings, excluding debt premiums, discounts and issuance costcosts at SeptemberJune 30, 2017.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Less Than
One Year | | One Year
Through
Three
Years | | Four Years
Through
Five
Years | | After Five
Years | | Total |
| Scheduled maturities of long-term borrowings—owed to securitization investors: | | | | | | | | | |
SYNCT(1) | $ | 1,050 | | | $ | 3,040 | | | $ | — | | | $ | — | | | $ | 4,090 | |
| SFT | 300 | | | — | | | — | | | — | | | 300 | |
SYNIT(1) | 2,600 | | | — | | | — | | | — | | | 2,600 | |
| Total long-term borrowings—owed to securitization investors | $ | 3,950 | | | $ | 3,040 | | | $ | — | | | $ | — | | | $ | 6,990 | |
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Less Than One Year | | One Year Through Three Years | | After Three Through Five Years | | After Five Years | | Total |
| Scheduled maturities of long-term borrowings—owed to securitization investors: | | | | | | | | | |
SYNCT(1) | $ | 2,833 |
| | $ | 4,760 |
| | $ | 658 |
| | $ | — |
| | $ | 8,251 |
|
| SFT | 125 |
| | 3,525 |
| | — |
| | — |
| | 3,650 |
|
| Total long-term borrowings—owed to securitization investors | $ | 2,958 |
| | $ | 8,285 |
| | $ | 658 |
| | $ | — |
| | $ | 11,901 |
|
______________________(1)Excludes any subordinated classes of SYNCT notes and SYNIT notes that we owned at June 30, 2021.
| |
(1) | Excludes subordinated classes of SYNCT notes that we own. |
We retain exposure to the performance of trust assets through: (i) in the case of SYNCT, SFT and SFT,SYNIT, subordinated retained interests in the loan receivables transferred to the trust in excess of the principal amount of the notes for a given series tothat provide credit enhancement for a particular series, as well as a pari passu seller’s interest in each trust and (ii) in the case of SYNCT and SYNIT, any subordinated classes of SYNCT notes that we own.
All of our securitized financings include early repayment triggers, referred to as early amortization events, including events related to material breaches of representations, warranties or covenants, inability or failure of the Bank to transfer loansloan receivables to the trusts as required under the securitization documents, failure to make required payments or deposits pursuant to the securitization documents, and certain insolvency-related events with respect to the related securitization depositor, Synchrony (solely with respect to SYNCT) or the Bank. In addition, an early amortization event will occur with respect to a series if the excess spread as it relates to a particular series or for the trust, as applicable, falls below zero. Following an early amortization event, principal collections on the loansloan receivables in our truststhe applicable trust are applied to repay principal of the trust's asset-backed securities rather than being available on a revolving basis to fund the origination activities of our business. The occurrence of an early amortization event also would limit or terminate our ability to issue future series out of the trust in which the early amortization event occurred. No early amortization event has occurred with respect to any of the securitized financings in SYNCT, SFT or SFT.SYNIT.
The following table summarizes for each of our trusts the three-month rolling average excess spread at SeptemberJune 30, 2017.2021.
| | | | | | | | | | Note Principal Balance
($ in millions) | | # of Series
Outstanding | | Three-Month Rolling Average Excess Spread(1) |
| | Note Principal Balance ($ in millions) | | # of Series Outstanding | | Three-Month Rolling Average Excess Spread(1) | |
SYNCT(2) | $ | 9,629 |
| | 16 |
| | ~15.1% to 16.3% |
| |
| SYNCT | | SYNCT | $ | 4,244 | | | 8 | | | ~18.2% to 20.5% |
| SFT | $ | 3,650 |
| | 10 |
| | 11.4 | % | SFT | $ | 300 | | | 5 | | | 18.5 | % |
| SYNIT | | SYNIT | $ | 2,600 | | | 1 | | | 17.2 | % |
______________________
| |
(1) | Represents the excess spread (generally calculated as interest income collected from the applicable pool of loan receivables less applicable net charge-offs, interest expense and servicing costs, divided by the aggregate principal amount of loan receivables in the applicable pool) for each trust (or, in the case of SYNCT, represents a range of the excess spreads relating to the particular series issued within the trust), in each case calculated in accordance with the applicable trust or series documentation, for the three securitization monthly periods ended September 30, 2017. |
| |
(2) | Includes subordinated classes of SYNCT notes that we own. |
Third-Party Debt(1)Represents the excess spread (generally calculated as interest income collected from the applicable pool of loan receivables less applicable net charge-offs, interest expense and servicing costs, divided by the aggregate principal amount of loan receivables in the applicable pool) for SFT or, in the case of SYNCT, a range of the excess spreads relating to the particular series issued within such trust or, in the case of SYNIT, the excess spread relating to the one outstanding series issued within such trust, in all cases omitting any series that have not been outstanding for at least three full monthly periods and calculated in accordance with the applicable trust or series documentation, for the three securitization monthly periods ended June 30, 2021.
Senior Unsecured Notes
During the six months ended June 30, 2021 we made repayments of $1.5 billion.
The following table provides a summary of our outstanding fixed rate senior unsecured notes at SeptemberJune 30, 2017.2021.
|
| | | | | | |
| ($ in millions) | | Maturity | | Principal Amount Outstanding(1) |
| Fixed rate senior unsecured notes: | | | | |
| Synchrony Financial | | | | |
| 2.600% senior unsecured notes | | January, 2019 | | $ | 1,000 |
|
| 3.000% senior unsecured notes | | August, 2019 | | 1,100 |
|
| 2.700% senior unsecured notes | | February, 2020 | | 750 |
|
| 3.750% senior unsecured notes | | August, 2021 | | 750 |
|
| 4.250% senior unsecured notes | | August, 2024 | | 1,250 |
|
| 4.500% senior unsecured notes | | July, 2025 | | 1,000 |
|
3.700% senior unsecured notes
| | August, 2026 | | 500 |
|
| Synchrony Bank | | | | |
3.000% senior unsecured notes
| | June, 2022 | | 750 |
|
| Total fixed rate senior unsecured notes | | | | $ | 7,100 |
|
| | | | | |
| Floating rate senior unsecured notes: | | | | |
| Synchrony Financial | | | | |
| Three-month LIBOR plus 1.40% senior unsecured notes | | November, 2017 | | $ | 700 |
|
| Three-month LIBOR plus 1.23% senior unsecured notes | | February, 2020 | | 250 |
|
| Total floating rate senior unsecured notes | | | | $ | 950 |
|
| | | | | | | | | | | | | | | | | | | | |
| Issuance Date | | Interest Rate(1) | | Maturity | | Principal Amount Outstanding(2) |
| ($ in millions) | | | | | | |
| Fixed rate senior unsecured notes: | | | | | | |
| Synchrony Financial | | | | | | |
| August 2014 | | 4.250% | | August 2024 | | 1,250 | |
| July 2015 | | 4.500% | | July 2025 | | 1,000 | |
| August 2016 | | 3.700% | | August 2026 | | 500 | |
| December 2017 | | 3.950% | | December 2027 | | 1,000 | |
| March 2019 | | 4.375% | | March 2024 | | 600 | |
| March 2019 | | 5.150% | | March 2029 | | 650 | |
| July 2019 | | 2.850% | | July 2022 | | 750 | |
| Synchrony Bank | | | | | | |
| June 2017 | | 3.000% | | June 2022 | | 750 | |
| Total fixed rate senior unsecured notes | | | | | | $ | 6,500 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
______________________
| |
(1) | The amounts shown exclude unamortized debt discount, premiums and issuance cost. |
At September 30, 2017, the aggregate amount(1)Weighted average interest rate of outstandingall senior unsecured notes at June 30, 2021 was $8.0 billion4.00%.
(2)The amounts shown exclude unamortized debt discounts, premiums and the weighted average interest rate was 3.38%.issuance costs.
Short-Term Borrowings
Except as described above, there were no material short-term borrowings for the periods presented.
Undrawn Credit Facilities
At September 30, 2017, we had an aggregate of $5.1 billion of undrawn committed capacity on our securitized financings, subject to customary borrowing conditions, from private lenders under our two existing securitization programs, and an aggregate of $0.5 billion of undrawn committed capacity under our unsecured revolving credit facility with private lenders.
Other
At SeptemberJune 30, 2017,2021, we had more than $25.0 billion of unencumbered assets in the Bank available to be used to generate additional liquidity through secured borrowings or asset sales or to be pledged to the Federal Reserve Board for credit at the discount window.
Covenants
The indenture pursuant to which our senior unsecured notes have been issued includes various covenants. If we do not satisfy any of these covenants, the maturity of amounts outstanding thereunder may be accelerated and become payable. We were in compliance with all of these covenants at SeptemberJune 30, 2017.
Our real estate leases also include various covenants, but typically do not include financial covenants. If we do not satisfy the covenants in the real estate leases, the leases may be terminated and we may be liable for damage claims.2021.
At SeptemberJune 30, 2017,2021, we were not in default under any of our credit facilities or senior unsecured notes and had not received any notices of default under any of our real estate leases.facilities.
Credit Ratings
Our borrowing costs and capacity in certain funding markets, including securitizations and senior and subordinated debt, may be affected by the credit ratings of the Company, the Bank and the ratings of our asset-backed securities.
Our senior unsecured debt is rated BBB- (stable outlook) by FitchThe table below reflects our current credit ratings and BBB- (stable outlook) by S&P. outlooks:
| | | | | | | | | | | |
| S&P | | Fitch Ratings |
| Synchrony Financial | | | |
| Senior unsecured debt | BBB- | | BBB- |
| Preferred stock | BB- | | B+ |
| Outlook for Synchrony Financial senior unsecured debt | Stable | | Stable |
| Synchrony Bank | | | |
| Senior unsecured debt | BBB | | BBB- |
| Outlook for Synchrony Bank senior unsecured debt | Stable | | Stable |
In addition, certain of the asset-backed securities issued by SYNCT and SYNIT are rated by Fitch, S&P and/or Moody’s. A credit rating is not a recommendation to buy, sell or hold securities, may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. Downgrades in these credit ratings could materially increase the cost of our funding from, and restrict our access to, the capital markets.
Liquidity
We seek to ensure that we have adequate liquidity to sustain business operations, fund asset growth, satisfy debt obligations and to meet regulatory expectations under normal and stress conditions.
We maintain policies outlining the overall framework and general principles for managing liquidity risk across our business, which is the responsibility of our Asset and Liability Management Committee, a subcommittee of the Risk Committee of our Risk Committee.Board of Directors. We employ a variety of metrics to monitor and manage liquidity. We perform regular liquidity stress testing and contingency planning as part of our liquidity management process. We evaluate a range of stress scenarios including Company specific and systemic events that could impact funding sources and our ability to meet liquidity needs.
We maintain a liquidity portfolio, which at SeptemberJune 30, 20172021 had $16.4$16.3 billion of liquid assets, primarily consisting of cash and equivalents and short-term obligations of the U.S. Treasury, less cash in transit which is not considered to be liquid, compared to $13.6$18.3 billion of liquid assets at December 31, 2016.2020. The increasedecrease in liquid assets was primarily due to the retentionreduction in funding liabilities, partially offset by the reduction in our loan receivables and the seasonality of excess cash flows from operations within our Company.business. We believe our liquidity position at June 30, 2021 remains strong as we continue to operate in a period of uncertain economic conditions related to COVID-19 and we will continue to closely monitor our liquidity as economic conditions change.
As additional sources of liquidity, at SeptemberJune 30, 2017,2021, we had an aggregate of $5.6$4.4 billion of undrawn credit facilities,committed capacity on our securitized financings, subject to customary borrowing conditions, from private lenders under our existing securitization programs and an$0.5 billion of undrawn committed capacity under our unsecured revolving credit facility with private lenders, and we had more than $25.0 billion of unencumbered assets in the Bank available to be used to generate additional liquidity through secured borrowings or asset sales or to be pledged to the Federal Reserve Board for credit at the discount window.
As a general matter, investments included in our liquidity portfolio are expected to be highly liquid, giving us the ability to readily convert them to cash. The level and composition of our liquidity portfolio may fluctuate based upon the level of expected maturities of our funding sources as well as operational requirements and market conditions.
We rely significantly on dividends and other distributions and payments from the Bank for liquidity; however, bank regulations, contractual restrictions and other factors limit the amount of dividends and other distributions and payments that the Bank may pay to us. For a discussion of regulatory restrictions on the Bank’s ability to pay dividends, see “Item 1A. Regulation—Risk Factors—RisksFactors Relating to Regulation—We are subject to restrictions that limit our ability to pay dividends and repurchase our common stock; the Bank is subject to restrictions that limit its ability to pay dividends to us, which could limit our ability to pay dividends, repurchase our common stock or make payments on our indebtedness” and “Regulation—Regulation Relating to Our Business—Savings Association Regulation—Dividends and Stock Repurchases” in our 20162020 Form 10-K.
Capital
Our primary sources of capital have been earnings generated by our business and existing equity capital. We seek to manage capital to a level and composition sufficient to support the risks of our business, meet regulatory requirements, adhere to rating agency targets and support future business growth. The level, composition and utilization of capital are influenced by changes in the economic environment, strategic initiatives and legislative and regulatory developments. Within these constraints, we are focused on deploying capital in a manner that will provide attractive returns to our stockholders.
Our capital adequacy assessment also includes tax and accounting considerations in accordance with regulatory guidance. We maintain a net deferred tax asset on our balance sheet, and we include this asset when calculating our regulatory capital levels. However, for regulatory capital purposes, deferred tax assets are limited to (i) the amount of taxes previously paid that a company could recover through loss carrybacks; and (ii) 10% of the amount of our Tier 1 capital. At September 30, 2017, no portion of our deferred tax asset was disallowed for regulatory capital purposes.
Synchrony and the Bank areis not currently required to conduct stress tests on an annual basis. Under the Office of the Comptroller of the Currency of the U.S. Treasury's (the “OCC”)tests. See “Regulation—Regulation Relating to Our Business—Recent Legislative and the Federal Reserve Board's stress test regulations, the Bank and Synchrony are required to use stress-testing methodologies providing for results under various scenarios of economic and financial market stress.Regulatory Developments” in our 2020 Form 10-K. In addition, while as a savings and loan holding company we currently arehave not been subject to the Federal Reserve Board's formal capital planning rule,plan submission requirements to-date, we submitted a capital plan to the Federal Reserve Board in April 2017.2021. While not required, our capital plan process does include certain internal stress testing.
Dividend and Share Repurchases
| | | | | | | | | | | | | | | | | | | | |
| Common Stock Cash Dividends Declared | | Month of Payment | | Amount per Common Share | | Amount |
| ($ in millions, except per share data) | | | | | | |
| Three months ended March 31, 2021 | | February 2021 | | $ | 0.22 | | | $ | 128 | |
| Three months ended June 30, 2021 | | May 2021 | | 0.22 | | | 128 | |
| | | | | | |
| Total dividends declared | | | | $ | 0.44 | | | $ | 256 | |
|
| | | | | | | | | | |
| Cash Dividends Declared | | Month of Payment | | Amount per Common Share | | Amount |
| ($ in millions, except per share data) | | | | | | |
| Three months ended March 31, 2017 | | February 2017 | | $ | 0.13 |
| | $ | 105 |
|
| Three months ended June 30, 2017 | | May 2017 | | 0.13 |
| | 105 |
|
| Three months ended September 30, 2017 | | August 2017 | | 0.15 |
| | 118 |
|
| Total dividends declared | | | | $ | 0.41 |
| | $ | 328 |
|
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Preferred Stock Cash Dividends Declared | | Month of Payment | | Amount per Preferred Share | | Amount |
| ($ in millions, except per share data) | | | | | | |
| Three months ended March 31, 2021 | | February 2021 | | $ | 14.06 | | | $ | 11 | |
| Three months ended June 30, 2021 | | May 2021 | | 14.06 | | | 10 | |
| | | | | | |
| Total dividends declared | | | | $ | 28.12 | | | $ | 21 | |
On May 18, 2017, the Board announced plans to increase the quarterly dividend to $0.15 per share commencing in the third quarter of 2017. The declaration and payment of future dividends to holders of our common and preferred stock will be at the discretion of the Board and will depend on many factors, including the financial condition, earnings, capital and liquidity requirements of us and the Bank, regulatory restrictions, corporate law and contractual restrictions and other factors that our Board of Directors deems relevant. In addition, banking laws and regulations and our banking regulators may limit our ability to pay dividends and make repurchases of our stock.factors. For a discussion of regulatory and other restrictions on our and the Bank’s ability to pay dividends and repurchase stock, see “Regulation—Risk Factors—RisksFactors Relating to Regulation—Synchrony isWe are subject to restrictions that limit itsour ability to pay dividends and repurchase itsour common stock; the Bank is subject to restrictions that limit its ability to pay dividends to Synchrony,us, which could limit
Synchrony's our ability to pay dividends, repurchase itsour common stock or make payments on itsour indebtedness” in our 20162020 Form 10-K.
|
| | | | | | | |
| Shares Repurchased Under Publicly Announced Programs | | Total Number of Shares Purchased | | Dollar Value of Share Purchased |
| | | | | |
| ($ and shares in millions) | | | | |
| Three months ended March 31, 2017 | | 6.6 |
| | $ | 238 |
|
| Three months ended June 30, 2017 | | 15.7 |
| | 438 |
|
| Three months ended September 30, 2017 | | 12.8 |
| | 390 |
|
| Total | | 35.1 |
| | $ | 1,066 |
|
| | | | | |
| | | | | | | | | | | | | | |
| Common Shares Repurchased Under Publicly Announced Programs | | Total Number of Shares
Purchased | | Dollar Value of Shares
Purchased |
| ($ and shares in millions) | | | | |
| Three months ended March 31, 2021 | | 5.1 | | | $ | 200 | |
| Three months ended June 30, 2021 | | 8.7 | | | 393 | |
| | | | |
| Total | | 13.8 | | | $ | 593 | |
In May 2017January 2021, we completedannounced our initial share repurchase programBoard's approval of up to $952 million (the "2016 Share Repurchase Program"). On May 18, 2017, the Company approved a share repurchase program of up to $1.64$1.6 billion through December 31, 2021 (the “January 2021 Share Repurchase Program”), subject to the Company’s capital plan, market conditions and other factors, including regulatory restrictions and required approvals, if any. In May 2021 we announced that the Board of Directors approved a new share repurchase program of up to $2.9 billion for the period which commenced April 1, 2021 through June 30, 20182022 (the "2017“May 2021 Share Repurchase Program"Program”). We made, and expect to continue to make, share repurchases, subject to market conditions and other factors, including legal and regulatory restrictions and required approvals.approvals, if any. This share repurchase program supersedes the program previously announced in January 2021, and does not include the impact of any capital which would be released if the loan receivables associated with the Gap Inc. program are sold at expiration of the existing program agreement.
Through the end of the second quarter of 2021, we have repurchased $593 million of common stock as part of the January 2021 Share Repurchase Program and May 2021 Share Repurchase Program and have $2.5 billion of remaining authorized share repurchase capacity under the May 2021 Share Repurchase Program at June 30, 2021.
Regulatory Capital Requirements - Synchrony Financial
As a savings and loan holding company, we are required to maintain minimum capital ratios, under the applicable U.S. Basel III capital rules. For more information, see “Regulation—Savings and Loan Holding Company Regulation” in our 20162020 Form 10-K.
For Synchrony Financial to be a well-capitalized savings and loan holding company, Synchrony Bank must be well-capitalized and Synchrony Financial must not be subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Federal Reserve Board to meet and maintain a specific capital level for any capital measure. As of SeptemberJune 30, 2017,2021, Synchrony Financial met all the requirements to be deemed well-capitalized.
