| Loan Receivables | Loan Receivables The Company has two loan portfolio segments: credit card loans and other loans. The Company's classes of receivables within the two portfolio segments are depicted in the following table (dollars in millions): March 31, December 31, Credit card loans (1)(2) $ 67,304 $ 71,472 Other loans (3) Private student loans (4) 10,153 9,954 Personal loans 6,961 7,177 Other loans 1,929 1,846 Total other loans 19,043 18,977 Total loan receivables 86,347 90,449 Allowance for credit losses (7,347) (8,226) Net loan receivables $ 79,000 $ 82,223 (1) Amounts include carrying values of $15.7 billion and $16.7 billion underlying investors' interest in trust debt at March 31, 2021 and December 31, 2020, respectively, and $9.4 billion and $10.6 billion in seller's interest at March 31, 2021 and December 31, 2020, respectively. See Note 4: Credit Card and Private Student Loan Securitization Activities for additional information. (2) Unbilled accrued interest receivable on credit card loans, which is presented as part of other assets in the Company's condensed consolidated statements of financial condition, was $395 million and $420 million at March 31, 2021 and December 31, 2020, respectively. (3) Accrued interest receivable on private student, personal and other loans, which is presented as part of other assets in the Company's condensed consolidated statements of financial condition, was $477 million, $45 million and $6 million, respectively, at March 31, 2021 and $469 million, $49 million and $6 million, respectively, at December 31, 2020. (4) Amounts include carrying values of $236 million and $250 million in loans pledged as collateral against the note issued from a private student loan securitization trust at March 31, 2021 and December 31, 2020, respectively. See Note 4: Credit Card and Private Student Loan Securitization Activities for additional information. Credit Quality Indicators As part of credit risk management activities, on an ongoing basis, the Company reviews information related to the performance of a customer's account with the Company as well as information from credit bureaus, such as FICO or other credit scores, relating to the customer's broader credit performance. Key credit quality indicators that are actively monitored for credit card, private student and personal loans include FICO scores and delinquency status. These indicators are important to understand the overall credit performance of the Company's customers and their ability to repay. FICO scores are generally obtained at origination of the account and are refreshed monthly or quarterly thereafter to assist in predicting customer behavior. Historically, the Company has noted that accounts with FICO scores below 660 have larger delinquencies and credit losses than those with higher credit scores. The following table provides the distribution of the amortized cost basis (excluding accrued interest receivable presented in other assets) by the most recent FICO scores available for the Company's customers for credit card, private student and personal loan receivables (dollars in millions): Credit Risk Profile by FICO Score March 31, 2021 December 31, 2020 660 and Above Less than 660 660 and Above Less than 660 $ % $ % $ % $ % Credit card loans (1) $ 55,669 83 % $ 11,635 17 % $ 58,950 82 % $ 12,522 18 % Private student loans by origination year (2)(3) 2021 $ 212 98 % $ 5 2 % 2020 1,625 95 % 81 5 % $ 1,173 95 % $ 60 5 % 2019 1,592 96 % 60 4 % 1,659 96 % 61 4 % 2018 1,297 96 % 61 4 % 1,365 96 % 61 4 % 2017 993 95 % 55 5 % 1,052 95 % 57 5 % Prior 3,943 95 % 229 5 % 4,219 94 % 247 6 % Total private student loans $ 9,662 95 % $ 491 5 % $ 9,468 95 % $ 486 5 % Personal loans by origination year 2021 $ 810 100 % $ 3 — % 2020 2,571 99 % 29 1 % $ 2,880 99 % $ 25 1 % 2019 1,858 96 % 85 4 % 2,183 96 % 90 4 % 2018 834 92 % 75 8 % 1,018 92 % 90 8 % 2017 447 89 % 54 11 % 558 89 % 69 11 % Prior 167 86 % 28 14 % 227 86 % 37 14 % Total personal loans $ 6,687 96 % $ 274 4 % $ 6,866 96 % $ 311 4 % (1) Amounts include $1.0 billion of revolving line-of-credit arrangements that were converted to term loans as a result of a troubled debt restructuring ("TDR") program as of March 31, 2021 and December 31, 2020. (2) A majority of private student loan originations occur in the third quarter and disbursements can span multiple calendar years. (3) FICO score represents the higher credit score of the cosigner or borrower. Delinquencies are an indicator of credit quality at a point in time. A loan balance is considered delinquent when contractual payments on the loan become 30 days past due. The amortized cost basis (excluding accrued interest receivable presented in other assets) of delinquent loans in the Company's loan portfolio is shown below for credit card, private student and personal loan receivables (dollars in millions): March 31, 