Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019



☐	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)



Delaware		51-0483352
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



777 Long Ridge Road
Stamford,	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:



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

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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.



Large Accelerated Filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

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 ☒

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of October 21, 2019 was 646,192,751.

Synchrony Financial



PART I - FINANCIAL INFORMATION	Page
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	6

Item 1. Financial Statements:

Condensed Consolidated Statements of Earnings for the three and nine months ended September 30, 2019 and 2018	33

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018	34

Condensed Consolidated Statements of Financial Position at September 30, 2019 and at December 31, 2018	35

Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2019 and 2018	36

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	38

Notes to Condensed Consolidated Financial Statements	39

Item 3. Quantitative and Qualitative Disclosures About Market Risk	59

Item 4. Controls and Procedures	59

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	60
Item 1A. Risk Factors	60
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3. Defaults Upon Senior Securities	60
Item 4. Mine Safety Disclosures	60
Item 5. Other Information	60
Item 6. Exhibits	62
Signatures	63

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;


•	the “Bank” are to Synchrony Bank (a subsidiary of Synchrony);


•	the “Board of Directors” or “Board” are to Synchrony's board of directors;


•	“GE” are to General Electric Company and its subsidiaries; and


•	“FICO” are to a credit score developed by Fair Isaac & Co., 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, 2018 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 “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, 2018 (our “2018 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™, Synchrony Car Care™ and SyPI™, belong to us. Solely for convenience, we refer to our trademarks in this report without the ™ and ® symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks. Other service marks, trademarks and trade names referred to in this report are the property of their respective owners.

On our website at www.synchronyfinancial.com, we make available under the "Investors-SEC Filings" menu selection, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports or amendments are electronically filed with, or furnished to, the SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information that we file electronically with the SEC.

Cautionary Note Regarding Forward-Looking Statements:

Various statements in this Quarterly Report on Form 10-Q may contain “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “targets,” “outlook,” “estimates,” “will,” “should,” “may” or words of similar meaning, but these words are not the exclusive means of identifying forward-looking statements.

Forward-looking statements are based on management’s current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include global political, economic, business, competitive, market, regulatory and other factors and risks, such as: the impact of macroeconomic conditions and whether industry trends we have identified develop as anticipated; retaining existing partners and attracting new partners, concentration of our revenue in a small number of Retail Card partners, promotion and support of our products by our partners, and financial performance of our partners; cyber-attacks or other security breaches; 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; our ability to securitize our loan receivables, occurrence of an early amortization of our securitization facilities, loss of the right to service or subservice our securitized loan receivables, and lower payment rates on our securitized 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; 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 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 Relating to Our Business” and “Risk Factors Relating to Regulation” in our 2018 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 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 2018 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

____________________________________________________________________________________________

We are a premier consumer financial services company delivering customized financing programs across key industries including retail, health, auto, travel and home, along with award-winning consumer banking products. We provide a range of credit products through our financing programs which we have established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which we refer to as our “partners.” For the three and nine months ended September 30, 2019, we financed $38.4 billion and $109.2 billion of purchase volume, respectively, and had 76.7 million average active accounts for both periods, and at September 30, 2019, we had $83.2 billion of loan receivables.

We offer our credit products primarily through our wholly-owned subsidiary, the Bank. In addition, through the Bank, we offer, directly to retail and commercial customers, a range of deposit products insured by the Federal Deposit Insurance Corporation (“FDIC”), including certificates of deposit, individual retirement accounts (“IRAs”), money market accounts and savings accounts. We also take deposits at the Bank through third-party securities brokerage firms that offer our FDIC-insured deposit products to their customers. We have significantly expanded our online direct banking operations in recent years and our deposit base serves as a source of stable and diversified low cost funding for our credit activities. At September 30, 2019, we had $66.0 billion in deposits, which represented 76% of our total funding sources.

Our Sales Platforms

_________________________________________________________________

We conduct our operations through a single business segment. Profitability and expenses, including funding costs, loan losses and operating expenses, are managed for the business as a whole. Substantially all of our operations are within the United States. We offer our credit products through three sales platforms (Retail Card, Payment Solutions and CareCredit). 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, active accounts and other sales metrics.

Beginning in the first quarter of 2019, our oil and gas retail credit programs, previously reported within our Retail Card sales platform, are now reported within our Payment Solutions sales platform. Payment Solutions now includes a broad range of automotive-related credit programs, comprising of these retail partners, our Synchrony Car Care program network and other automotive partners. We have recast all prior-period reported metrics for our Retail Card and Payment Solutions sales platforms to conform to the current-period presentation.