The following table sets forth at September 30, 2017 and December 31, 2016 the composition of our capital ratios for the Company calculated under the Basel III Standardized Approach rules at June 30, 2021 and December 31, 2020, respectively.
| | | | | | | | | | | | | | | | | | | | | | | |
| Basel III |
| | At June 30, 2021 | | At December 31, 2020 |
| ($ in millions) | Amount | | Ratio(1) | | Amount | | Ratio(1) |
| Total risk-based capital | $ | 15,710 | | | 20.1 | % | | $ | 14,604 | | | 18.1 | % |
| Tier 1 risk-based capital | $ | 14,671 | | | 18.7 | % | | $ | 13,525 | | | 16.8 | % |
| Tier 1 leverage | $ | 14,671 | | | 15.6 | % | | $ | 13,525 | | | 14.0 | % |
| Common equity Tier 1 capital | $ | 13,937 | | | 17.8 | % | | $ | 12,791 | | | 15.9 | % |
| Risk-weighted assets | $ | 78,281 | | | | | $ | 80,561 | | | |
______________________
(1)Tier 1 leverage ratio represents total Tier 1 capital as a percentage of total average assets, after certain adjustments. All other ratios presented above represent the applicable capital measure as a percentage of risk-weighted assets.
In March 2020 the joint federal bank regulatory agencies issued an interim final rule that allows banking organizations to mitigate the effects of the CECL accounting standard in their regulatory capital. Banking organizations that adopted CECL in 2020 can elect to mitigate the estimated cumulative regulatory capital standards, respectively.effects of CECL for two years. The Company has elected to adopt the option provided by the interim final rule, which will largely delay the effects of CECL on its regulatory capital through the end of 2021, after which the effects will be phased-in over a three-year period from January 1, 2022 through December 31, 2024, collectively the “CECL regulatory capital transition adjustment”. For more information, see “Capital—Regulatory Capital Requirements - Synchrony Financial” in our 2020 Form 10-K.
|
| | | | | | | | | | | | | |
| | Basel III Transition (unless otherwise stated) |
| | At September 30, 2017 | | At December 31, 2016 |
| ($ in millions) | Amount | | Ratio(1) | | Amount | | Ratio(1) |
| Total risk-based capital | $ | 14,126 |
| | 18.7 | % | | $ | 14,129 |
| | 18.5 | % |
| Tier 1 risk-based capital | $ | 13,125 |
| | 17.3 | % | | $ | 13,135 |
| | 17.2 | % |
| Tier 1 leverage | $ | 13,125 |
| | 14.6 | % | | $ | 13,135 |
| | 15.0 | % |
| Common equity Tier 1 capital | $ | 13,125 |
| | 17.3 | % | | $ | 13,135 |
| | 17.2 | % |
| Common equity Tier 1 capital - fully phased-in (estimated) | $ | 12,983 |
| | 17.2 | % | | $ | 12,872 |
| | 17.0 | % |
______________________
| |
(1) | Tier 1 leverage ratio represents total tier 1 capital as a percentage of total average assets, after certain adjustments. All other ratios presented above represent the applicable capital measure as a percentage of risk-weighted assets. |
Capital amounts and ratios at June 30, 2021 in the above table all reflect the application of the CECL regulatory capital transition adjustment. The increase in our Commoncommon equity Tier 1 capital ratio compared to December 31, 2020 was primarily due to the retention of net earnings in the current year, as well as a slight decrease in loan receivables and a corresponding reduction in risk-weighted assets in the ninesix months ended SeptemberJune 30, 2017.2021.
Non-GAAP Measures
The capital ratios presented above include Common equity Tier 1 capital ("CET1") as calculated under the U.S. Basel III capital rules on a fully phased-in basis, which is not currently required by our regulators to be disclosed and, as such, is considered to be a non-GAAP measure. We believe that this capital ratio is a useful measure to investors because it is widely used by analysts and regulators to assess the capital position of financial services companies, although this ratio may not be comparable to similarly titled measures reported by other companies. The following table sets forth a reconciliation of the components of our CET1 capital ratio as calculated on a fully phased-in basis set forth above, to the comparable GAAP components at September 30, 2017 and December 31, 2016.
|
| | | | | | | |
| ($ in millions) | At September 30, 2017 | | At December 31, 2016 |
| Basel III - Common equity Tier 1 (transition) | $ | 13,125 |
| | $ | 13,135 |
|
Adjustments related to capital components during transition(1) | (142 | ) | | (263 | ) |
| | | | |
| Basel III - Common equity Tier 1 (fully phased-in) | $ | 12,983 |
| | $ | 12,872 |
|
| | | | |
|
| | | | | | | |
| Risk-weighted assets - Basel III (transition) | $ | 75,729 |
| | $ | 76,179 |
|
Adjustments related to risk weighted assets during transition(2) | (115 | ) | | (238 | ) |
| | | | |
| Risk-weighted assets - Basel III (fully phased-in) | $ | 75,614 |
| | $ | 75,941 |
|
| | | | |
______________________
| |
(1) | Adjustments related to capital components to determine CET1 (fully phased-in) include the phase-in of the intangible asset exclusion. |
| |
(2) | Key differences between Basel III transition rules and fully phased-in Basel III rules relate to the calculation of risk-weighted assets including, but not limited to, adjustments for certain intangible assets and risk weighting of deferred tax assets. |
Regulatory Capital Requirements - Synchrony Bank
At SeptemberJune 30, 20172021 and December 31, 2016,2020, the Bank met all applicable requirements to be deemed well-capitalized pursuant to OCC regulations and for purposes of the Federal Deposit Insurance Act. The following table sets forth the composition of the Bank’s capital ratios calculated under the Basel III Standardized Approach rules at SeptemberJune 30, 20172021 and December 31, 2016.2020, and also reflects the CECL regulatory capital transition adjustment in the June 30, 2021 amounts and ratios.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At June 30, 2021 | | At December 31, 2020 | | Minimum to be Well-Capitalized under Prompt Corrective Action Provisions |
| ($ in millions) | Amount | | Ratio | | Amount | | Ratio | | Ratio |
| Total risk-based capital | $ | 14,460 | | | 20.6 | % | | $ | 12,784 | | | 17.8 | % | | 10.0% |
| Tier 1 risk-based capital | $ | 13,526 | | | 19.2 | % | | $ | 11,821 | | | 16.5 | % | | 8.0% |
| Tier 1 leverage | $ | 13,526 | | | 16.0 | % | | $ | 11,821 | | | 13.6 | % | | 5.0% |
| Common equity Tier 1 capital | $ | 13,526 | | | 19.2 | % | | $ | 11,821 | | | 16.5 | % | | 6.5% |
|
| | | | | | | | | | | | | | | | | | | | |
| | At September 30, 2017 | | At December 31, 2016 | | Minimum to be Well-
Capitalized under
Prompt Corrective Action Provisions - Basel III |
| ($ in millions) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| Total risk-based capital | $ | 10,364 |
| | 16.7 | % | | $ | 10,101 |
| | 16.7 | % | | $ | 6,210 |
| | 10.0 | % |
| Tier 1 risk-based capital | $ | 9,540 |
| | 15.4 | % | | $ | 9,312 |
| | 15.4 | % | | $ | 4,968 |
| | 8.0 | % |
| Tier 1 leverage | $ | 9,540 |
| | 13.0 | % | | $ | 9,312 |
| | 13.2 | % | | $ | 3,661 |
| | 5.0 | % |
| Common equity Tier 1 capital | $ | 9,540 |
| | 15.4 | % | | $ | 9,312 |
| | 15.4 | % | | $ | 4,037 |
| | 6.5 | % |
Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could limit our business activities and have a material adverse effect on our business, results of operations and financial condition. See “Regulation—Risk Factors—RisksFactors Relating to Regulation—Failure by Synchrony and the Bank to meet applicable capital adequacy and liquidity requirements could have a material adverse effect on us” in our 20162020 Form 10-K.
Off-Balance Sheet Arrangements and Unfunded Lending Commitments
We do not have any significantmaterial off-balance sheet arrangements, including guarantees of third-party obligations. Guarantees are contracts or indemnification agreements that contingently require us to make a guaranteed payment or perform an obligation to a third-party based on certain trigger events. At SeptemberJune 30, 2017,2021, we had not recorded any contingent liabilities in our Condensed Consolidated Statement of Financial Position related to any guarantees.
We extend credit, primarily arising from agreements with customers for unused lines of credit on our credit cards, in the ordinary course of business. Each unused credit card line is unconditionally cancellable by us. See Note 4 - Loan Receivables and Allowance for LoanCredit Losses to our condensed consolidated financial statements for more information on our unfunded lending commitments.
Critical Accounting Estimates
In preparing our condensed consolidated financial statements, we have identified certain accounting estimates and assumptions that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. The critical accounting estimates we have identified relate to allowance for loancredit losses asset impairment, income taxes and fair value measurements. All of theseThese estimates reflect our best judgment about current, and for some estimates future, economic and market conditions and their effects based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that these judgments and estimates could change, which may result in incremental losses on loan receivables, future impairmentsor material changes to our Condensed Consolidated Statement of investment securities, goodwill and intangible assets, and the establishment of valuation allowances on deferred tax assets and increases in our tax liabilities,Financial Position, among other effects. See “Management's Discussion and Analysis—Critical Accounting Estimates” in our 20162020 Form 10-K, for a detailed discussion of these critical accounting estimates.
New Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In July 2015, the FASB approved a one-year deferral of this standard, with a revised effective date for annual and interim reporting periods beginning after December 15, 2017. The scope of ASU 2014-09 excludes interest and fee income on loans and gains and losses on investment securities, derivatives and the sales of financial instruments, and as a result, the majority of the Company's revenue will not be affected by the ASU. The standard permits the use of either the retrospective or modified retrospective (cumulative effect) transition method. We do not expect the guidance to have a material impact on the timing or measurement of the Company’s revenues.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU replaces the existing incurred loss impairment guidance with a new impairment model known as the Current Expected Credit Loss ("CECL") model, which is based on expected credit losses. The CECL model requires, upon origination of a loan, the recognition of all expected credit losses over the life of the loan based on historical experience, current conditions and reasonable and supportable forecasts. This standard is effective for annual and interim reporting periods for fiscal years beginning after December 15, 2019, with early adoption permitted for annual and interim periods for fiscal years beginning after December 15, 2018. The amendments in this standard will be recognized through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. While we are evaluating the effect that ASU 2016-13 will have on our consolidated financial statements and related disclosures, this standard is expected to result in an increase to the Company’s allowance for loan losses given the change to expected losses for the estimated life of the financial asset. The extent of the increase will depend on the asset quality of the portfolio, and economic conditions and forecasts at adoption.
Regulation and Supervision
Our business, including our relationships with our customers, is subject to regulation, supervision and examination under U.S. federal, state and foreign laws and regulations. These laws and regulations cover all aspects of our business, including lending and collection practices, treatment of our customers, safeguarding deposits, customer privacy and information security, capital structure, liquidity, dividends and other capital distributions, transactions with affiliates, and conduct and qualifications of personnel. Such laws and regulations directly and indirectly affect key drivers of our profitability, including, for example, capital and liquidity, product offerings, risk management, and costs of compliance.
As a savings and loan holding company and as of June 2017, a financial holding company, Synchrony is subject to regulation, supervision and examination by the Federal Reserve Board. As a large provider of consumer financial services, we are also subject to regulation, supervision and examination by the CFPB.
The Bank is a federally chartered savings association. As such, the Bank is subject to regulation, supervision and examination by the OCC, which is its primary regulator, and by the CFPB. In addition, the Bank, as an insured depository institution, is supervised by the FDIC.
See “Regulation” in our 20162020 Form 10-K for additional information.information on regulations that are currently applicable to us. See also “—Capital”above, for discussion of the impact of regulations and supervision on our capital and liquidity, including our ability to pay dividends and repurchase stock.
ITEM 1. FINANCIAL STATEMENTS
Synchrony Financial and subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| ($ in millions, except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
| Interest income: | | | | | | | |
| Interest and fees on loans (Note 4) | $ | 3,567 | | | $ | 3,808 | | | $ | 7,299 | | | $ | 8,148 | |
| Interest on cash and debt securities | 11 | | | 22 | | | 21 | | | 89 | |
| Total interest income | 3,578 | | | 3,830 | | | 7,320 | | | 8,237 | |
| Interest expense: | | | | | | | |
| Interest on deposits | 146 | | | 293 | | | 316 | | | 649 | |
| Interest on borrowings of consolidated securitization entities | 44 | | | 59 | | | 95 | | | 132 | |
| Interest on senior unsecured notes | 76 | | | 82 | | | 158 | | | 170 | |
| | | | | | | |
| Total interest expense | 266 | | | 434 | | | 569 | | | 951 | |
| Net interest income | 3,312 | | | 3,396 | | | 6,751 | | | 7,286 | |
| Retailer share arrangements | (1,006) | | | (773) | | | (1,995) | | | (1,699) | |
| | | | | | | |
| Provision for credit losses (Note 4) | (194) | | | 1,673 | | | 140 | | | 3,350 | |
| Net interest income, after retailer share arrangements and provision for credit losses | 2,500 | | | 950 | | | 4,616 | | | 2,237 | |
| Other income: | | | | | | | |
| Interchange revenue | 223 | | | 134 | | | 394 | | | 295 | |
| Debt cancellation fees | 66 | | | 69 | | | 135 | | | 138 | |
| Loyalty programs | (247) | | | (134) | | | (426) | | | (292) | |
| Other | 47 | | | 26 | | | 117 | | | 51 | |
| Total other income | 89 | | | 95 | | | 220 | | | 192 | |
| Other expense: | | | | | | | |
| Employee costs | 359 | | | 327 | | | 723 | | | 651 | |
| Professional fees | 189 | | | 189 | | | 379 | | | 386 | |
| Marketing and business development | 114 | | | 91 | | | 209 | | | 202 | |
| Information processing | 137 | | | 116 | | | 268 | | | 239 | |
| Other | 149 | | | 263 | | | 301 | | | 510 | |
| Total other expense | 948 | | | 986 | | | 1,880 | | | 1,988 | |
| Earnings before provision for income taxes | 1,641 | | | 59 | | | 2,956 | | | 441 | |
| Provision for income taxes (Note 12) | 399 | | | 11 | | | 689 | | | 107 | |
| Net earnings | $ | 1,242 | | | $ | 48 | | | $ | 2,267 | | | $ | 334 | |
| Net earnings available to common stockholders | $ | 1,232 | | | $ | 37 | | | $ | 2,246 | | | $ | 312 | |
| | | | | | | |
| Earnings per share | | | | | | | |
| Basic | $ | 2.13 | | | $ | 0.06 | | | $ | 3.87 | | | $ | 0.52 | |
| Diluted | $ | 2.12 | | | $ | 0.06 | | | $ | 3.84 | | | $ | 0.52 | |
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ in millions, except per share data) | 2017 | | 2016 | | 2017 | | 2016 |
| Interest income: | | | | | | | |
| Interest and fees on loans (Note 4) | $ | 4,182 |
| | $ | 3,771 |
| | $ | 11,986 |
| | $ | 10,763 |
|
| Interest on investment securities | 51 |
| | 25 |
| | 130 |
| | 68 |
|
| Total interest income | 4,233 |
| | 3,796 |
| | 12,116 |
| | 10,831 |
|
| Interest expense: | | | | | | | |
| Interest on deposits | 219 |
| | 188 |
| | 615 |
| | 539 |
|
| Interest on borrowings of consolidated securitization entities | 65 |
| | 63 |
| | 193 |
| | 180 |
|
| Interest on third-party debt | 73 |
| | 64 |
| | 208 |
| | 210 |
|
| Total interest expense | 357 |
| | 315 |
| | 1,016 |
| | 929 |
|
| Net interest income | 3,876 |
| | 3,481 |
| | 11,100 |
| | 9,902 |
|
| Retailer share arrangements | (805 | ) | | (757 | ) | | (2,158 | ) | | (2,091 | ) |
| Net interest income, after retailer share arrangements | 3,071 |
| | 2,724 |
| | 8,942 |
| | 7,811 |
|
| Provision for loan losses (Note 4) | 1,310 |
| | 986 |
| | 3,942 |
| | 2,910 |
|
| Net interest income, after retailer share arrangements and provision for loan losses | 1,761 |
| | 1,738 |
| | 5,000 |
| | 4,901 |
|
| Other income: | | | | | | | |
| Interchange revenue | 164 |
| | 154 |
| | 474 |
| | 435 |
|
| Debt cancellation fees | 67 |
| | 67 |
| | 203 |
| | 194 |
|
| Loyalty programs | (168 | ) | | (145 | ) | | (511 | ) | | (390 | ) |
| Other | 13 |
| | 8 |
| | 60 |
| | 20 |
|
| Total other income | 76 |
| | 84 |
| | 226 |
| | 259 |
|
| Other expense: | | | | | | | |
| Employee costs | 335 |
| | 311 |
| | 981 |
| | 892 |
|
| Professional fees | 161 |
| | 174 |
| | 470 |
| | 474 |
|
| Marketing and business development | 124 |
| | 92 |
| | 342 |
| | 293 |
|
| Information processing | 96 |
| | 87 |
| | 274 |
| | 250 |
|
| Other | 242 |
| | 195 |
| | 710 |
| | 589 |
|
| Total other expense | 958 |
| | 859 |
| | 2,777 |
| | 2,498 |
|
| Earnings before provision for income taxes | 879 |
| | 963 |
| | 2,449 |
| | 2,662 |
|
| Provision for income taxes (Note 12) | 324 |
| | 359 |
| | 899 |
| | 987 |
|
| Net earnings | $ | 555 |
| | $ | 604 |
| | $ | 1,550 |
| | $ | 1,675 |
|
| | | | | | | | |
| Earnings per share | | | | | | | |
| Basic | $ | 0.70 |
| | $ | 0.73 |
| | $ | 1.93 |
| | $ | 2.01 |
|
| Diluted | $ | 0.70 |
| | $ | 0.73 |
| | $ | 1.93 |
| | $ | 2.01 |
|
| | | | | | | | |
| Dividends declared per common share | $ | 0.15 |
| | $ | 0.13 |
| | $ | 0.41 |
| | $ | 0.13 |
|
See accompanying notes to condensed consolidated financial statements.
Synchrony Financial and subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 | ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | | | | | | | | | |
| Net earnings | $ | 555 |
| | $ | 604 |
| | $ | 1,550 |
| | $ | 1,675 |
| Net earnings | $ | 1,242 | | | $ | 48 | | | $ | 2,267 | | | $ | 334 | |
| | | | | | | | | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | Other comprehensive income (loss) | |
| Investment securities | 3 |
| | — |
| | 6 |
| | 17 |
| |
| Debt securities | | Debt securities | (2) | | | 12 | | | (8) | | | 29 | |
| Currency translation adjustments | 6 |
| | (4 | ) | | 7 |
| | 2 |
| Currency translation adjustments | 2 | | | 1 | | | 4 | | | (7) | |
| Employee benefit plans | — |
| | — |
| | — |
| | (2 | ) | Employee benefit plans | 0 | | | (1) | | | (1) | | | (1) | |
| Other comprehensive income (loss) | 9 |
| | (4 | ) | | 13 |
| | 17 |
| Other comprehensive income (loss) | 0 | | | 12 | | | (5) | | | 21 | |
| | | | | | | | | | | | | | | | |
| Comprehensive income | $ | 564 |
| | $ | 600 |
| | $ | 1,563 |
| | $ | 1,692 |
| Comprehensive income | $ | 1,242 | | | $ | 60 | | | $ | 2,262 | | | $ | 355 | |
Amounts presented net of taxes.
See accompanying notes to condensed consolidated financial statements.