2021 December 31, 2020 30-89 Days 90 or Total Past 30-89 Days 90 or Total Past Credit card loans $ 565 $ 680 $ 1,245 $ 739 $ 739 $ 1,478 Private student loans by origination year (1) 2021 $ — $ — $ — 2020 1 — 1 $ — $ — $ — 2019 5 3 8 3 1 4 2018 9 4 13 9 3 12 2017 11 4 15 12 4 16 Prior 65 20 85 86 20 106 Total private student loans $ 91 $ 31 $ 122 $ 110 $ 28 $ 138 Personal loans by origination year 2021 $ — $ — $ — 2020 6 2 8 $ 5 $ 2 $ 7 2019 16 5 21 18 9 27 2018 11 4 15 15 7 22 2017 7 3 10 10 5 15 Prior 3 2 5 5 2 7 Total personal loans $ 43 $ 16 $ 59 $ 53 $ 25 $ 78 (1) Private student loans may include a deferment period, during which customers are not required to make payments while enrolled in school at least half time as determined by the school. During a deferment period, these loans do not advance into delinquency. Allowance for Credit Losses The following tables provide changes in the Company's allowance for credit losses (dollars in millions): For the Three Months Ended March 31, 2021 Credit Card Loans Private Student Loans Personal Loans Other Loans Total Loans Balance at December 31, 2020 $ 6,491 $ 840 $ 857 $ 38 $ 8,226 Additions Provision for credit losses (1) (377) 36 (4) 3 (342) Deductions Charge-offs (663) (20) (64) — (747) Recoveries 189 6 15 — 210 Net charge-offs (474) (14) (49) — (537) Balance at March 31, 2021 $ 5,640 $ 862 $ 804 $ 41 $ 7,347 For the Three Months Ended March 31, 2020 Credit Card Loans Private Student Loans Personal Loans Other Loans Total Loans Balance at December 31, 2019 (2) $ 2,883 $ 148 $ 348 $ 4 $ 3,383 Cumulative effect of ASU No. 2016-13 adoption (3) 1,667 505 265 24 2,461 Balance at January 1, 2020 4,550 653 613 28 5,844 Additions Provision for credit losses (1) 1,439 129 263 7 1,838 Deductions Charge-offs (869) (22) (84) — (975) Recoveries 186 5 15 — 206 Net charge-offs (683) (17) (69) — (769) Balance at March 31, 2020 $ 5,306 $ 765 $ 807 $ 35 $ 6,913 (1) Excludes a $23 million and $31 million reclassification of the liability for expected credit losses on unfunded commitments for the three months ended March 31, 2021 and 2020, respectively, as the liability is recorded in accrued expenses and other liabilities in the Company's condensed consolidated statements of financial condition. (2) Prior to adoption of ASU No. 2016-13 on January 1, 2020, credit losses were estimated using the incurred loss approach. (3) Represents the adjustment to the allowance for credit losses as a result of adoption of ASU No. 2016-13 on January 1, 2020. The allowance for credit losses was $7.3 billion at March 31, 2021, which reflects an $879 million release from the amount of the allowance for credit losses at December 31, 2020. The release in the overall allowance was primarily driven by a reduction in loan receivables outstanding, continued stable credit performance and improvements in the macroeconomic forecast. The decrease in outstanding loans receivable, particularly credit card loans, and the stable credit performance was driven in part by elevated payment rates resulting from the latest round of government stimulus and the associated improvement in household cash flows. In estimating expected credit losses, the Company considered the uncertainties associated with borrower behavior, payment trends and credit performance subsequent to the expiration of government stimulus programs, such as the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and the American Rescue Plan Act of 2021 ("ARPA"), and government-offered disaster relief programs, such as foreclosure moratoriums and federal student loan and mortgage payment forbearance. In estimating the allowance at March 31, 2021, the Company used a macroeconomic forecast that projected (i) a peak unemployment rate of 6.7%, which decreases to 6.0% through the end of 2021 and (ii) a 4.6% growth in real gross domestic product in 2021. Labor market conditions, which historically have been an important determinant of credit loss trends, have improved but remain stressed by the pandemic; unemployment claims have fallen below pandemic peaks, but unemployment remains elevated by historical standards. Moreover, the impact of the coronavirus disease 2019 ("COVID-19") pandemic on the economy and the government's response to the pandemic has continued to cause uncertainty in the assumptions surrounding factors such as the pace and sustainability of economic recovery. Accordingly, the estimation of the allowance for credit losses has required significant management judgment. Company-initiated loan modification programs include those offered specifically in response to the COVID-19 pandemic as well as existing programs offered to customers experiencing difficulty making their payments. In addition to the Skip-a-Pay (payment deferral) ("SaP") programs, which ended on August 31, 2020, the Company has other modification programs that customers