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 September 30, 2017March 31, 2023
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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, 2017April 17, 2023 was 782,591,569.
428,570,576.
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, 2016 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, 20162022 (our “2016“2022 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,www.synchrony.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”“Risk Factors Relating to Our Business” and “Risk Factors Relating to Regulation” in our 20162022 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 20162022 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 incompany delivering one of the United States.industry's most complete, digitally-enabled product suites. Our experience, expertise and scale encompass a broad spectrum of industries including digital, health and wellness, retail, telecommunications, home, auto, outdoor, pet and more. We provide a range of credit products through programs we have an established with aand 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 nine months ended September 30, 2017,March 31, 2023, we financed $32.9 billion and $95.2$41.6 billion of purchase volume respectively, and had 69.369.5 million average active accounts, in both periods and at September 30, 2017,March 31, 2023, we had $76.9$91.1 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, affinity relationships 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, savings accounts and savings accounts.sweep and affinity deposits. 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 September 30, 2017,March 31, 2023, we had $54.5$74.4 billion in deposits, which represented 73%83% 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 operationsrevenue activities are within the United States. We offerprimarily 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
Retail Card
Retail Card isOur Home & Auto sales platform provides comprehensive payments and financing solutions with integrated in-store and digital experiences through a leading providerbroad network of private labelpartners and merchants providing home and automotive merchandise and services, as well as our Synchrony Car Care network and Synchrony HOME credit cards,card offering. Our Home & Auto sales platform partners include a wide range of key retailers in the home improvement, furniture, bedding, appliance and also provides Dual Cards, general purpose co-branded credit cardselectronics industry, such as Ashley HomeStores LTD, Lowe's, and small-Mattress Firm, as well as automotive merchandise and medium-sized business credit products. We offer one or more of these products primarily through 29 nationalservices, such as Chevron 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.Discount Tire. In addition, we also have program agreements with buying groups, manufacturers and industry associations, such as Nationwide Marketing Group and the majority ofHome Furnishings Association.
Digital
Our 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. Our Digital sales platform includes key partners delivering digital payment solutions, such as PayPal, including our retailer share arrangements, which generally provideVenmo program, online marketplaces, such as Amazon and eBay, and digital-first brands and merchants, such as Verizon, the Qurate brands, and Fanatics.
Diversified & Value
Our Diversified & Value sales platform provides comprehensive payments and financing solutions with integrated in-store and digital experiences through large retail partners who deliver everyday value to consumers shopping for payment to our partner if the economic performance of the program exceeds a contractually-defined threshold, are with partners in the Retail Carddaily needs or important life moments. Our Diversified & Value sales platform. Substantially all of the credit extended in this platform is on standard terms.comprised of five large retail partners: Belk, Fleet Farm, JCPenney, Sam's Club and TJX Companies, Inc.
Payment SolutionsHealth & Wellness
Payment Solutions is a leading provider of promotionalOur Health & Wellness sales platform provides comprehensive healthcare payments and financing for major consumer purchases, offering primarily private label credit cards and installment loans. Payment Solutions offers these productssolutions, 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-focusedhealth 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, as well as partners such as Walgreens.
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. Our Lifestyle sales platform partners include a wide range of key retailers in the vast majority ofapparel, specialty retail, outdoor, music and luxury industry, such as
American Eagle, Dick's Sporting Goods, Guitar Center, Sweetwater, Kawasaki, Polaris, Suzuki and Pandora.
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 expiration date and certain programs that were previously terminated, which are individualnot managed within the five sales platforms discussed above. Prior year activity in Corp, Other primarily includes activity associated with the Gap Inc. and BP portfolios, which were both sold in the second quarter of 2022. Corp, Other also includes amounts related to changes in the fair value of equity investments and realized gains or small groupslosses associated with the 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 September 30, 2017.March 31, 2023.
| | | | | | 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 | 58.3 | % | | 19.8 | % | | 16.4 | % | | 94.5 | % |
| Commercial credit products | 1.8 |
| | — |
| | — |
| | 1.8 |
| Commercial credit products | 1.8 | | | — | | | — | | | 1.8 | |
| Consumer installment loans | — |
| | — |
| | 2.0 |
| | 2.0 |
| Consumer installment loans | 0.1 | | | 0.1 | | | 3.4 | | | 3.6 | |
| Other | — |
| | — |
| | — |
| | — |
| Other | 0.1 | | | — | | | — | | | 0.1 | |
| Total | 68.3 | % | | 16.0 | % | | 15.7 | % | | 100.0 | % | Total | 60.3 | % | | 19.9 | % | | 19.8 | % | | 100.0 | % |
Credit Cards
We 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 extended under our Dual Cards andcredit cards, as well as a Synchrony-branded general purpose co-branded credit cards typically is extended under standard terms only.card. Dual Cards and general purpose co-branded credit cards are primarily offered throughacross all of our Retail Card platform. At September 30, 2017, we offered thesesales platforms and credit is typically extended on standard terms only. We offer either Dual Cards or general purpose co-branded credit cards through 21over 15 of our 29 ongoing Retail Card programs,large partners, of which the majority are Dual Cards.
Cards, as well as our CareCredit Dual Card. Consumer Dual Cards and Co-Branded cards totaled 24% of our total loan receivables portfolio at March 31, 2023.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 secured installment loans to consumers (and a limited number of commercial customers) in the United States, primarily in thefor power products in our Outdoor market (motorcycles, ATVs and lawn and garden). We also offer unsecured installment loans primarily in our Health and Wellness sales platform and through our various other installment products, such as our Synchrony Pay Later solutions, including pay in 4 and pay monthly options for short-term loans. Installment loans are closed-end credit accounts where the customer pays down the outstanding balance in installments. Installment loans are generally 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 20162022 Form 10-K. For a discussion of how thesecertain trends and conditions impacted the three and nine months ended September 30, 2017,March 31, 2023, 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 typically 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, despiteeven in instances of 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.
The seasonal trends discussed above are most evident between the fourth quarter and the first quarter of the following year, particularly with respect to our loan receivables which decreased by $1.3 billion, or 1.5% to $91.1 billion at March 31, 2023 compared to $92.5 billion at December 31, 2022, and our allowance for credit losses as a percentage of total loan receivables that increased to 10.44% at March 31, 2023, from 10.30% at December 31, 2022.
However, in addition to these seasonal trends, the elevated customer payment behavior we have experienced in recent years and more recently the subsequent moderation from these elevated levels, has also significantly impacted our key financial metrics and the fluctuations experienced between quarterly periods. The effects from these changes in customer payment behavior have resulted in either partial, or in some instances full, offset to the impact from the ongoing seasonal trends discussed above. This is most evident in our past due balances which increased to $3.5 billion at March 31, 2023 from $3.4 billion at December 31, 2022 due to the impact from lower customer payment rates which exceeded the effects of the seasonal trends we experienced. The same factors also provided a partial offset to the seasonal decrease in our loan receivables in the first quarter of 2023.
Results of Operations
Highlights for the Three and Nine Months Ended September 30, 2017March 31, 2023
Below are highlights of our performance for the three and nine months ended September 30, 2017March 31, 2023 compared to the three and nine months ended September 30, 2016,March 31, 2022, as applicable, except as otherwise noted.
•Net earnings decreased 8.1% to $555$601 million and 7.5% to $1,550 million forfrom $932 million. The decrease in the three and nine months ended September 30, 2017, respectively,March 31, 2023 was primarily driven by increases in provision for loancredit losses and otherhigher interest expense, partially offset by higher interest income and lower retailer share arrangements.
•Loan receivables increased 15.5% to $91.1 billion at March 31, 2023 compared to $78.9 billion at March 31, 2022, driven by purchase volume growth and lower customer payment rates.
•Net interest income increased 6.9% to $4.1 billion for the three months ended March 31, 2023. Interest and fees on loans increased 15.2% for the three months ended March 31, 2023, primarily driven by growth in average loan receivables, partially offset by the impacts of portfolios sold in the second quarter of 2022. For the three months ended March 31, 2023, interest expense increased 215.5%, due to higher benchmark rates and higher funding liabilities.
•Retailer share arrangements decreased 16.9% to $917 million for the three months ended March 31, 2023, primarily due to the impacts of portfolios sold in the second quarter of 2022 and higher net charge-offs, partially offset by higher net interest income.
Loan receivables increased 8.9% to $76,928 million at September 30, 2017 compared to September 30, 2016, primarily driven by higher purchase volume and average active account growth.
Net interest income increased 11.3% to $3,876 million and 12.1% to $11,100 million for the three and nine months ended September 30, 2017, respectively, primarily due to higher average loan receivables.
Retailer share arrangements increased 6.3% to $805 million and 3.2% to $2,158 million for the three and nine months ended September 30, 2017, respectively, primarily as a result of growth and margin improvement of the programs in which we have retailer share arrangements, partially offset by higher provision for loan losses associated with these programs.
•Over-30 day loan delinquencies as a percentage of period-end loan receivables increased 54103 basis points to 4.80%3.81% at September 30, 2017 from 4.26% at September 30, 2016, andMarch 31, 2023. The net charge-off rate increased 56176 basis points to 4.95% and 69 basis points to 5.23%4.49% for the three and nine months ended September 30, 2017, respectively.March 31, 2023.
•Provision for loancredit losses increased to $1.3 billion from $521 million for the three months ended March 31, 2023 primarily driven by $324higher net charge-offs and also a reserve build in the current year period driven by higher loan receivables and the potential effects of industry credit contraction on the economy, compared to a reserve release in the prior year. Our allowance coverage ratio (allowance for credit losses as a percent of period-end loan receivables) decreased to 10.44% at March 31, 2023, as compared to 10.96% at March 31, 2022.
•Other expense increased by $80 million, or 32.9%7.7%, for the three months ended September 30, 2017, primarily due to higher 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. Our allowance coverage ratio (allowance for loan losses as a percent of end of period loan receivables) increased to 6.97% at September 30, 2017, as compared to 5.82% at September 30, 2016.
Other expense increased by $99 million, or 11.5%, and $279 million, or 11.2%, for the three and nine months ended September 30, 2017, respectively,March 31, 2023, primarily driven by business growth.higher employee costs, operational losses and information processing.
We continue to invest in•At March 31, 2023, deposits represented 83% of our direct banking activities to grow our deposit base.total funding sources. Total deposits increased 4.6%by 3.7% to $54.5$74.4 billion at September 30, 2017,March 31, 2023, compared to December 31, 2016, driven primarily by growth in2022.
•During the three months ended March 31, 2023, 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$14.06 per share, commencing in the third quarter of 2017 and approval of a share repurchase program of up to $1.64 billion through June 30, 2018. or $11 million.
•During the ninethree months ended September 30, 2017,March 31, 2023, we repurchased $1,066$400 million of our outstanding common stock, and declared and paid cash dividends of $0.41$0.23 per share, or $328$100 million. At March 31, 2023, we have a total share repurchase authorization of $300 million remaining. For more information, see “Capital—Dividend and Share Repurchases.”
2023 Partner Agreements
During the ninethree months ended September 30, 2017,March 31, 2023, we continued to expand and diversify our portfolio with the addition or renewal of more than 15 partners, which included the following:
•In our Home & Auto sales platform, we announced our acquisition of GPShopper, a developer of mobile applications that offers retailersnew partnerships with Big Brand Tire & Service and brands a full suite of commerce, engagement and analytical tools.
New and Extended Partner Agreements during the nine months ended September 30, 2017
We extended our Retail Card program agreements with Belk, QVC and Evine, and launched our new programs with Cathay Pacific, Nissan and Infiniti, zulily and At Home.
We launched our Synchrony Car Care program in our Payment Solutions sales platformLG Air Conditioning and extended our program agreements with Midas, MEGA Group USA, CityCCA Global Partners, CertainPath, Haverty's Furniture, Yamaha, BrandsMart U.S.A.Haynes and Nautilus.LoveSac.
•In our CareCreditHealth & Wellness sales platform, we acquired the Citi Health Card portfolio, renewed National Veterinary Associates and Mars Petcare inexpanded our network through our new partnerships with Hand & Stone, Marquee Dental Partners and Valley Veterinary, and also extended our endorsements with the American Dental Association and Academy of providersGeneral Dentistry.
•In our Lifestyle sales platform, we extended our program agreement with Piaggio and launched our new CareCredit Dual Card.Synchrony’s Outdoor Card, enabling easy and affordable financing solutions to powersports customers.
Summary Earnings
The following table sets forth our results of operations for the periods indicated.
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| ($ in millions) | 2023 | | 2022 | | | | |
| Interest income | $ | 4,786 | | | $ | 4,022 | | | | | |
| Interest expense | 735 | | | 233 | | | | | |
| Net interest income | 4,051 | | | 3,789 | | | | | |
| Retailer share arrangements | (917) | | | (1,104) | | | | | |
| | | | | | | |
| Provision for credit losses | 1,290 | | | 521 | | | | | |
| Net interest income, after retailer share arrangements and provision for credit losses | 1,844 | | | 2,164 | | | | | |
| Other income | 65 | | | 108 | | | | | |
| Other expense | 1,119 | | | 1,039 | | | | | |
| Earnings before provision for income taxes | 790 | | | 1,233 | | | | | |
| Provision for income taxes | 189 | | | 301 | | | | | |
| Net earnings | $ | 601 | | | $ | 932 | | | | | |
| Net earnings available to common stockholders | $ | 590 | | | $ | 922 | | | | | |
|
| | | | | | | | | | | | | | | |
| | 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 | | |
| Three months ended March 31, | | |
| ($ in millions) | 2023 | | 2022 | | | | |
| Financial Position Data (Average): | | | | | | | |
| Loan receivables, including held for sale | $ | 90,815 | | | $ | 82,747 | | | | | |
| Total assets | $ | 105,842 | | | $ | 95,556 | | | | | |
| Deposits | $ | 72,627 | | | $ | 62,688 | | | | | |
| Borrowings | $ | 14,671 | | | $ | 14,046 | | | | | |
| Total equity | $ | 13,414 | | | $ | 13,731 | | | | | |
| Selected Performance Metrics: | | | | | | | |
Purchase volume(1)(2) | $ | 41,557 | | | $ | 40,490 | | | | | |
| Home & Auto | $ | 10,863 | | | $ | 10,260 | | | | | |
| Digital | $ | 12,261 | | | $ | 11,196 | | | | | |
| Diversified & Value | $ | 13,439 | | | $ | 11,558 | | | | | |
| Health & Wellness | $ | 3,690 | | | $ | 3,107 | | | | | |
| Lifestyle | $ | 1,302 | | | $ | 1,195 | | | | | |
| Corp, Other | $ | 2 | | | $ | 3,174 | | | | | |
Average active accounts (in thousands)(2)(3) | 69,494 | | | 70,127 | | | | | |
Net interest margin(4) | 15.22 | % | | 15.80 | % | | | | |
| Net charge-offs | $ | 1,006 | | | $ | 558 | | | | | |
| Net charge-offs as a % of average loan receivables, including held for sale | 4.49 | % | | 2.73 | % | | | | |
Allowance coverage ratio(5) | 10.44 | % | | 10.96 | % | | | | |
Return on assets(6) | 2.3 | % | | 4.0 | % | | | | |
Return on equity(7) | 18.2 | % | | 27.5 | % | | | | |
Equity to assets(8) | 12.67 | % | | 14.37 | % | | | | |
| Other expense as a % of average loan receivables, including held for sale | 5.00 | % | | 5.09 | % | | | | |
Efficiency ratio(9) | 35.0 | % | | 37.2 | % | | | | |
| Effective income tax rate | 23.9 | % | | 24.4 | % | | | | |
| Selected Period-End Data: | | | | | | | |
| Loan receivables | $ | 91,129 | | | $ | 78,916 | | | | | |
| Allowance for credit losses | $ | 9,517 | | | $ | 8,651 | | | | | |
30+ days past due as a % of period-end loan receivables(10) | 3.81 | % | | 2.78 | % | | | | |
90+ days past due as a % of period-end loan receivables(10) | 1.87 | % | | 1.30 | % | | | | |
Total active accounts (in thousands)(2)(3) | 68,589 | | | 69,122 | | | | | |
______________________(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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | |
| Three months ended March 31 ($ 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) | $ | 12,365 | | | $ | 140 | | | 4.59 | % | | $ | 8,976 | | | $ | 5 | | | 0.23 | % | | |
| Securities available for sale | 4,772 | | | 30 | | | 2.55 | % | | 5,513 | | | 9 | | | 0.66 | % | | |
Loan receivables, including held for sale(3): | | | | | | | | | | | | | |
| Credit cards | 85,904 | | | 4,497 | | | 21.23 | % | | 78,564 | | | 3,913 | | | 20.20 | % | | |
| Consumer installment loans | 3,103 | | | 83 | | | 10.85 | % | | 2,682 | | | 66 | | | 9.98 | % | | |
| Commercial credit products | 1,697 | | | 34 | | | 8.13 | % | | 1,434 | | | 28 | | | 7.92 | % | | |
| Other | 111 | | | 2 | | | 7.31 | % | | 67 | | | 1 | | | NM | | |
| Total loan receivables, including held for sale | 90,815 | | | 4,616 | | | 20.61 | % | | 82,747 | | | 4,008 | | | 19.64 | % | | |
| Total interest-earning assets | 107,952 | | | 4,786 | | | 17.98 | % | | 97,236 | | | 4,022 | | | 16.78 | % | | |
| Non-interest-earning assets: | | | | | | | | | | | | | |
| Cash and due from banks | 1,024 | | | | | | | 1,626 | | | | | | | |
| Allowance for credit losses | (9,262) | | | | | | | (8,675) | | | | | | | |
| Other assets | 6,128 | | | | | | | 5,369 | | | | | | | |
| Total non-interest-earning assets | (2,110) | | | | | | | (1,680) | | | | | | | |
| Total assets | $ | 105,842 | | | | | | | $ | 95,556 | | | | | | | |
| Liabilities | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | |
| Interest-bearing deposit accounts | $ | 72,216 | | | $ | 557 | | | 3.13 | % | | $ | 62,314 | | | $ | 127 | | | 0.83 | % | | |
| Borrowings of consolidated securitization entities | 6,229 | | | 77 | | | 5.01 | % | | 6,827 | | | 33 | | | 1.96 | % | | |
| | | | | | | | | | | | | |
| Senior and subordinated unsecured notes | 8,442 | | | 101 | | | 4.85 | % | | 7,219 | | | 73 | | | 4.10 | % | | |
| | | | | | | | | | | | | |
| Total interest-bearing liabilities | 86,887 | | | 735 | | | 3.43 | % | | 76,360 | | | 233 | | | 1.24 | % | | |
| Non-interest-bearing liabilities: | | | | | | | | | | | | | |
| Non-interest-bearing deposit accounts | 411 | | | | | | | 374 | | | | | | | |
| Other liabilities | 5,130 | | | | | | | 5,091 | | | | | | | |
| Total non-interest-bearing liabilities | 5,541 | | | | | | | 5,465 | | | | | | | |
| Total liabilities | 92,428 | | | | | | | 81,825 | | | | | | | |
| Equity | | | | | | | | | | | | | |
| Total equity | 13,414 | | | | | | | 13,731 | | | | | | | |
| Total liabilities and equity | $ | 105,842 | | | | | | | $ | 95,556 | | | | | | | |