Synchrony Financial and subsidiaries
Condensed Consolidated Statements of Financial Position (Unaudited)
| | | | | | | | | | | |
| ($ in millions) | At June 30, 2021 | | At December 31, 2020 |
| Assets | | | |
| Cash and equivalents | $ | 11,117 | | | $ | 11,524 | |
| Debt securities (Note 3) | 5,728 | | | 7,469 | |
| Loan receivables: (Notes 4 and 5) | | | |
| Unsecuritized loans held for investment | 55,994 | | | 56,472 | |
| Restricted loans of consolidated securitization entities | 22,380 | | | 25,395 | |
| Total loan receivables | 78,374 | | | 81,867 | |
| Less: Allowance for credit losses | (9,023) | | | (10,265) | |
| Loan receivables, net | 69,351 | | | 71,602 | |
| Loan receivables held for sale (Note 4) | 0 | | | 5 | |
| Goodwill | 1,105 | | | 1,078 | |
| Intangible assets, net (Note 6) | 1,098 | | | 1,125 | |
| Other assets | 3,618 | | | 3,145 | |
| Total assets | $ | 92,017 | | | $ | 95,948 | |
| | | |
| Liabilities and Equity | | | |
| Deposits: (Note 7) | | | |
| Interest-bearing deposit accounts | $ | 59,500 | | | $ | 62,469 | |
| Non-interest-bearing deposit accounts | 341 | | | 313 | |
| Total deposits | 59,841 | | | 62,782 | |
| Borrowings: (Notes 5 and 8) | | | |
| Borrowings of consolidated securitization entities | 6,987 | | | 7,810 | |
| | | |
| Senior unsecured notes | 6,470 | | | 7,965 | |
| Total borrowings | 13,457 | | | 15,775 | |
| Accrued expenses and other liabilities | 4,522 | | | 4,690 | |
| Total liabilities | $ | 77,820 | | | $ | 83,247 | |
| | | |
| Equity: | | | |
| Preferred stock, par share value $0.001 per share; 750,000 shares authorized; 750,000 shares issued and outstanding at both June 30, 2021 and December 31, 2020 and aggregate liquidation preference of $750 at both June 30, 2021 and December 31, 2020 | $ | 734 | | | $ | 734 | |
| Common Stock, par share value $0.001 per share; 4,000,000,000 shares authorized; 833,984,684 shares issued at both June 30, 2021 and December 31, 2020; 573,416,152 and 584,009,550 shares outstanding at June 30, 2021 and December 31, 2020, respectively | 1 | | | 1 | |
| Additional paid-in capital | 9,620 | | | 9,570 | |
| Retained earnings | 12,560 | | | 10,621 | |
| Accumulated other comprehensive income (loss): | | | |
| Debt securities | 17 | | | 25 | |
| Currency translation adjustments | (18) | | | (22) | |
| Employee benefit plans | (55) | | | (54) | |
| Treasury stock, at cost; 260,568,532 and 249,975,134 shares at June 30, 2021 and December 31, 2020, respectively | (8,662) | | | (8,174) | |
| | | |
| Total equity | 14,197 | | | 12,701 | |
| Total liabilities and equity | $ | 92,017 | | | $ | 95,948 | |
|
| | | | | | | |
| ($ in millions) | At September 30, 2017 | | At December 31, 2016 |
| | (Unaudited) | | |
| Assets | | | |
| Cash and equivalents | $ | 13,915 |
| | $ | 9,321 |
|
| Investment securities (Note 3) | 3,317 |
| | 5,110 |
|
| Loan receivables: (Notes 4 and 5) | | | |
| Unsecuritized loans held for investment | 53,997 |
| | 52,332 |
|
| Restricted loans of consolidated securitization entities | 22,931 |
| | 24,005 |
|
| Total loan receivables | 76,928 |
| | 76,337 |
|
| Less: Allowance for loan losses | (5,361 | ) | | (4,344 | ) |
| Loan receivables, net | 71,567 |
| | 71,993 |
|
| Goodwill | 991 |
| | 949 |
|
| Intangible assets, net (Note 6) | 772 |
| | 712 |
|
Other assets(a) | 1,986 |
| | 2,122 |
|
| Total assets | $ | 92,548 |
| | $ | 90,207 |
|
| | | | |
| Liabilities and Equity | | | |
| Deposits: (Note 7) | | | |
| Interest-bearing deposit accounts | $ | 54,232 |
| | $ | 51,896 |
|
| Non-interest-bearing deposit accounts | 222 |
| | 159 |
|
| Total deposits | 54,454 |
| | 52,055 |
|
| Borrowings: (Notes 5 and 8) | | | |
| Borrowings of consolidated securitization entities | 11,891 |
| | 12,388 |
|
| Senior unsecured notes | 8,008 |
| | 7,759 |
|
| Total borrowings | 19,899 |
| | 20,147 |
|
| Accrued expenses and other liabilities | 3,793 |
| | 3,809 |
|
| Total liabilities | $ | 78,146 |
| | $ | 76,011 |
|
| | | | |
| Equity: | | | |
| Common Stock, par share value $0.001 per share; 4,000,000,000 shares authorized; 833,984,684 shares issued at both September 30, 2017 and December 31, 2016; 782,584,050 and 817,352,328 shares outstanding at September 30, 2017 and December 31, 2016, respectively | $ | 1 |
| | $ | 1 |
|
| Additional paid-in capital | 9,429 |
| | 9,393 |
|
| Retained earnings | 6,543 |
| | 5,330 |
|
| Accumulated other comprehensive income (loss): | | | |
| Investment securities | (12 | ) | | (18 | ) |
| Currency translation adjustments | (13 | ) | | (20 | ) |
| Other | (15 | ) | | (15 | ) |
| Treasury Stock, at cost; 51,400,634 and 16,632,356 shares at September 30, 2017 and December 31, 2016, respectively | (1,531 | ) | | (475 | ) |
| Total equity | 14,402 |
| | 14,196 |
|
| Total liabilities and equity | $ | 92,548 |
| | $ | 90,207 |
|
_______________________
(a) Other assets include restricted cash and equivalents of $173 million and $347 million at September 30, 2017 and December 31, 2016, respectively.
See accompanying notes to condensed consolidated financial statements.
Synchrony Financial and subsidiaries
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | | Common Stock | | | | | | | | | | | | |
($ in millions,
shares in thousands) | Shares Issued | | Amount | | Shares Issued | | Amount | | Additional Paid-in Capital | | | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Equity |
| | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2020 | 750 | | | $ | 734 | | | 833,985 | | | $ | 1 | | | $ | 9,537 | | | | | $ | 12,117 | | | $ | (58) | | | $ | (7,243) | | | $ | 15,088 | |
| | | | | | | | | | | | | | | | | | | |
| Cumulative effect of change in accounting principle | — | | | — | | | — | | | — | | | — | | | | | (2,276) | | | — | | | — | | | (2,276) | |
| Adjusted balance, beginning of period | 750 | | | 734 | | | 833,985 | | | 1 | | | 9,537 | | | | | 9,841 | | | (58) | | | (7,243) | | | 12,812 | |
| Net earnings | — | | | — | | | — | | | — | | | — | | | | | 286 | | | — | | | — | | | 286 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | — | | | | | — | | | 9 | | | — | | | 9 | |
| | | | | | | | | | | | | | | | | | | |
| Purchases of treasury stock | — | | | — | | | — | | | — | | | — | | | | | — | | | — | | | (985) | | | (985) | |
| Stock-based compensation | — | | | — | | | 0 | | | — | | | (14) | | | | | (21) | | | — | | | 29 | | | (6) | |
Dividends - preferred stock ($14.22 per share) | — | | | — | | | — | | | — | | | — | | | | | (11) | | | — | | | — | | | (11) | |
Dividends - common stock ($0.22 per share) | — | | | — | | | — | | | — | | | — | | | | | (135) | | | — | | | — | | | (135) | |
| | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2020 | 750 | | | $ | 734 | | | 833,985 | | | $ | 1 | | | $ | 9,523 | | | | | $ | 9,960 | | | $ | (49) | | | $ | (8,199) | | | $ | 11,970 | |
| Net earnings | — | | | — | | | — | | | — | | | — | | | | | 48 | | | — | | | — | | | 48 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | — | | | | | — | | | 12 | | | — | | | 12 | |
| Purchases of treasury stock | — | | | — | | | — | | | — | | | — | | | | | — | | | — | | | 0 | | | 0 | |
| Stock-based compensation | — | | | — | | | 0 | | | — | | | 9 | | | | | (17) | | | — | | | 16 | | | 8 | |
Dividends - preferred stock ($14.06 per share) | — | | | — | | | — | | | — | | | — | | | | | (11) | | | — | | | — | | | (11) | |
Dividends - common stock ($0.22 per share) | — | | | — | | | — | | | — | | | — | | | | | (128) | | | — | | | — | | | (128) | |
Balance at June 30, 2020 | 750 | | | $ | 734 | | | 833,985 | | | $ | 1 | | | $ | 9,532 | | | | | $ | 9,852 | | | $ | (37) | | | $ | (8,183) | | | $ | 11,899 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | Common Stock | | | | | | | | | | | | Preferred Stock | | Common Stock | | | |
| ($ in millions, shares in thousands) | Shares Issued | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Equity | ($ in millions,
shares in thousands) | Shares Issued | | Amount | | Shares Issued | | Amount | | Additional Paid-in Capital | | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Equity |
| | | | | | | | | | | | | | | |
| Balance at January 1, 2016 | 833,828 |
| | $ | 1 |
| | $ | 9,351 |
| | $ | 3,293 |
| | $ | (41 | ) | | $ | — |
| | $ | 12,604 |
| |
| Balance at January 1, 2021 | | Balance at January 1, 2021 | 750 | | | $ | 734 | | | 833,985 | | | $ | 1 | | | $ | 9,570 | | | | $ | 10,621 | | | $ | (51) | | | $ | (8,174) | | | $ | 12,701 | |
| | Net earnings | | Net earnings | — | | | — | | | — | | | — | | | — | | | | 1,025 | | | — | | | — | | | 1,025 | |
| Other comprehensive income | | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | | — | | | (5) | | | — | | | (5) | |
| | Purchases of treasury stock | | Purchases of treasury stock | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | (200) | | | (200) | |
| Stock-based compensation | | Stock-based compensation | — | | | — | | | 0 | | | — | | | 22 | | | | (37) | | | — | | | 72 | | | 57 | |
Dividends - preferred stock ($14.06 per share) | | Dividends - preferred stock ($14.06 per share) | — | | | — | | | — | | | — | | | — | | | | (11) | | | — | | | — | | | (11) | |
Dividends - common stock ($0.22 per share) | | Dividends - common stock ($0.22 per share) | — | | | — | | | — | | | — | | | — | | | | (128) | | | — | | | — | | | (128) | |
| Balance at March 31, 2021 | | Balance at March 31, 2021 | 750 | | | $ | 734 | | | 833,985 | | | $ | 1 | | | $ | 9,592 | | | | $ | 11,470 | | | $ | (56) | | | $ | (8,302) | | | $ | 13,439 | |
| Net earnings | — |
| | — |
| | — |
| | 1,675 |
| | — |
| | — |
| | 1,675 |
| Net earnings | — | | | — | | | — | | | — | | | — | | | | 1,242 | | | — | | | — | | | 1,242 | |
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 17 |
| | — |
| | 17 |
| Other comprehensive income | — | | | — | | | — | | | — | | | — | | | | — | | | 0 | | | — | | | 0 | |
| Purchases of treasury stock | — |
| | — |
| | — |
| | — |
| | — |
| | $ | (238 | ) | | (238 | ) | Purchases of treasury stock | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | (393) | | | (393) | |
| Stock-based compensation | 157 |
| | — |
| | 30 |
| | — |
| | — |
| | — |
| | 30 |
| Stock-based compensation | — | | | — | | | 0 | | | — | | | 28 | | | | (14) | | | — | | | 33 | | | 47 | |
| Dividends - common stock | — |
| | — |
| | — |
| | (107 | ) | | — |
| | — |
| | (107 | ) | |
| Balance at September 30, 2016 | 833,985 |
| | $ | 1 |
| | $ | 9,381 |
| | $ | 4,861 |
| | $ | (24 | ) | | $ | (238 | ) | | $ | 13,981 |
| |
Dividends - preferred stock ($14.06 per share) | | Dividends - preferred stock ($14.06 per share) | — | | | — | | | — | | | — | | | — | | | | (10) | | | — | | | — | | | (10) | |
Dividends - common stock ($0.22 per share) | | Dividends - common stock ($0.22 per share) | — | | | — | | | — | | | — | | | — | | | | (128) | | | — | | | — | | | (128) | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | 750 | | | $ | 734 | | | 833,985 | | | $ | 1 | | | $ | 9,620 | | | | $ | 12,560 | | | $ | (56) | | | $ | (8,662) | | | $ | 14,197 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance at January 1, 2017 | 833,985 |
| | $ | 1 |
| | $ | 9,393 |
| | $ | 5,330 |
| | $ | (53 | ) | | $ | (475 | ) | | $ | 14,196 |
| |
| Net earnings | — |
| | — |
| | — |
| | 1,550 |
| | — |
| | — |
| | 1,550 |
| |
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 13 |
| | — |
| | 13 |
| |
| Purchases of treasury stock | — |
| | — |
| | — |
| | — |
| | — |
| | (1,066 | ) | | (1,066 | ) | |
| Stock-based compensation | — |
| | — |
| | 36 |
| | (9 | ) | | — |
| | 10 |
| | 37 |
| |
| Dividends - common stock | — |
| | — |
| | — |
| | (328 | ) | | — |
| | — |
| | (328 | ) | |
| Balance at September 30, 2017 | 833,985 |
| | $ | 1 |
| | $ | 9,429 |
| | $ | 6,543 |
| | $ | (40 | ) | | $ | (1,531 | ) | | $ | 14,402 |
| |
|
See accompanying notes to condensed consolidated financial statements.
Synchrony Financial and subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| Six months ended June 30, |
($ in millions) | 2021 | | 2020 |
| Cash flows - operating activities | | | |
| Net earnings | $ | 2,267 | | | $ | 334 | |
| Adjustments to reconcile net earnings to cash provided from operating activities | | | |
| Provision for credit losses | 140 | | | 3,350 | |
| Deferred income taxes | 184 | | | (328) | |
| Depreciation and amortization | 192 | | | 193 | |
| (Increase) decrease in interest and fees receivable | 596 | | | 348 | |
| (Increase) decrease in other assets | (150) | | | (34) | |
| Increase (decrease) in accrued expenses and other liabilities | (214) | | | (312) | |
| All other operating activities | 265 | | | 367 | |
| Cash provided from (used for) operating activities | 3,280 | | | 3,918 | |
| | | |
| Cash flows - investing activities | | | |
| Maturity and sales of debt securities | 3,836 | | | 4,227 | |
| Purchases of debt securities | (2,140) | | | (4,891) | |
| | | |
| | | |
| Proceeds from sale of loan receivables | 23 | | | 709 | |
| Net (increase) decrease in loan receivables, including held for sale | 1,374 | | | 6,071 | |
| All other investing activities | (309) | | | (184) | |
| Cash provided from (used for) investing activities | 2,784 | | | 5,932 | |
| | | |
| Cash flows - financing activities | | | |
| Borrowings of consolidated securitization entities | | | |
| Proceeds from issuance of securitized debt | 1,050 | | | 500 | |
| Maturities and repayment of securitized debt | (1,875) | | | (2,806) | |
| Senior unsecured notes | | | |
| | | |
| Maturities and repayment of senior unsecured notes | (1,500) | | | (1,500) | |
| | | |
| | | |
| | | |
| | | |
| Dividends paid on preferred stock | (21) | | | (22) | |
| Net increase (decrease) in deposits | (2,957) | | | (997) | |
| Purchases of treasury stock | (593) | | | (985) | |
| Dividends paid on common stock | (256) | | | (263) | |
| All other financing activities | 25 | | | (10) | |
| Cash provided from (used for) financing activities | (6,127) | | | (6,083) | |
| | | |
| Increase (decrease) in cash and equivalents, including restricted amounts | (63) | | | 3,767 | |
| Cash and equivalents, including restricted amounts, at beginning of period | 11,605 | | | 12,647 | |
| Cash and equivalents at end of period: | | | |
| Cash and equivalents | 11,117 | | | 16,344 | |
| Restricted cash and equivalents included in other assets | 425 | | | 70 | |
| Total cash and equivalents, including restricted amounts, at end of period | $ | 11,542 | | | $ | 16,414 | |
|
| | | | | | | |
| | Nine months ended September 30, |
($ in millions) | 2017 | | 2016 |
| Cash flows - operating activities | | | |
| Net earnings | $ | 1,550 |
| | $ | 1,675 |
|
| Adjustments to reconcile net earnings to cash provided from operating activities | | | |
| Provision for loan losses | 3,942 |
| | 2,910 |
|
| Deferred income taxes | 186 |
| | 47 |
|
| Depreciation and amortization | 187 |
| | 164 |
|
| (Increase) decrease in interest and fees receivable | (110 | ) | | (105 | ) |
| (Increase) decrease in other assets | (79 | ) | | 29 |
|
| Increase (decrease) in accrued expenses and other liabilities | 282 |
| | (321 | ) |
| All other operating activities | 488 |
| | 388 |
|
| Cash provided from (used for) operating activities | 6,446 |
| | 4,787 |
|
| | | | |
| Cash flows - investing activities | | | |
| Maturity and redemption of investment securities | 2,987 |
| | 1,038 |
|
| Purchases of investment securities | (1,247 | ) | | (1,241 | ) |
| Acquisition of loan receivables | (73 | ) | | (54 | ) |
| Net (increase) decrease in restricted cash and equivalents | 174 |
| | 12 |
|
| Net (increase) decrease in loan receivables | (3,706 | ) | | (4,773 | ) |
| All other investing activities | (383 | ) | | (133 | ) |
| Cash provided from (used for) investing activities | (2,248 | ) | | (5,151 | ) |
| | | | |
| Cash flows - financing activities | | | |
| Borrowings of consolidated securitization entities | | | |
| Proceeds from issuance of securitized debt | 2,381 |
| | 3,766 |
|
| Maturities and repayment of securitized debt | (2,884 | ) | | (4,949 | ) |
| Third-party debt | | | |
| Proceeds from issuance of third-party debt | 741 |
| | 1,193 |
|
| Maturities and repayment of third-party debt | (500 | ) | | (4,151 | ) |
| Net increase (decrease) in deposits | 2,060 |
| | 6,119 |
|
| Purchases of treasury stock | (1,066 | ) | | (238 | ) |
| Dividends paid on common stock | (328 | ) | | (107 | ) |
| All other financing activities | (8 | ) | | (6 | ) |
| Cash provided from (used for) financing activities | 396 |
| | 1,627 |
|
| | | | |
| Increase (decrease) in cash and equivalents | 4,594 |
| | 1,263 |
|
| Cash and equivalents at beginning of period | 9,321 |
| | 12,325 |
|
| Cash and equivalents at end of period | $ | 13,915 |
| | $ | 13,588 |
|
See accompanying notes to condensed consolidated financial statements.
Synchrony Financial and subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1. BUSINESS DESCRIPTION
Synchrony Financial (the “Company”) provides a range of credit products through financing programs it has established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers. We primarily offer private label, Dual Card and general purpose co-branded credit cards, promotional financing and installment lending, loyalty programs and FDIC-insured savings products insured by the Federal Deposit Insurance Corporation ("FDIC") through Synchrony Bank (the “Bank”).
References to the “Company”, “we”, “us” and “our” are to Synchrony Financial and its consolidated subsidiaries unless the context otherwise requires.
In November 2015, Synchrony Financial became a stand-alone savings and loan holding company following the completion of General Electric Company’s (“GE”) exchange offer, in which GE exchanged shares of GE common stock for all of the remaining shares of our common stock it owned (the “Separation”).
NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles (“GAAP”).
Preparing financial statements in conformity with U.S. GAAP requires us to make estimates based on assumptions about current, and for some estimates, future, economic and market conditions (for example, unemployment, housing, interest rates and market liquidity) which affect reported amounts and related disclosures in our condensed consolidated financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, as appropriate, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially affect our results of operations and financial position. Among other effects, such changes could result in incremental losses on loan receivables, future impairments of investmentdebt securities, goodwill and intangible assets, increases in reserves for contingencies, establishment of valuation allowances on deferred tax assets and increases in our tax liabilities.
