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): June 30, December 31, Credit card loans (1)(2) $ 68,886 $ 71,472 Other loans (3) Private student loans (4) 9,864 9,954 Personal loans 6,865 7,177 Other loans 2,059 1,846 Total other loans 18,788 18,977 Total loan receivables 87,674 90,449 Allowance for credit losses (7,026) (8,226) Net loan receivables $ 80,648 $ 82,223 (1) Amounts include carrying values of $13.5 billion and $16.7 billion underlying investors' interest in trust debt at June 30, 2021 and December 31, 2020, respectively, and $11.6 billion and $10.6 billion in seller's interest at June 30, 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 $371 million and $420 million at June 30, 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 $467 million, $41 million and $6 million, respectively, at June 30, 2021 and $469 million, $49 million and $6 million, respectively, at December 31, 2020. (4) Amounts include carrying values of $225 million and $250 million in loans pledged as collateral against the note issued from a private student loan securitization trust at June 30, 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 and information from credit bureaus, such as FICO or other credit scores, relating to the customer's broader credit performance. The Company actively monitors key credit quality indicators, including FICO scores and delinquency status, for credit card, private student and personal loans. 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 the 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 June 30, 2021 December 31, 2020 660 and Above Less than 660 660 and Above Less than 660 $ % $ % $ % $ % Credit card loans (1) $ 58,093 84 % $ 10,793 16 % $ 58,950 82 % $ 12,522 18 % Private student loans by origination year (2)(3) 2021 $ 310 95 % $ 15 5 % 2020 1,631 97 % 55 3 % $ 1,173 95 % $ 60 5 % 2019 1,547 97 % 56 3 % 1,659 96 % 61 4 % 2018 1,249 96 % 57 4 % 1,365 96 % 61 4 % 2017 951 95 % 51 5 % 1,052 95 % 57 5 % Prior 3,736 95 % 206 5 % 4,219 94 % 247 6 % Total private student loans $ 9,424 96 % $ 440 4 % $ 9,468 95 % $ 486 5 % Personal loans by origination year 2021 $ 1,658 100 % $ 8 — % 2020 2,249 99 % 31 1 % $ 2,880 99 % $ 25 1 % 2019 1,566 96 % 70 4 % 2,183 96 % 90 4 % 2018 682 92 % 60 8 % 1,018 92 % 90 8 % 2017 356 89 % 42 11 % 558 89 % 69 11 % Prior 122 85 % 21 15 % 227 86 % 37 14 % Total personal loans $ 6,633 97 % $ 232 3 % $ 6,866 96 % $ 311 4 % (1) Amounts include $946 million and $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 June 30, 2021 and December 31, 2020, respectively. (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): June 30, 2021 December 31, 2020 30-89 Days 90 or Total Past 30-89 Days 90 or Total Past Credit card loans $ 479 $ 504 $ 983 $ 739 $ 739 $ 1,478 Private student loans by origination year (1) 2021 $ — $ — $ — 2020 1 — 1 $ — $ — $ — 2019 6 2 8 3 1 4 2018 11 3 14 9 3 12 2017 13 4 17 12 4 16 Prior 73 19 92 86 20 106 Total private student loans $ 104 $ 28 $ 132 $ 110 $ 28 $ 138 Personal loans by origination year 2021 $ 1 $ — $ 1 2020 6 2 8 $ 5 $ 2 $ 7 2019 12 5 17 18 9 27 2018 8 3 11 15 7 22 2017 5 2 7 10 5 15 Prior 2 1 3 5 2 7 Total personal loans $ 34 $ 13 $ 47 $ 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 June 30, 2021 Credit Card Loans Private Student Loans Personal Loans Other Loans Total Loans Balance at March 31, 2021 $ 5,640 $ 862 $ 804 $ 41 $ 7,347 Additions Provision for credit losses (1) 181 (21) (28) 3 135 Deductions Charge-offs (620) (20) (48) — (688) Recoveries 208 7 17 — 232 Net charge-offs (412) (13) (31) — (456) Balance at June 30, 2021 $ 5,409 $ 828 $ 745 $ 44 $ 7,026 For the Three Months Ended June 30, 2020 Credit Card Loans Private Student Loans Personal Loans Other Loans Total Loans Balance at March 31, 2020 $ 5,306 $ 765 $ 807 $ 35 $ 6,913 Additions Provision for credit losses (1) 1,873 49 114 2 2,038 Deductions Charge-offs (852) (20) (78) — (950) Recoveries 164 5 14 — 183 Net charge-offs (688) (15) (64) — (767) Balance at June 30, 2020 $ 6,491 $ 799 $ 857 $ 37 $ 8,184 For the Six Months Ended June 30, 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) (196) 15 (32) 6 (207) Deductions Charge-offs (1,283) (40) (112) — (1,435) Recoveries 397 13 32 — 442 Net charge-offs (886) (27) (80) — (993) Balance at June 30, 2021 $ 5,409 $ 828 $ 745 $ 44 $ 7,026 For the Six Months Ended June 30, 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) 3,312 178 377 9 3,876 Deductions Charge-offs (1,721) (42) (162) — (1,925) Recoveries 350 10 29 — 389 Net charge-offs (1,371) (32) (133) — (1,536) Balance at June 30, 2020 $ 6,491 $ 799 $ 857 $ 37 $ 8,184 (1) Excludes an $8 million reclassification of the liability for expected credit losses on unfunded commitments for the three months ended June 30, 2020, and $23 million for the six months ended June 30, 2021 and 2020, as the liability is recorded in accrued expenses and other liabilities in the Company's condensed consolidated statements of financial condition. (2) Prior to the 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 due to the adoption of ASU No. 2016-13 on January 1, 2020. The allowance for credit losses was $7.0 billion at June 30, 2021, reflecting a $321 million release from the allowance for credit losses at March 31, 2021 and a $1.2 billion release from the amount of