Interest rate spread(4) | | | | | 14.55 | % | | | | | | 15.54 | % | | |
| Net interest income | | | $ | 4,051 | | | | | | | $ | 3,789 | | | | | |
Net interest margin(5) | | | | | 15.22 | % | | | | | | 15.80 | % | | |
____________________(1)Average yields/rates are based on total interest income/expense over average balances.
(2)Includes average restricted cash balances of $351 million and $614 million for the three months ended March 31, 2023 and 2022, respectively.
(3)Interest income on loan receivables includes fees on loans of $639 million and $652 million for the three months ended March 31, 2023 and 2022, respectively.
(4)Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities.
(5)Net interest margin represents net interest income divided by average total interest-earning assets.
|
| | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| Three months ended September 30 ($ in millions) | Average Balance | | Interest Income / Expense | | Average Yield / Rate(1) | | Average Balance | | Interest Income/ Expense | | Average Yield / Rate(1) |
| Assets | | | | | | | | | | | |
| Interest-earning assets: | | | | | | | | | | | |
Interest-earning cash and equivalents(2) | $ | 11,895 |
| | $ | 37 |
| | 1.23 | % | | $ | 12,480 |
| | $ | 16 |
| | 0.51 | % |
| Securities available for sale | 3,792 |
| | 14 |
| | 1.46 | % | | 2,960 |
| | 9 |
| | 1.21 | % |
Loan receivables(3): | | | | | | | | | | | |
| Credit cards, including held for sale | 73,172 |
| | 4,111 |
| | 22.29 | % | | 66,519 |
| | 3,705 |
| | 22.16 | % |
| Consumer installment loans | 1,543 |
| | 35 |
| | 9.00 | % | | 1,333 |
| | 31 |
| | 9.25 | % |
| Commercial credit products | 1,392 |
| | 36 |
| | 10.26 | % | | 1,401 |
| | 35 |
| | 9.94 | % |
| Other | 58 |
| | — |
| | — | % | | 63 |
| | — |
| | — | % |
| Total loan receivables | 76,165 |
| | 4,182 |
| | 21.78 | % | | 69,316 |
| | 3,771 |
| | 21.64 | % |
| Total interest-earning assets | 91,852 |
| | 4,233 |
| | 18.28 | % | | 84,756 |
| | 3,796 |
| | 17.82 | % |
| Non-interest-earning assets: | | | | | | | | | | | |
| Cash and due from banks | 877 |
| | | | | | 862 |
| | | | |
| Allowance for loan losses | (5,125 | ) | | | | | | (3,933 | ) | | | | |
| Other assets | 3,517 |
| | | | | | 3,189 |
| | | | |
| Total non-interest-earning assets | (731 | ) | | | | | | 118 |
| | | | |
| Total assets | $ | 91,121 |
| | | | | | $ | 84,874 |
| | | | |
| Liabilities | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | |
| Interest-bearing deposit accounts | $ | 53,294 |
| | $ | 219 |
| | 1.63 | % | | $ | 47,895 |
| | $ | 188 |
| | 1.56 | % |
| Borrowings of consolidated securitization entities | 11,759 |
| | 65 |
| | 2.19 | % | | 12,254 |
| | 63 |
| | 2.05 | % |
| Senior unsecured notes | 8,251 |
| | 73 |
| | 3.51 | % | | 7,448 |
| | 64 |
| | 3.42 | % |
| Total interest-bearing liabilities | 73,304 |
| | 357 |
| | 1.93 | % | | 67,597 |
| | 315 |
| | 1.85 | % |
| Non-interest-bearing liabilities: | | | | | | | | | | | |
| Non-interest-bearing deposit accounts | 232 |
| | | | | | 204 |
| | | | |
| Other liabilities | 3,154 |
| | | | | | 3,175 |
| | | | |
| Total non-interest-bearing liabilities | 3,386 |
| | | | | | 3,379 |
| | | | |
| Total liabilities | 76,690 |
| | | | | | 70,976 |
| | | | |
| Equity | | | | | | | | | | | |
| Total equity | 14,431 |
| | | | | | 13,898 |
| | | | |
| Total liabilities and equity | $ | 91,121 |
| | | | | | $ | 84,874 |
| | | | |
Interest rate spread(5) | | | | | 16.35 | % | | | | | | 15.97 | % |
| Net interest income | | | $ | 3,876 |
| | | | | | $ | 3,481 |
| | |
Net interest margin(6) | | | | | 16.74 | % | | | | | | 16.34 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 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 | % |
______________________ | |
(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 20162022 Form 10-K.
Interest Income
Interest income increased by $437$764 million, or 11.5%, and by $1,285 million, or 11.9%19.0%, for the three and nine months ended September 30, 2017, respectively,March 31, 2023, primarily driven by an increase in interest and fees on loans of 15.2%. The increase in interest and fees on loans was primarily driven by growth in our average loan receivables.
Average interest-earning assets
|
| | | | | | | | | | | | | |
| Three months ended September 30 ($ 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 | | % |
| Loan receivables, including held for sale | $ | 74,803 |
| | 82.6 | % | | $ | 67,364 |
| | 81.7 | % |
| Liquidity portfolio and other | 15,805 |
| | 17.4 | % | | 15,064 |
| | 18.3 | % |
| Total average interest-earning assets | $ | 90,608 |
| | 100.0 | % | | $ | 82,428 |
| | 100.0 | % |
The increases in average loan receivables, partially offset by the impacts of 9.9%portfolios sold in the second quarter of 2022. Excluding the impact of the portfolio sales, interest and 11.0%fees on loans increased 23.1% for the three and nine months ended September 30, 2017, respectively, wereMarch 31, 2023.
Average interest-earning assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31 ($ in millions) | 2023 | | % | | 2022 | | % | | | | |
| Loan receivables, including held for sale | $ | 90,815 | | | 84.1 | % | | $ | 82,747 | | | 85.1 | % | | | | |
| Liquidity portfolio and other | 17,137 | | | 15.9 | % | | 14,489 | | | 14.9 | % | | | | |
| Total average interest-earning assets | $ | 107,952 | | | 100.0 | % | | $ | 97,236 | | | 100.0 | % | | | | |
Average loan receivables, including held for sale, increased 9.8% for the three months ended March 31, 2023, primarily driven primarily by highergrowth in purchase volume and moderation in customer payment rates, partially offset by the impacts from portfolios sold in the second quarter of 4.0% and 5.7% and average active account growth of 4.0% and 4.7%, respectively.
Average active accounts2022. Purchase volume increased to 69.3 million2.6% for both the three and nine months ended September 30, 2017,March 31, 2023 and excluding the average balances per these active accountsimpact of portfolios sold during the second quarter, purchase volume increased 5.6% and 6.1%, respectively.by 11.4%.
Yield on average interest-earning assets
The yield on average interest-earning assets increased for the three and nine months ended September 30, 2017. The increase in the three and nine months ended September 30, 2017 wasMarch 31, 2023, primarily due to an increase in the percentage of interest-earning assets attributable toyield on average loan receivables and anreceivables. The increase in theloan receivable yield on our average loan receivables of 14was 97 basis points to 21.78% and 8 basis points basis points to 21.42%, respectively. The increase in yield was primarily driven by higher revolve rates as well as a higher benchmark interest rate.20.61% for the three months ended March 31, 2023.
Interest Expense
Interest expense increased by $42$502 million, or 13.3%, and by $87 million, or 9.4%215.5%, for the three and nine months ended September 30, 2017, respectively, drivenMarch 31, 2023, primarily by the growth in our depositattributed to higher benchmark interest rates and higher funding liabilities. Our cost of funds increased slightly to 1.93%3.43% for the three months ended September 30, 2017,March 31, 2023, compared to 1.85%1.24% for the three months ended September 30, 2016, primarily due to higher benchmark interest rates. Our cost of funds remained flat at 1.88% for both the nine months ended September 30, 2017 and 2016.March 31, 2022.
Average interest-bearing liabilities
|
| | | | | | | | | | | | | |
| Three months ended September 30 ($ 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 liabilities for the three and nine months ended September 30, 2017 was driven primarily by growth in our direct deposits. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31 ($ in millions) | 2023 | | % | | 2022 | | % | | | | |
| Interest-bearing deposit accounts | $ | 72,216 | | | 83.1 | % | | $ | 62,314 | | | 81.6 | % | | | | |
| Borrowings of consolidated securitization entities | 6,229 | | | 7.2 | % | | 6,827 | | | 8.9 | % | | | | |
| Senior and subordinated unsecured notes | 8,442 | | | 9.7 | % | | 7,219 | | | 9.5 | % | | | | |
| | | | | | | | | | | |
| Total average interest-bearing liabilities | $ | 86,887 | | | 100.0 | % | | $ | 76,360 | | | 100.0 | % | | | | |
Net Interest Income
Net interest income increased by $395$262 million, or 11.3%, and by $1,198 million, or 12.1%6.9%, for the three and nine months ended September 30, 2017, primarily driven by higher average loan receivables.March 31, 2023, resulting from the changes in interest income and interest expense discussed above.
Retailer Share Arrangements
Retailer share arrangements increased 6.3% to $805 million and 3.2% to $2,158 million for the three and nine months ended September 30, 2017, respectively, driven primarilydecreased by growth and margin improvement of the programs in which we have retailer share arrangements, partially offset by higher provision for loan losses associated with these programs.
Provision for Loan Losses
Provision for loan losses increased by $324$187 million, or 32.9%16.9%, for the three months ended September 30, 2017,March 31, 2023, primarily due to the impact of portfolios sold in the second quarter of 2022 and higher net charge-offs, partially offset by higher net interest income.
Provision for Credit Losses
Provision for credit losses increased to $1.3 billion from $521 million, for the three months ended March 31, 2023, primarily driven by higher net charge-offs and also a reserve build in the current year driven by higher loan receivables growth. Provision for loan losses increased by $1,032 million, or 35.5%, forand the nine months ended September 30, 2017, primarily due to an increasepotential effects of industry credit contraction on the economy, versus a reserve release in net charge-offs and higher loan loss reserve.
Our allowance coverage ratio increased to 6.97% at September 30, 2017, as compared to 5.82% at September 30, 2016, reflecting the increase in forecasted losses inherent in our loan portfolio.prior year period.
Other Income
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| ($ in millions) | 2023 | | 2022 | | | | |
| Interchange revenue | $ | 232 | | | $ | 230 | | | | | |
| Debt cancellation fees | 115 | | | 89 | | | | | |
| Loyalty programs | (298) | | | (258) | | | | | |
| Other | 16 | | | 47 | | | | | |
| Total other income | $ | 65 | | | $ | 108 | | | | | |
|
| | | | | | | | | | | | | | | |
| | 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 income decreased by $8$43 million, or 9.5%, and by $33 million, or 12.7%39.8%, for the three and nine months ended September 30, 2017, respectively. March 31, 2023 primarily driven by higher loyalty program costs as well as downward adjustments to certain equity method investments in the current year compared to investment gains in the prior year period. These decreases were primarily due to higher loyalty costs, 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 $18 million associated with the sale of contractual relationships related to processing of general purpose card transactions for certain merchants.
higher debt cancellation income.
Other Expense
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, | |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 | ($ in millions) | 2023 | | 2022 | |
| Employee costs | $ | 335 |
| | $ | 311 |
| | $ | 981 |
| | $ | 892 |
| Employee costs | $ | 451 | | | $ | 402 | | |
| Professional fees | 161 |
| | 174 |
| | 470 |
| | 474 |
| Professional fees | 186 | | | 210 | | |
| Marketing and business development | 124 |
| | 92 |
| | 342 |
| | 293 |
| Marketing and business development | 131 | | | 116 | | |
| Information processing | 96 |
| | 87 |
| | 274 |
| | 250 |
| Information processing | 166 | | | 145 | | |
| Other | 242 |
| | 195 |
| | 710 |
| | 589 |
| Other | 185 | | | 166 | | |
| Total other expense | $ | 958 |
| | $ | 859 |
| | $ | 2,777 |
| | $ | 2,498 |
| Total other expense | $ | 1,119 | | | $ | 1,039 | | |
Other expense increased by $99$80 million, or 11.5%, and by $279 million, or 11.2%7.7%, for the three and nine months ended September 30, 2017, respectively,March 31, 2023 primarily due todriven by increases in employee costs, marketingoperational losses and business development and other expenses.
information processing. The increasesincrease in employee costs werewas primarily attributable to an increase in headcount and increased average compensation rates. The increase in information processing was primarily due to new employees added to support the continued growth of the business and replacement of certain third-party services. Marketing and business development expense increased primarily due to strategic investments in our sales platforms, card re-issuances for some of our partner programs and increased marketing on retail deposits. The increases in "other" were primarily driven by higher operational losses and business growth.additional technology investments.
Provision for Income Taxes
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended March 31, | |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 | ($ in millions) | 2023 | | 2022 | |
| Effective tax rate | 36.9 | % | | 37.3 | % | | 36.7 | % | | 37.1 | % | Effective tax rate | 23.9 | % | | 24.4 | % | |
| Provision for income taxes | $ | 324 |
| | $ | 359 |
| | $ | 899 |
| | $ | 987 |
| Provision for income taxes | $ | 189 | | | $ | 301 | | |
The effective tax rate for the three and nine months ended September 30, 2017March 31, 2023 decreased compared to the same periodsperiod in the prior year, primarily due to the impact of research and development credits recordeda decrease in pre-tax income in the current year, periods. In each periodwhich led to a larger impact related to discrete tax benefits. 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 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 nine months ended September 30, 2017,March 31, 2023, for each of our five sales platforms.platforms and Corp, Other.