We primarily conduct our operations within the United States and Canada. Substantially all of our revenues are from U.S. customers. The operating activities conducted by our non-U.S. affiliates use the local currency as their functional currency. The effects of translating the financial statements of these non-U.S. affiliates to U.S. dollars are included in equity. Asset and liability accounts are translated at period-end exchange rates, while revenues and expenses are translated at average rates for the respective periods.
Consolidated Basis of Presentation
The Company’s financial statements have been prepared on a consolidated basis. Under this basis of presentation, our financial statements consolidate all of our subsidiaries – i.e., entities in which we have a controlling financial interest, most often because we hold a majority voting interest.
To determine if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply the variable interest entity (“VIE”) model to the entity, otherwise the entity is evaluated under the voting interest model. Where we hold current or potential rights that give us the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance (“power”) combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses (“significant economics”), we have a controlling financial interest in that VIE. Rights held by others to remove the party with power over the VIE are not considered unless one party can exercise those rights unilaterally. We consolidate certain securitization entities under the VIE model because we have both power and significant economics. See Note 5. Variable Interest Entities.
Interim Period Presentation
The condensed consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these condensed consolidated financial statements should not be considered as necessarily indicative of results that may be expected for the entire year. These condensed consolidated financial statements should be read in conjunction with our 20162020 annual consolidated and combined financial statements and the related notes in our Annual Report on Form 10-K for the year ended December 31, 20162020 (our "2016"2020 Form 10-K").
Summary of Significant Accounting Policies
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In July 2015, the FASB approved a one-year deferral of this standard, with a revised effective date for annual and interim reporting periods beginning after December 15, 2017. The scope of ASU 2014-09 excludes interest and fee income on loans and gains and losses on investment securities, derivatives and the sales of financial instruments, and as a result, the majority of our revenue will not be affected by the ASU. The standard permits the use of either the retrospective or modified retrospective (cumulative effect) transition method. We do not expect the guidance to have a material impact on the timing or measurement of the Company’s revenues.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU replaces the existing incurred loss impairment guidance with a new impairment model known as the Current Expected Credit Loss ("CECL") model, which is based on expected credit losses. The CECL model requires, upon origination of a loan, the recognition of all expected credit losses over the life of the loan based on historical experience, current conditions and reasonable and supportable forecasts. This standard is effective for annual and interim reporting periods for fiscal years beginning after December 15, 2019, with early adoption permitted for annual and interim periods for fiscal years beginning after December 15, 2018. The amendments in this standard will be recognized through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. While we are evaluating the effect that ASU 2016-13 will have on our consolidated financial statements and related disclosures, this standard is expected to result in an increase to our allowance for loan losses given the change to expected losses for the estimated life of the financial asset. The extent of the increase will depend on the asset quality of the portfolio, and economic conditions and forecasts at adoption.
See Note 2. Basis of Presentation and Summary of Significant Accounting Policies to our 20162020 annual consolidated and combined financial statements in our 20162020 Form 10-K, for additional information on our other significant accounting policies.
NOTE 3. INVESTMENTDEBT SECURITIES
All of our investmentdebt securities are classified as available-for-sale and are held to meet our liquidity objectives or to comply with the Community Reinvestment Act.Act (“CRA”). Our investmentdebt securities consist of the following:
| | | | September 30, 2017 | | December 31, 2016 | | June 30, 2021 | | December 31, 2020 |
| | | | Gross |
| | Gross |
| | | | | | Gross |
| | Gross |
| | | | | Gross | | Gross | | | | Gross | | Gross | |
| | Amortized |
| | unrealized |
| | unrealized |
| | Estimated |
| | Amortized |
| | unrealized |
| | unrealized |
| | Estimated |
| | Amortized | | unrealized | | unrealized | | Estimated | | Amortized | | unrealized | | unrealized | | Estimated |
| ($ in millions) | cost |
| | gains |
| | losses |
| | fair value |
| | cost |
| | gains |
| | losses |
| | fair value |
| ($ in millions) | cost | | gains | | losses | | fair value | | cost | | gains | | losses | | fair value |
| Debt | | | | | | | | | | | | | | | | |
| U.S. government and federal agency | $ | 1,725 |
| | $ | 1 |
| | $ | (1 | ) | | $ | 1,725 |
| | $ | 3,676 |
| | $ | 1 |
| | $ | (1 | ) | | $ | 3,676 |
| U.S. government and federal agency | $ | 2,531 | | | $ | 1 | | | $ | (1) | | | $ | 2,531 | | | $ | 3,926 | | | $ | 1 | | | $ | 0 | | | $ | 3,927 | |
| State and municipal | 44 |
| | — |
| | — |
| | 44 |
| | 47 |
| | — |
| | (1 | ) | | 46 |
| State and municipal | 37 | | | 0 | | | (2) | | | 35 | | | 40 | | | 0 | | | (1) | | | 39 | |
Residential mortgage-backed(a) | 1,321 |
| | 2 |
| | (21 | ) | | 1,302 |
| | 1,400 |
| | 2 |
| | (29 | ) | | 1,373 |
| Residential mortgage-backed(a) | 696 | | | 20 | | | (2) | | | 714 | | | 817 | | | 25 | | | 0 | | | 842 | |
Asset-backed(b) | 231 |
| | — |
| | — |
| | 231 |
| | — |
| | — |
| | — |
| | — |
| Asset-backed(b) | 2,433 | | | 6 | | | 0 | | | 2,439 | | | 2,652 | | | 9 | | | 0 | | | 2,661 | |
| Equity | 15 |
| | — |
| | — |
| | 15 |
| | 15 |
| | — |
| | — |
| | 15 |
| |
| Other | | Other | 8 | | | 1 | | | 0 | | | 9 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | Total | $ | 3,336 |
| | $ | 3 |
| | $ | (22 | ) | | $ | 3,317 |
| | $ | 5,138 |
| | $ | 3 |
| | $ | (31 | ) | | $ | 5,110 |
| Total | $ | 5,705 | | | $ | 28 | | | $ | (5) | | | $ | 5,728 | | | $ | 7,435 | | | $ | 35 | | | $ | (1) | | | $ | 7,469 | |
_______________________
| |
(a) | All of our residential mortgage-backed securities have been issued by government-sponsored entities and are collateralized by U.S. mortgages. At September 30, 2017 and December 31, 2016, $362 million and $363 million, respectively, are pledged by the Bank as collateral to the Federal Reserve to secure Federal Reserve Discount Window advances. |
| |
(b) | All of our asset-backed securities are collateralized by credit card loans. |
(a)All of our residential mortgage-backed securities have been issued by government-sponsored entities and are collateralized by U.S. mortgages. At June 30, 2021 and December 31, 2020, $168 million and $229 million of residential mortgage-backed securities, respectively, are pledged by the Bank as collateral to the Federal Reserve to secure Federal Reserve Discount Window advances.
(b)Our asset-backed securities are collateralized by credit card and auto loans.
The following table presents the estimated fair values and gross unrealized losses of our available-for-sale investmentdebt securities:
| | | | In loss position for | | In loss position for |
| | Less than 12 months | | 12 months or more | | Less than 12 months | | 12 months or more |
| | | | Gross |
| | | | Gross |
| | | Gross | | | Gross |
| | Estimated |
| | unrealized |
| | Estimated |
| | unrealized |
| | Estimated | | unrealized | | Estimated | | unrealized |
| ($ in millions) | fair value |
| | losses |
| | fair value |
| | losses |
| ($ in millions) | fair value | | losses | | fair value | | losses |
| At September 30, 2017 | | | | | | | | |
| Debt | | | | | | | | |
| At June 30, 2021 | | At June 30, 2021 | | | | | | | |
| U.S. government and federal agency | $ | 1,450 |
| | $ | (1 | ) | | $ | — |
| | $ | — |
| U.S. government and federal agency | $ | 360 | | | $ | (1) | | | $ | 0 | | | $ | 0 | |
| State and municipal | 25 |
| | — |
| | 5 |
| | — |
| State and municipal | 4 | | | 0 | | | 20 | | | (2) | |
| Residential mortgage-backed | 330 |
| | (5 | ) | | 831 |
| | (16 | ) | Residential mortgage-backed | 126 | | | (2) | | | 0 | | | 0 | |
| Asset-backed | 129 |
| | — |
| | — |
| | — |
| Asset-backed | 499 | | | 0 | | | 0 | | | 0 | |
| Equity | — |
| | — |
| | — |
| | — |
| |
| Other | | Other | 0 | | | 0 | | | 0 | | | 0 | |
| Total | $ | 1,934 |
| | $ | (6 | ) | | $ | 836 |
| | $ | (16 | ) | Total | $ | 989 | | | $ | (3) | | | $ | 20 | | | $ | (2) | |
| | | | | | | | | | | | | | | | |
| At December 31, 2016 | | | | | | | | |
| Debt | | | | | | | | |
| At December 31, 2020 | | At December 31, 2020 | |
| U.S. government and federal agency | $ | 1,701 |
| | $ | (1 | ) | | $ | — |
| | $ | — |
| U.S. government and federal agency | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| State and municipal | 35 |
| | (1 | ) | | 4 |
| | — |
| State and municipal | 3 | | | 0 | | | 21 | | | (1) | |
| Residential mortgage-backed | 1,235 |
| | (28 | ) | | 35 |
| | (1 | ) | Residential mortgage-backed | 6 | | | 0 | | | 0 | | | 0 | |
| Equity | 14 |
| | — |
| | 1 |
| | — |
| |
| Asset-backed | | Asset-backed | 242 | | | 0 | | | 0 | | | 0 | |
| | Total | $ | 2,985 |
| | $ | (30 | ) | | $ | 40 |
| | $ | (1 | ) | Total | $ | 251 | | | $ | 0 | | | $ | 21 | | | $ | (1) | |
We regularly review investmentdebt securities for impairment resulting from credit loss using both qualitative and quantitative criteria. criteria, as necessary based on the composition of the portfolio at period end. Based on our assessment, no material impairments for credit losses were recognized during the period.
We presently do not intend to sell our debt securities that are in an unrealized loss position and believe that it is not more likely than not that we will be required to sell these securities before recovery of our amortized cost.
There were no other-than-temporary impairments recognized for the three and nine months ended September 30, 2017 and 2016.
Contractual Maturities of Investments in Available-for-Sale Debt Securities
| | | | | | | | | | | | | | | | | |
| Amortized | | Estimated | | Weighted |
| At June 30, 2021 ($ in millions) | cost | | fair value | | Average yield (a) |
| Due | | | | | |
| Within one year | $ | 3,229 | | | $ | 3,232 | | | 0.3 | % |
| After one year through five years | $ | 1,739 | | | $ | 1,742 | | | 0.3 | % |
| After five years through ten years | $ | 244 | | | $ | 253 | | | 2.1 | % |
| After ten years | $ | 493 | | | $ | 501 | | | 1.7 | % |
| | | | | |
_____________________ |
| | | | | | | |
| | Amortized |
| | Estimated |
|
| At September 30, 2017 ($ in millions) | cost |
| | fair value |
|
| | | | |
| Due | | | |
| Within one year | $ | 1,611 |
| | $ | 1,610 |
|
| After one year through five years | $ | 346 |
| | $ | 346 |
|
| After five years through ten years | $ | 2 |
| | $ | 2 |
|
| After ten years | $ | 1,362 |
| | $ | 1,344 |
|
We expect actual maturities to differ from contractual maturities because borrowers have the right to prepay certain obligations.
There were no material realized gains or losses recognized for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016.2020.
Although we generally do not have the intent to sell any specific securities held at SeptemberJune 30, 2017,2021, in the ordinary course of managing our investmentdebt securities portfolio, we may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield, liquidity requirements and funding obligations.
NOTE 4. LOAN RECEIVABLES AND ALLOWANCE FOR LOANCREDIT LOSSES
| | | ($ in millions) | September 30, 2017 | | December 31, 2016 | ($ in millions) | June 30, 2021 | | December 31, 2020 |
| | | | | |
| Credit cards | $ | 73,946 |
| | $ | 73,580 |
| Credit cards | $ | 74,429 | | | $ | 78,455 | |
| Consumer installment loans | 1,561 |
| | 1,384 |
| Consumer installment loans | 2,507 | | | 2,125 | |
| Commercial credit products | 1,384 |
| | 1,333 |
| Commercial credit products | 1,379 | | | 1,250 | |
| Other | 37 |
| | 40 |
| Other | 59 | | | 37 | |
Total loan receivables, before allowance for losses(a)(b) | $ | 76,928 |
| | $ | 76,337 |
| |
Total loan receivables, before allowance for credit losses(a)(b) | | Total loan receivables, before allowance for credit losses(a)(b) | $ | 78,374 | | | $ | 81,867 | |
_______________________
| |
(a) | (a)Total loan receivables include $22.4 billion and $25.4 billion of restricted loans of consolidated securitization entities at June 30, 2021 and December 31, 2020, respectively. See Note 5. Variable Interest Entities for further information on these restricted loans. (b)At June 30, 2021 and December 31, 2020, loan receivables included deferred costs, net of deferred income, of $168 million and $153 million, respectively. Total loan receivables include $22.9 billion and $24.0 billion of restricted loans of consolidated securitization entities at September 30, 2017 and December 31, 2016, respectively. See Note 5. Variable Interest Entities for further information on these restricted loans.
|
| |
(b) | At September 30, 2017 and December 31, 2016, loan receivables included deferred expense, net of deferred income, of $95 million and $82 million, respectively. |
Allowance for LoanCredit Losses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | | | | Balance at April 1, 2021 | | Provision charged to operations | | Gross charge-offs | | Recoveries | | | | Balance at
June 30, 2021 |
| Credit cards | | | | | $ | 9,735 | | | $ | (163) | | | $ | (881) | | | $ | 213 | | | | | $ | 8,904 | |
| Consumer installment loans | | | | | 100 | | | (26) | | | (12) | | | 5 | | | | | 67 | |
| Commercial credit products | | | | | 64 | | | (5) | | | (10) | | | 1 | | | | | 50 | |
| Other | | | | | 2 | | | 0 | | | 0 | | | 0 | | | | | 2 | |
| Total | | | | | $ | 9,901 | | | $ | (194) | | | $ | (903) | | | $ | 219 | | | | | $ | 9,023 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Balance at April 1, 2020 | | Provision charged to operations | | Gross charge-offs | | Recoveries | | Balance at
June 30, 2020 |
| Credit cards | $ | 9,029 | | | $ | 1,633 | | | $ | (1,265) | | | $ | 240 | | | $ | 9,637 | |
| Consumer installment loans | 83 | | | 28 | | | (11) | | | 3 | | | 103 | |
| Commercial credit products | 62 | | | 12 | | | (15) | | | 2 | | | 61 | |
| Other | 1 | | | 0 | | | 0 | | | 0 | | | 1 | |
| Total | $ | 9,175 | | | $ | 1,673 | | | $ | (1,291) | | | $ | 245 | | | $ | 9,802 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Balance at January 1, 2021 | | Provision charged to operations | | Gross charge-offs | | Recoveries | | Other | | Balance at
June 30, 2021 |
| Credit cards | $ | 10,076 | | | $ | 178 | | | $ | (1,782) | | | $ | 432 | | | $ | 0 | | | $ | 8,904 | |
| Consumer installment loans | 127 | | | (44) | | | (27) | | | 10 | | | 1 | | | 67 | |
| Commercial credit products | 61 | | | 5 | | | (19) | | | 3 | | | 0 | | | 50 | |
| Other | 1 | | | 1 | | | 0 | | | 0 | | | 0 | | | 2 | |
| Total | $ | 10,265 | | | $ | 140 | | | $ | (1,828) | | | $ | 445 | | | $ | 1 | | | $ | 9,023 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Balance at January 1, 2020 | | Impact of ASU 2016-13 Adoption | | Post-Adoption Balance at January 1, 2020 | | Provision charged to operations | | Gross charge-offs | | Recoveries | | Balance at
June 30, 2020 |
| Credit cards | $ | 5,506 | | | $ | 2,989 | | | $ | 8,495 | | | $ | 3,268 | | | $ | (2,660) | | | $ | 534 | | | $ | 9,637 | |
| Consumer installment loans | 46 | | | 26 | | | 72 | | | 52 | | | (27) | | | 6 | | | 103 | |
| Commercial credit products | 49 | | | 6 | | | 55 | | | 30 | | | (29) | | | 5 | | | 61 | |
| Other | 1 | | | 0 | | | 1 | | | 0 | | | 0 | | | 0 | | | 1 | |
| Total | $ | 5,602 | | | $ | 3,021 | | | $ | 8,623 | | | $ | 3,350 | | | $ | (2,716) | | | $ | 545 | | | $ | 9,802 | |
Our allowance for credit losses at June 30, 2021 and December 31, 2020 reflects our estimate of expected credit losses for the life of the loan receivables on our consolidated statement of financial position.
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Balance at July 1, 2017 |
| | Provision charged to operations |
| | Gross charge-offs |
| | Recoveries |
| | Balance at
September 30, 2017 |
|
| | | | | | | | | | |
| Credit cards | $ | 4,906 |
| | $ | 1,287 |
| | $ | (1,140 | ) | | $ | 211 |
| | $ | 5,264 |
|
| Consumer installment loans | 34 |
| | 14 |
| | (12 | ) | | 3 |
| | 39 |
|
| Commercial credit products | 60 |
| | 9 |
| | (14 | ) | | 2 |
| | 57 |
|
| Other | 1 |
| | — |
| | — |
| | — |
| | $ | 1 |
|
| Total | $ | 5,001 |
| | $ | 1,310 |
| | $ | (1,166 | ) | | $ | 216 |
| | $ | 5,361 |
|
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Balance at July 1, 2016 |
| | Provision charged to operations |
| | Gross charge-offs |
| | Recoveries |
| | Balance at
September 30, 2016 |
|
| | | | | | | | | | |
| Credit cards | $ | 3,800 |
| | $ | 964 |
| | $ | (919 | ) | | $ | 172 |
| | $ | 4,017 |
|
| Consumer installment loans | 39 |
| | 11 |
| | (11 | ) | | 4 |
| | 43 |
|
| Commercial credit products | 53 |
| | 12 |
| | (13 | ) | | 2 |
| | 54 |
|
| Other | 2 |
| | (1 | ) | | — |
| | — |
| | $ | 1 |
|
| Total | $ | 3,894 |
| | $ | 986 |
| | $ | (943 | ) | | $ | 178 |
| | $ | 4,115 |
|
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Balance at January 1, 2017 |
| | Provision charged to operations |
| | Gross charge-offs |
| | Recoveries |
| | Balance at September 30, 2017 |
|
| | | | | | | | | | |
| Credit cards | $ | 4,254 |
| | $ | 3,866 |
| | $ | (3,518 | ) | | $ | 662 |
| | $ | 5,264 |
|
| Consumer installment loans | 37 |
| | 28 |
| | (37 | ) | | 11 |
| | 39 |
|
| Commercial credit products | 52 |
| | 48 |
| | (48 | ) | | 5 |
| | 57 |
|
| Other | 1 |
| | — |
| | — |
| | — |
| | $ | 1 |
|
| Total | $ | 4,344 |
| | $ | 3,942 |
| | $ | (3,603 | ) | | $ | 678 |
| | $ | 5,361 |
|
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Balance at January 1, 2016 |
| | Provision charged to operations |
| | Gross charge-offs |
| | Recoveries |
| | Balance at
September 30, 2016 |
|
| | | | | | | | | | |
| Credit cards | $ | 3,420 |
| | $ | 2,836 |
| | $ | (2,820 | ) | | $ | 581 |
| | $ | 4,017 |
|
| Consumer installment loans | 26 |
| | 38 |
| | (31 | ) | | 10 |
| | 43 |
|
| Commercial credit products | 50 |
| | 36 |
| | (39 | ) | | 7 |
| | 54 |
|
| Other | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
| Total | $ | 3,497 |
| | $ | 2,910 |
| | $ | (2,890 | ) | | $ | 598 |
| | $ | 4,115 |
|
| | | | | | | | | | |
Losses on loan receivables are estimated and recognized upon origination of the loan, based on expected credit losses for the life of the loan balance at June 30, 2021. Expected credit loss estimates are developed using both quantitative models and qualitative adjustments, and incorporates a macroeconomic forecast, as described within the 2020 Form 10-K. The current and forecasted economic conditions at the balance sheet date including the impact of the COVID-19 pandemic influenced our current estimate of expected credit losses. These conditions have improved as compared to December 31, 2020. We also continue to experience improvements in customer payment behavior, which include the effects of recent governmental stimulus actions, that has contributed to a reduction in loan receivables balances and delinquent accounts. Accordingly, our allowance for credit losses decreased by $1.2 billion to $9.0 billion during the six months ended June 30, 2021. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies to our 2020 annual consolidated financial statements in our 2020 Form 10-K, for additional information on our significant accounting policies related to our allowance for credit losses.