the allowance for credit losses at December 31, 2020. The release in the allowance for credit losses between June 30, 2021 and March 31, 2021, was primarily driven by improving macroeconomic forecasts and continued stable credit performance, partially offset by modest loan growth during the period. The modest growth in loan receivables during the three months ended June 30, 2021, was driven by the positive sales trends as coronavirus disease 2019 ("COVID-19") restrictions expire and the United States' economy reopens. The loan growth was partially offset by elevated payment rates resulting from the several rounds of government stimulus and 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-mandated disaster relief programs, such as foreclosure moratoriums and federal student loan and mortgage payment forbearance. The release in the allowance for credit losses between June 30, 2021 and December 31, 2020, was primarily driven by improvements in the macroeconomic forecast, continued stable credit performance and a reduction in loan receivables outstanding during the period. The decrease in outstanding loan receivables, particularly credit card loan receivables, and the stable credit performance, were driven in part by elevated payment rates resulting from the several rounds of government stimulus and associated improvement in household cash flows. The decrease in outstanding loan receivables was partially offset by positive sales trends in the first and second quarters of 2021. In estimating the allowance at June 30, 2021, the Company used a macroeconomic forecast that projected (i) a peak unemployment rate of 6.4%, decreasing to 5.5% through the end of 2021, and (ii) a 6.7% growth in the real gross domestic product in 2021. Labor market conditions, which historically have been an important determinant of credit loss trends, have improved but the unemployment rate and initial and continuing jobless claims remain elevated relative to pre-pandemic levels. Moreover, as the government's response to the pandemic wanes, there is uncertainty regarding the sustainability of the recent credit quality trends in the Company's receivables portfolio. Accordingly, the estimation of the allowance for credit losses has required significant management judgment. Company-initiated loan modification programs include those specifically offered 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 Company evaluated the accounts using these modifications as a result of the COVID-19 pandemic for potential exclusion from the TDR designation either due to the insignificance of the concession or because they qualified for an 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 reasonable and supportable was 18 months for all periods presented except March 31, 2020, where the forecast period was 12 months due to the uncertainty caused by the rapidly changing economic environment experienced at the onset of the COVID-19 pandemic. The 18-month reasonable and supportable forecast period was deemed appropriate based on the observed stabilization of macroeconomic forecasts. For all periods presented, the Company determined that a reversion period of 12 months was appropriate. Due to the uncertainties associated with borrower behavior resulting from government stimulus and government-mandated disaster relief programs, the Company applied a weighted reversion method to provide a more reasonable transition to historical losses for all loan products for all periods presented with the following exceptions: at March 31, 2020 and December 31, 2019, the Company applied a straight-line method for all loan products. At June 30, 2020, the Company applied a weighted reversion method for credit card loans and a straight-line method for all other loan products. The decrease in net charge-offs across all loan products for the three and six months ended June 30, 2021, when compared to the same periods in 2020, was primarily due to the impacts of government stimulus and government-mandated disaster relief programs. Additionally, the decrease in net charge-offs of personal loans reflects tighter underwriting standards that were implemented before 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 June 30, For the Six Months Ended June 30, 2021 2020 2021 2020 Interest and fees accrued subsequently charged-off, net of recoveries (recorded as a reduction of interest income) $ 80 $ 136 $ 175 $ 279 Fees accrued subsequently charged-off, net of recoveries (recorded as a reduction to other income) $ 21 $ 33 $ 44 $ 68 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 June 30, 2021 Credit card loans $ 479 $ 504 $ 983 $ 461 $ 189 Other loans Private student loans 104 28 132 28 9 Personal loans 34 13 47 12 7 Other loans 5 5 10 — 14 Total other loans 143 46 189 40 30 Total loan receivables $ 622 $ 550 $ 1,172 $ 501 $ 219 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 under the original terms of non-accruing credit card loans was $7 million and $8 million for the three months ended June 30, 2021 and 2020, respectively, and $15 million and $18 million for the six months ended June 30, 2021 and 2020, respectively. The Company does not separately track the amount of gross interest income that would have been recorded under the original terms of loans. Instead, the Company estimated