Home & Auto
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| ($ in millions) | 2023 | | 2022 | | | | |
| Purchase volume | $ | 10,863 | | | $ | 10,260 | | | | | |
| Period-end loan receivables | $ | 29,733 | | | $ | 26,532 | | | | | |
| Average loan receivables, including held for sale | $ | 29,690 | | | $ | 26,406 | | | | | |
| Average active accounts (in thousands) | 18,521 | | | 17,473 | | | | | |
| | | | | | | |
| Interest and fees on loans | $ | 1,225 | | | $ | 1,088 | | | | | |
| Other income | $ | 25 | | | $ | 21 | | | | | |
Retail Card
|
| | | | | | | | | | | | | | | |
| | 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 CardHome & Auto interest and fees on loans increased by $312$137 million, or 11.2%, and by $901 million, or 11.3%12.6%, for the three and nine months ended September 30, 2017, respectively. These increases wereMarch 31, 2023, primarily the result ofdriven by growth in average loan receivables.
Retailer share arrangements increased by $43 million, or 5.7%, and by $64 million, or 3.1%, for the three and nine months ended September 30, 2017, respectively, primarily as a result of the factors discussed under the heading “Retailer Share Arrangements” above.
Other income decreased by $9 million, or 12.9%, and by $55 million, or 25.2%, for the three and nine months ended September 30, 2017, respectively, primarily as a result of higher loyalty costs, partially offset by increased interchange revenue driven by increased The growth in average loan receivables reflected purchase volume outsidegrowth of our retail partners' sales channels.5.9% reflecting strong commercial spend and higher transaction values in Furniture and Home Specialty.
Payment SolutionsDigital
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| ($ in millions) | 2023 | | 2022 | | | | |
| Purchase volume | $ | 12,261 | | | $ | 11,196 | | | | | |
| Period-end loan receivables | $ | 24,944 | | | $ | 21,075 | | | | | |
| Average loan receivables, including held for sale | $ | 24,982 | | | $ | 21,160 | | | | | |
| Average active accounts (in thousands) | 20,564 | | | 19,000 | | | | | |
| | | | | | | |
| Interest and fees on loans | $ | 1,363 | | | $ | 1,022 | | | | | |
| Other income | $ | 1 | | | $ | (12) | | | | | |
|
| | | | | | | | | | | | | | | |
| | 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 SolutionsDigital interest and fees on loans increased by $54$341 million, or 10.7%, and by $178 million, or 12.5%33.4%, for the three and nine months ended September 30, 2017, respectively. These increases wereMarch 31, 2023, primarily driven by growth in average loan receivables.receivables and higher benchmark interest rates. The growth in average loan receivables reflected purchase volume growth of 9.5% and average active account growth of 8.2% with strong customer engagement.
Diversified & Value
CareCredit | | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| ($ in millions) | 2023 | | 2022 | | | | |
| Purchase volume | $ | 13,439 | | | $ | 11,558 | | | | | |
| Period-end loan receivables | $ | 17,702 | | | $ | 15,166 | | | | | |
| Average loan receivables, including held for sale | $ | 17,713 | | | $ | 15,128 | | | | | |
| Average active accounts (in thousands) | 20,807 | | | 19,201 | | | | | |
| | | | | | | |
| Interest and fees on loans | $ | 1,070 | | | $ | 826 | | | | | |
| Other income | $ | (14) | | | $ | (9) | | | | | |
|
| | | | | | | | | | | | | | | |
| | 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 |
|
CareCreditDiversified & Value interest and fees on loans increased by $45$244 million, or 9.5%, and by $144 million, or 10.7%29.5%, for the three and nine months ended September 30, 2017, respectively. These increases wereMarch 31, 2023, primarily driven by growth in average loan receivables.receivables and higher benchmark interest rates. The growth in average loan receivables reflected purchase volume growth of 16.3% driven by higher out-of-partner spend and strong retailer performance and average active account growth of 8.4%.
Investment Securities | | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| ($ in millions) | 2023 | | 2022 | | | | |
| Purchase volume | $ | 3,690 | | | $ | 3,107 | | | | | |
| Period-end loan receivables | $ | 12,581 | | | $ | 10,407 | | | | | |
| Average loan receivables, including held for sale | $ | 12,309 | | | $ | 10,251 | | | | | |
| Average active accounts (in thousands) | 6,887 | | | 6,027 | | | | | |
| | | | | | | |
| Interest and fees on loans | $ | 735 | | | $ | 616 | | | | | |
| Other income | $ | 61 | | | $ | 53 | | | | | |
Health & Wellness interest and fees on loans increased by $119 million, or 19.3%, for the three months ended March 31, 2023, primarily driven by growth in average loan receivables and higher revolve rate. The following discussion provides supplemental information regarding our investment securities portfolio. Allgrowth in average loan receivables reflected continued higher promotional purchase volume and lower payment rates. Purchase volume increased 18.8% and average active accounts increased 14.3%.
Other income increased by $8 million, or 15.1%, for the three months ended March 31, 2023 primarily due to higher debt cancellation fees, partially offset by higher program loyalty costs.
Lifestyle
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| ($ in millions) | 2023 | | 2022 | | | | |
| Purchase volume | $ | 1,302 | | | $ | 1,195 | | | | | |
| Period-end loan receivables | $ | 5,971 | | | $ | 5,381 | | | | | |
| Average loan receivables, including held for sale | $ | 5,919 | | | $ | 5,379 | | | | | |
| Average active accounts (in thousands) | 2,611 | | | 2,582 | | | | | |
| | | | | | | |
| Interest and fees on loans | $ | 223 | | | $ | 191 | | | | | |
| Other income | $ | 7 | | | $ | 6 | | | | | |
Lifestyle interest and fees on loans increased by $32 million, or 16.8%, for the three months ended March 31, 2023 primarily driven by growth in average loan receivables and higher benchmark interest rates. The growth in average loan receivables reflected purchase volume growth of our investment securities are classified as available-for-sale at September 30, 20179.0% for the three months ended March 31, 2023, which was driven by higher transaction values in Outdoor and December 31, 2016, and are held to meet our liquidity objectives and to comply with the Community Reinvestment Act. Investment securities classified as available-for-sale are reported in our Condensed Consolidated Statements of Financial Position at fair value.Luxury.
Corp, Other
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| ($ in millions) | 2023 | | 2022 | | | | |
| Purchase volume | $ | 2 | | | $ | 3,174 | | | | | |
| Period-end loan receivables | $ | 198 | | | $ | 355 | | | | | |
| Average loan receivables, including held for sale | $ | 202 | | | $ | 4,423 | | | | | |
| Average active accounts (in thousands) | 104 | | | 5,844 | | | | | |
| | | | | | | |
| Interest and fees on loans | $ | — | | | $ | 265 | | | | | |
| Other income | $ | (15) | | | $ | 49 | | | | | |
The following table sets forthdecreases shown above for Corp, Other compared to the amortized cost and fair value of our portfolio of investment securities atprior year period reflect 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, neteffects 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 obligationssale of the U.S. government.BP and Gap Inc. portfolios in May 2022 and June 2022, respectively.
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.
The following table sets forth the composition of our loan receivables portfolio by product type at the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | At March 31, 2023 | | (%) | | At December 31, 2022 | | (%) |
| Loans | | | | | |
| Credit cards | $ | 86,113 | | | 94.5 | % | | $ | 87,630 | | | 94.8 | % |
| Consumer installment loans | 3,204 | | | 3.5 | % | | 3,056 | | | 3.3 | |
| Commercial credit products | 1,690 | | | 1.9 | % | | 1,682 | | | 1.8 | |
| Other | 122 | | | 0.1 | % | | 102 | | | 0.1 | |
| Total loans | $ | 91,129 | | | 100.0 | % | | $ | 92,470 | | | 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%,15.5% to $91.1 billion at September 30, 2017March 31, 2023 compared to December$78.9 billion at March 31, 2016, primarily2022, driven by business growth partially offset by the impacts from the seasonality of our business.
Loan receivables increased by $6,284 million, or 8.9%, at September 30, 2017 compared to September 30, 2016, primarily driven by higher purchase volume growth and average active account growth.
lower customer payment rates.
Our loan receivables portfolio had the following geographic concentration at September 30, 2017.March 31, 2023.
|
| | | | | | | |
| ($ 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 | $ | 9,957 | | | 10.9 | % |
| California | $ | 9,476 | | | 10.4 | % |
| Florida | $ | 8,482 | | | 9.3 | % |
| New York | $ | 4,495 | | | 4.9 | % |
| North Carolina | $ | 3,754 | | | 4.1 | % |
Delinquencies
Over-30 day loan delinquencies as a percentage of period-end loan receivables increased to 4.80%3.81% at September 30, 2017March 31, 2023 from 4.26%2.78% at September 30, 2016,March 31, 2022, and increased from 4.32%3.65% at December 31, 2016. The 54 basis point increase compared to the same period in the prior year was2022. These increases were primarily driven by the factors discussed in "Business Trends and Conditions — Stable Asset Quality" in our 2016 Form 10-K. The increase as compared to December 31, 2016, was primarily driven by the various factors referenced above, partially offset by the seasonality of our business.lower customer payment rates.
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 net charge-offs and ratio of net charge-offs to average loan receivables, including held for sale, (“net charge-off rate”) for the periods indicated.
|
| | | | | | | | | | | |
| | 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 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three months ended March 31, | | | | |
| | | | | 2023 | | 2022 | | | | |
| ($ in millions) | | | | | Amount | | Rate | | Amount | | Rate | | | | |
| Credit cards | | | | | $ | 938 | | | 4.43 | % | | $ | 530 | | | 2.74 | % | | | | |
| Consumer installment loans | | | | | 39 | | | 4.97 | % | | 17 | | | 2.57 | % | | | | |
| Commercial credit products | | | | | 29 | | | 6.69 | % | | 11 | | | 3.11 | % | | | | |
| Other | | | | | — | | | — | % | | — | | | — | % | | | | |
| Total net charge-offs | | | | | $ | 1,006 | | | 4.49 | % | | $ | 558 | | | 2.73 | % | | | | |
Allowance for LoanCredit Losses
The allowance for loancredit losses totaled $5,361 million$9.5 billion at September 30, 2017 compared with $4,344 million atboth March 31, 2023 and December 31, 20162022, respectively, and $4,115 million$8.7 billion at September 30, 2016, representingMarch 31, 2022, 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 increased to 6.97%10.44% at September 30, 2017,March 31, 2023, from 5.69%10.30% at December 31, 20162022 and 5.82%decreased from 10.96% at September 30, 2016, which reflects theMarch 31, 2022.
The increase in forecasted net charge-offs overallowance for credit losses compared to March 31, 2022 was primarily driven by growth in loan receivables. The allowance for credit losses at March 31, 2023 was relatively flat compared to December 31, 2022 and included a $294 million reduction related to the next twelve months.adoption of ASU 2022-02 on January 1, 2023 which eliminated the separate recognition and measurement guidance for troubled debt restructurings (“TDRs”). See "Business TrendsNote 2. Basis of Presentation and Conditions — Stable Asset Quality" inSummary of Significant Accounting Policies and Note 4. Loan Receivables and Allowance for Credit Losses to our 2016 Form 10-Kcondensed consolidated financial statements for discussionadditional information on the effects of adoption of the various factors that contribute to forecasted net charge-offs over the next twelve months.new accounting guidance.
The following tables provide changes in our allowance for loan losses for the periods presented:
|
| | | | | | | | | | | | | | | | | | | |
| ($ 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 and subordinated unsecured notes.
The following table summarizes information concerning our funding sources during the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 |
| Three months ended March 31 ($ in millions) | Average
Balance | | % | | Average
Rate | | Average
Balance | | % | | Average
Rate |
Deposits(1) | $ | 72,216 | | | 83.1 | % | | 3.1 | % | | $ | 62,314 | | | 81.6 | % | | 0.8 | % |
| Securitized financings | 6,229 | | | 7.2 | | | 5.0 | | | 6,827 | | | 8.9 | | | 2.0 | |
| Senior and subordinated unsecured notes | 8,442 | | | 9.7 | | | 4.9 | | | 7,219 | | | 9.5 | | | 4.1 | |
| | | | | | | | | | | |
| Total | $ | 86,887 | | | 100.0 | % | | 3.4 | % | | $ | 76,360 | | | 100.0 | % | | 1.2 | % |
______________________ (1)Excludes $411 million and $374 million average balance of non-interest-bearing deposits for the three months ended March 31, 2023 and 2022, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the three months ended March 31, 2023 and 2022.
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| Three months ended September 30 ($ 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 | % |
20
______________________ | |
(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, affinity relationships and commercial customers (“direct deposits”) or through third-party brokerage firms that offer our deposits to their customers (“brokered deposits”). At September 30, 2017,March 31, 2023, we had $41.6$60.6 billion in direct deposits (which includes deposits from banks and financial institutions) and $12.9$13.8 billion in deposits originated through brokerage firms (including network deposit sweeps procured through a program arranger that channels brokerage account deposits to us). A key part of our liquidity plan and funding strategy is to continue to expandutilize our direct depositsdeposit base as a source of stable and diversified low costlow-cost funding.
Our direct deposits are primarily from retail customers and include a range of FDIC-insured deposit products, including certificates of deposit, IRAs, money market accounts, savings accounts, sweep and savings accounts.affinity deposits.
Brokered deposits are primarily from retail customers of large brokerage firms. We have relationships with 10 brokers that offer our deposits through their networks. Our brokered deposits consist primarily of certificates of deposit that bear interest at a fixed rate and at September 30, 2017, had a weighted average remaining life of 2.8 years.rate. These deposits generally are not subject to early withdrawal.
Our ability to attract deposits is sensitive to, among other things, the interest rates we pay, and therefore, we bear funding risk if we fail to pay higher rates, or interest rate risk if we are required to pay higher rates, to retain existing deposits or attract new deposits. To mitigate these risks, our funding strategy includes a range of deposit products, and we seek to maintain access to multiple other funding sources, including securitized financings (including our undrawn committed capacity) and unsecured debt.
The following table summarizes certain information regarding our interest-bearing deposits by type (all of which constitute U.S. deposits) for the periods indicated:
| | | Three months ended September 30 ($ in millions) | 2017 | | 2016 | |
Average Balance | | % of Total | | Average Rate | | Average Balance | | % of Total | | Average Rate | |
| Three months ended March 31 ($ in millions) | | Three months ended March 31 ($ in millions) | 2023 | | 2022 |
| 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) | $ | 29,128 | | | 40.3 | % | | 2.8 | % | | $ | 20,226 | | | 32.5 | % | | 1.0 | % |
| Savings accounts (including money market accounts) | 17,522 |
| | 32.9 |
| | 1.2 |
| | 14,658 |
| | 30.6 |
| | 1.0 |
| |
| Savings, money market, and demand accounts | | Savings, money market, and demand accounts | 29,914 | | | 41.4 | | | 3.3 | | | 31,097 | | | 49.9 | | | 0.5 | |
| Brokered deposits | 12,441 |
| | 23.3 |
| | 2.3 |
| | 12,981 |
| | 27.1 |
| | 2.2 |
| Brokered deposits | 13,174 | | | 18.3 | | | 3.5 | | | 10,991 | | | 17.6 | | | 1.3 | |
| Total interest-bearing deposits | $ | 53,294 |
| | 100.0 | % | | 1.6 | % | | $ | 47,895 |
| | 100.0 | % | | 1.6 | % | Total interest-bearing deposits | $ | 72,216 | | | 100.0 | % | | 3.1 | % | | $ | 62,314 | | | 100.0 | % | | 0.8 | % |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Nine months ended September 30 ($ in millions) | 2017 | | 2016 |
Average Balance | | % of Total | | Average Rate | | Average Balance | | % of Total | | Average Rate |
| Direct deposits: | | | | | | | | | | | |
| Certificates of deposit (including IRA certificates of deposit) | $ | 22,138 |
| | 42.3 | % | | 1.6 | % | | $ | 19,326 |
| | 42.1 | % | | 1.5 | % |
| Savings accounts (including money market accounts) | 17,492 |
| | 33.4 |
| | 1.1 |
| | 13,669 |
| | 29.8 |
| | 1.0 |
|
| Brokered deposits | 12,695 |
| | 24.3 |
| | 2.2 |
| | 12,920 |
| | 28.1 |
| | 2.2 |
|
| Total interest-bearing deposits | $ | 52,325 |
| | 100.0 | % | | 1.6 | % | | $ | 45,915 |
| | 100.0 | % | | 1.6 | % |
Our deposit liabilities provide funding with maturities ranging from one day to ten years. At September 30, 2017,March 31, 2023, the weighted average maturity of our interest-bearing time deposits was 1.81.2 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 September 30, 2017.March 31, 2023:
|
| | | | | | | | | | | | | | | | | | | |
| ($ 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) | | | | | | | | | |
| Direct deposits: | | | | | | | | | |
| Certificates of deposit (including IRA certificates of deposit) | 1,745 |
| | 2,127 |
| | 4,083 |
| | 7,798 |
| | 15,753 |
|
| Savings accounts (including money market accounts) | 13,665 |
| | — |
| | — |
| | — |
| | 13,665 |
|
| Brokered deposits: | | | | | | | | | |
| Sweep accounts | 1,605 |
| | — |
| | — |
| | — |
| | 1,605 |
|
| Total | $ | 23,737 |
| | $ | 4,822 |
| | $ | 6,888 |
| | $ | 19,007 |
| | $ | 54,454 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ 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 FDIC insurance limit)(1)(2) | $ | 31,670 | | | $ | 3,266 | | | $ | 9,858 | | | $ | 14,620 | | | $ | 59,414 | |
U.S. deposits (in excess of FDIC insurance limit)(2) | | | | | | | | | |
| Direct deposits: | | | | | | | | | |
Certificates of deposit
(including IRA certificates of deposit) | 1,203 | | | 1,061 | | | 3,068 | | | 2,728 | | | 8,060 | |
| Savings, money market, and demand accounts | 6,951 | | | — | | | — | | | — | | | 6,951 | |
| | | | | | | | | |
| | | | | | | | | |
| Total | $ | 39,824 | | | $ | 4,327 | | | $ | 12,926 | | | $ | 17,348 | | | $ | 74,425 | |
______________________
| |
(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 insured accounts. Our estimate of the uninsured portion of these deposit balances at March 31, 2023 was approximately $5.3 billion.