have utilized during the period related to the pandemic. The accounts using these modifications as a result of the COVID-19 pandemic were evaluated for potential exclusion from the TDR designation either due to the insignificance of the concession or because they qualified for exemption pursuant to the CARES Act. The effects of all modifications, including TDRs, loan modifications exempt from the TDR designation pursuant to the CARES Act and SaP programs, are considered as part of the process for determining the allowance for credit losses. The forecast period the Company deemed to be reasonable and supportable was 18 months as of March 31, 2021 and December 31, 2020. The 18-month reasonable and supportable forecast period was deemed appropriate on the basis of observed stabilization of macroeconomic forecasts. As of March 31, 2020, the forecast period the Company deemed to be reasonable and supportable was 12 months due to the uncertainty caused by the rapidly changing economic environment experienced at the onset of the COVID-19 pandemic. As of March 31, 2021, December 31, 2020, and March 31, 2020, the Company determined that a reversion period of 12 months was appropriate. During the first quarter of 2020, a straight-line method was used to revert to appropriate historical information. Due to the uncertainties associated with borrower behavior resulting from government stimulus and disaster relief programs, the Company applied a weighted reversion method to provide for a more reasonable transition to historical losses for all loan products as of March 31, 2021 and December 31, 2020. The decrease in net charge-offs across all loan products for the three months ended March 31, 2021, when compared to the same period in 2020, was due to the impacts of government stimulus and government-offered disaster relief programs. The decrease in net charge-offs on credit card loans was also favorably impacted by a decrease in outstanding loan receivables period-over-period. The decrease in net charge-offs on personal loans also reflects tightened underwriting standards implemented around the onset of the COVID-19 pandemic. Net charge-offs of principal are recorded against the allowance for credit losses, as shown in the preceding table. Information regarding net charge-offs of interest and fee revenues on credit card and other loans is as follows (dollars in millions): For the Three Months Ended March 31, 2021 2020 Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income) $ 95 $ 143 Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income) $ 23 $ 35 Delinquent and Non-Accruing Loans The amortized cost basis (excluding accrued interest receivable presented in other assets) of delinquent and non-accruing loans in the Company's loan portfolio is shown below for each class of loan receivables (dollars in millions): 30-89 Days 90 or Total Past 90 or Total Non-accruing (1) At March 31, 2021 Credit card loans $ 565 $ 680 $ 1,245 $ 626 $ 216 Other loans Private student loans 91 31 122 30 11 Personal loans 43 16 59 15 8 Other loans 7 5 12 1 12 Total other loans 141 52 193 46 31 Total loan receivables $ 706 $ 732 $ 1,438 $ 672 $ 247 At December 31, 2020 Credit card loans $ 739 $ 739 $ 1,478 $ 687 $ 209 Other loans Private student loans 110 28 138 27 12 Personal loans 53 25 78 23 12 Other loans 8 3 11 — 10 Total other loans 171 56 227 50 34 Total loan receivables $ 910 $ 795 $ 1,705 $ 737 $ 243 (1) The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of non-accruing credit card loans was $8 million and $10 million for the three months ended March 31, 2021 and 2020, respectively. The Company does not separately track the amount of gross interest income that would have been recorded in accordance with the original terms of loans. This amount was estimated based on customers' current balances and most recent interest rates. Troubled Debt Restructurings The Company has internal loan modification programs that provide relief to credit card, private student and personal loan borrowers who may be experiencing financial hardship. The Company considers a modified loan in which a concession has been granted to the borrower to be a TDR based on the cumulative length of the concession period and credit quality of the borrower. New programs are evaluated to determine which of them meet the definition of a TDR, including modification programs that were provided to customers for temporary relief due to the economic impacts of the COVID-19 pandemic. The internal loan modification programs include both temporary and permanent programs, which vary by product. External loan modification programs are also available for credit card and personal loans. All loans modified in a temporary modification program, including those that were created specifically in response to the COVID-19 pandemic, are evaluated for exclusion from the TDR designation