this amount 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. The Company evaluates new programs to determine which of them meet the definition of a TDR, including modification programs 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 specifically created 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. However, if the customer meets certain criteria, charging privileges may be reinstated following completion of the program. Credit card accounts of borrowers who have previously participated in a temporary interest rate reduction program and 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 loan structure 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 typically 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, typically 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 June 30, 2021 and December 31, 2020, there were $5.6 billion and $5.7 billion, respectively, of private student loans in repayment and $68 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, payment deferral, a temporary payment reduction, a 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 borrower's credit quality 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 reducing the minimum payment for 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 loan term 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. The Company monitors borrower performance after using payment programs or forbearance. 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 to provide relief to customers experiencing temporary financial difficulties and expects to have additional loans classified as TDRs in the future as a result. To evaluate the primary financial effects that resulted from credit card loans entering into a TDR program during the three and six months ended June 30, 2021 and 2020, the Company quantified the amount by which interest and fees were reduced during the periods. During the three months ended June 30, 2021 and 2020, the Company forgave approximately $9 million and $18 million, respectively, of interest and fees resulting from accounts entering into a credit card loan TDR program. During the six months ended June 30, 2021 and 2020, the Company forgave approximately $21 million and $39 million, respectively, of interest and fees resulting from 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 the 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 June 30, 2021 2020 (2) Number of Accounts Balances Number of Accounts Balances Accounts that entered a TDR program during the period Credit card loans (1) 14,221 $ 94 27,966 $ 192 Private student loans 127 $ 3 62 $ 1 Personal loans 824 $ 11 1,332 $ 17 For the Six Months Ended June 30, 2021 2020 (2) Number of Accounts Balances Number of Accounts Balances Accounts that entered a TDR program during the period Credit card loans (1) 34,923 $ 229 110,090 $ 725 Private student loans 253 $ 5 1,649 $ 30 Personal loans 2,214 $ 28 3,810 $ 50 (1) Accounts that entered a credit card TDR program include $88 million and $176 million that were converted from revolving line-of-credit arrangements to term loans during the three months ended June 30, 2021 and 2020, respectively, and $216 million and $386 million for the six months ended June 30, 2021 and 2020, respectively. (2) Certain prior period amounts have been reclassified to conform to the current period presentation. The number and balance of new credit card and personal loan modifications, including the combined total of those identified as TDRs and those exempt from the TDR designation, decreased during the three and six months ended June 30, 2021, when compared to the same periods in 2020. The decrease in both periods is due to the impacts of government stimulus and government-mandated disaster relief programs. The number and balance of all loan modifications, including the combined total of those identified as TDRs and those exempt from the TDR designation, during the three and six months ended June 30, 2020 were favorably impacted by the utilization of SaP programs in lieu of traditional loan modification programs. Additionally, enrollments in personal loan modification programs were favorably impacted by tighter underwriting standards that were implemented before the COVID-19 pandemic. 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 June 30, 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) 4,525 $ 27 11,841 $ 66 Private student loans (3) 65 $ 1 246 $ 5 Personal loans (2) 361 $ 5 622 $ 9 For the Six Months Ended June 30, 2021 2020 (4) 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) 10,526 $ 63 32,302 $ 183 Private student loans (3) 131 $ 3 604 $ 12 Personal loans (2) 888 $ 12 1,822 $ 27 (1) For credit card loans that default from a temporary program, accounts revert 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, a customer defaults from a loan modification after they 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. (4) Certain prior period amounts have been reclassified to conform to current period presentation. Of the account balances that defaulted as shown above for the three months ended June 30, 2021 and 2020, approximately 68% and 61%, respectively, and for the six months ended June 30, 2021 and 2020, approximately 68% and 48%, 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.” |