Securitized Financings
We have been engaged in the securitization of our credit card receivables since 1997. We access the asset-backed securitization market using the Synchrony Credit Card Master Note Trust (“SYNCT”) and the Synchrony Card Issuance Trust (“SYNIT”) through which we may issue asset-backed securities through both public transactions and private transactions funded by financial institutions and commercial paper conduits. In addition, we issue asset-backed securities in private transactions through the Synchrony Sales Finance Master Trust (“SFT”).
The following table summarizes expected contractual maturities of the investors’ interests in securitized financings, excluding debt premiums, discounts and issuance costcosts at September 30, 2017.March 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ 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) | $ | 1,457 | | | $ | 1,550 | | | $ | — | | | $ | — | | | $ | 3,007 | |
| SFT | — | | | 1,550 | | | — | | | — | | | 1,550 | |
SYNIT(1) | — | | | 1,675 | | | — | | | — | | | 1,675 | |
| Total long-term borrowings—owed to securitization investors | $ | 1,457 | | | $ | 4,775 | | | $ | — | | | $ | — | | | $ | 6,232 | |
|
| | | | | | | | | | | | | | | | | | | |
| ($ 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 March 31, 2023.
| |
(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 September 30, 2017.March 31, 2023.
| | | | | | | | | | 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 | $ | 3,007 | | | 5 | | | ~ 15.1% to 16.3% |
| SFT | $ | 3,650 |
| | 10 |
| | 11.4 | % | SFT | $ | 1,550 | | | 6 | | | 15.0 | % |
| SYNIT | | SYNIT | $ | 1,675 | | | 1 | | | 19.1 | % |
______________________
| |
(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 March 31, 2023.
Senior and Subordinated Unsecured Notes
The following table provides a summary of our outstanding fixed rate senior and subordinated unsecured notes at September 30, 2017.March 31, 2023, which includes $750 million of subordinated unsecured notes issued by Synchrony Financial in February 2023.
|
| | | | | | |
| ($ 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 | |
| October 2021 | | 2.875% | | October 2031 | | 750 | |
| June 2022 | | 4.875% | | June 2025 | | 750 | |
| Synchrony Bank | | | | | | |
| August 2022 | | 5.400% | | August 2025 | | 900 | |
| August 2022 | | 5.625% | | August 2027 | | 600 | |
| | | | | | |
| Fixed rate subordinated unsecured notes: | | | | | | |
| Synchrony Financial | | | | | | |
| February 2023 | | 7.250% | | February 2033 | | 750 | |
| Total fixed rate senior and subordinated unsecured notes | | | | | | $ | 8,750 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
______________________
| |
(1) | The amounts shown exclude unamortized debt discount, premiums and issuance cost. |
At September 30, 2017, the aggregate amount of outstanding senior unsecured notes was $8.0 billion and the weighted(1)Weighted average interest rate of all senior and subordinated unsecured notes at March 31, 2023 was 3.38%4.69%.
(2)The amounts shown exclude unamortized debt discounts, premiums and 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 September 30, 2017,March 31, 2023, 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 and subordinated 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 September 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.March 31, 2023.
At September 30, 2017,March 31, 2023, 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- |
| Subordinated unsecured debt | BB+ | | BB+ |
| Preferred stock | BB- | | B+ |
| Outlook for Synchrony Financial | Stable | | Stable |
| Synchrony Bank | | | |
| Senior unsecured debt | BBB | | BBB- |
| Outlook for Synchrony Bank | 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 September 30, 2017March 31, 2023 had $16.4$18.7 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$14.2 billion of liquid assets at December 31, 2016.2022. The increase in liquid assets was primarily due to deposit growth, issuance of subordinated unsecured debt and the retentionseasonality of excess cash flows from operations within our Company.business. We believe our liquidity position at March 31, 2023 remains strong as we continue to operate in a period of uncertain economic conditions and we will continue to closely monitor our liquidity as economic conditions change.
As additional sources of liquidity, at September 30, 2017,March 31, 2023, we had an aggregate of $5.6$2.5 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 20162022 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 2022 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 have submitted a capital plan to the Federal Reserve Board in April 2017.2023. While not required, our capital plan process does include certain internal stress testing.
Dividend and Share Repurchases |
| | | | | | | | | | |
| 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 |
|
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Common Stock Cash Dividends Declared | | Month of Payment | | Amount per Common Share | | Amount |
| ($ in millions, except per share data) | | | | | | |
| Three months ended March 31, 2023 | | February 2023 | | $ | 0.23 | | | $ | 100 | |
| | | | | | |
| | | | | | |
| Total dividends declared | | | | $ | 0.23 | | | $ | 100 | |
On May 18, 2017, the Board announced plans to increase the quarterly dividend to $0.15 per share commencing in the third quarter of 2017.
| | | | | | | | | | | | | | | | | | | | |
| Preferred Stock Cash Dividends Declared | | Month of Payment | | Amount per Preferred Share | | Amount |
| ($ in millions, except per share data) | | | | | | |
| Three months ended March 31, 2023 | | February 2023 | | $ | 14.06 | | | $ | 11 | |
| | | | | | |
| | | | | | |
| Total dividends declared | | | | $ | 14.06 | | | $ | 11 | |
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 20162022 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, 2023 | | 11.3 | | | $ | 400 | |
| | | | |
| | | | |
| Total | | 11.3 | | | $ | 400 | |
In May 2017During the three months ended March 31, 2023, we completedrepurchased $400 million of common stock as part of the share repurchase programs announced in 2022, with remaining authorized share repurchase capacity of $300 million under our initialexisting share repurchase program of up to $952 million (the "2016 Share Repurchase Program"). On May 18, 2017, the Company approved a share repurchase program of up to $1.64 billion through June 30, 2018 (the "2017 Share Repurchase Program"). We made, and expect to continue to make, share repurchases subject to market conditions and other factors, including legal and regulatory restrictions and required approvals.2023.
Regulatory Capital Requirements - Synchrony Financial
As a savings and loan holding company, we are required to maintain minimum capital ratios, under the applicable U.S. Basel III capital rules. For more information, see “Regulation—Savings and Loan Holding Company Regulation” in our 20162022 Form 10-K.
For Synchrony Financial to be a well-capitalized savings and loan holding company, Synchrony Bank must be well-capitalized and Synchrony Financial must not be subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Federal Reserve Board to meet and maintain a specific capital level for any capital measure. As of September 30, 2017,At March 31, 2023, Synchrony Financial met all the requirements to be deemed well-capitalized.
The following table sets forth at September 30, 2017 and December 31, 2016 the composition of our capital ratios for the Company calculated under the Basel III Standardized Approach rules at March 31, 2023 and December 31, 2022, respectively.
| | | | | | | | | | | | | | | | | | | | | | | |
| Basel III |
| | At March 31, 2023 | | At December 31, 2022 |
| ($ in millions) | Amount | | Ratio(1) | | Amount | | Ratio(1) |
| Total risk-based capital | $ | 14,180 | | | 15.4 | % | | $ | 13,713 | | | 15.0 | % |
| Tier 1 risk-based capital | $ | 12,207 | | | 13.3 | % | | $ | 12,493 | | | 13.6 | % |
| Tier 1 leverage | $ | 12,207 | | | 11.6 | % | | $ | 12,493 | | | 12.3 | % |
| Common equity Tier 1 capital | $ | 11,473 | | | 12.5 | % | | $ | 11,759 | | | 12.8 | % |
| Risk-weighted assets | $ | 91,873 | | | | | $ | 91,596 | | | |
______________________
(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.
The Company elected to adopt the option provided by the interim final rule issued by joint federal bank regulatory agencies, which largely delayed the effects of CECL on our regulatory capital standards, respectively.
|
| | | | | | | | | | | | | |
| | 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. |
through December 31, 2021. Beginning in the first quarter of 2022, the effects are now being phased-in over a three-year transitional period through 2024, collectively the “CECL regulatory capital transition adjustment”. The increaseeffects of CECL on our regulatory capital will be fully phased-in beginning in the first quarter of 2025. For more information, see “Capital—Regulatory Capital Requirements - Synchrony Financial” in our Common2022 Form 10-K.
Capital amounts and ratios in the above table all reflect the applicable CECL regulatory capital transition adjustment for each period. The decrease in our common equity Tier 1 capital ratio compared to December 31, 2022 was primarily due to a slight decrease in risk-weighted assets in the nine months ended September 30, 2017.
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 reconciliationsecond year phase-in of the componentsimpact of CECL on our CET1regulatory capital, ratio as calculatedpartially offset by the impact from the adoption of the new accounting standard for TDRs. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies for additional information on a fully phased-in basis set forth above, to the comparable GAAP components at September 30, 2017 and December 31, 2016.new accounting standard.
|
| | | | | | | |
| ($ 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 September 30, 2017March 31, 2023 and December 31, 2016,2022, 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 September 30, 2017March 31, 2023 and December 31, 2016.2022, and also reflects the applicable CECL regulatory capital transition adjustment for each period.
| | | | At September 30, 2017 | | At December 31, 2016 | | Minimum to be Well-
Capitalized under
Prompt Corrective Action Provisions - Basel III | | At March 31, 2023 | | At December 31, 2022 | | Minimum to be Well-Capitalized under Prompt Corrective Action Provisions |
| ($ in millions) | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | ($ in millions) | Amount | | Ratio | | Amount | | Ratio | | Ratio |
| Total risk-based capital | $ | 10,364 |
| | 16.7 | % | | $ | 10,101 |
| | 16.7 | % | | $ | 6,210 |
| | 10.0 | % | Total risk-based capital | $ | 13,074 | | | 15.2 | % | | $ | 13,313 | | | 15.6 | % | | 10.0% |
| Tier 1 risk-based capital | $ | 9,540 |
| | 15.4 | % | | $ | 9,312 |
| | 15.4 | % | | $ | 4,968 |
| | 8.0 | % | Tier 1 risk-based capital | $ | 11,921 | | | 13.9 | % | | $ | 12,174 | | | 14.2 | % | | 8.0% |
| Tier 1 leverage | $ | 9,540 |
| | 13.0 | % | | $ | 9,312 |
| | 13.2 | % | | $ | 3,661 |
| | 5.0 | % | Tier 1 leverage | $ | 11,921 | | | 12.2 | % | | $ | 12,174 | | | 12.8 | % | | 5.0% |
| Common equity Tier 1 capital | $ | 9,540 |
| | 15.4 | % | | $ | 9,312 |
| | 15.4 | % | | $ | 4,037 |
| | 6.5 | % | Common equity Tier 1 capital | $ | 11,921 | | | 13.9 | % | | $ | 12,174 | | | 14.2 | % | | 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 20162022 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 September 30, 2017,March 31, 2023, we had not recorded any contingent liabilities in our Condensed Consolidated Statement of Financial Position related to any guarantees. See Note 5 - Variable Interest Entities to our condensed consolidated financial statements for more information on our investment commitments for unconsolidated variable interest entities (“VIE's”).
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 20162022 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.
At March 31, 2023, based on a four quarter average, our average total consolidated assets exceeded $100 billion and we anticipate we will become subject to enhanced prudential standards following applicable transition periods. See “Regulation” in our 20162022 Form 10-K for additional information.information on regulations that are currently applicable to us, as well as these enhanced prudential standards. See also “—Capital”above, for discussion of the impact of regulations and supervision on our capital and liquidity, including our ability to pay dividends and repurchase stock.
ITEM 1. FINANCIAL STATEMENTS
Synchrony Financial and subsidiaries
Condensed Consolidated Statements of Earnings
(Unaudited)
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| ($ in millions, except per share data) | 2023 | | 2022 | | | | |
| Interest income: | | | | | | | |
| Interest and fees on loans (Note 4) | $ | 4,616 | | | $ | 4,008 | | | | | |
| Interest on cash and debt securities | 170 | | | 14 | | | | | |
| Total interest income | 4,786 | | | 4,022 | | | | | |
| Interest expense: | | | | | | | |
| Interest on deposits | 557 | | | 127 | | | | | |
| Interest on borrowings of consolidated securitization entities | 77 | | | 33 | | | | | |
| Interest on senior and subordinated unsecured notes | 101 | | | 73 | | | | | |
| | | | | | | |
| Total interest expense | 735 | | | 233 | | | | | |
| Net interest income | 4,051 | | | 3,789 | | | | | |
| Retailer share arrangements | (917) | | | (1,104) | | | | | |
| | | | | | | |
| Provision for credit losses (Note 4) | 1,290 | | | 521 | | | | | |
| Net interest income, after retailer share arrangements and provision for credit losses | 1,844 | | | 2,164 | | | | | |
| Other income: | | | | | | | |
| Interchange revenue | 232 | | | 230 | | | | | |
| Debt cancellation fees | 115 | | | 89 | | | | | |
| Loyalty programs | (298) | | | (258) | | | | | |
| Other | 16 | | | 47 | | | | | |
| Total other income | 65 | | | 108 | | | | | |
| Other expense: | | | | | | | |
| Employee costs | 451 | | | 402 | | | | | |
| Professional fees | 186 | | | 210 | | | | | |
| Marketing and business development | 131 | | | 116 | | | | | |
| Information processing | 166 | | | 145 | | | | | |
| Other | 185 | | | 166 | | | | | |
| Total other expense | 1,119 | | | 1,039 | | | | | |
| Earnings before provision for income taxes | 790 | | | 1,233 | | | | | |
| Provision for income taxes (Note 12) | 189 | | | 301 | | | | | |
| Net earnings | $ | 601 | | | $ | 932 | | | | | |
| Net earnings available to common stockholders | $ | 590 | | | $ | 922 | | | | | |
| | | | | | | |
| Earnings per share | | | | | | | |
| Basic | $ | 1.36 | | | $ | 1.79 | | | | | |
| Diluted | $ | 1.35 | | | $ | 1.77 | | | | | |
|
| | | | | | | | | | | | | | | |
| | 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 March 31, | |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 | ($ in millions) | 2023 | | 2022 | |
| | | | | | | | | | | | | |
| Net earnings | $ | 555 |
| | $ | 604 |
| | $ | 1,550 |
| | $ | 1,675 |
| Net earnings | $ | 601 | | | $ | 932 | | |
| | | | | | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | Other comprehensive income (loss) | | |
| Investment securities | 3 |
| | — |
| | 6 |
| | 17 |
| |
| Debt securities | | Debt securities | 24 | | | (50) | | |
| Currency translation adjustments | 6 |
| | (4 | ) | | 7 |
| | 2 |
| Currency translation adjustments | (1) | | | (2) | | |
| Employee benefit plans | — |
| | — |
| | — |
| | (2 | ) | Employee benefit plans | — | | | — | | |
| Other comprehensive income (loss) | 9 |
| | (4 | ) | | 13 |
| | 17 |
| Other comprehensive income (loss) | 23 | | | (52) | | |
| | | | | | | | | | | | | |
| Comprehensive income | $ | 564 |
| | $ | 600 |
| | $ | 1,563 |
| | $ | 1,692 |
| Comprehensive income | $ | 624 | | | $ | 880 | | |
Amounts presented net of taxes.