Delinquent and Non-accrual Loans
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At June 30, 2021 ($ in millions) | 30-89 days delinquent | | 90 or more days delinquent | | Total past due | | 90 or more days delinquent and accruing | | Total non-accruing |
| Credit cards | $ | 834 | | | $ | 773 | | | $ | 1,607 | | | $ | 773 | | | $ | 0 | |
| Consumer installment loans | 21 | | | 2 | | | 23 | | | 0 | | | 2 | |
| Commercial credit products | 14 | | | 9 | | | 23 | | | 9 | | | 0 | |
| | | | | | | | | |
| Total delinquent loans | $ | 869 | | | $ | 784 | | | $ | 1,653 | | | $ | 782 | | | $ | 2 | |
| Percentage of total loan receivables | 1.1 | % | | 1.0 | % | | 2.1 | % | | 1.0 | % | | 0 | % |
| | | At September 30, 2017 ($ in millions) | 30-89 days delinquent |
| | 90 or more days delinquent |
| | Total past due |
| | 90 or more days delinquent and accruing |
| | Total non-accruing |
| |
| | | | | | | | | | | |
| At December 31, 2020 ($ in millions) | | At December 31, 2020 ($ in millions) | 30-89 days delinquent | | 90 or more days delinquent | | Total past due | | 90 or more days delinquent and accruing | | Total non-accruing |
| Credit cards | $ | 1,936 |
| | $ | 1,688 |
| | $ | 3,624 |
| | $ | 1,688 |
| | $ | — |
| Credit cards | $ | 1,325 | | | $ | 1,128 | | | $ | 2,453 | | | $ | 1,128 | | | $ | 0 | |
| Consumer installment loans | 21 |
| | 4 |
| | 25 |
| | — |
| | 4 |
| Consumer installment loans | 26 | | | 5 | | | 31 | | | 0 | | | 5 | |
| Commercial credit products | 30 |
| | 15 |
| | 45 |
| | 15 |
| | — |
| Commercial credit products | 20 | | | 10 | | | 30 | | | 10 | | | 0 | |
| | Total delinquent loans | $ | 1,987 |
| | $ | 1,707 |
| | $ | 3,694 |
| | $ | 1,703 |
| | $ | 4 |
| Total delinquent loans | $ | 1,371 | | | $ | 1,143 | | | $ | 2,514 | | | $ | 1,138 | | | $ | 5 | |
| Percentage of total loan receivables | 2.6 | % | | 2.2 | % | | 4.8 | % | | 2.2 | % | | — | % | Percentage of total loan receivables | 1.7 | % | | 1.4 | % | | 3.1 | % | | 1.4 | % | | 0 | % |
|
| | | | | | | | | | | | | | | | | | | |
| At December 31, 2016 ($ in millions) | 30-89 days delinquent |
| | 90 or more days delinquent |
| | Total past due |
| | 90 or more days delinquent and accruing |
| | Total non-accruing |
|
| | | | | | | | | | |
| Credit cards | $ | 1,695 |
| | $ | 1,524 |
| | $ | 3,219 |
| | $ | 1,524 |
| | $ | — |
|
| Consumer installment loans | 19 |
| | 4 |
| | 23 |
| | — |
| | 4 |
|
| Commercial credit products | 35 |
| | 18 |
| | 53 |
| | 18 |
| | — |
|
| Total delinquent loans | $ | 1,749 |
| | $ | 1,546 |
| | $ | 3,295 |
| | $ | 1,542 |
| | $ | 4 |
|
| Percentage of total loan receivables | 2.3 | % | | 2.0 | % | | 4.3 | % | | 2.0 | % | | — | % |
Impaired Loans and Troubled Debt Restructurings
Most of our non-accrual loan receivables are smaller balance loans evaluated collectively, by portfolio, for impairment and therefore are outside the scope of the disclosure requirements for impaired loans. Accordingly, impaired loans represent restructured smaller balance homogeneous loans meeting the definition of a Troubled Debt Restructuring (“TDR”). We use certain loan modification programs for borrowers experiencing financial difficulties. These loan modification programs include interest rate reductions and payment deferrals in excess of three months, which were not part of the terms of the original contract. Our TDR loans do not include loans that are classified as loan receivables held for sale or short-term modifications made on a good faith basis in response to COVID-19.
We have both internal and external loan modification programs. We use long-term modification programs for borrowers experiencing financial difficulty as a loss mitigation strategy to improve long-term collectability of the loans that are classified as TDRs. The long-term program involves changing the structure of the loan to a fixed payment loan with a maturity no longer than 60 months and reducing the interest rate on the loan. The long-term program does not normally provide for the forgiveness of unpaid principal but may allow for the reversal of certain unpaid interest or fee assessments. We also make loan modifications for customers who request financial assistance through external sources, such as consumer credit counseling agency programs. These loans typically receive a reduced interest rate but continue to be subject to the original minimum payment terms and do not normally include waiver of unpaid principal, interest or fees. The following table provides information on loans that entered aour TDR loan modification programmodifications during the periods presented:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 | ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Credit cards | $ | 210 |
| | $ | 164 |
| | $ | 557 |
| | $ | 415 |
| Credit cards | $ | 154 | | | $ | 127 | | | $ | 415 | | | $ | 352 | |
| Consumer installment loans | — |
| | — |
| | — |
| | — |
| Consumer installment loans | 0 | | | 0 | | | 0 | | | 0 | |
| Commercial credit products | 1 |
| | 1 |
| | 3 |
| | 2 |
| Commercial credit products | 0 | | | 0 | | | 1 | | | 1 | |
| | Total | $ | 211 |
| | $ | 165 |
| | $ | 560 |
| | $ | 417 |
| Total | $ | 154 | | | $ | 127 | | | $ | 416 | | | $ | 353 | |
Our allowance for loancredit losses on TDRs is generally measured based on the difference between the recorded loan receivable and the present value of the expected future cash flows, discounted at the original effective interest rate of the loan. Interest income from loans accounted for as TDRs is accounted for in the same manner as other accruing loans.
The following table provides information about loans classified as TDRs and specific reserves. We do not evaluate credit card loans for impairment on an individual basis but instead estimate an allowance for loancredit losses on a collective basis. As a result, there are no impaired loans for which there is no allowance.
| | | | | | | | | | | | | | | | | | | | | | | |
| At June 30, 2021 ($ in millions) | Total recorded
investment | | Related allowance | | Net recorded investment | | Unpaid principal balance |
| Credit cards | $ | 1,230 | | | $ | (556) | | | $ | 674 | | | $ | 1,082 | |
| Consumer installment loans | 0 | | | 0 | | | 0 | | | 0 | |
| Commercial credit products | 4 | | | (2) | | | 2 | | | 4 | |
| Total | $ | 1,234 | | | $ | (558) | | | $ | 676 | | | $ | 1,086 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2020 ($ in millions) | Total recorded
investment | | Related allowance | | Net recorded investment | | Unpaid principal balance |
| Credit cards | $ | 1,238 | | | $ | (561) | | | $ | 677 | | | $ | 1,084 | |
| Consumer installment loans | 0 | | | 0 | | | 0 | | | 0 | |
| Commercial credit products | 4 | | | (2) | | | 2 | | | 4 | |
| Total | $ | 1,242 | | | $ | (563) | | | $ | 679 | | | $ | 1,088 | |
|
| | | | | | | | | | | | | | | |
| At September 30, 2017 ($ in millions) | Total recorded investment |
| | Related allowance |
| | Net recorded investment |
| | Unpaid principal balance |
|
| Credit cards | $ | 981 |
| | $ | (388 | ) | | $ | 593 |
| | $ | 872 |
|
| Consumer installment loans | — |
| | — |
| | — |
| | — |
|
| Commercial credit products | 5 |
| | (2 | ) | | 3 |
| | 5 |
|
| Total | $ | 986 |
| | $ | (390 | ) | | $ | 596 |
| | $ | 877 |
|
|
| | | | | | | | | | | | | | | |
| At December 31, 2016 ($ in millions) | Total recorded investment |
| | Related allowance |
| | Net recorded investment |
| | Unpaid principal balance |
|
| Credit cards | $ | 862 |
| | $ | (321 | ) | | $ | 541 |
| | $ | 761 |
|
| Consumer installment loans | — |
| | — |
| | — |
| | — |
|
| Commercial credit products | 6 |
| | (3 | ) | | 3 |
| | 5 |
|
| Total | $ | 868 |
| | $ | (324 | ) | | $ | 544 |
| | $ | 766 |
|
Financial Effects of TDRs
As part of our loan modifications for borrowers experiencing financial difficulty, we may provide multiple concessions to minimize our economic loss and improve long-term loan performance and collectability. The following table presents the types and financial effects of loans modified and accounted for as TDRs during the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | 2021 | | 2020 |
| ($ in millions) | Interest income recognized during period when loans were impaired | | Interest income that would have been recorded with original terms | | Average recorded investment | | Interest income recognized during period when loans were impaired | | Interest income that would have been recorded with original terms | | Average recorded investment |
| Credit cards | $ | 8 | | | $ | 77 | | | $ | 1,270 | | | $ | 9 | | | $ | 67 | | | $ | 1,133 | |
| Consumer installment loans | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Commercial credit products | 0 | | | 0 | | | 4 | | | 0 | | | 0 | | | 3 | |
| Total | $ | 8 | | | $ | 77 | | | $ | 1,274 | | | $ | 9 | | | $ | 67 | | | $ | 1,136 | |
|
| | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | 2017 | | 2016 |
| ($ in millions) | Interest income recognized during period when loans were impaired |
| Interest income that would have been recorded with original terms |
| Average recorded investment |
| | Interest income recognized during period when loans were impaired |
| Interest income that would have been recorded with original terms |
| Average recorded investment |
|
| Credit cards | $ | 13 |
| $ | 57 |
| $ | 954 |
| | $ | 12 |
| $ | 45 |
| $ | 793 |
|
| Consumer installment loans | — |
| — |
| — |
| | — |
| — |
| — |
|
| Commercial credit products | — |
| 1 |
| 5 |
| | — |
| 1 |
| 6 |
|
| Total | $ | 13 |
| $ | 58 |
| $ | 959 |
| | $ | 12 |
| $ | 46 |
| $ | 799 |
|
| | | | | | | |
| Nine months ended September 30, | 2017 | | 2016 | |
| Six months ended June 30, | | Six months ended June 30, | 2021 | | 2020 |
| ($ in millions) | Interest income recognized during period when loans were impaired |
| Interest income that would have been recorded with original terms |
| Average recorded investment |
| | Interest income recognized during period when loans were impaired |
| Interest income that would have been recorded with original terms |
| Average recorded investment |
| ($ in millions) | Interest income recognized during period when loans were impaired | | Interest income that would have been recorded with original terms | | Average recorded investment | | Interest income recognized during period when loans were impaired | | Interest income that would have been recorded with original terms | | Average recorded investment |
| Credit cards | $ | 36 |
| $ | 161 |
| $ | 916 |
| | $ | 36 |
| $ | 130 |
| $ | 778 |
| Credit cards | $ | 19 | | | $ | 156 | | | $ | 1,259 | | | $ | 21 | | | $ | 139 | | | $ | 1,137 | |
| Consumer installment loans | — |
| — |
| — |
| | — |
| — |
| — |
| Consumer installment loans | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| Commercial credit products | — |
| 1 |
| 6 |
| | — |
| 1 |
| 6 |
| Commercial credit products | 0 | | | 0 | | | 4 | | | 0 | | | 0 | | | 3 | |
| Total | $ | 36 |
| $ | 162 |
| $ | 922 |
| | $ | 36 |
| $ | 131 |
| $ | 784 |
| Total | $ | 19 | | | $ | 156 | | | $ | 1,263 | | | $ | 21 | | | $ | 139 | | | $ | 1,140 | |
Payment Defaults
The following table presents the type, number and amount of loans accounted for as TDRs that enrolled in a modification plan within the previous 12 months from the applicable balance sheet date and experienced a payment default and charged-off during the periods presented. A customer defaults from a modification program after two consecutive missed payments.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | 2021 | | 2020 |
| ($ in millions) | Accounts defaulted | | Loans defaulted | | Accounts defaulted | | Loans defaulted |
| Credit cards | 21,440 | | | $ | 60 | | | 15,689 | | | $ | 40 | |
| Consumer installment loans | 0 | | | 0 | | | 0 | | | 0 | |
| Commercial credit products | 44 | | | 0 | | | 54 | | 0 | |
| | | | | | | |
| Total | 21,484 | | | $ | 60 | | | 15,743 | | | $ | 40 | |
|
| | | | | | | | | | | | | |
| Three months ended September 30, | 2017 | | 2016 |
| ($ in millions) | Accounts defaulted |
| | Loans defaulted |
| | Accounts defaulted |
| | Loans defaulted |
|
| Credit cards | 19,466 |
| | $ | 41 |
| | 14,779 |
| | $ | 30 |
|
| Consumer installment loans | — |
| | — |
| | — |
| | — |
|
| Commercial credit products | 58 |
| | — |
| | 34 |
| | — |
|
| Total | 19,524 |
| | $ | 41 |
| | 14,813 |
| | $ | 30 |
|
| | | | | | | | | | | |
| Nine months ended September 30, | 2017 | | 2016 | |
| Six months ended June 30, | | Six months ended June 30, | 2021 | | 2020 |
| ($ in millions) | Accounts defaulted |
| | Loans defaulted |
| | Accounts defaulted |
| | Loans defaulted |
| ($ in millions) | Accounts defaulted | | Loans defaulted | | Accounts defaulted | | Loans defaulted |
| Credit cards | 42,569 |
| | $ | 90 |
| | 29,982 |
| | $ | 61 |
| Credit cards | 35,366 | | | $ | 99 | | | 31,914 | | | $ | 80 | |
| Consumer installment loans | — |
| | — |
| | — |
| | — |
| Consumer installment loans | 0 | | | 0 | | | 0 | | | 0 | |
| Commercial credit products | 124 |
| | 1 |
| | 82 |
| | — |
| Commercial credit products | 76 | | | 0 | | | 76 | | | 0 | |
| | Total | 42,693 |
| | $ | 91 |
| | 30,064 |
| | $ | 61 |
| Total | 35,442 | | | $ | 99 | | | 31,990 | | | $ | 80 | |
Credit Quality Indicators
Our loan receivables portfolio includes both secured and unsecured loans. Secured loan receivables are largely comprised of consumer installment loans secured by equipment. Unsecured loan receivables are largely comprised of our open-ended consumer and commercial revolving credit card loans. As part of our credit risk management activities, on an ongoing basis, we assess overall credit quality by reviewing information related to the performance of a customer’s account with us, including delinquency information, as well as information from credit bureaus such as a Fair Isaac Corporation (“FICO”) or other credit scores, relating to the customer’s broader credit performance. FICOWe utilize VantageScore credit scores to assist in our assessment of credit quality. VantageScore credit scores are generally obtained at origination of the account and are refreshed, at a minimum quarterly, but could be as often as weekly, to assist in predicting customer behavior. We categorize these credit scores into the following three credit score categories: (i) 661651 or higher, which are considered the strongest credits; (ii) 601591 to 660,650, considered moderate credit risk; and (iii) 600590 or less, which are considered weaker credits. There are certain customer accounts for which a FICOVantageScore score is not available where we use alternative sources to assess their credit and predict behavior. The following table provides the most recent FICOVantageScore scores available for our customers at SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively, as a percentage of each class of loan receivable. For comparability purposes and to provide the best illustration of how the credit risk inherent in our loan portfolios has changed over time, the credit quality information at June 30, 2020 has also been presented to show applicable VantageScore score categories. The table below excludes 0.7%0.4%, 0.7%0.3% and 0.8%0.3% of our total loan receivables balance at Septembereach of June 30, 2017,2021, December 31, 20162020 and SeptemberJune 30, 2016,2020, respectively, which represents those customer accounts for which a FICOVantageScore score is not available.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 | | June 30, 2020 |
| 651 or | | 591 to | | 590 or | | 651 or | | 591 to | | 590 or | | 651 or | | 591 to | | 590 or |
| higher | | 650 | | | less | | higher | | 650 | | | less | | higher | | 650 | | | less |
| Credit cards | 80 | % | | 16 | % | | 4 | % | | 77 | % | | 17 | % | | 6 | % | | 73 | % | | 20 | % | | 7 | % |
| Consumer installment loans | 81 | % | | 16 | % | | 3 | % | | 78 | % | | 18 | % | | 4 | % | | 77 | % | | 18 | % | | 5 | % |
| Commercial credit products | 93 | % | | 4 | % | | 3 | % | | 92 | % | | 5 | % | | 3 | % | | 91 | % | | 5 | % | | 4 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | | September 30, 2016 |
| | 661 or |
| | 601 to |
| | 600 or |
| | 661 or |
| | 601 to |
| | 600 or |
| | 661 or |
| | 601 to |
| | 600 or |
|
| | higher |
| | 660 |
| | less |
| | higher |
| | 660 |
| | less |
| | higher |
| | 660 |
| | less |
|
| | | | | | | | | | | | | | | | | | |
| Credit cards | 73 | % | | 19 | % | | 8 | % | | 73 | % | | 20 | % | | 7 | % | | 73 | % | | 20 | % | | 7 | % |
| Consumer installment loans | 79 | % | | 15 | % | | 6 | % | | 78 | % | | 16 | % | | 6 | % | | 78 | % | | 16 | % | | 6 | % |
| Commercial credit products | 88 | % | | 7 | % | | 5 | % | | 87 | % | | 9 | % | | 4 | % | | 87 | % | | 8 | % | | 5 | % |
Unfunded Lending Commitments
We manage the potential risk in credit commitments by limiting the total amount of credit, both by individual customer and in total, by monitoring the size and maturity of our portfolios and by applying the same credit standards for all of our credit products. Unused credit card lines available to our customers totaled approximately $366$418 billion and $348$413 billion at SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively. While these amounts represented the total available unused credit card lines, we have not experienced and do not anticipate that all of our customers will access their entire available line at any given point in time.
Interest Income by Product
The following table provides additional information about our interest and fees on loans, including merchant discounts, from our loan receivables, including held for sale:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| ($ in millions) | 2021 | | 2020 | | 2021 | | 2020 |
Credit cards(a) | $ | 3,484 | | | $ | 3,740 | | | $ | 7,141 | | | $ | 8,012 | |
| Consumer installment loans | 59 | | | 37 | | | 112 | | | 72 | |
| Commercial credit products | 23 | | | 30 | | | 44 | | | 63 | |
| Other | 1 | | | 1 | | | 2 | | | 1 | |
| Total | $ | 3,567 | | | $ | 3,808 | | | $ | 7,299 | | | $ | 8,148 | |
_______________________(a)Interest income on credit cards that was reversed related to accrued interest receivables written off was $296 million and $418 million for the three months ended June 30, 2021 and 2020, respectively, and $601 million and $895 million for the six months ended June 30, 2021 and 2020, respectively.