either due to the insignificance of the concession or because they qualify for exemption pursuant to the CARES Act. To the extent the loan accounts do not meet the requirements for exclusion, temporary and permanent modifications on credit card and personal loans, as well as temporary modifications on private student loans and certain grants of private student loan forbearance, result in the loans being classified as TDRs. In addition, loans that defaulted from, or successfully completed a loan modification program or forbearance, continue to be classified as TDRs, except as noted below. See the table below that presents the carrying value of loans that experienced a payment default during the period for more information. For credit card customers, the Company offers both temporary and permanent hardship programs. The temporary hardship programs consist of an interest rate reduction and in some cases a reduced minimum payment, both lasting for a period no longer than 12 months. Charging privileges on these accounts are generally suspended while in the program and, if certain criteria are met, may be reinstated following completion of the program. Credit card accounts of borrowers that have previously participated in a temporary interest rate reduction program and that have both demonstrated financial stability and had their charging privileges reinstated at a market-based interest rate, are excluded from the balance of TDRs. The permanent modification program involves closing the account, changing the structure of the loan to a fixed payment loan with a maturity no longer than 72 months and reducing the interest rate on the loan. The permanent modification program does not normally provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee assessments. The Company also makes permanent loan modifications for customers who request financial assistance through external sources, such as a consumer credit counseling agency program. These loans typically receive a reduced interest rate but continue to be subject to the original minimum payment terms and do not normally include waiver of unpaid principal, interest or fees. These permanent loan modifications remain in the population of TDRs until they are paid off or charged off. At March 31, 2021 and December 31, 2020, there were $5.5 billion and $5.7 billion, respectively, of private student loans in repayment and $96 million and $117 million, respectively, in forbearance. To assist private student loan borrowers who are experiencing temporary financial difficulties but are willing to resume making payments, the Company may offer hardship forbearance or programs that include payment deferral, temporary payment reduction, temporary interest rate reduction or extended terms. A modified loan typically meets the definition of a TDR based on the cumulative length of the concession period and a determination of financial distress based on an evaluation of the credit quality of the borrower using FICO scores. For personal loan customers, the Company offers various payment programs, including temporary and permanent programs, in certain situations. The temporary programs normally consist of a reduction of the minimum payment for a period of no longer than 12 months with the option of a final balloon payment required at the end of the loan term or an extension of the maturity date with the total term not exceeding nine years. Further, the interest rate on the loan is reduced in certain circumstances. The permanent programs involve extending the term of the loan and, in certain circumstances, reducing the interest rate on the loan. Similar to the temporary programs, the total term may not exceed nine years. The Company also allows permanent loan modifications for customers who request financial assistance through external sources, similar to the credit card customers discussed above. Payments are modified based on the new terms agreed upon with the credit counseling agency. Personal loans included in temporary and permanent programs are classified as TDRs. Borrower performance after using payment programs or forbearance is monitored. The Company believes the programs are useful in assisting customers experiencing financial difficulties and allowing them to make timely payments. In addition to helping customers with their credit needs, these programs are designed to maximize collections and ultimately the Company’s profitability. The Company plans to continue to use payment programs and forbearance as a means to provide relief to customers experiencing temporary financial difficulties and expects to have additional loans classified as TDRs in the future as a result. In order to evaluate the primary financial effects that resulted from credit card loans entering into a TDR program during the three months ended March 31, 2021 and 2020, the Company quantified the amount