See accompanying notes to condensed consolidated financial statements.
Synchrony Financial and subsidiaries
Condensed Consolidated Statements of Financial Position
|
| | | | | | | |
| ($ 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 |
|
| | | | | | | | | | | |
| ($ in millions) | At March 31, 2023 | | At December 31, 2022 |
| Assets | | | |
| Cash and equivalents | $ | 15,303 | | | $ | 10,294 | |
| Debt securities (Note 3) | 4,008 | | | 4,879 | |
| Loan receivables: (Notes 4 and 5) | | | |
| Unsecuritized loans held for investment | 72,079 | | | 72,638 | |
| Restricted loans of consolidated securitization entities | 19,050 | | | 19,832 | |
| Total loan receivables | 91,129 | | | 92,470 | |
| Less: Allowance for credit losses | (9,517) | | | (9,527) | |
| Loan receivables, net | 81,612 | | | 82,943 | |
| | | |
| Goodwill | 1,105 | | | 1,105 | |
| Intangible assets, net (Note 6) | 1,297 | | | 1,287 | |
| Other assets | 4,528 | | | 4,056 | |
| Total assets | $ | 107,853 | | | $ | 104,564 | |
| | | |
| Liabilities and Equity | | | |
| Deposits: (Note 7) | | | |
| Interest-bearing deposit accounts | $ | 74,008 | | | $ | 71,336 | |
| Non-interest-bearing deposit accounts | 417 | | | 399 | |
| Total deposits | 74,425 | | | 71,735 | |
| Borrowings: (Notes 5 and 8) | | | |
| Borrowings of consolidated securitization entities | 6,228 | | | 6,227 | |
| | | |
| Senior and subordinated unsecured notes | 8,706 | | | 7,964 | |
| Total borrowings | 14,934 | | | 14,191 | |
| Accrued expenses and other liabilities | 5,301 | | | 5,765 | |
| Total liabilities | $ | 94,660 | | | $ | 91,691 | |
| | | |
| Equity: | | | |
| Preferred stock, par share value $0.001 per share; 750,000 shares authorized; 750,000 shares issued and outstanding at both March 31, 2023 and December 31, 2022 and aggregate liquidation preference of $750 at both March 31, 2023 and December 31, 2022 | $ | 734 | | | $ | 734 | |
| Common Stock, par share value $0.001 per share; 4,000,000,000 shares authorized; 833,984,684 shares issued at both March 31, 2023 and December 31, 2022; 428,447,828 and 438,216,755 shares outstanding at March 31, 2023 and December 31, 2022, respectively | 1 | | | 1 | |
| Additional paid-in capital | 9,705 | | | 9,718 | |
| Retained earnings | 17,369 | | | 16,716 | |
| Accumulated other comprehensive income (loss): | | | |
| Debt securities | (69) | | | (93) | |
| Currency translation adjustments | (39) | | | (38) | |
| Employee benefit plans | 6 | | | 6 | |
| Treasury stock, at cost; 405,536,856 and 395,767,929 shares at March 31, 2023 and December 31, 2022, respectively | (14,514) | | | (14,171) | |
| | | |
| Total equity | 13,193 | | | 12,873 | |
| Total liabilities and equity | $ | 107,853 | | | $ | 104,564 | |
_______________________
(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, 2022 | 750 | | | $ | 734 | | | 833,985 | | | $ | 1 | | | $ | 9,669 | | | | | $ | 14,245 | | | $ | (69) | | | $ | (10,925) | | | $ | 13,655 | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net earnings | — | | | — | | | — | | | — | | | — | | | | | 932 | | | — | | | — | | | 932 | | | |
| Other comprehensive income | — | | | — | | | — | | | — | | | — | | | | | — | | | (52) | | | — | | | (52) | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Purchases of treasury stock | — | | | — | | | — | | | — | | | — | | | | | — | | | — | | | (968) | | | (968) | | | |
| Stock-based compensation | — | | | — | | | — | | | — | | | (26) | | | | | (50) | | | — | | | 51 | | | (25) | | | |
Dividends - preferred stock ($14.06 per share) | — | | | — | | | — | | | — | | | — | | | | | (10) | | | — | | | — | | | (10) | | | |
Dividends - common stock ($0.22 per share) | — | | | — | | | — | | | — | | | — | | | | | (114) | | | — | | | — | | | (114) | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2022 | 750 | | | $ | 734 | | | 833,985 | | | $ | 1 | | | $ | 9,643 | | | | | $ | 15,003 | | | $ | (121) | | | $ | (11,842) | | | $ | 13,418 | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | Preferred Stock | | Common Stock | | | |
($ in millions,
shares in thousands) | | ($ 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, 2023 | | Balance at January 1, 2023 | 750 | | | $ | 734 | | | 833,985 | | | $ | 1 | | | $ | 9,718 | | | | $ | 16,716 | | | $ | (125) | | | $ | (14,171) | | | $ | 12,873 | |
| Cumulative effect of change in accounting principle | | Cumulative effect of change in accounting principle | | | 222 | | | 222 | |
| Adjusted balance, beginning of period | | Adjusted balance, beginning of period | 750 | | | 734 | | | 833,985 | | | 1 | | | 9,718 | | | | 16,938 | | | (125) | | | (14,171) | | | 13,095 | |
| Net earnings | | Net earnings | | — | | | — | | | — | | | | 601 | | | — | | | — | | | 601 | |
| Other comprehensive income | | Other comprehensive income | — | | | — | | | — | | | — | | | — | | | | — | | | 23 | | | 23 | |
| | Purchases of treasury stock | | Purchases of treasury stock | — | | | — | | | — | | | — | | | — | | | | — | | | (404) | | | (404) | |
| Stock-based compensation | | Stock-based compensation | — | | | — | | | — | | | — | | | (13) | | | | (59) | | | 61 | | | (11) | |
Dividends - preferred stock ($14.06 per share) | | Dividends - preferred stock ($14.06 per share) | | | (11) | | | (11) | |
Dividends - common stock ($0.23 per share) | | Dividends - common stock ($0.23 per share) | — | | | — | | | — | | | — | | | — | | | | (100) | | | — | | | — | | | (100) | |
| Balance at March 31, 2023 | | Balance at March 31, 2023 | 750 | | | $ | 734 | | | 833,985 | | | $ | 1 | | | $ | 9,705 | | | | $ | 17,369 | | | $ | (102) | | | $ | (14,514) | | | $ | 13,193 | |
| | | | 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 | |
| | | | | | | | | | | | | | | |
| Balance at January 1, 2016 | 833,828 |
| | $ | 1 |
| | $ | 9,351 |
| | $ | 3,293 |
| | $ | (41 | ) | | $ | — |
| | $ | 12,604 |
| |
| Net earnings | — |
| | — |
| | — |
| | 1,675 |
| | — |
| | — |
| | 1,675 |
| |
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 17 |
| | — |
| | 17 |
| |
| Purchases of treasury stock | — |
| | — |
| | — |
| | — |
| | — |
| | $ | (238 | ) | | (238 | ) | |
| Stock-based compensation | 157 |
| | — |
| | 30 |
| | — |
| | — |
| | — |
| | 30 |
| |
| Dividends - common stock | — |
| | — |
| | — |
| | (107 | ) | | — |
| | — |
| | (107 | ) | |
| Balance at September 30, 2016 | 833,985 |
| | $ | 1 |
| | $ | 9,381 |
| | $ | 4,861 |
| | $ | (24 | ) | | $ | (238 | ) | | $ | 13,981 |
| |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| 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)
| | | | | | | | | | | |
| Three months ended March 31, |
($ in millions) | 2023 | | 2022 |
| Cash flows - operating activities | | | |
| Net earnings | $ | 601 | | | $ | 932 | |
| Adjustments to reconcile net earnings to cash provided from operating activities | | | |
| Provision for credit losses | 1,290 | | | 521 | |
| Deferred income taxes | (88) | | | 49 | |
| Depreciation and amortization | 111 | | | 107 | |
| (Increase) decrease in interest and fees receivable | (34) | | | 65 | |
| (Increase) decrease in other assets | 19 | | | (12) | |
| Increase (decrease) in accrued expenses and other liabilities | (177) | | | (413) | |
| All other operating activities | 164 | | | 147 | |
| Cash provided from (used for) operating activities | 1,886 | | | 1,396 | |
| | | |
| Cash flows - investing activities | | | |
| Maturity and sales of debt securities | 1,458 | | | 1,998 | |
| Purchases of debt securities | (391) | | | (1,478) | |
| | | |
| | | |
| | | |
| Net (increase) decrease in loan receivables, including held for sale | (234) | | | 1,415 | |
| All other investing activities | (141) | | | (117) | |
| Cash provided from (used for) investing activities | 692 | | | 1,818 | |
| | | |
| Cash flows - financing activities | | | |
| Borrowings of consolidated securitization entities | | | |
| Proceeds from issuance of securitized debt | 250 | | | — | |
| Maturities and repayment of securitized debt | (250) | | | (1,150) | |
| Senior and subordinated unsecured notes | | | |
| Proceeds from issuance of senior and subordinated unsecured notes | 740 | | | — | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Dividends paid on preferred stock | (11) | | | (10) | |
| Net increase (decrease) in deposits | 2,720 | | | 1,302 | |
| Purchases of treasury stock | (404) | | | (968) | |
| Dividends paid on common stock | (100) | | | (114) | |
| All other financing activities | (33) | | | (36) | |
| Cash provided from (used for) financing activities | 2,912 | | | (976) | |
| | | |
| Increase (decrease) in cash and equivalents, including restricted amounts | 5,490 | | | 2,238 | |
| Cash and equivalents, including restricted amounts, at beginning of period | 10,430 | | | 8,686 | |
| Cash and equivalents at end of period: | | | |
| Cash and equivalents | 15,303 | | | 10,541 | |
| Restricted cash and equivalents included in other assets | 617 | | | 383 | |
| Total cash and equivalents, including restricted amounts, at end of period | $ | 15,920 | | | $ | 10,924 | |
|
| | | | | | | |
| | 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, co-brand and general purpose co-branded credit cards, promotional financingas well as short- and long-term installment lending, loyalty programsloans, 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 operationsbusiness within the United States and Canada. SubstantiallyCanada and 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.model. 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 20162022 annual consolidated and combined financial statements and the related notes in our Annual Report on Form 10-K for the year ended December 31, 20162022 (our "2016"2022 Form 10-K").
New Accounting PoliciesStandards
Newly Adopted 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 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,March 2022, the FASB issued ASU 2016-13,No. 2022-02, Financial Instruments-Credit Losses: Measurement ofInstruments – Credit Losses on Financial Instruments.(Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU replaceseliminates the existing incurred loss impairmentseparate recognition and measurement guidance withfor Troubled Debt Restructurings ("TDRs") by creditors. The elimination of the TDR guidance may be adopted prospectively for loan modifications after adoption or on a new impairment model knownmodified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses.
The Company adopted this guidance as the Current Expected Credit Loss ("CECL") model,of January 1, 2023, on a modified retrospective basis, which is based on expected credit losses. The CECL model requires, upon origination of a loan,resulted in the recognition of all expected credit losses over the lifeeffects 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 a result of adoption, we incurred a reduction of $294 million to the Company's allowance for credit losses, and a corresponding increase, net of tax effect, to retained earnings as of $222 million. Subsequent updates to our estimate of expected credit losses have been recorded through the beginningprovision for credit losses in our Condensed Consolidated Statement of Earnings.
Allowance for Credit Losses
Following the first reporting period in whichadoption of ASU 2022-02 on January 1, 2023 discussed above, we have made the guidance is effective. While we are evaluating the effect that ASU 2016-13 will have onfollowing changes prospectively to our consolidated financial statements and related disclosures, this standard is expected to result in an increase tosignificant accounting policies.
We no longer separately measure our allowance for credit losses on TDRs, and we incorporate the impact of loan losses given the changemodifications made to borrowers experiencing financial difficulties into our overall assessment of portfolio loss content and estimate of 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.
credit losses. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies to our 20162022 annual consolidated and combined financial statements in our 20162022 Form 10-K, for additional information on the methodology used to estimate expected credit losses.
Loan Modifications and 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, for borrowers experiencing financial difficulty. We primarily use long-term modification programs for borrowers experiencing financial difficulty as a loss mitigation strategy to improve long-term collectability of the loans. The long-term modification programs include changing the structure of the loan to a fixed payment loan with a maturity no longer than 60 months, reducing the interest rate on the loan, and stopping the assessment of penalty fees. We also make long-term loan modifications for customers who request financial assistance through external sources, such as through consumer credit counseling service agencies. Long-term loan modification programs do not normally include the forgiveness of unpaid principal, interest or fees. We may also provide certain borrowers with a short-term loan modification program (generally up to 3 months) that can include the forgiveness of unpaid principal balance, interest and/or fees. The evaluation of whether a borrower is experiencing financial difficulty includes our consideration of all relevant facts and circumstances. See Note 4. Loan Receivables and Allowance for Credit Losses for additional information on our loan modifications and restructurings.
Once the loan has been modified, it only returns to current status (re-aged) after three consecutive monthly program payments are received post the modification date, subject to re-aging limitations in the Federal Financial Institutions Examination Council guidelines on Uniform Retail Credit Classification and Account Management policy issued in June 2000.
See Note 2. Basis of Presentation and Summary of Significant Accounting Policies to our 2022 annual consolidated financial statements in our 2022 Form 10-K, for additional information on our applicable significant accounting policies.
policies in effect prior to the adoption of ASU 2022-02.
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 | | March 31, 2023 | | December 31, 2022 |
| | | | 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 | $ | 3,078 | | | $ | — | | | $ | (32) | | | $ | 3,046 | | | $ | 3,917 | | | $ | — | | | $ | (53) | | | $ | 3,864 | |
| State and municipal | 44 |
| | — |
| | — |
| | 44 |
| | 47 |
| | — |
| | (1 | ) | | 46 |
| State and municipal | 10 | | | — | | | — | | | 10 | | | 10 | | | — | | | — | | | 10 | |
Residential mortgage-backed(a) | 1,321 |
| | 2 |
| | (21 | ) | | 1,302 |
| | 1,400 |
| | 2 |
| | (29 | ) | | 1,373 |
| Residential mortgage-backed(a) | 447 | | | — | | | (42) | | | 405 | | | 467 | | | — | | | (49) | | | 418 | |
Asset-backed(b) | 231 |
| | — |
| | — |
| | 231 |
| | — |
| | — |
| | — |
| | — |
| Asset-backed(b) | 556 | | | — | | | (17) | | | 539 | | | 599 | | | — | | | (19) | | | 580 | |
| Equity | 15 |
| | — |
| | — |
| | 15 |
| | 15 |
| | — |
| | — |
| | 15 |
| |
| Other | | Other | 8 | | | — | | | — | | | 8 | | | 8 | | | — | | | (1) | | | 7 | |
| | Total | $ | 3,336 |
| | $ | 3 |
| | $ | (22 | ) | | $ | 3,317 |
| | $ | 5,138 |
| | $ | 3 |
| | $ | (31 | ) | | $ | 5,110 |
| Total | $ | 4,099 | | | $ | — | | | $ | (91) | | | $ | 4,008 | | | $ | 5,001 | | | $ | — | | | $ | (122) | | | $ | 4,879 | |
_______________________
| |
(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 March 31, 2023 and December 31, 2022, $99 million and $100 million of residential mortgage-backed securities, respectively, were pledged by the Bank as collateral to the Federal Reserve to secure Federal Reserve Discount Window advances.
(b)Our asset-backed securities are collateralized by credit card and auto loans.