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Credit cards | $ | 4,111 |
| | $ | 3,705 |
| | $ | 11,780 |
| | $ | 10,573 |
|
| Consumer installment loans | 35 |
| | 31 |
| | 101 |
| | 86 |
|
| Commercial credit products | 36 |
| | 35 |
| | 104 |
| | 103 |
|
| Other | — |
| | — |
| | 1 |
| | 1 |
|
| Total | $ | 4,182 |
| | $ | 3,771 |
| | $ | 11,986 |
| | $ | 10,763 |
|
NOTE 5. VARIABLE INTEREST ENTITIES
We use VIEs to securitize loansloan receivables and arrange asset-backed financing in the ordinary course of business. Investors in these entities only have recourse to the assets owned by the entity and not to our general credit. We do not have implicit support arrangements with any VIE and we did not provide non-contractual support for previously transferred loan receivables to any VIE in the three and ninesix months ended SeptemberJune 30, 20172021 and 2016.2020. Our VIEs are able to accept new loan receivables and arrange new asset-backed financings, consistent with the requirements and limitations on such activities placed on the VIE by existing investors. Once an account has been designated to a VIE, the contractual arrangements we have require all existing and future loansloan receivables originated under such account to be transferred to the VIE. The amount of loan receivables held by our VIEs in excess of the minimum amount required under the asset-backed financing arrangements with investors may be removed by us under random removal of accounts provisions. All loan receivables held by a VIE are subject to claims of third-party investors.
In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise of professional judgment in deciding which decision-making rights are most important.
In determining whether we have the right to receive benefits or the obligation to absorb losses that could potentially be significant to a VIE, we evaluate all of our economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual arrangements). This evaluation considers all relevant factors of the entity’s design, including: the entity’s capital structure, contractual rights to earnings or losses, subordination of our interests relative to those of other investors, as well as any other contractual arrangements that might exist that could have the potential to be economically significant. The evaluation of each of these factors in reaching a conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional judgment.
We consolidate VIEs where we have the power to direct the activities that significantly affect the VIEs' economic performance, typically because of our role as either servicer or administrator for the VIEs. The power to direct exists because of our role in the design and conduct of the servicing of the VIEs’ assets as well as directing certain affairs of the VIEs, including determining whether and on what terms debt of the VIEs will be issued.
The loan receivables in these entities have risks and characteristics similar to our other financing receivables and were underwritten to the same standard. Accordingly, the performance of these assets has been similar to our other comparable loan receivables, and the blended performance of the pools of receivables in these entities reflects the eligibility criteria that we apply to determine which receivables are selected for transfer. Contractually, the cash flows from these financing receivables must first be used to pay third-party debt holders, as well as other expenses of the entity. Excess cash flows, if any, are available to us. The creditors of these entities have no claim on our other assets.
The table below summarizes the assets and liabilities of our consolidated securitization VIEs described above.above:
| | | | | | | | | | | |
| ($ in millions) | June 30, 2021 | | December 31, 2020 |
| Assets | | | |
Loan receivables, net(a) | $ | 20,169 | | | $ | 22,683 | |
| | | |
Other assets(b) | 374 | | | 52 | |
| Total | $ | 20,543 | | | $ | 22,735 | |
| | | | |
| Liabilities | | | |
| Borrowings | $ | 6,987 | | | $ | 7,810 | |
| Other liabilities | 17 | | | 23 | |
| Total | $ | 7,004 | | | $ | 7,833 | |
|
| | | | | | | |
| ($ in millions) | September 30, 2017 | | December 31, 2016 |
| Assets | | | |
Loan receivables, net(a) | $ | 21,667 |
| | $ | 22,892 |
|
Other assets(b) | 56 |
| | 107 |
|
| Total | $ | 21,723 |
| | $ | 22,999 |
|
| | | | |
| Liabilities | | | |
| Borrowings | $ | 11,891 |
| | $ | 12,388 |
|
| Other liabilities | 20 |
| | 21 |
|
| Total | $ | 11,911 |
| | $ | 12,409 |
|
_______________________(a)Includes $2.2 billion and $2.7 billion of related allowance for credit losses resulting in gross restricted loans of $22.4 billion and $25.4 billion at June 30, 2021 and December 31, 2020, respectively.
| |
(a) | Includes $1.3 billion and $1.1 billion of related allowance for loan losses resulting in gross restricted loans of $22.9 billion and $24.0 billion at September 30, 2017 and December 31, 2016, respectively. |
| |
(b) | Includes $51 million and $100 million of segregated funds held by the VIEs at September 30, 2017 and December 31, 2016, respectively, which are classified as restricted cash and equivalents and included as a component of other assets in our Condensed Consolidated Statements of Financial Position. |
(b) Includes $371 million and $48 million of segregated funds held by the VIEs at June 30, 2021 and December 31, 2020, respectively, which are classified as restricted cash and equivalents and included as a component of other assets in our Condensed Consolidated Statements of Financial Position.
The balances presented above are net of intercompany balances and transactions that are eliminated in our condensed consolidated financial statements.
We provide servicing for all of our consolidated VIEs. Collections are required to be placed into segregated accounts owned by each VIE in amounts that meet contractually specified minimum levels. These segregated funds are invested in cash and cash equivalents and are restricted as to their use, principally to pay maturing principal and interest on debt and the related servicing fees. Collections above these minimum levels are remitted to us on a daily basis.
Income (principally, interest and fees on loans) earned by our consolidated VIEs was $1.0$0.9 billion and $1.1$1.2 billion for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. Related expenses consisted primarily of provision for loancredit losses of $303$(23) million and $212$480 million for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and interest expense of $65$44 million and $63$59 million for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. These amounts do not include intercompany transactions, principally fees and interest, which are eliminated in our condensed consolidated financial statements.
Income (principally, interest and fees on loans) earned by our consolidated VIEs was $3.1$2.0 billion and $3.4$2.5 billion for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. Related expenses consisted primarily of provision for loancredit losses of $904$(80) million and $729 million$1.0 billion for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and interest expense of $193$95 million and $180$132 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
NOTE 6. INTANGIBLE ASSETS
| | | | | September 30, 2017 | | December 31, 2016 | | | June 30, 2021 | | December 31, 2020 |
| ($ in millions) | | Gross carrying amount |
| | Accumulated amortization |
| | Net |
| | Gross carrying amount |
| | Accumulated amortization |
| | Net |
| ($ in millions) | | Gross carrying amount | | Accumulated amortization | | Net | | Gross carrying amount | | Accumulated amortization | | Net |
| Customer-related | | $ | 1,232 |
| | $ | (648 | ) | | $ | 584 |
| | $ | 1,069 |
| | $ | (560 | ) | | $ | 509 |
| Customer-related | | $ | 1,791 | | | $ | (1,150) | | | $ | 641 | | | $ | 1,734 | | | $ | (1,081) | | | $ | 653 | |
| Capitalized software | | 357 |
| | (169 | ) | | 188 |
| | 318 |
| | (115 | ) | | 203 |
| |
| Capitalized software and other | | Capitalized software and other | | 1,120 | | | (663) | | | 457 | | | 1,043 | | | (571) | | | 472 | |
| Total | | $ | 1,589 |
| | $ | (817 | ) | | $ | 772 |
| | $ | 1,387 |
| | $ | (675 | ) | | $ | 712 |
| Total | | $ | 2,911 | | | $ | (1,813) | | | $ | 1,098 | | | $ | 2,777 | | | $ | (1,652) | | | $ | 1,125 | |
During the ninesix months ended SeptemberJune 30, 2017,2021, we recorded additions to intangible assets subject to amortization of $215$142 million, primarily related to customer-related intangible assets,capitalized software expenditures, as well as capitalized software expenditures.customer-related intangible assets.
Customer-related intangible assets primarily relate to retail partner contract acquisitions and extensions, as well as purchased credit card relationships. During the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, we recorded additions to customer-related intangible assets subject to amortization of $175$62 million and $81$18 million, respectively, primarily related to payments made to acquire and extend certain retail partner relationships. These additions had a weighted average amortizable life of 105 years and 7 years for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
Amortization expense related to retail partner contracts was $28$32 million and $26$33 million for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and $83$64 million and $76$65 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and is included as a component of marketing and business development expense in our Condensed Consolidated Statements of Earnings. All other amortization expense was $25$51 million and $18$49 million for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and $63$101 million and $55$99 million for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and is included as a component of other expense in our Condensed Consolidated Statements of Earnings.
NOTE 7. DEPOSITS
| | | | September 30, 2017 | | December 31, 2016 | | June 30, 2021 | | December 31, 2020 |
| ($ in millions) | Amount |
| | Average rate(a) |
| | Amount |
| | Average rate(a) |
| ($ in millions) | Amount | | Average rate(a) | | Amount | | Average rate(a) |
| | | | | | | | | |
| Interest-bearing deposits | $ | 54,232 |
| | 1.6 | % | | $ | 51,896 |
| | 1.5 | % | Interest-bearing deposits | $ | 59,500 | | | 1.0 | % | | $ | 62,469 | | | 1.7 | % |
| Non-interest-bearing deposits | 222 |
| | — |
| | 159 |
| | — |
| Non-interest-bearing deposits | 341 | | | — | | | 313 | | | — | |
| Total deposits | $ | 54,454 |
| | | | $ | 52,055 |
| | | Total deposits | $ | 59,841 | | | $ | 62,782 | | |
____________________
| |
(a) | Based on interest expense for the nine months ended September 30, 2017 and the year ended December 31, 2016 and average deposits balances. |
(a)Based on interest expense for the six months ended June 30, 2021 and the year ended December 31, 2020 and average deposits balances.
At SeptemberJune 30, 20172021 and December 31, 2016,2020, interest-bearing deposits included $15.8$5.2 billion and $14.2$6.5 billion, respectively, of certificates of deposit of $100,000 or more, respectively. Of the total certificates of deposit of $100,000 or more, $5.1 billion and $4.4 billion were certificates of deposit ofthat exceeded applicable FDIC insurance limits, which are generally $250,000 or more at September 30, 2017 and December 31, 2016, respectively.per depositor.
At SeptemberJune 30, 2017,2021, our interest-bearing time deposits maturing for the remainder of 20172021 and over the next four years and thereafter were as follows:
| | | ($ in millions) | 2017 |
| | 2018 |
| | 2019 |
| | 2020 |
| | 2021 |
| | Thereafter |
| ($ in millions) | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | |
| Deposits | $ | 2,956 |
| | $ | 15,665 |
| | $ | 5,758 |
| | $ | 3,212 |
| | $ | 2,288 |
| | $ | 3,795 |
| Deposits | $ | 8,131 | | | $ | 12,185 | | | $ | 2,248 | | | $ | 2,377 | | | $ | 662 | | | $ | 302 | | |
The above maturity table excludes $17.6$28.4 billion of demand deposits with no defined maturity, of which $15.9$26.9 billion are savings accounts. In addition, at SeptemberJune 30, 2017,2021, we had $3.0$5.2 billion of broker network deposit sweeps procured through a program arranger who channels brokerage account deposits to us.us that are also excluded from the above maturity table. Unless extended, the contracts associated with these broker network deposit sweeps will terminate between 20192023 and 2021.
2027.
NOTE 8. BORROWINGS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| ($ in millions) | Maturity date | | Interest Rate | | Weighted average interest rate | | Outstanding Amount(a) | | Outstanding Amount(a) |
| Borrowings of consolidated securitization entities: | | | | | | | | | |
| Fixed securitized borrowings | 2021 - 2023 | | 2.34% - 3.87% | | 2.96 | % | | $ | 4,187 | | | $ | 5,510 | |
| Floating securitized borrowings | 2021 - 2023 | | 0.71% - 0.98% | | 0.80 | % | | 2,800 | | | 2,300 | |
| Total borrowings of consolidated securitization entities | | | | | 2.10 | % | | 6,987 | | | 7,810 | |
| | | | | | | | | |
| Senior unsecured notes: | | | | | | | | | |
| Synchrony Financial senior unsecured notes: | | | | | | | | | |
| Fixed senior unsecured notes | 2022 - 2029 | | 2.80% - 5.15% | | 4.13 | % | | 5,722 | | | 6,468 | |
| | | | | | | | | |
| | | | | | | | | |
| Synchrony Bank senior unsecured notes: | | | | | | | | | |
| Fixed senior unsecured notes | 2022 | | 3.00% | | 3.00 | % | | 748 | | | 1,497 | |
| | | | | | | | | |
| Total senior unsecured notes | | | | | 4.00 | % | | 6,470 | | | 7,965 | |
| | | | | | | | | |
| Total borrowings | | | | | | | $ | 13,457 | | | $ | 15,775 | |
___________________ |
| | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| ($ in millions) | Maturity date | | Interest Rate | | Weighted average interest rate | | Outstanding Amount(a) | | Outstanding Amount(a) |
| | | | | | | | | | |
| Borrowings of consolidated securitization entities: | | | | | | | | | |
| Fixed securitized borrowings | 2017 - 2021 | | 1.35% - 2.64% |
| | 1.90 | % | | $ | 8,241 |
| | $ | 8,731 |
|
| Floating securitized borrowings | 2018 - 2020 | | 1.95% - 2.16% |
| | 2.03 | % | | 3,650 |
| | 3,657 |
|
| Total borrowings of consolidated securitization entities | | | | �� | 1.94 | % | | 11,891 |
| | 12,388 |
|
| | | | | | | | | | |
| Synchrony Financial senior unsecured notes: | | | | | | | | | |
| Fixed senior unsecured notes | 2019 - 2026 | | 2.60% - 4.50% |
| | 3.53 | % | | 6,317 |
| | 6,811 |
|
| Floating senior unsecured notes | 2017 - 2020 | | 2.54% - 2.72% |
| | 2.67 | % | | 949 |
| | 948 |
|
| | | | | | | | | | |
| Synchrony Bank senior unsecured notes: | | | | | | | | | |
| Fixed senior unsecured notes | 2022 | | 3.00 | % | | 3.00 | % | | 742 |
| | — |
|
| Total senior unsecured notes | | | | | 3.38 | % | | 8,008 |
| | 7,759 |
|
| | | | | | | | | | |
| Total borrowings | | | | | | | $ | 19,899 |
| | $ | 20,147 |
|
___________________ | |
(a) | The amounts presented above for outstanding borrowings include unamortized debt premiums, discounts and issuance cost. |
Debt Maturities
The following table summarizes the maturities of the principal amount of our borrowings of consolidated securitization entities and senior unsecured notes for the remainder of 20172021 and over the next four years and thereafter:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2017 |
| | 2018 |
| | 2019 |
| | 2020 |
| | 2021 |
| | Thereafter |
|
| Borrowings | $ | 1,526 |
| | $ | 2,232 |
| | $ | 7,227 |
| | $ | 4,058 |
| | $ | 1,408 |
| | $ | 3,500 |
|
Third-Party Debt
Senior Unsecured Notes
On June 12, 2017, the Bank issued a total of $750 million principal amount of 3.000% senior unsecured notes due 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | |
| Borrowings | $ | 1,600 | | | $ | 4,733 | | | $ | 2,157 | | | $ | 1,850 | | | $ | 1,000 | | | $ | 2,150 | | |
Credit Facilities
As additional sources of liquidity, we have undrawn committed capacity under certain credit facilities, primarily related to our securitization programs.
At SeptemberJune 30, 2017,2021, we had an aggregate of $5.1$4.4 billion of undrawn committed capacity under our securitization financings, subject to customary borrowing conditions, from private lenders under our two existing securitization programs, and an aggregate of $0.5 billion of undrawn committed capacity under our unsecured revolving credit facility with private lenders.
NOTE 9. FAIR VALUE MEASUREMENTS
For a description of how we estimate fair value, see Note 2. Basis of Presentation and Summary of Significant Accounting Policies in our 20162020 annual consolidated and combined financial statements in our 20162020 Form 10-K.
The following tables present our assets and liabilities measured at fair value on a recurring basis.
Recurring Fair Value Measurements | | | | | | | | | | | | | | | | | | | | | | | |
| At June 30, 2021 ($ in millions) | Level 1 | | Level 2 | | Level 3 | | Total(a) |
| Assets | | | | | | | |
| Debt securities | | | | | | | |
| U.S. government and federal agency | $ | 0 | | | $ | 2,531 | | | $ | 0 | | | $ | 2,531 | |
| State and municipal | 0 | | | 0 | | | 35 | | | 35 | |
| Residential mortgage-backed | 0 | | | 714 | | | 0 | | | 714 | |
| Asset-backed | 0 | | | 2,439 | | | 0 | | | 2,439 | |
| Other | 0 | | | 0 | | | 9 | | | 9 | |
Other assets(b) | 16 | | | 0 | | | 9 | | | 25 | |
| Total | $ | 16 | | | $ | 5,684 | | | $ | 53 | | | $ | 5,753 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| At December 31, 2020 ($ in millions) | | | | | | | |
| Assets | | | | | | | |
| Debt securities | | | | | | | |
| U.S. government and federal agency | $ | 0 | | | $ | 3,927 | | | $ | 0 | | | $ | 3,927 | |
| State and municipal | 0 | | | 0 | | | 39 | | | 39 | |
| Residential mortgage-backed | 0 | | | 842 | | | 0 | | | 842 | |
| Asset-backed | 0 | | | 2,661 | | | 0 | | | 2,661 | |
| | | | | | | |
Other assets(b) | 16 | | | 0 | | | 14 | | | 30 | |
| Total | $ | 16 | | | $ | 7,430 | | | $ | 53 | | | $ | 7,499 | |
| | | | | | | |
| Liabilities | | | | | | | |
| Contingent consideration | 0 | | | 0 | | | 11 | | | 11 | |
| Total | $ | 0 | | | $ | 0 | | | $ | 11 | | | $ | 11 | |
The following tables present our_______________________
(a) For the six months ended June 30, 2021 and 2020, there were no fair value measurements transferred between levels.
(b) Other assets primarily relate to equity investments measured at fair value on a recurring basis.value.
Level 3 Fair Value Measurements |
| | | | | | | | | | | | | | | |
| At September 30, 2017 ($ in millions) | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
|
| | | | | | | | |
| Assets | | | | | | | |
| Investment securities | | | | | | | |
| Debt | | | | | | | |
| U.S. Government and Federal Agency | $ | — |
| | $ | 1,725 |
| | $ | — |
| | $ | 1,725 |
|
| State and municipal | — |
| | — |
| | 44 |
| | 44 |
|
| Residential mortgage-backed | — |
| | 1,302 |
| | — |
| | 1,302 |
|
| Asset-backed | — |
| | 231 |
| | — |
| | 231 |
|
| Equity | 15 |
| | — |
| | — |
| | 15 |
|
| Total | $ | 15 |
| | $ | 3,258 |
| | $ | 44 |
| | $ | 3,317 |
|
| | | | | | | | |
| At December 31, 2016 ($ in millions) | | | | | | | |
| | | | | | | | |
| Assets | | | | | | | |
| Investment securities | | | | | | | |
| Debt | | | | | | | |
| U.S. Government and Federal Agency | $ | — |
| | $ | 3,676 |
| | $ | — |
| | $ | 3,676 |
|
| State and municipal | — |
| | — |
| | 46 |
| | 46 |
|
| Residential mortgage-backed | — |
| | 1,373 |
| | — |
| | 1,373 |
|
| Equity | 15 |
| | — |
| | — |
| | 15 |
|
| Total | $ | 15 |
| | $ | 5,049 |
| | $ | 46 |
| | $ | 5,110 |
|
For the nine months ended September 30, 2017, there were no securities transferred between Level 1 and Level 2 or between Level 2 and Level 3. At September 30, 2017 and December 31, 2016, we did not have any significant liabilities measured at fair value on a recurring basis.
Our Level 3 recurring fair value measurements primarily relate to state and municipal debt instruments, which are valued using non-binding broker quotes or other third-party sources. ForSee Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 9. Fair Value Measurements in our 2020 annual consolidated financial statements in our 2020 Form 10-K for a description of our process to evaluate third-party pricing servicers see Note 2. Basisand a description of Presentation and Summary of Significant Accounting Policies in our 2016 annual consolidated and combined financial statements in our 2016 Form 10-K.contingent consideration arrangements, respectively. Our state and municipal debt securities are classified as available-for-sale with changes in fair value included in accumulated other comprehensive income.