by which interest and fees were reduced during the periods. During the three months ended March 31, 2021 and 2020, the Company forgave approximately $12 million and $21 million, respectively, of interest and fees as a result of accounts entering into a credit card loan TDR program. For all loan products, interest income on modified loans is recognized based on the modified contractual terms. Section 4013 of the CARES Act provides certain financial institutions with the option to suspend the application of accounting and reporting guidance for TDRs for a limited period of time for loan modifications made to address the effects of the COVID-19 pandemic. Section 541 of the Omnibus and COVID Relief and Response Act extended the loan modification relief provided by the CARES Act through the earlier of January 1, 2022, or the date that is 60 days after the termination of the presidentially-declared national emergency. The Company has elected to apply the option to suspend the application of accounting guidance for TDRs as provided under Section 4013 of the CARES Act and as subsequently extended. As such, TDR program balances and number of accounts have been favorably impacted by the exclusion of certain modifications from the TDR designation pursuant to these exemptions and are expected to remain lower than they otherwise would have been. The following table provides information on loans that entered a TDR program during the period (dollars in millions): For the Three Months Ended March 31, 2021 2020 (2) Number of Accounts Balances Number of Accounts Balances Accounts that entered a TDR program during the period Credit card loans (1) 20,702 $ 135 82,124 $ 533 Private student loans 126 $ 2 1,587 $ 29 Personal loans 1,390 $ 17 2,478 $ 33 (1) Accounts that entered a credit card TDR program include $128 million and $210 million that were converted from revolving line-of-credit arrangements to term loans during the three months ended March 31, 2021 and 2020, respectively. (2) Certain prior period amounts have been reclassified to conform to current period presentation. The number and balance of new credit card and personal loan modifications, including the combined total of those designated as TDRs and those exempt from the TDR status, decreased during the three months ended March 31, 2021, when compared to the same period in 2020. The decrease is due to the impacts of government stimulus and government-offered disaster relief programs. The number and balance of new private student loan modifications, including the combined total of those designated as TDRs and those exempt from the TDR designation pursuant to the CARES Act, increased during the three months ended March 31, 2021, when compared to the same period in 2020. The increase was due to the utilization of SaP programs in 2020 in lieu of traditional loan modification programs. SaP programs do not constitute TDRs given the insignificant delay in payment; they are therefore also excluded from TDRs evaluated for exemption pursuant to the CARES Act. This increase was partially offset by the impacts of government stimulus and government-offered disaster relief programs in the current period. The following table presents the carrying value of loans that experienced a payment default during the period that had been modified in a TDR during the 15 months preceding the end of each period (dollars in millions): For the Three Months Ended March 31, 2021 2020 Number of Accounts Aggregated Outstanding Balances Upon Default Number of Accounts Aggregated Outstanding Balances Upon Default TDRs that subsequently defaulted Credit card loans (1)(2) 6,001 $ 36 20,485 $ 117 Private student loans (3) 66 $ 2 358 $ 7 Personal loans (2) 527 $ 7 1,200 $ 18 (1) For credit card loans that default from a temporary program, accounts revert back to the pre-modification terms and charging privileges remain suspended in most cases. (2) For credit card loans and personal loans, a customer defaults from a loan modification program after either two consecutive missed payments or at charge-off, depending on the program. The outstanding balance upon default is generally the loan balance at the end of the month prior to default. (3) For student loans, defaults have been defined as loans that are 60 or more days delinquent. The outstanding balance upon default is generally the loan balance at the end of the month prior to default. Of the account balances that defaulted as shown above for the three months ended March 31, 2021 and 2020, approximately 68% and 40%, respectively, of the total balances were charged off at the end of the month in which they defaulted from a TDR program. For accounts that have defaulted from a TDR program and have not been subsequently charged off, the balances are included in the allowance for credit loss analysis discussed above under “— Allowance for Credit Losses.” |