The following table presents the estimated fair values and gross unrealized losses of our available-for-sale investmentdebt securities:
| | | | In loss position for | | In loss position for |
| | Less than 12 months | | 12 months or more | | Less than 12 months | | 12 months or more |
| | | | Gross |
| | | | Gross |
| | | Gross | | | Gross |
| | Estimated |
| | unrealized |
| | Estimated |
| | unrealized |
| | Estimated | | unrealized | | Estimated | | unrealized |
| ($ in millions) | fair value |
| | losses |
| | fair value |
| | losses |
| ($ in millions) | fair value | | losses | | fair value | | losses |
| At September 30, 2017 | | | | | | | | |
| Debt | | | | | | | | |
| At March 31, 2023 | | At March 31, 2023 | | | | | | | |
| U.S. government and federal agency | $ | 1,450 |
| | $ | (1 | ) | | $ | — |
| | $ | — |
| U.S. government and federal agency | $ | 1,326 | | | $ | (5) | | | $ | 1,277 | | | $ | (27) | |
| State and municipal | 25 |
| | — |
| | 5 |
| | — |
| State and municipal | 1 | | | — | | | 9 | | | — | |
| Residential mortgage-backed | 330 |
| | (5 | ) | | 831 |
| | (16 | ) | Residential mortgage-backed | 32 | | | (1) | | | 372 | | | (41) | |
| Asset-backed | 129 |
| | — |
| | — |
| | — |
| Asset-backed | 145 | | | — | | | 293 | | | (17) | |
| Equity | — |
| | — |
| | — |
| | — |
| |
| Other | | Other | 8 | | | — | | | — | | | — | |
| Total | $ | 1,934 |
| | $ | (6 | ) | | $ | 836 |
| | $ | (16 | ) | Total | $ | 1,512 | | | $ | (6) | | | $ | 1,951 | | | $ | (85) | |
| | | | | | | | | | | | | | | | |
| At December 31, 2016 | | | | | | | | |
| Debt | | | | | | | | |
| At December 31, 2022 | | At December 31, 2022 | |
| U.S. government and federal agency | $ | 1,701 |
| | $ | (1 | ) | | $ | — |
| | $ | — |
| U.S. government and federal agency | $ | 3,032 | | | $ | (30) | | | $ | 638 | | | $ | (23) | |
| State and municipal | 35 |
| | (1 | ) | | 4 |
| | — |
| State and municipal | 5 | | | — | | | 5 | | | — | |
| Residential mortgage-backed | 1,235 |
| | (28 | ) | | 35 |
| | (1 | ) | Residential mortgage-backed | 316 | | | (31) | | | 101 | | | (18) | |
| Equity | 14 |
| | — |
| | 1 |
| | — |
| |
| Asset-backed | | Asset-backed | 230 | | | — | | | 348 | | | (19) | |
| Other | | Other | 7 | | | (1) | | | — | | | — | |
| Total | $ | 2,985 |
| | $ | (30 | ) | | $ | 40 |
| | $ | (1 | ) | Total | $ | 3,590 | | | $ | (62) | | | $ | 1,092 | | | $ | (60) | |
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 March 31, 2023 ($ in millions) | cost | | fair value | | Average yield (a) |
| Due | | | | | |
| Within one year | $ | 3,253 | | | $ | 3,221 | | | 2.8 | % |
| After one year through five years | $ | 412 | | | $ | 394 | | | 2.0 | % |
| After five years through ten years | $ | 224 | | | $ | 208 | | | 1.8 | % |
| After ten years | $ | 210 | | | $ | 185 | | | 1.8 | % |
| | | | | |
_____________________ |
| | | | | | | |
| | 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 |
|
All securities are presented above based upon contractual maturity date, except our asset-backed securities which are allocated based upon expected final payment date. 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 nine months ended September 30, 2017March 31, 2023 and 2016.2022.
Although we generally do not have the intent to sell any specific securities held at September 30, 2017,March 31, 2023, 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) | March 31, 2023 | | December 31, 2022 |
| | | | | |
| Credit cards | $ | 73,946 |
| | $ | 73,580 |
| Credit cards | $ | 86,113 | | | $ | 87,630 | |
| Consumer installment loans | 1,561 |
| | 1,384 |
| Consumer installment loans | 3,204 | | | 3,056 | |
| Commercial credit products | 1,384 |
| | 1,333 |
| Commercial credit products | 1,690 | | | 1,682 | |
| Other | 37 |
| | 40 |
| Other | 122 | | | 102 | |
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) | $ | 91,129 | | | $ | 92,470 | |
_______________________
(a)Total loan receivables include $19.1 billion and $19.8 billion of restricted loans of consolidated securitization entities at March 31, 2023 and December 31, 2022, respectively. See Note 5. Variable Interest Entities for further information on these restricted loans.
(b)At March 31, 2023 and December 31, 2022, loan receivables included deferred costs, net of deferred income, of $218 million and $237 million, respectively.
Allowance for Credit Losses(a)(b)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | | | | | Balance at January 1, 2023 | | Impact of ASU 2022-02 Adoption | | Post-Adoption Balance at January 1, 2023 | | Provision charged to operations | | Gross charge-offs | | Recoveries | | | | | | Balance at
March 31, 2023 |
| Credit cards | | | | | $ | 9,225 | | | $ | (294) | | | $ | 8,931 | | | $ | 1,159 | | | $ | (1,162) | | | $ | 224 | | | | | | | $ | 9,152 | |
| Consumer installment loans | | | | | 208 | | | 1 | | | 209 | | | 85 | | | (44) | | | 5 | | | | | | | 255 | |
| Commercial credit products | | | | | 87 | | | (1) | | | 85 | | | 48 | | | (31) | | | 2 | | | | | | | 104 | |
| Other | | | | | 7 | | | — | | | 8 | | | (2) | | | — | | | — | | | | | | | 6 | |
| Total | | | | | $ | 9,527 | | | $ | (294) | | | $ | 9,233 | | | $ | 1,290 | | | $ | (1,237) | | | $ | 231 | | | | | | | $ | 9,517 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Balance at January 1, 2022 | | Provision charged to operations | | Gross charge-offs | | Recoveries | | | | Balance at
March 31, 2022 |
| Credit cards | $ | 8,512 | | | $ | 482 | | | $ | (719) | | | $ | 189 | | | | | $ | 8,464 | |
| Consumer installment loans | 115 | | | 17 | | | (21) | | | 4 | | | | | 115 | |
| Commercial credit products | 59 | | | 22 | | | (12) | | | 1 | | | | | 70 | |
| Other | 2 | | | — | | | — | | | — | | | | | 2 | |
| Total | $ | 8,688 | | | $ | 521 | | | $ | (752) | | | $ | 194 | | | | | $ | 8,651 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | 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 $82 million, respectively. | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
_______________________
(a)The allowance for Loan Lossescredit losses at March 31, 2023 and 2022 reflects our estimate of expected credit losses for the life of the loan receivables on our Condensed Consolidated Statements of Financial Position at March 31, 2023 and 2022 which include the consideration of current and expected macroeconomic conditions that existed at those dates. |
| | | | | | | | | | | | | | | | | | | |
| ($ 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 |
|
The reasonable and supportable forecast period used in our estimate of credit losses at March 31, 2023 was 12 months, consistent with the forecast period utilized since the adoption of CECL. Beyond the reasonable and supportable forecast period, we revert to historical loss information at the loan receivables segment level over a 6-month period, gradually increasing the weight of historical losses by an equal amount each month during the reversion period, and utilize historical loss information thereafter for the remaining life of the portfolio. The reversion period and methodology remain unchanged since the adoption of CECL.
|
| | | | | | | | | | | | | | | | | | | |
| ($ 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, including those which are modified for borrowers experiencing financial difficulty, are estimated and recognized upon origination of the loan, based on expected credit losses for the life of the loan balance at March 31, 2023. Expected credit loss estimates are developed using both quantitative models and qualitative adjustments, and incorporates a macroeconomic forecast, as described within the 2022 Form 10-K. The current and forecasted economic conditions at the balance sheet date influenced our current estimate of expected credit losses, and reflect an uncertain macroeconomic environment. While customer payment behavior remains elevated compared to historical averages, we continue to experience a decrease in payment rates and increases in both delinquencies and net charge-offs which are expected to continue as these credit metrics trend towards our historical averages. These conditions are reflected in our current estimate of expected credit losses, including the potential effects of industry credit contraction on the economy. Our allowance for credit losses remained relatively flat at $9.5 billion during the three months ended March 31, 2023 despite a seasonal decline in loan receivables, primarily due to these conditions, offset by the reserve reduction associated with the adoption of ASU 2022-02. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies for additional information on our significant accounting policies related to our allowance for credit losses.
Delinquent and Non-accrual Loans
The following table provides information on our delinquent and non-accrual loans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At March 31, 2023 ($ 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 | $ | 1,663 | | | $ | 1,650 | | | $ | 3,313 | | | $ | 1,650 | | | $ | — | |
| Consumer installment loans | 55 | | | 15 | | | 70 | | | — | | | 15 | |
| Commercial credit products | 51 | | | 40 | | | 91 | | | 40 | | | — | |
| | | | | | | | | |
| Total delinquent loans | $ | 1,769 | | | $ | 1,705 | | | $ | 3,474 | | | $ | 1,690 | | | $ | 15 | |
| Percentage of total loan receivables | 1.9 | % | | 1.9 | % | | 3.8 | % | | 1.9 | % | | — | % |
| | | 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, 2022 ($ in millions) | | At December 31, 2022 ($ 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 | $ | 1,710 | | | $ | 1,516 | | | $ | 3,226 | | | $ | 1,516 | | | $ | — | |
| Consumer installment loans | 21 |
| | 4 |
| | 25 |
| | — |
| | 4 |
| Consumer installment loans | 61 | | | 14 | | | 75 | | | — | | | 14 | |
| Commercial credit products | 30 |
| | 15 |
| | 45 |
| | 15 |
| | — |
| Commercial credit products | 44 | | | 32 | | | 76 | | | 32 | | | — | |
| | Total delinquent loans | $ | 1,987 |
| | $ | 1,707 |
| | $ | 3,694 |
| | $ | 1,703 |
| | $ | 4 |
| Total delinquent loans | $ | 1,815 | | | $ | 1,562 | | | $ | 3,377 | | | $ | 1,548 | | | $ | 14 | |
| Percentage of total loan receivables | 2.6 | % | | 2.2 | % | | 4.8 | % | | 2.2 | % | | — | % | Percentage of total loan receivables | 2.0 | % | | 1.7 | % | | 3.7 | % | | 1.7 | % | | — | % |
|
| | | | | | | | | | | | | | | | | | | |
| 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 | % | | — | % |
Loan Modifications to Borrowers Experiencing Financial Difficulty
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.
We have both internal and external loan modification programs. Weprimarily 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.loans. The long-term program involvesprograms involve 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 forloan, and stopping the forgivenessassessment of unpaid principal but may allow for the reversal of certain unpaid interest or fee assessments.penalty fees. We also make long-term loan modifications for customers who request financial assistance through external sources, such as through consumer credit counseling agency programs. These loans typically receive a reduced interest rate but continue to be subject to the original minimum payment terms andservice agencies. Long-term loan modification programs do not normally include waiverthe forgiveness of unpaid principal, interest or fees. We may also provide certain borrowers with a short-term loan modification program (generally up to 3 months) that can include the forgiveness of unpaid principal balance, interest and/or fees.
Three months ended March 31, 2023
The Company adopted ASU 2022-02 as of January 1, 2023 on a modified retrospective basis through a cumulative adjustment to retained earnings. The new guidance is applicable for all loans modified to borrowers experiencing financial difficulties as of the beginning of 2023. The following table provides information on our loan modifications to borrowers experiencing financial difficulty during the period presented, which do not include loans that enteredare classified as loan receivables held for sale:
| | | | | | | | | | | | | | | |
| Three months ended March 31, 2023 ($ in millions) | Amount | | % of Loan Receivables | | | | |
| Long-term modifications | | | | | | | |
| Credit cards | $ | 377 | | | 0.4 | % | | | | |
| Consumer installment loans | — | | | — | % | | | | |
| Commercial credit products | 1 | | | 0.1 | % | | | | |
| Short-term modifications | | | | | | | |
| Credit cards | 139 | | | 0.2 | % | | | | |
| Consumer installment loans | — | | | — | % | | | | |
| Commercial credit products | — | | | — | % | | | | |
| Total | $ | 517 | | | 0.6 | % | | | | |
Financial Effects of Loan Modifications to Borrowers Experiencing Financial Difficulty
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 financial effect of the modifications made to loans to borrowers experiencing financial difficulty in the period reduced the weighted-average interest rates by 97% for long-term modifications and $11 million of unpaid balances were forgiven for short-term modifications.
Performance of Loans Modified to Borrowers Experiencing Financial Difficulty
The following table provides information on the performance of loans modified to borrowers experiencing financial difficulty which have been modified subsequent to January 1, 2023 and remain in a modification program at March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Amortized cost basis |
| At March 31, 2023 ($ in millions) | Current | | 30-89 days delinquent | | 90 or more days delinquent | | Total past due(a) |
| Long-term modifications | | | | | | | |
| Credit cards | $ | 209 | | | $ | 89 | | | $ | 65 | | | $ | 154 | |
| Consumer installment loans | — | | | — | | | — | | | — | |
| Commercial credit products | — | | | — | | | 1 | | | 1 | |
| Short-term modifications | | | | | | | |
| Credit cards | 28 | | | 18 | | | 44 | | | 62 | |
| Consumer installment loans | — | | | — | | | — | | | — | |
| Commercial credit products | — | | | — | | | — | | | — | |
| | | | | | | |
| Total delinquent modified loans | $ | 237 | | | $ | 107 | | | $ | 110 | | | $ | 217 | |
| Percentage of total loan receivables | 0.3 | % | | 0.1 | % | | 0.1 | % | | 0.2 | % |
___________________(a)Once a loan has been modified, it only returns to current status (re-aged) after three consecutive monthly program payments are received post the modification date.
Payment Defaults
The following table presents the type, number and amount of loans to borrowers experiencing financial difficulty that enrolled in a long-term modification program between January 1, 2023 and March 31, 2023 and experienced a payment default and charged-off during the periodsperiod presented:
| | | | | | | | | | | |
| Three months ended March 31 ($ in millions, accounts in thousands) | Accounts defaulted | | Loans defaulted |
| Credit cards | 2 | | | $ | 7 | |
| Consumer installment loans | — | | | — | |
| Commercial credit products | — | | | — | |
| | | |
| Total | 2 | | | $ | 7 | |
Of the loans modified to borrowers experiencing financial difficulty that enrolled in a short-term modification program between January 1, 2023 and March 31, 2023, 14% have fully completed all required payments and successfully exited the program at March 31, 2023.
Three months ended March 31, 2022
Troubled Debt Restructurings
Under our modified retrospective adoption of ASU 2022-02, the following information on loan modifications for periods prior to January 1, 2023 are presented in accordance with the applicable accounting standards in effect at that time. The following table provides information on our TDR loan modifications during the prior year period presented:
| | | | | | | | | |
| Three months ended March 31, 2022 ($ in millions) | | | | | |
| Credit cards | $ | 223 | | | | | |
| Consumer installment loans | — | | | | | |
| Commercial credit products | 1 | | | | | |
| | | | | |
| Total | $ | 224 | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Credit cards | $ | 210 |
| | $ | 164 |
| | $ | 557 |
| | $ | 415 |
|
| Consumer installment loans | — |
| | — |
| | — |
| | — |
|
| Commercial credit products | 1 |
| | 1 |
| | 3 |
| | 2 |
|
| Total | $ | 211 |
| | $ | 165 |
| | $ | 560 |
| | $ | 417 |
|
OurPrior to January 1, 2023, our allowance for loancredit losses on TDRs iswas 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 iswas accounted for in the same manner as other accruing loans.