The following table presents the changes in our Level 3 debt instrumentsassets and liabilities that are measured on a recurring basis for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016.
Changes in Level 3 Instruments
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
| Balance at beginning of period | $ | 44 |
| | $ | 49 |
| | $ | 46 |
| | $ | 49 |
|
| Net realized/unrealized gains (losses) | 1 |
| | 2 |
| | 1 |
| | 4 |
|
| Purchases | 1 |
| | — |
| | 2 |
| | — |
|
| Settlements | (2 | ) | | (2 | ) | | (5 | ) | | (4 | ) |
| Balance at end of period | $ | 44 |
| | $ | 49 |
| | $ | 44 |
| | $ | 49 |
|
Non-Recurring Fair Value Measurements
We hold certain assets that have been measured at fair value on a non-recurring basis at September 30, 2017 and 2016.These assets can include repossessed assets and cost method investments that are written down to fair value when they are impaired, as well as loan receivables held for sale. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs. The assets held by us that were measured at fair value on a non-recurring basis and the effects of the remeasurement to fair value2020 were not material for all periods presented.material.
Financial Assets and Financial Liabilities Carried at Other thanThan Fair Value
| | | | | | | | | | | | | | Carrying | | Corresponding fair value amount |
| | Carrying |
| | Corresponding fair value amount | |
At September 30, 2017 ($ in millions) | value |
| | Total |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| |
| At June 30, 2021 ($ in millions) | | At June 30, 2021 ($ in millions) | value | | Total | | Level 1 | | Level 2 | | Level 3 |
| Financial Assets | | | | | | | | | | Financial Assets | | | | | | | | | |
| Financial assets for which carrying values equal or approximate fair value: | | | | | | | | | | Financial assets for which carrying values equal or approximate fair value: | |
Cash and equivalents(a) | $ | 13,915 |
| | $ | 13,915 |
| | $ | 13,315 |
| | $ | 600 |
| | $ | — |
| Cash and equivalents(a) | $ | 11,117 | | | $ | 11,117 | | | $ | 11,117 | | | $ | 0 | | | $ | 0 | |
Other assets(a)(b) | $ | 173 |
| | $ | 173 |
| | $ | 173 |
| | $ | — |
| | $ | — |
| Other assets(a)(b) | $ | 425 | | | $ | 425 | | | $ | 425 | | | $ | 0 | | | $ | 0 | |
| Financial assets carried at other than fair value: | | | | | | | | | | Financial assets carried at other than fair value: | |
Loan receivables, net(c) | $ | 71,567 |
| | $ | 80,248 |
| | $ | — |
| | $ | — |
| | $ | 80,248 |
| Loan receivables, net(c) | $ | 69,351 | | | $ | 82,082 | | | $ | 0 | | | $ | 0 | | | $ | 82,082 | |
Loan receivables held for sale(c) | | Loan receivables held for sale(c) | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | |
| Financial Liabilities | | | | | | | | | | Financial Liabilities | |
| Financial liabilities carried at other than fair value: | | | | | | | | | | Financial liabilities carried at other than fair value: | |
| Deposits | $ | 54,454 |
| | $ | 54,877 |
| | $ | — |
| | $ | 54,877 |
| | $ | — |
| Deposits | $ | 59,841 | | | $ | 60,266 | | | $ | 0 | | | $ | 60,266 | | | $ | 0 | |
| Borrowings of consolidated securitization entities | $ | 11,891 |
| | $ | 11,904 |
| | $ | — |
| | $ | 8,250 |
| | $ | 3,654 |
| Borrowings of consolidated securitization entities | $ | 6,987 | | | $ | 7,095 | | | $ | 0 | | | $ | 4,295 | | | $ | 2,800 | |
| | Senior unsecured notes | $ | 8,008 |
| | $ | 8,197 |
| | $ | — |
| | $ | 8,197 |
| | $ | — |
| Senior unsecured notes | $ | 6,470 | | | $ | 7,105 | | | $ | 0 | | | $ | 7,105 | | | $ | 0 | |
| | | | | | | | | | | |
| | Carrying |
| | Corresponding fair value amount | | Carrying | | Corresponding fair value amount |
At December 31, 2016 ($ in millions) | value |
| | Total |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| |
| At December 31, 2020 ($ in millions) | | At December 31, 2020 ($ in millions) | value | | Total | | Level 1 | | Level 2 | | Level 3 |
| Financial Assets | | | | | | | | | | Financial Assets | | | | | | | | | |
| Financial assets for which carrying values equal or approximate fair value: | | | | | | | | | | Financial assets for which carrying values equal or approximate fair value: | |
Cash and equivalents(a) | $ | 9,321 |
| | $ | 9,321 |
| | $ | 9,321 |
| | $ | — |
| | $ | — |
| Cash and equivalents(a) | $ | 11,524 | | | $ | 11,524 | | | $ | 11,524 | | | $ | 0 | | | $ | 0 | |
Other assets(a)(b) | $ | 347 |
| | $ | 347 |
| | $ | 347 |
| | $ | — |
| | $ | — |
| Other assets(a)(b) | $ | 81 | | | $ | 81 | | | $ | 81 | | | $ | 0 | | | $ | 0 | |
| Financial assets carried at other than fair value: | | | | | | | | | | Financial assets carried at other than fair value: | |
Loan receivables, net(c) | $ | 71,993 |
| | $ | 79,566 |
| | $ | — |
| | $ | — |
| | $ | 79,566 |
| Loan receivables, net(c) | $ | 71,602 | | | $ | 85,234 | | | $ | 0 | | | $ | 0 | | | $ | 85,234 | |
Loan receivables held for sale(c) | | Loan receivables held for sale(c) | $ | 5 | | | $ | 5 | | | $ | 0 | | | $ | 0 | | | $ | 5 | |
| | | | | | | | | | | |
| Financial Liabilities | | | | | | | | | | Financial Liabilities | |
| Financial liabilities carried at other than fair value: | | | | | | | | | | Financial liabilities carried at other than fair value: | |
| Deposits | $ | 52,055 |
| | $ | 52,507 |
| | $ | — |
| | $ | 52,507 |
| | $ | — |
| Deposits | $ | 62,782 | | | $ | 63,382 | | | $ | 0 | | | $ | 63,382 | | | $ | 0 | |
| Borrowings of consolidated securitization entities | $ | 12,388 |
| | $ | 12,402 |
| | $ | — |
| | $ | 9,191 |
| | $ | 3,211 |
| Borrowings of consolidated securitization entities | $ | 7,810 | | | $ | 7,977 | | | $ | 0 | | | $ | 5,680 | | | $ | 2,297 | |
| | Senior unsecured notes | $ | 7,759 |
| | $ | 7,875 |
| | $ | — |
| | $ | 7,875 |
| | $ | — |
| Senior unsecured notes | $ | 7,965 | | | $ | 8,704 | | | $ | 0 | | | $ | 8,704 | | | $ | 0 | |
_______________________
| |
(a) | For cash and equivalents and restricted cash and equivalents, carrying value approximates fair value due to the liquid nature and short maturity of these instruments. |
| |
(b) | This balance relates to restricted cash and equivalents, which is included in other assets. |
| |
(c) | Under certain retail partner program agreements, the expected sales proceeds related to the sale of their credit card portfolio may be limited to the amounts owed by our customers, which may be less than the fair value indicated above.
|
(a)For cash and equivalents and restricted cash and equivalents, carrying value approximates fair value due to the liquid nature and short maturity of these instruments. Cash equivalents classified as Level 2 represent U.S. Government and Federal Agency debt securities with original maturities of three months or less or acquired within three months or less of their maturity.
(b)This balance relates to restricted cash and equivalents, which is included in other assets.
(c) Under certain retail partner program agreements, the expected sales proceeds in the event of a sale of their credit card portfolio may be limited to the amounts owed by our customers, which may be less than the fair value indicated above.
NOTE 10. REGULATORY AND CAPITAL ADEQUACY
As a savings and loan holding company and as of June 2017, a financial holding company, we are subject to regulation, supervision and examination by the Federal Reserve Board and subject to the capital requirements as prescribed by Basel III capital rules and the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Bank is a federally chartered savings association. As such, the Bank is subject to regulation, supervision and examination by the Office of the Comptroller of the Currency of the U.S. Treasury (the “OCC”), which is its primary regulator, and by the Consumer Financial Protection Bureau (“CFPB”). In addition, the Bank, as an insured depository institution, is supervised by the Federal Deposit Insurance Corporation.FDIC.
Failure to meet minimum capital requirements can initiate certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could limit our business activities and have a material adverse effect on our consolidated financial statements. Under capital adequacy guidelines, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require us and the Bank to maintain minimum amounts and ratios (set forth in the tabletables below) of Total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined).
For Synchrony Financial to be a well-capitalized savings and loan holding company, the Bank must be well-capitalized and Synchrony Financial must not be subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Federal Reserve Board to meet and maintain a specific capital level for any capital measure.
In March 2020 the joint federal bank regulatory agencies issued an interim final rule that allows banking organizations that implemented CECL in 2020 to mitigate the effects of the CECL accounting standard in their regulatory capital for two years. The Company has elected to adopt the option provided by the interim final rule, which will largely delay the effects of CECL on its regulatory capital through the end of 2021, after which the effects will be phased-in over a three-year period from January 1, 2022 through December 31, 2024, collectively the “CECL regulatory capital transition adjustment”. See Note 10. Regulatory and Capital Adequacy to our 2020 annual consolidated financial statements in our 2020 Form 10-K, for additional information.
At SeptemberJune 30, 20172021 and December 31, 2016,2020, Synchrony Financial met all applicable requirements to be deemed well-capitalized pursuant to Federal Reserve Board regulations. At SeptemberJune 30, 20172021 and December 31, 2016,2020, the Bank also met all applicable requirements to be deemed well-capitalized pursuant to OCC regulations and for purposes of the Federal Deposit Insurance Act. There are no conditions or events subsequent to SeptemberJune 30, 20172021 that management believes have changed the Company's or the Bank’s capital category.
The actual capital amounts, ratios and the applicable required minimums of the Company and the Bank are as follows:
Synchrony Financial
| | | | | | | | | | | | | | | | | | | | | | | |
| At June 30, 2021 ($ in millions) | Actual | | Minimum for capital
adequacy purposes |
| Amount | | Ratio(a) | | Amount | | Ratio(b) |
| Total risk-based capital | $ | 15,710 | | | 20.1 | % | | $ | 6,262 | | | 8.0 | % |
| Tier 1 risk-based capital | $ | 14,671 | | | 18.7 | % | | $ | 4,697 | | | 6.0 | % |
| Tier 1 leverage | $ | 14,671 | | | 15.6 | % | | $ | 3,752 | | | 4.0 | % |
| Common equity Tier 1 Capital | $ | 13,937 | | | 17.8 | % | | $ | 3,523 | | | 4.5 | % |
|
| | | | | | | | | | | | | |
| At September 30, 2017 ($ in millions) | Actual | | Minimum for capital adequacy purposes |
| | Amount | | Ratio(a) |
| | Amount |
| | Ratio |
|
| | | | | | | | |
| Total risk-based capital | $ | 14,126 |
| | 18.7 | % | | $ | 6,058 |
| | 8.0 | % |
| Tier 1 risk-based capital | $ | 13,125 |
| | 17.3 | % | | $ | 4,544 |
| | 6.0 | % |
| Tier 1 leverage | $ | 13,125 |
| | 14.6 | % | | $ | 3,593 |
| | 4.0 | % |
| Common equity Tier 1 Capital | $ | 13,125 |
| | 17.3 | % | | $ | 3,408 |
| | 4.5 | % |
| | | At December 31, 2016 ($ in millions) | Actual | | Minimum for capital adequacy purposes | |
| | Amount | | Ratio(a) |
| | Amount |
| | Ratio |
| |
| At December 31, 2020 ($ in millions) | | At December 31, 2020 ($ in millions) | Actual | | Minimum for capital
adequacy purposes |
| | | | | | | | | | Amount | | Ratio(a) | | Amount | | Ratio(b) |
| Total risk-based capital | $ | 14,129 |
| | 18.5 | % | | $ | 6,094 |
| | 8.0 | % | Total risk-based capital | $ | 14,604 | | | 18.1 | % | | $ | 6,445 | | | 8.0 | % |
| Tier 1 risk-based capital | $ | 13,135 |
| | 17.2 | % | | $ | 4,571 |
| | 6.0 | % | Tier 1 risk-based capital | $ | 13,525 | | | 16.8 | % | | $ | 4,834 | | | 6.0 | % |
| Tier 1 leverage | $ | 13,135 |
| | 15.0 | % | | $ | 3,508 |
| | 4.0 | % | Tier 1 leverage | $ | 13,525 | | | 14.0 | % | | $ | 3,869 | | | 4.0 | % |
| Common equity Tier 1 Capital | $ | 13,135 |
| | 17.2 | % | | $ | 3,428 |
| | 4.5 | % | Common equity Tier 1 Capital | $ | 12,791 | | | 15.9 | % | | $ | 3,625 | | | 4.5 | % |
Synchrony Bank
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At June 30, 2021 ($ in millions) | Actual | | Minimum for capital
adequacy purposes | | Minimum to be well-capitalized under prompt corrective action provisions |
| Amount | | Ratio(a) | | Amount | | Ratio(b) | | Amount | | Ratio |
| Total risk-based capital | $ | 14,460 | | | 20.6 | % | | $ | 5,624 | | | 8.0 | % | | $ | 7,031 | | | 10.0 | % |
| Tier 1 risk-based capital | $ | 13,526 | | | 19.2 | % | | $ | 4,218 | | | 6.0 | % | | $ | 5,624 | | | 8.0 | % |
| Tier 1 leverage | $ | 13,526 | | | 16.0 | % | | $ | 3,381 | | | 4.0 | % | | $ | 4,227 | | | 5.0 | % |
| Common equity Tier I capital | $ | 13,526 | | | 19.2 | % | | $ | 3,164 | | | 4.5 | % | | $ | 4,570 | | | 6.5 | % |
| | | At September 30, 2017 ($ in millions) | Actual | | Minimum for capital adequacy purposes | | Minimum to be well-capitalized under prompt corrective action provisions | |
| | Amount | | Ratio(a) | | Amount |
| | Ratio(b) |
| | Amount |
| | Ratio |
| |
| At December 31, 2020 ($ in millions) | | At December 31, 2020 ($ in millions) | Actual | | Minimum for capital
adequacy purposes | | Minimum to be well-capitalized under prompt corrective action provisions |
| | | | | | | | | | | | | | Amount | | Ratio(a) | | Amount | | Ratio(b) | | Amount | | Ratio |
| Total risk-based capital | $ | 10,364 |
| | 16.7 | % | | $ | 4,968 |
| | 8.0 | % | | $ | 6,210 |
| | 10.0 | % | Total risk-based capital | $ | 12,784 | | | 17.8 | % | | $ | 5,747 | | | 8.0 | % | | $ | 7,184 | | | 10.0 | % |
| Tier 1 risk-based capital | $ | 9,540 |
| | 15.4 | % | | $ | 3,726 |
| | 6.0 | % | | $ | 4,968 |
| | 8.0 | % | Tier 1 risk-based capital | $ | 11,821 | | | 16.5 | % | | $ | 4,310 | | | 6.0 | % | | $ | 5,747 | | | 8.0 | % |
| Tier 1 leverage | $ | 9,540 |
| | 13.0 | % | | $ | 2,929 |
| | 4.0 | % | | $ | 3,661 |
| | 5.0 | % | Tier 1 leverage | $ | 11,821 | | | 13.6 | % | | $ | 3,484 | | | 4.0 | % | | $ | 4,356 | | | 5.0 | % |
| Common equity Tier I capital | $ | 9,540 |
| | 15.4 | % | | $ | 2,795 |
| | 4.5 | % | | $ | 4,037 |
| | 6.5 | % | Common equity Tier I capital | $ | 11,821 | | | 16.5 | % | | $ | 3,233 | | | 4.5 | % | | $ | 4,669 | | | 6.5 | % |
_______________________
|
| | | | | | | | | | | | | | | | | | | | |
| At December 31, 2016 ($ in millions) | Actual | | Minimum for capital adequacy purposes | | Minimum to be well-capitalized under prompt corrective action provisions |
| | Amount | | Ratio(a) | | Amount | | Ratio(b) | | Amount | | Ratio |
| | | | | | | | | | | | |
| Total risk-based capital | $ | 10,101 |
| | 16.7 | % | | $ | 4,825 |
| | 8.0 | % | | $ | 6,031 |
| | 10.0 | % |
| Tier 1 risk-based capital | $ | 9,312 |
| | 15.4 | % | | $ | 3,619 |
| | 6.0 | % | | $ | 4,825 |
| | 8.0 | % |
| Tier 1 leverage | $ | 9,312 |
| | 13.2 | % | | $ | 2,816 |
| | 4.0 | % | | $ | 3,520 |
| | 5.0 | % |
| Common equity Tier I capital | $ | 9,312 |
| | 15.4 | % | | $ | 2,714 |
| | 4.5 | % | | $ | 3,920 |
| | 6.5 | % |
_______________________(b)At June 30, 2021 and at December 31, 2020, Synchrony Financial and the Bank also must maintain a capital conservation buffer of common equity Tier 1 capital in excess of minimum risk-based capital ratios by at least 2.5 percentage points to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees.
| |
(a) | Capital ratios are calculated based on the Basel III Standardized Approach rules, subject to applicable transition provisions, at September 30, 2017 and December 31, 2016. |
| |
(b) | At September 30, 2017 and at December 31, 2016, Synchrony Financial and the Bank also must maintain a capital conservation buffer of common equity Tier 1 capital in excess of minimum risk-based capital ratios by at least 1.25 percentage points and 0.625 percentage points, respectively, to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees. |
The Bank may pay dividends on its stock, with consent or non-objection from the OCC and the Federal Reserve Board, among other things, if its regulatory capital would not thereby be reduced below the applicable regulatory capital requirements.
NOTE 11. EARNINGS PER SHARE
Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the assumed conversion of all dilutive securities.
The following table presents the calculation of basic and diluted earnings per common share:
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| (in millions, except per share data) | 2017 | | 2016 | | 2017 | | 2016 | (in millions, except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | | |
| Net earnings | $ | 555 |
| | $ | 604 |
| | $ | 1,550 |
| | $ | 1,675 |
| Net earnings | $ | 1,242 | | | $ | 48 | | | $ | 2,267 | | | $ | 334 | |
| Preferred stock dividends | | Preferred stock dividends | (10) | | | (11) | | | $ | (21) | | | $ | (22) | |
| Net earnings available to common stockholders | | Net earnings available to common stockholders | $ | 1,232 | | | $ | 37 | | | $ | 2,246 | | | $ | 312 | |
| | | | | | | | | | | | | | | | |
| Weighted average common shares outstanding, basic | 787.3 |
| | 828.4 |
| | 801.3 |
| | 832.1 |
| Weighted average common shares outstanding, basic | 577.2 | | | 583.7 | | | 580.2 | | | $ | 594.3 | |
| Effect of dilutive securities | 3.6 |
| | 2.2 |
| | 3.7 |
| | 2.0 |
| Effect of dilutive securities | 4.5 | | | 0.7 | | | 4.4 | | | $ | 1.6 | |
| Weighted average common shares outstanding, dilutive | 790.9 |
| | 830.6 |
| | 805.0 |
| | 834.1 |
| Weighted average common shares outstanding, dilutive | 581.7 | | | 584.4 | | | $ | 584.6 | | | $ | 595.9 | |
| |
|
| | | | | | | | | | | | | | |
| Earnings per basic common share | $ | 0.70 |
| | $ | 0.73 |
| | $ | 1.93 |
| | $ | 2.01 |
| Earnings per basic common share | $ | 2.13 | | | $ | 0.06 | | | $ | 3.87 | | | $ | 0.52 | |
| Earnings per diluted common share | $ | 0.70 |
| | $ | 0.73 |
| | $ | 1.93 |
| | $ | 2.01 |
| Earnings per diluted common share | $ | 2.12 | | | $ | 0.06 | | | $ | 3.84 | | | $ | 0.52 | |
We have issued certain stock basedstock-based awards under the Synchrony Financial 2014 Long-Term Incentive Plan. A total of 41 million shares and 311 million shares for the three months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, and 31 million and 8 million shares for both the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively, related to these awards, were considered anti-dilutive and therefore were excluded from the computation of diluted earnings per common share.