The following table provides information about loans classified as TDRs and specific reserves.reserves at December 31, 2022. 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 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 |
| |
| At December 31, 2022 ($ in millions) | | At December 31, 2022 ($ in millions) | Total recorded
investment | | Related allowance | | Net recorded investment | | Unpaid principal balance |
| Credit cards | $ | 862 |
| | $ | (321 | ) | | $ | 541 |
| | $ | 761 |
| Credit cards | $ | 1,355 | | | $ | (600) | | | $ | 755 | | | $ | 1,206 | |
| Consumer installment loans | — |
| | — |
| | — |
| | — |
| Consumer installment loans | — | | | — | | | — | | | — | |
| Commercial credit products | 6 |
| | (3 | ) | | 3 |
| | 5 |
| Commercial credit products | 4 | | | (2) | | | 2 | | | 4 | |
| Total | $ | 868 |
| | $ | (324 | ) | | $ | 544 |
| | $ | 766 |
| Total | $ | 1,359 | | | $ | (602) | | | $ | 757 | | | $ | 1,210 | |
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 periodsprior year period presented:
|
| | | | | | | | | | | | | | | | | | | |
| 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 | |
| ($ 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 |
| |
| Three months ended March 31, 2022 ($ in millions) | | Three months ended March 31, 2022 ($ in millions) | Interest income recognized during period when loans were modified | | Interest income that would have been recorded with original terms | | Average recorded investment |
| Credit cards | $ | 36 |
| $ | 161 |
| $ | 916 |
| | $ | 36 |
| $ | 130 |
| $ | 778 |
| Credit cards | $ | 9 | | | $ | 77 | | | $ | 1,183 | |
| Consumer installment loans | — |
| — |
| — |
| | — |
| — |
| — |
| Consumer installment loans | — | | | — | | | — | |
| Commercial credit products | — |
| 1 |
| 6 |
| | — |
| 1 |
| 6 |
| Commercial credit products | — | | | — | | | 3 | |
| Total | $ | 36 |
| $ | 162 |
| $ | 922 |
| | $ | 36 |
| $ | 131 |
| $ | 784 |
| Total | $ | 9 | | | $ | 77 | | | $ | 1,186 | |
Payment Defaults
The following table presents the type, number and amount of loans accounted for as TDRs that enrolled in a modification planprogram within the previous 12 months from the applicable balance sheet dateMarch 31, 2022 and experienced a payment default and charged-off during the periods presented. A customer defaults from a modification program after two consecutive missed payments.prior year period presented:
| | | | | | | | | | | |
| Three months ended March 31, 2022 ($ in millions, accounts in thousands) | Accounts defaulted | | Loans defaulted |
| Credit cards | 18 | | | $ | 42 | |
| Consumer installment loans | — | | | — | |
| Commercial credit products | — | | | — | |
| | | |
| Total | 18 | | | $ | 42 | |
|
| | | | | | | | | | | | | |
| 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 |
| ($ in millions) | Accounts defaulted |
| | Loans defaulted |
| | Accounts defaulted |
| | Loans defaulted |
|
| Credit cards | 42,569 |
| | $ | 90 |
| | 29,982 |
| | $ | 61 |
|
| Consumer installment loans | — |
| | — |
| | — |
| | — |
|
| Commercial credit products | 124 |
| | 1 |
| | 82 |
| | — |
|
| Total | 42,693 |
| | $ | 91 |
| | 30,064 |
| | $ | 61 |
|
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 September 30, 2017 andMarch 31, 2023, December 31, 2016,2022 and March 31, 2022, respectively, as a percentage of each class of loan receivable. The table below excludes 0.7%0.3%, 0.7%0.4% and 0.8%0.4% of our total loan receivables balance at September 30, 2017,each of March 31, 2023, December 31, 20162022 and September 30, 2016,March 31, 2022, respectively, which represents those customer accounts for which a FICOVantageScore score is not available.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | | March 31, 2022 |
| 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 | 73 | % | | 19 | % | | 8 | % | | 74 | % | | 19 | % | | 7 | % | | 76 | % | | 18 | % | | 6 | % |
| Consumer installment loans | 76 | % | | 17 | % | | 7 | % | | 77 | % | | 17 | % | | 6 | % | | 79 | % | | 17 | % | | 4 | % |
| Commercial credit products | 86 | % | | 7 | % | | 7 | % | | 88 | % | | 6 | % | | 6 | % | | 92 | % | | 5 | % | | 3 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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$422 billion and $348$417 billion at September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively. While these amounts represented the total available unused credit card lines, we have not experienced and do not anticipate that all of our customers will access their entire available line at any given point in time.
Interest Income by Product
The following table provides additional information about our interest and fees on loans, including merchant discounts, from our loan receivables, including held for sale:
| | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| ($ in millions) | 2023 | | 2022 | | | | |
Credit cards(a) | $ | 4,497 | | | $ | 3,913 | | | | | |
| Consumer installment loans | 83 | | | 66 | | | | | |
| Commercial credit products | 34 | | | 28 | | | | | |
| Other | 2 | | | 1 | | | | | |
| Total | $ | 4,616 | | | $ | 4,008 | | | | | |
_______________________(a)Interest income on credit cards that was reversed related to accrued interest receivables written off was $415 million and $247 million for the three months ended March 31, 2023 and 2022, respectively.
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| ($ 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 VIEof these VIEs in the three and nine months ended September 30, 2017March 31, 2023 and 2016.2022. 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) | March 31, 2023 | | December 31, 2022 |
| Assets | | | |
Loan receivables, net(a) | $ | 17,357 | | | $ | 18,015 | |
| | | |
Other assets(b) | 540 | | | 61 | |
| Total | $ | 17,897 | | | $ | 18,076 | |
| | | | |
| Liabilities | | | |
| Borrowings | $ | 6,228 | | | $ | 6,227 | |
| Other liabilities | 23 | | | 23 | |
| Total | $ | 6,251 | | | $ | 6,250 | |
|
| | | | | | | |
| ($ 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 $1.7 billion and $1.8 billion of related allowance for credit losses resulting in gross restricted loans of $19.1 billion and $19.8 billion at March 31, 2023 and December 31, 2022, 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 $533 million and $56 million of segregated funds held by the VIEs at March 31, 2023 and December 31, 2022, 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 billion$948 million and $1.1 billion$939 million for the three months ended September 30, 2017March 31, 2023 and 2016,2022, respectively. Related expenses consisted primarily of provision for loancredit losses of $303$120 million and $212$46 million for the three months ended September 30, 2017March 31, 2023 and 2016,2022, respectively, and interest expense of $65$77 million and $63$33 million for the three months ended September 30, 2017March 31, 2023 and 2016,2022, respectively.
Income (principally, interestNon-consolidated VIEs
As part of our community reinvestment initiatives, we invest in affordable housing properties and fees on loans) earned byreceive affordable housing tax credits for these investments. These investments included in our consolidated VIEs was $3.1 billion and $3.4 billion for the nine months ended September 30, 2017 and 2016, respectively. Related expenses consisted primarilyCondensed Consolidated Statement of provision for loan losses of $904Financial Position totaled $667 million and $729$557 million for the nine months ended September 30, 2017at March 31, 2023 and 2016,December 31, 2022, respectively, and interest expense of $193represents our total exposure for these entities. Additionally, we have other investments in non-consolidated VIEs which totaled $238 million and $180$230 million forat March 31, 2023 and December 31, 2022, respectively. At March 31, 2023, the nine months ended September 30, 2017 and 2016, respectively.Company also had investment commitments of $198 million related to these investments.
NOTE 6. INTANGIBLE ASSETS
| | | | | September 30, 2017 | | December 31, 2016 | | | March 31, 2023 | | December 31, 2022 |
| ($ 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 | | $ | 1,736 | | | $ | (1,143) | | | $ | 593 | | | $ | 1,725 | | | $ | (1,113) | | | $ | 612 | |
| Capitalized software | | 357 |
| | (169 | ) | | 188 |
| | 318 |
| | (115 | ) | | 203 |
| |
| Capitalized software and other | | Capitalized software and other | | 1,817 | | | (1,113) | | | 704 | | | 1,721 | | | (1,046) | | | 675 | |
| Total | | $ | 1,589 |
| | $ | (817 | ) | | $ | 772 |
| | $ | 1,387 |
| | $ | (675 | ) | | $ | 712 |
| Total | | $ | 3,553 | | | $ | (2,256) | | | $ | 1,297 | | | $ | 3,446 | | | $ | (2,159) | | | $ | 1,287 | |
During the ninethree months ended September 30, 2017,March 31, 2023, we recorded additions to intangible assets subject to amortization of $215$108 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 ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, we recorded additions to customer-related intangible assets subject to amortization of $175$12 million and $81$26 million, respectively, primarily related to payments made to acquire and extend certain retail partner relationships. These additions had a weighted average amortizable life of 107 years and 75 years for the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, respectively.
Amortization expense related to retail partner contracts was $28$27 million and $26$32 million for the three months ended September 30, 2017March 31, 2023 and 2016, respectively, and $83 million and $76 million for the nine months ended September 30, 2017 and 2016,2022, 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$70 million and $18$61 million for the three months ended September 30, 2017March 31, 2023 and 2016, respectively and $63 million and $55 million for the nine months ended September 30, 2017 and 2016,2022, respectively, and is included as a component of other expense in our Condensed Consolidated Statements of Earnings.
NOTE 7. DEPOSITS
| | | | September 30, 2017 | | December 31, 2016 | | March 31, 2023 | | December 31, 2022 |
| ($ 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 | $ | 74,008 | | | 3.1 | % | | $ | 71,336 | | | 1.5 | % |
| Non-interest-bearing deposits | 222 |
| | — |
| | 159 |
| | — |
| Non-interest-bearing deposits | 417 | | | — | | | 399 | | | — | |
| Total deposits | $ | 54,454 |
| | | | $ | 52,055 |
| | | Total deposits | $ | 74,425 | | | $ | 71,735 | | |
____________________
| |
(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 three months ended March 31, 2023 and the year ended December 31, 2022 and average deposits balances.
At September 30, 2017March 31, 2023 and December 31, 2016,2022, interest-bearing deposits included $15.8$8.1 billion and $14.2$7.2 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 $250,000 or more at September 30, 2017 and December 31, 2016, respectively.per depositor.
At September 30, 2017,March 31, 2023, our interest-bearing time deposits maturing for the remainder of 20172023 and over the next four years and thereafter were as follows:
| | | ($ in millions) | 2017 |
| | 2018 |
| | 2019 |
| | 2020 |
| | 2021 |
| | Thereafter |
| ($ in millions) | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | |
| Deposits | $ | 2,956 |
| | $ | 15,665 |
| | $ | 5,758 |
| | $ | 3,212 |
| | $ | 2,288 |
| | $ | 3,795 |
| Deposits | $ | 13,153 | | | $ | 19,966 | | | $ | 2,517 | | | $ | 948 | | | $ | 2,494 | | | $ | 708 | | |
The above maturity table excludes $17.6$29.3 billion of demand deposits with no defined maturity, of which $15.9$27.8 billion are savings accounts. In addition, at September 30, 2017,March 31, 2023, we had $3.0$4.9 billion of broker network deposit sweeps procured through a program arranger who channels brokerage account deposits to us.us that are also excluded from the above maturity table. Unless extended, the contracts associated with these broker network deposit sweeps will terminate between 20192024 and 2021.
2026.
NOTE 8. BORROWINGS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| ($ in millions) | Maturity date | | Interest Rate | | Weighted average interest rate | | Outstanding Amount(a)(b) | | Outstanding Amount(a)(b) |
| Borrowings of consolidated securitization entities: | | | | | | | | | |
| Fixed securitized borrowings | 2023 - 2025 | | 3.37% - 3.87% | | 3.55 | % | | $ | 2,378 | | | $ | 2,377 | |
| Floating securitized borrowings | 2023 - 2026 | | 5.43% - 5.82% | | 5.60 | % | | 3,850 | | | 3,850 | |
| Total borrowings of consolidated securitization entities | | | | | 4.82 | % | | 6,228 | | | 6,227 | |
| | | | | | | | | |
| Senior unsecured notes: | | | | | | | | | |
| Synchrony Financial senior unsecured notes: | | | | | | | | | |
| Fixed senior unsecured notes | 2024 - 2031 | | 2.87% - 5.15% | | 4.22 | % | | 6,474 | | | 6,473 | |
| | | | | | | | | |
| | | | | | | | | |
| Synchrony Bank senior unsecured notes: | | | | | | | | | |
| Fixed senior unsecured notes | 2025 - 2027 | | 5.40% - 5.63% | | 5.49 | % | | 1,492 | | | 1,491 | |
| | | | | | | | | |
| Total senior unsecured notes | | | | | 4.45 | % | | 7,966 | | | 7,964 | |
| | | | | | | | | |
| Subordinated unsecured notes: | | | | | | | | | |
| Synchrony Financial subordinated unsecured notes: | | | | | | | | | |
| Fixed subordinated unsecured notes | 2033 | | 7.25% - 7.25% | | 7.25 | % | | 740 | | | — | |
| Total senior and subordinated unsecured notes | | | | | 4.69 | % | | 8,706 | | | 7,964 | |
| | | | | | | | | |
| Total borrowings | | | | | | | $ | 14,934 | | | $ | 14,191 | |
___________________ |
| | | | | | | | | | | | | | | |
| | 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 |
|
___________________(b)The Company may redeem certain borrowings prior to their original contractual maturity dates in accordance with the optional redemption provision specified in the respective instruments.
| |
(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 and subordinated unsecured notes for the remainder of 20172023 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | |
| Borrowings | $ | 1,457 | | | $ | 3,650 | | | $ | 5,375 | | | $ | 750 | | | $ | 1,600 | | | $ | 2,150 | | |
Third-Party Debt
Senior Unsecured Notes2023 Issuance($ in millions):
On June 12, 2017, the Bank issued a total of $750 million principal amount of 3.000% senior unsecured notes due 2022. | | | | | | | | | | | | | | | | | | | | |
| Issuance Date | | Principal Amount | | Maturity | | Interest Rate |
| Synchrony Financial | | | | | | |
| February 2023 | | $ | 750 | | | February 2033 | | 7.250% |
Credit Facilities
As additional sources of liquidity, we have undrawn committed capacity under certain credit facilities, primarily related to our securitization programs.
At September 30, 2017,March 31, 2023, we had an aggregate of $5.1$2.5 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 $0.5 billion of undrawn committed capacity under our unsecured revolving credit facility with private lenders.
NOTE 9. FAIR VALUE MEASUREMENTS
For a description of how we estimate fair value, see Note 2. Basis of Presentation and Summary of Significant Accounting Policies in our 20162022 annual consolidated and combined financial statements in our 20162022 Form 10-K.
The following tables present our assets and liabilities measured at fair value on a recurring basis.
Recurring Fair Value Measurements | | | | | | | | | | | | | | | | | | | | | | | |
| At March 31, 2023 ($ in millions) | Level 1 | | Level 2 | | Level 3 | | Total(a) |
| Assets | | | | | | | |
| Debt securities | | | | | | | |
| U.S. government and federal agency | $ | — | | | $ | 3,046 | | | $ | — | | | $ | 3,046 | |
| State and municipal | — | | | — | | | 10 | | | 10 | |
| Residential mortgage-backed | — | | | 405 | | | — | | | 405 | |
| Asset-backed | — | | | 539 | | | — | | | 539 | |
| Other | — | | | — | | | 8 | | | 8 | |
Other(b) | 14 | | | — | | | 12 | | | 26 | |
| Total | $ | 14 | | | $ | 3,990 | | | $ | 30 | | | $ | 4,034 | |
| | | | | | | |
| Liabilities | | | | | | | |
Other(c) | — | | | — | | | 7 | | | 7 | |
| Total | $ | — | | | $ | — | | | $ | 7 | | | $ | 7 | |
| | | | | | | |
| At December 31, 2022 ($ in millions) | | | | | | | |
| Assets | | | | | | | |
| Debt securities | | | | | | | |
| U.S. government and federal agency | $ | — | | | $ | 3,864 | | | $ | — | | | $ | 3,864 | |
| State and municipal | — | | | — | | | 10 | | | 10 | |
| Residential mortgage-backed | — | | | 418 | | | — | | | 418 | |
| Asset-backed | — | | | 580 | | | — | | | 580 | |
| Other | — | | | — | | | 7 | | | 7 | |
Other(b) | 14 | | | — | | | 13 | | | 27 | |
| Total | $ | 14 | | | $ | 4,862 | | | $ | 30 | | | $ | 4,906 | |
| | | | | | | |
| Liabilities | | | | | | | |
Other(c) | — | | | — | | | $ | 7 | | | $ | 7 | |
| | | | | | | |
| Total | $ | — | | | $ | — | | | $ | 7 | | | $ | 7 | |
The following tables present our assets_______________________
(a) For the three months ended March 31, 2023 and 2022, there were no fair value measurements transferred between levels.
(b) Other is primarily comprised of equity investments measured at fair value, on a recurring basis.
|
| | | | | | | | | | | | | | | |
| 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 |
|
Forwhich are included in Other assets in our Condensed Consolidated Statement of Financial Position, as well as certain financial assets for which we have elected 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.option which are included in Loan receivables in our Condensed Consolidated Statement of Financial Position.
(c) Other is primarily comprised of certain financial liabilities for which we have elected the fair value option, which are included in Accrued expenses and other liabilities in our Condensed Consolidated Statement of Financial Position.