NOTE 12. INCOME TAXES
We now file consolidated U.S. federalUnrecognized Tax Benefits
| | | | | | | | | | | |
| ($ in millions) | June 30, 2021 | | December 31, 2020 |
Unrecognized tax benefits, excluding related interest expense and penalties(a) | $ | 247 | | | $ | 268 | |
Portion that, if recognized, would reduce tax expense and effective tax rate(b) | $ | 168 | | | $ | 183 | |
| | | |
| | | |
____________________(a)Interest and state incomepenalties related to unrecognized tax returns separate and apart from GE. For periods up to and including the date of Separation, webenefits were included in the consolidated U.S. federal and state income tax returns of GE, where applicable, but also filed certain separate state and foreign income tax returns. The tax provision is presented on a separate company basis as if we were a separate filer for tax purposesnot material for all periods presented. The
(b)Comprised of federal unrecognized tax benefits and state and local unrecognized tax benefits net of the effects of tax adjustments and settlementsassociated U.S. federal income taxes. Excludes amounts attributable to any related valuation allowances resulting from taxing authorities are presentedassociated increases in our condensed consolidated financial statements in the period in which they occur. Our current obligations for taxes are settled with the relevant tax authority, or GE, as applicable, on an estimated basis and adjusted in later periods as appropriate and are reflected in our consolidated financial statements in the periods in which those settlements occur. We recognize the current and deferred tax consequences of all transactionsassets.
We establish a liability that have been recognized inrepresents the financial statements using the provisions of the enacteddifference between a tax laws. In calculating the provision for interim period income taxes, in accordance with Accounting Standards Codification 740, Income Taxes, we estimate the effective tax rateposition taken (or expected to be applicabletaken) on an income tax return and the amount of taxes recognized in our financial statements. The liability associated with the unrecognized tax benefits is adjusted periodically when new information becomes available. The amount of unrecognized tax benefits that is reasonably possible to be resolved in the next twelve months is expected to be $70 million, of which $28 million, if recognized, would reduce the Company's tax expense and effective tax rate.
In the current year, the Company executed a Memorandum of Understanding with the IRS to participate voluntarily in the IRS Compliance Assurance Process (“CAP”) program for the full fiscal2021 tax year, and apply that estimated annual effective tax rate to year-to-date ordinary income. Adjustments to tax expense are made for year-to-date discrete items. See “Management's Discussion and Analysis—Critical Accounting Estimates” in our 2016 Form 10-K, for a discussion of the significant judgments and estimates related to income taxes.
For periods prior to Separation, we are under continuous examination by the Internal Revenue Service (“IRS”) andthus the tax authorities of various states as part of their audit of GE’s tax returns.year is under IRS review. The IRS is currently auditing GE's consolidated U.S. incomealso examining our 2019 and 2020 tax returns for 2012years, which are our only open years subject to 2015. WeIRS examination. It is reasonably possible that the IRS will complete the examinations of the 2019 and 2020 tax years in the next 12 months. Additionally, we are under examination in various states going back to 2008 as part of their audit of GE’s tax returns. We are not currently under audit with respect to any post-Separation periods. 2014.
We believe that there are no issues or claims that are likely to significantly impact our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties that could result from such examinations.
Tax Sharing and Separation AgreementIn connection with our initial public offering in August 2014 (“IPO”), we entered into a Tax Sharing and Separation Agreement (“TSSA”), which governs certain Separation-related tax matters between the Company and GE following the IPO. The TSSA governs the allocation of the responsibilities for the taxes of the GE group between GE and the Company. The TSSA also allocates rights, obligations and responsibilities in connection with certain administrative matters relating to the preparation of tax returns and control of tax audits and other proceedings relating to taxes. See Note 14. Income Taxes to our 2016 annual consolidated and combined financial statements in our 2016 Form 10-K for additional information on the TSSA.
Unrecognized Tax Benefits
|
| | | | | | | |
| ($ in millions) | September 30, 2017 | | December 31, 2016 |
| Unrecognized tax benefits, excluding related interest expense and penalties | $ | 166 |
| | $ | 150 |
|
Portion that, if recognized, would reduce tax expense and effective tax rate(a) | 111 |
| | 99 |
|
| Accrued interest on unrecognized tax benefits | 11 |
| | 6 |
|
| Accrued penalties on unrecognized tax benefits | — |
| | — |
|
____________________ | |
(a) | Includes gross state and local unrecognized tax benefits net of the effects of associated U.S. federal income taxes. Excludes amounts attributable to any related valuation allowances resulting from associated increases in deferred tax assets. |
We compute our unrecognized tax benefits on a separate return basis. For unrecognized tax benefits associated with periods prior to 2014, we will settle our liabilities, as required, in accordance with the TSSA. The amount of unrecognized tax benefits that may be resolved in the next twelve months is not expected to be material to our results of operations.
NOTE 13. LEGAL PROCEEDINGS AND REGULATORY MATTERS
In the normal course of business, from time to time, we have been named as a defendant in various legal proceedings, including arbitrations, class actions and other litigation, arising in connection with our business activities. Certain of the legal actions include claims for substantial compensatory and/or punitive damages, or claims for indeterminate amounts of damages. We are also involved, from time to time, in reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding our business (collectively, “regulatory matters”), which could subject us to significant fines, penalties, obligations to change our business practices or other requirements resulting in increased expenses, diminished income and damage to our reputation. We contest liability and/or the amount of damages as appropriate in each pending matter. In accordance with applicable accounting guidance, we establish an accrued liability for legal and regulatory matters when those matters present loss contingencies which are both probable and reasonably estimable.
Legal proceedings and regulatory matters are subject to many uncertain factors that generally cannot be predicted with assurance, and we may be exposed to losses in excess of any amounts accrued.
For some matters, we are able to determine that an estimated loss, while not probable, is reasonably possible. For other matters, including those that have not yet progressed through discovery and/or where important factual information and legal issues are unresolved, we are unable to make such an estimate. We currently estimate that the reasonably possible losses for legal proceedings and regulatory matters, whether in excess of a related accrued liability or where there is no accrued liability, and for which we are able to estimate a possible loss, are immaterial. This represents management’s estimate of possible loss with respect to these matters and is based on currently available information. This estimate of possible loss does not represent our maximum loss exposure. The legal proceedings and regulatory matters underlying the estimate will change from time to time and actual results may vary significantly from current estimates.
Our estimate of reasonably possible losses involves significant judgment, given the varying stages of the proceedings, the existence of numerous yet to be resolved issues, the breadth of the claims (often spanning multiple years), unspecified damages and/or the novelty of the legal issues presented. Based on our current knowledge, we do not believe that we are a party to any pending legal proceeding or regulatory matters that would have a material adverse effect on our condensed consolidated financial condition or liquidity. However, in light of the uncertainties involved in such matters, the ultimate outcome of a particular matter could be material to our operating results for a particular period depending on, among other factors, the size of the loss or liability imposed and the level of our earnings for that period, and could adversely affect our business and reputation.
Below is a description of certain of our regulatory matters and legal proceedings.
Regulatory Matters
On November 2, 2018, a putative class action lawsuit, Retail Wholesale Department Store Union Local 338 Retirement Fund v. Synchrony Financial, et al., was filed in the U.S. District Court for the District of Connecticut, naming as defendants the Company and two of its officers. The lawsuit asserts violations of the Exchange Act for allegedly making materially misleading statements and/or omitting material information concerning the Company’s underwriting practices and private-label card business, and was filed on behalf of a putative class of persons who purchased or otherwise acquired the Company’s common stock between October 30, 2014,21, 2016 and November 1, 2018. The complaint seeks an award of unspecified compensatory damages, costs and expenses. On February 5, 2019, the court appointed Stichting Depositary APG Developed Markets Equity Pool as lead plaintiff for the putative class. On April 5, 2019, an amended complaint was filed, asserting a new claim for violations of the Securities Act in connection with statements in the offering materials for the Company’s December 1, 2017 note offering. The Securities Act claims are filed on behalf of persons who purchased or otherwise acquired Company bonds in or traceable to the December 1, 2017 note offering between December 1, 2017 and November 1, 2018. The amended complaint names as additional defendants two additional Company officers, the Company’s board of directors, and the underwriters of the December 1, 2017 note offering. The amended complaint is captioned Stichting Depositary APG Developed Markets Equity Pool and Stichting Depositary APG Fixed Income Credit Pool v. Synchrony Financial et al. On March 26, 2020, the District Court recaptioned the case In re Synchrony Financial Securities Litigation and on March 31, 2020, the District Court granted the defendants’ motion to dismiss the complaint with prejudice. On April 20, 2020, plaintiffs filed a notice to appeal the decision to the United States Trustee, which is partCourt of Appeals for the Second Circuit. On February 16, 2021, the Court of Appeals affirmed the District Court’s dismissal of the DepartmentSecurities Act claims and all of Justice,the claims under the Exchange Act with the exception of a claim relating to a single statement on January 19, 2018 regarding whether Synchrony was receiving pushback on credit from its retail partners.
On January 28, 2019, a purported shareholder derivative action, Gilbert v. Keane, et al., was filed an application in the U.S. District Court for the District of Connecticut against the Company as a nominal defendant, and certain of the Company’s officers and directors. The lawsuit alleges breach of fiduciary duty claims based on the allegations raised by the plaintiff in the Stichting Depositar APG class action, unjust enrichment, waste of corporate assets, and that the defendants made materially misleading statements and/or omitted material information in violation of the Exchange Act. The complaint seeks a declaration that the defendants breached and/or aided and abetted the breach of their fiduciary duties to the Company, unspecified monetary damages with interest, restitution, a direction that the defendants take all necessary actions to reform and improve corporate governance and internal procedures, and attorneys’ and experts’ fees. On March 11, 2019, a second purported shareholder derivative action, Aldridge v. Keane, et al., was filed in the U.S. District Court for the District of Connecticut. The allegations in the Aldridge complaint are substantially similar to those in the Gilbert complaint. On March 26, 2020, the District Court recaptioned the Gilbert and Aldridge cases as In re Nyree Synchrony Financial Derivative Litigation.
On April 30, 2014 Belton et al. v. GE Capital Consumer Lending, a Chapter 7 bankruptcy case pendingputative class action adversary proceeding was filed in the U.S. Bankruptcy Court for the Southern District of New York for orders authorizing discovery of the Bank pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure, related to an investigation of the Bank’s credit reporting. The discovery, which is ongoing, concerns allegations made in Belton et al. v. GE Capital Consumer Lending, a putative class action adversary proceeding pending in the same Bankruptcy Court. In the Belton adversary proceeding, which was filed on April 30, 2014, plaintiffYork. Plaintiff alleges that the Bank violates the discharge injunction under Section 524(a)(2) of the Bankruptcy Code by attempting to collect discharged debts and by failing to update and correct credit information to credit reporting agencies to show that such debts are no longer due and owing because they have been discharged in bankruptcy. Plaintiff seeks declaratory judgment, injunctive relief and an unspecified amount of damages. On December 15, 2014, the Bankruptcy Court entered an order staying the adversary proceeding pending an appeal to the District Court of the Bankruptcy Court’s order denying the Bank’s motion to compel arbitration. On October 14, 2015, the District Court reversed the Bankruptcy Court and on November 4, 2015, the Bankruptcy Court granted the Bank'sBank’s motion to compel arbitration.
On October 15, 2015,March 4, 2019, on plaintiff’s motion for reconsideration, the Bank received a Civil Investigative Demand fromDistrict Court vacated its decision reversing the CFPB seeking information related toBankruptcy Court and affirmed the Bankruptcy Court’s decision denying the Bank’s credit bureau reporting with respectmotion to sold accounts. The information sought bycompel arbitration. On June 16, 2020, the CFPB generally relates to the allegations made in Belton et al. v. GE Capital Consumer Lending. On May 9, 2016, the Bank received a NORA (NoticeCourt of Opportunity to Respond and Advise) letter from the CFPB indicating that the CFPB Office of Enforcement is considering whether to recommend that the CFPB take legal action relating to this matter.
On May 9, 2017, the Bank received a Civil Investigative Demand from the CFPB seeking information related to the marketing and servicing of deferred interest promotions.
Other Matters
The Bank or the Company is, or has been, defending a number of putative class actions alleging claims under the federal Telephone Consumer Protection Act (“TCPA”) as a result of phone calls made by the Bank. The complaints generally have alleged that the Bank or the Company placed calls to consumers by an automated telephone dialing system or using a pre-recorded message or automated voice without their consent and seek up to $1,500 for each violation, without specifying an aggregate amount. Campbell et al. v. Synchrony Bank was filed on January 25, 2017 in the U.S. District CourtAppeals for the NorthernSecond Circuit denied the Bank’s appeal of the District of New York. The original complaint named only J.C. Penney Company, Inc. and J.C. Penney Corporation, Inc. as the defendants but was amended on April 7, 2017 to replace those defendants with the Bank. Neal et al. v. Wal-Mart Stores, Inc. and Synchrony Bank, for which the Bank is indemnifying Wal-Mart, was filed on January 17, 2017 in the U.S. District Court for the Western District of North Carolina. The original complaint named only Wal-Mart Stores, Inc. as a defendant but was amended on March 30, 2017 to add Synchrony Bank as an additional defendant.Court’s decision.
In addition to the TCPA class action lawsuits related to phone calls, the Company is a defendant in a putative class action lawsuit alleging claims under the TCPA relating to facsimiles. In Michael W. Kincaid, DDS et al. v. Synchrony Financial, plaintiff alleges that the Company violated the TCPA by sending fax advertisements without consent and without required notices, and seeks up to $1,500 for each violation. The amount of damages sought in the aggregate is unspecified. The original complaint was filed in U.S. District Court for the Northern District of Illinois on January 20, 2016. On August 11, 2016, the Court granted the Company’s motion to dismiss based on the lack of personal jurisdiction. On August 15, 2016, the plaintiff re-filed the case in the Southern District of Ohio.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk refers to the risk that a change in the level of one or more market prices, rates, indices, correlations or other market factors will result in losses for a position or portfolio. We are exposed to market risk primarily from changes in interest rates.
We borrow money from a variety of depositors and institutions in order to provide loans to our customers. Changes in market interest rates cause our net interest income to increase or decrease, as some of our assets and liabilities carry interest rates that fluctuate with market benchmarks. The interest rate benchmark for our floating rate assets is generally the prime rate, and the interest rate benchmark for our floating rate liabilities is generally either LIBORLondon Interbank Offered Rate (“LIBOR”) or the federal funds rate. The prime rate and the LIBOR or federal funds rate could reset at different times or could diverge, leading to mismatches in the interest rates on our floating rate assets and floating rate liabilities.
As of September 30, 2017, assumingThe following table presents the approximate net interest income impacts forecasted over the next twelve months from an immediate 100 basis point increaseand parallel change in the interest rates affecting all interest rate sensitive assets and liabilities we estimate that net interest income over the following 12-month period would increase by approximately $155 million. This estimate projects net interest income over the following 12-month period and takes into consideration future growth and balance sheet composition.at June 30, 2021.
| | | | | | | | |
| Basis Point Change | | At June 30, 2021 |
| ($ in millions) | | |
| -100 basis points | | $ | (80) | |
| +100 basis points | | $ | 47 | |
For a more detailed discussion of our exposure to market risk, refer to “Management's Discussion and Analysis—Quantitative and Qualitative Disclosures about Market Risk” in our 20162020 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), and based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2017.2021.
No change in internal control over financial reporting occurred during the fiscal quarter ended SeptemberJune 30, 20172021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of legal proceedings, see Note 13. Legal Proceedings and Regulatory Matters to our condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors included in our 20162020 Form 10-K under the heading “Risk Factors” Relating to Our Business” and “Risk Factors Relating to Regulation”.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below sets forth information regarding purchases of our common stock primarily related to our share repurchase program that were made by us or on our behalf during the three months ended SeptemberJune 30, 2017.2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions, except per share data) | Total Number of Shares Purchased(a) | | Average Price Paid Per Share(b) | | Total Number of Shares Purchased as Part of Publicly Announced Programs(c) | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Programs(b) |
| April 1 - 30, 2021 | 1,863,694 | | | $ | 43.16 | | | 1,700,000 | | | $ | 2,826.4 | |
| May 1 - 31, 2021 | 6,999,652 | | | 45.64 | | | 6,998,564 | | | 2,507.0 | |
| June 1 - 30, 2021 | 556 | | | 48.15 | | | — | | | 2,507.0 | |
| Total | 8,863,902 | | | $ | 45.12 | | | 8,698,564 | | | $ | 2,507.0 | |
_______________________ |
| | | | | | | | | | | | | |
| ($ in millions, except per share data) | Total Number of Shares Purchased(a) |
| | Average Price Paid Per Share(b) |
| | Total Number of Shares Purchased as Part of Publicly Announced Programs(c) |
| | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Programs(b) |
|
| | | | | | | | |
| July 1 - 31, 2017 | 6,543,656 |
| | $ | 30.52 |
| | 6,520,284 |
| | $ | 1,241.0 |
|
| August 1 - 31, 2017 | 6,321,552 |
| | 30.22 |
| | 6,321,552 |
| | 1,050.0 |
|
| September 1 - 30, 2017 | 34,322 |
| | 29.02 |
| | — |
| | 1,050.0 |
|
| Total | 12,899,530 |
| | $ | 30.37 |
| | 12,841,836 |
| | $ | 1,050.0 |
|
| | | | | | | | |
_______________________(b)Amounts exclude commission costs.
| |
(a) | Primarily represents repurchases of shares of common stock under our publicly announced share repurchase programs of up to $1.64 billion of our outstanding shares of common stock through June 30, 2018 (the "2017 Share Repurchase Program"). Also includes 23,372 shares, 0 shares and 34,322 shares withheld in July, August and September, respectively, to offset tax withholding obligations that occur upon the delivery of outstanding shares underlying restricted stock awards or upon the exercise of stock options. |
| |
(b) | Amounts exclude commission costs. |
| |
(c) | On May 18, 2017, our Board of Directors approved the 2017 Share Repurchase Program. |
(c)In January 2021, the Board of Directors approved a share repurchase program of up to $1.6 billion through December 31, 2021 (the “January 2021 Share Repurchase Program”). In May 2021 the Board of Directors approved a new share repurchase program of up to $2.9 billion for the period which commenced April 1, 2021 through June 30, 2022. This share repurchase program supersedes the program previously announced in January 2021. ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
See “Exhibit Index” for documents filed herewith and incorporated herein by reference.
EXHIBIT INDEX
| | | | | |
| Exhibit Number | Description |
| |
| |
| |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL (included as Exhibit 101) |
______________________
*Filed electronically herewith.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Synchrony Financial
(Registrant)
|
| | | | | | | |
October 26, 2017July 22, 2021 | | /s/ Brian D. DoublesJ. Wenzel Sr. |
| Date | | Brian D. Doubles J. Wenzel Sr.
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
|
EXHIBIT INDEX
|
| |
Exhibit Number | Description |
| |
| |
| |
| |
101 | The following materials from Synchrony Financial’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Earnings for the three and nine months ended September 30, 2017 and 2016, (ii) Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2017 and 2016, (iii) Condensed Consolidated Statements of Financial Position at September 30, 2017 and December 31, 2016, (iv) Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2017 and 2016, (v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, and (vi) Notes to Condensed Consolidated Financial Statements. |
______________________
| |
(*) | Pursuant to Item 601(4)(iii) of Regulation S-K, the Company is not required to file any instrument with respect to long-term debt not being registered if the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company hereby agrees to furnish a copy of any such instrument to the SEC upon request. |