Level 3 Fair Value Measurements
Our Level 3 recurring fair value measurements primarily relate to state and municipal and corporate debt instruments, which are valued using non-binding broker quotes or other third-party sources. Forsources, and financial assets and liabilities for which we have elected the fair value option. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 9. Fair Value Measurements in our 2022 annual consolidated financial statements in our 2022 Form 10-K for a description of our process to evaluate third-party pricing servicers, see Note 2. Basis of Presentation and Summary of Significant Accounting Policies in our 2016 annual consolidated and combined financial statements in our 2016 Form 10-K.servicers. 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 nine months ended September 30, 2017March 31, 2023 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 value2022, respectively, 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 March 31, 2023 ($ in millions) | | At March 31, 2023 ($ 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) | $ | 15,303 | | | $ | 15,303 | | | $ | 15,303 | | | $ | — | | | $ | — | |
Other assets(a)(b) | $ | 173 |
| | $ | 173 |
| | $ | 173 |
| | $ | — |
| | $ | — |
| Other assets(a)(b) | $ | 617 | | | $ | 617 | | | $ | 617 | | | $ | — | | | $ | — | |
| 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) | $ | 81,600 | | | $ | 93,265 | | | $ | — | | | $ | — | | | $ | 93,265 | |
| | | | | | | | | | | |
| | 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 | $ | 74,425 | | | $ | 73,872 | | | $ | — | | | $ | 73,872 | | | $ | — | |
| Borrowings of consolidated securitization entities | $ | 11,891 |
| | $ | 11,904 |
| | $ | — |
| | $ | 8,250 |
| | $ | 3,654 |
| Borrowings of consolidated securitization entities | $ | 6,228 | | | $ | 6,167 | | | $ | — | | | $ | 2,344 | | | $ | 3,823 | |
| Senior unsecured notes | $ | 8,008 |
| | $ | 8,197 |
| | $ | — |
| | $ | 8,197 |
| | $ | — |
| |
| | Senior and subordinated unsecured notes | | Senior and subordinated unsecured notes | $ | 8,706 | | | $ | 7,836 | | | $ | — | | | $ | 7,836 | | | $ | — | |
| | | | | | | | | | | |
| | 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, 2022 ($ in millions) | | At December 31, 2022 ($ 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) | $ | 10,294 | | | $ | 10,294 | | | $ | 10,294 | | | $ | — | | | $ | — | |
Other assets(a)(b) | $ | 347 |
| | $ | 347 |
| | $ | 347 |
| | $ | — |
| | $ | — |
| Other assets(a)(b) | $ | 136 | | | $ | 136 | | | $ | 136 | | | $ | — | | | $ | — | |
| 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) | $ | 82,930 | | | $ | 94,339 | | | $ | — | | | $ | — | | | $ | 94,339 | |
| | | | | | | | | | | |
| | 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 | $ | 71,735 | | | $ | 70,685 | | | $ | — | | | $ | 70,685 | | | $ | — | |
| Borrowings of consolidated securitization entities | $ | 12,388 |
| | $ | 12,402 |
| | $ | — |
| | $ | 9,191 |
| | $ | 3,211 |
| Borrowings of consolidated securitization entities | $ | 6,227 | | | $ | 6,127 | | | $ | — | | | $ | 2,327 | | | $ | 3,800 | |
| Senior unsecured notes | $ | 7,759 |
| | $ | 7,875 |
| | $ | — |
| | $ | 7,875 |
| | $ | — |
| |
| | Senior and subordinated unsecured notes | | Senior and subordinated unsecured notes | $ | 7,964 | | | $ | 7,530 | | | $ | — | | | $ | 7,530 | | | $ | — | |
_______________________
| |
(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.
(b)This balance relates to restricted cash and equivalents, which is included in other assets.
(c) Excludes financial assets for which we have elected the fair value option. 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.
Equity Securities Without Readily Determinable Fair Values
| | | | | | | | | | | | | | | |
| | | |
| At or for the three months ended March 31 ($ in millions) | 2023 | | 2022 | | | | |
Carrying value(a) | $ | 250 | | | $ | 242 | | | | | |
Upward adjustments(b) | — | | | 7 | | | | | |
Downward adjustments(b) | — | | | (2) | | | | | |
_______________________(a)Carrying value reflects cumulative purchases and sales in addition to upward and downward carrying value changes, and at December 31, 2022 was $245 million.
(b) Between January 1, 2018 and March 31, 2023, cumulative upward and downward carrying value adjustments were $188 million and $(8) million, respectively.
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.
The Company elected to adopt the option provided by the interim final rule issued by joint federal bank regulatory agencies, which largely delayed the effects of CECL on its regulatory capital through December 31, 2021. Beginning in the first quarter of 2022, the effects are now being phased-in over a three-year period through 2024 and effects fully phased-in beginning in the first quarter of 2025. Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period included both the initial impact of our adoption of CECL at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during the two-year period ended December 31, 2021, collectively the “CECL regulatory capital transition adjustment”. Beginning in the first quarter of 2023 only 50% of the CECL regulatory capital transition adjustment is now deferred in our regulatory capital amounts and ratios, as compared to 75% at December 31, 2022.
At September 30, 2017March 31, 2023 and December 31, 2016,2022, Synchrony Financial met all applicable requirements to be deemed well-capitalized pursuant to Federal Reserve Board regulations. At September 30, 2017March 31, 2023 and December 31, 2016,2022, 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 September 30, 2017March 31, 2023 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 March 31, 2023 ($ in millions) | Actual | | Minimum for capital
adequacy purposes |
| Amount | | Ratio(a) | | Amount | | Ratio(b) |
| Total risk-based capital | $ | 14,180 | | | 15.4 | % | | $ | 7,350 | | | 8.0 | % |
| Tier 1 risk-based capital | $ | 12,207 | | | 13.3 | % | | $ | 5,512 | | | 6.0 | % |
| Tier 1 leverage | $ | 12,207 | | | 11.6 | % | | $ | 4,196 | | | 4.0 | % |
| Common equity Tier 1 Capital | $ | 11,473 | | | 12.5 | % | | $ | 4,134 | | | 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, 2022 ($ in millions) | | At December 31, 2022 ($ 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 | $ | 13,713 | | | 15.0 | % | | $ | 7,328 | | | 8.0 | % |
| Tier 1 risk-based capital | $ | 13,135 |
| | 17.2 | % | | $ | 4,571 |
| | 6.0 | % | Tier 1 risk-based capital | $ | 12,493 | | | 13.6 | % | | $ | 5,496 | | | 6.0 | % |
| Tier 1 leverage | $ | 13,135 |
| | 15.0 | % | | $ | 3,508 |
| | 4.0 | % | Tier 1 leverage | $ | 12,493 | | | 12.3 | % | | $ | 4,075 | | | 4.0 | % |
| Common equity Tier 1 Capital | $ | 13,135 |
| | 17.2 | % | | $ | 3,428 |
| | 4.5 | % | Common equity Tier 1 Capital | $ | 11,759 | | | 12.8 | % | | $ | 4,122 | | | 4.5 | % |
Synchrony Bank
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At March 31, 2023 ($ 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 | $ | 13,074 | | | 15.2 | % | | $ | 6,865 | | | 8.0 | % | | $ | 8,582 | | | 10.0 | % |
| Tier 1 risk-based capital | $ | 11,921 | | | 13.9 | % | | $ | 5,149 | | | 6.0 | % | | $ | 6,865 | | | 8.0 | % |
| Tier 1 leverage | $ | 11,921 | | | 12.2 | % | | $ | 3,915 | | | 4.0 | % | | $ | 4,893 | | | 5.0 | % |
| Common equity Tier I capital | $ | 11,921 | | | 13.9 | % | | $ | 3,862 | | | 4.5 | % | | $ | 5,578 | | | 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, 2022 ($ in millions) | | At December 31, 2022 ($ 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 | $ | 13,313 | | | 15.6 | % | | $ | 6,838 | | | 8.0 | % | | $ | 8,547 | | | 10.0 | % |
| Tier 1 risk-based capital | $ | 9,540 |
| | 15.4 | % | | $ | 3,726 |
| | 6.0 | % | | $ | 4,968 |
| | 8.0 | % | Tier 1 risk-based capital | $ | 12,174 | | | 14.2 | % | | $ | 5,128 | | | 6.0 | % | | $ | 6,838 | | | 8.0 | % |
| Tier 1 leverage | $ | 9,540 |
| | 13.0 | % | | $ | 2,929 |
| | 4.0 | % | | $ | 3,661 |
| | 5.0 | % | Tier 1 leverage | $ | 12,174 | | | 12.8 | % | | $ | 3,790 | | | 4.0 | % | | $ | 4,738 | | | 5.0 | % |
| Common equity Tier I capital | $ | 9,540 |
| | 15.4 | % | | $ | 2,795 |
| | 4.5 | % | | $ | 4,037 |
| | 6.5 | % | Common equity Tier I capital | $ | 12,174 | | | 14.2 | % | | $ | 3,846 | | | 4.5 | % | | $ | 5,556 | | | 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 March 31, 2023 and at December 31, 2022, 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 March 31, | |
| (in millions, except per share data) | 2017 | | 2016 | | 2017 | | 2016 | (in millions, except per share data) | 2023 | | 2022 | |
| | | | | | | | | |
| Net earnings | $ | 555 |
| | $ | 604 |
| | $ | 1,550 |
| | $ | 1,675 |
| Net earnings | $ | 601 | | | $ | 932 | | |
| Preferred stock dividends | | Preferred stock dividends | (11) | | | (10) | | |
| Net earnings available to common stockholders | | Net earnings available to common stockholders | $ | 590 | | | $ | 922 | | |
| | | | | | | | | | | | | |
| Weighted average common shares outstanding, basic | 787.3 |
| | 828.4 |
| | 801.3 |
| | 832.1 |
| Weighted average common shares outstanding, basic | 434.4 | | | 515.3 | | |
| Effect of dilutive securities | 3.6 |
| | 2.2 |
| | 3.7 |
| | 2.0 |
| Effect of dilutive securities | 2.8 | | | 4.2 | | |
| Weighted average common shares outstanding, dilutive | 790.9 |
| | 830.6 |
| | 805.0 |
| | 834.1 |
| Weighted average common shares outstanding, dilutive | 437.2 | | | 519.5 | | |
| |
|
| | | | | | | | | | | |
| Earnings per basic common share | $ | 0.70 |
| | $ | 0.73 |
| | $ | 1.93 |
| | $ | 2.01 |
| Earnings per basic common share | $ | 1.36 | | | $ | 1.79 | | |
| Earnings per diluted common share | $ | 0.70 |
| | $ | 0.73 |
| | $ | 1.93 |
| | $ | 2.01 |
| Earnings per diluted common share | $ | 1.35 | | | $ | 1.77 | | |
We have issued certain stock basedstock-based awards under the Synchrony Financial 2014 Long-Term Incentive Plan. A total of 45 million shares and 31 million shares for the three months ended September 30, 2017March 31, 2023 and 2016,2022, respectively, and 3 million shares for both the nine months ended September 30, 2017 and 2016, 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) | March 31, 2023 | | December 31, 2022 |
Unrecognized tax benefits, excluding related interest expense and penalties(a) | $ | 273 | | | $ | 267 | |
Portion that, if recognized, would reduce tax expense and effective tax rate(b) | $ | 183 | | | $ | 177 | |
| | | |
| | | |
____________________(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 $72 million, of which $24 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 fiscal2023 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 2022 tax returns for 2012 to 2015. Weyear, and we expect the review will be substantially completed in the current year. 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 October 30, 2014, the United States Trustee, which is part of the Department of Justice, filed an application in In re Nyree Belton, a Chapter 7 bankruptcy case pending 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,November 2, 2018, a putative class action adversary proceeding pending in the same Bankruptcy Court. In the Belton adversary proceeding, whichlawsuit, Retail Wholesale Department Store Union Local 338 Retirement Fund v. Synchrony Financial, et al., was filed on April 30, 2014, 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's motion to compel arbitration.
On October 15, 2015, the Bank received a Civil Investigative Demand from the CFPB seeking information related to the Bank’s credit bureau reporting with respect to sold accounts. The information sought by 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 (Notice 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 Court for the Northern District of New York.Connecticut, naming as defendants the Company and two of its officers. The original complaint named only J.C. Penney Company, Inc.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 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.private-label card business, and Synchrony Bank, for which the Bank is indemnifying Wal-Mart, was filed on behalf of a putative class of persons who purchased or otherwise acquired the Company’s common stock between October 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 Court of Appeals for the Second Circuit. On February 16, 2021, the Court of Appeals affirmed the District Court’s dismissal of the Securities Act claims and all of the claims under the Exchange Act with the exception of a claim relating to a single statement on January 17, 201719, 2018 regarding whether Synchrony was receiving pushback on credit from its retail partners. On April 3, 2023, the parties executed a Stipulation and Agreement of Settlement, in which plaintiffs agreed to settle all remaining claims in the action in exchange for a payment of $34 million. The District Court preliminarily approved the settlement on April 12, 2023.
On January 28, 2019, a purported shareholder derivative action, Gilbert v. Keane, et al., was filed in the U.S. District Court for the Western District of North Carolina. The original complaint named only Wal-Mart Stores, Inc.Connecticut against the Company as a nominal defendant, but was amendedand certain of the Company’s officers and directors. The lawsuit alleges breach of fiduciary duty claims based on March 30, 2017 to add Synchrony Bank as an additional defendant.
In additionthe allegations raised by the plaintiff in the Stichting Depositary 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 TCPA class action lawsuits related to phone calls, the Company, isunspecified monetary damages with interest, restitution, 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 allegesdirection that the Company violated the TCPA by sending fax advertisements without consentdefendants take all necessary actions to reform and without required notices,improve corporate governance and seeks up to $1,500 for each violation. The amount of damages sought in the aggregate is unspecified. The original complaintinternal 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 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 caseConnecticut. The allegations in the SouthernAldridge complaint are substantially similar to those in the Gilbert complaint. On March 26, 2020, the District of Ohio.Court recaptioned the Gilbert and Aldridge cases as In re Synchrony Financial Derivative Litigation.
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 LIBORthe Secured Overnight Financing Rate ("SOFR"), the London Interbank Offered Rate (“LIBOR”), U.S. Treasury bills, or the federal funds rate. The prime rate and the SOFR, LIBOR, U.S. Treasury bills 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. We are in the process of amending existing asset and liability contracts that reference LIBOR to reference a new benchmark rate. The new benchmark rates include, but are not limited to, SOFR, federal funds and U.S. Treasury bills. We expect the transition from the LIBOR benchmark to be completed in 2023 and do not expect it to have a material impact to our company.
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 $155 million. This estimate projects net interest income over the following 12-month period and takes into consideration future growth and balance sheet composition.at March 31, 2023.
| | | | | | | | |
| Basis Point Change | | At March 31, 2023 |
| ($ in millions) | | |
| -100 basis points | | $ | (197) | |
| +100 basis points | | $ | 41 | |
For a more detailed discussion of our exposure to market risk and our transition from the LIBOR benchmark rate, refer to “Management's Discussion and Analysis—Quantitative and Qualitative Disclosures about Market Risk” in our 20162022 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 September 30, 2017.March 31, 2023.
No change in internal control over financial reporting occurred during the fiscal quarter ended September 30, 2017March 31, 2023 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 20162022 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 September 30, 2017.March 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ 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) |
| January 1 - 31, 2023 | 1,727,662 | | | $ | 35.80 | | | 1,200,400 | | | $ | 656.8 | |
| February 1 - 28, 2023 | 5,827,311 | | | 35.70 | | | 5,827,242 | | | 448.7 | |
| March 1 - 31, 2023 | 4,797,305 | | | 34.73 | | | 4,287,840 | | | 300.0 | |
| Total | 12,352,278 | | | $ | 35.34 | | | 11,315,482 | | | $ | 300.0 | |
_______________________ |
| | | | | | | | | | | | | |
| ($ 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 May 2021 the Board of Directors approved a share repurchase authorization of $2.8 billion through June 2023. 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 herewithEXHIBIT 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 March 31, 2023, formatted in Inline XBRL (included as Exhibit 101) |
______________________
*Filed electronically herewith.
†Portions of this exhibit have been redacted pursuant to Securities and incorporated hereinExchange Commission rules regarding confidential treatment. The locations where information has been redacted are indicated by reference.
the following notation "***".
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, 2017April 20, 2023 | | /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. |