Retail Card

Retail Card is a leading provider of private label credit cards, and also provides Dual Cards, general purpose co-branded credit cards and small- and medium-sized business credit products. We offer one or more of these products primarily through 24 national and regional retailers with which we have ongoing program agreements. The average length of our relationship with these Retail Card partners is 22 years. Retail Card’s revenue primarily consists of interest and fees on our loan receivables. Other income primarily consists of interchange fees earned when our Dual Card or general purpose co-branded credit cards are used outside of our partners' sales channels and fees paid to us by customers who purchase our debt cancellation products, less loyalty program payments. In addition, the majority of our retailer share arrangements, which generally provide for payment to our partner if the economic performance of the program exceeds a contractually-defined threshold, are with partners in the Retail Card sales platform. Substantially all of the credit extended in this platform is on standard terms.

Payment Solutions

Payment Solutions is a leading provider of promotional financing for major consumer purchases, offering consumer choice for financing at the point of sale, including primarily private label credit cards, Dual Cards and installment loans. Payment Solutions offers these products through participating partners consisting of national and regional retailers, local merchants, manufacturers, buying groups and industry associations. Substantially all of the credit extended in this platform, other than for our oil and gas retail partners, 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, veterinary and personal care procedures, services or products. We have a network of CareCredit providers and health-focused retailers, the vast majority of which are individual or small groups of independent healthcare providers, through which we offer a CareCredit branded private label credit card and 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.

Our Credit Products

____________________________________________________________________________________________

Through our 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, 2019.



			Promotional Offer
Credit Product	Standard Terms Only		Deferred Interest		Other Promotional		Total
Credit cards	61.9	%	18.8	%	15.1	%	95.8	%
Commercial credit products	1.6		—		—		1.6
Consumer installment loans	—		—		2.5		2.5
Other	0.1		—		—		0.1
Total	63.6	%	18.8	%	17.6	%	100.0	%

Credit Cards

We typically offer the following principal types of credit cards:

•

Private Label Credit Cards. Private label credit cards are partner-branded credit cards (e.g., Lowe’s or Amazon) or program-branded credit cards (e.g., Synchrony Car Care or CareCredit) that are used primarily for the purchase of goods and services from the partner or within the program network. In addition, in some cases, cardholders may be permitted to access their credit card accounts for cash advances. In Retail Card, credit under our private label credit cards typically is extended on standard terms only, and in Payment Solutions and CareCredit, credit under our private label credit cards typically is extended pursuant to a promotional financing offer.

•

Dual Cards and General Purpose Co-Brand 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. We also offer general purpose co-branded credit cards that do not function as private label cards. Credit extended under our Dual Cards and general purpose co-branded credit cards typically is extended under standard terms only. We offer either Dual Cards or general purpose co-branded credit cards across all of our sales platforms, spanning 21 ongoing credit partners and our CareCredit Dual Card.

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, we originate installment loans to consumers (and a limited number of commercial customers) in the United States, primarily in the power products market (motorcycles, ATVs and lawn and garden). Installment loans are closed-end credit accounts where the customer pays down the outstanding balance in installments. Installment loans are assessed periodic finance charges using fixed interest rates.

Business Trends and Conditions

____________________________________________________________________________________________

We believe our business and results of operations will be impacted in the future by various trends and conditions. For a discussion of certain trends and conditions, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Business Trends and Conditions” in our 2018 Form 10-K. For a discussion of how certain trends and conditions impacted the three and nine months ended September 30, 2019, see “—Results of Operations.”

Seasonality

____________________________________________________________________________________________

In our Retail Card and Payment Solutions platforms, we experience fluctuations in transaction volumes and the level of loan receivables as a result of higher seasonal consumer spending and payment patterns that typically result in an increase of loan receivables from August through a peak in late December, with reductions in loan receivables occurring over the first and second quarters of the following year as customers pay their balances down.

The seasonal impact to transaction volumes and the loan receivables balance typically results in fluctuations in our results of operations, delinquency metrics and the allowance for loan losses as a percentage of total loan receivables between quarterly periods.

In addition to the seasonal variance in loan receivables discussed above, we also 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 loan losses as a percentage of total loan receivables at the end of an interim period, as compared to the end of a calendar year. In addition, despite improving credit metrics such as declining past due amounts, we may experience an increase in our allowance for loan losses at an interim period end compared to the prior year end, reflecting these same seasonal trends.

Results of Operations

____________________________________________________________________________________________

Highlights for the Three and Nine Months Ended September 30, 2019

Below are highlights of our performance for the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018, as applicable, except as otherwise noted.

•

Net earnings increased 57.4% to $1,056 million and 50.3% to $3,016 million for the three and nine months ended September 30, 2019, respectively, which included the impact of reductions in reserves related to the sale of the Walmart consumer portfolio of $248 million and $829 million, respectively. The increases in net earnings were also driven primarily by higher net interest income, partially offset by increases in retailer share arrangements, and other expense.


•	Loan receivables decreased 4.9% to $83,207 million at September 30, 2019 compared to September 30, 2018, primarily driven by the reclassification of $8.2 billion of loan receivables associated with the Walmart portfolio to loan receivables held for sale, partially offset by higher purchase volume and average active account growth.


•	Net interest income increased 4.4% to $4,389 million and 8.4% to $12,770 million for the three and nine months ended September 30, 2019, respectively, primarily due to higher average loan receivables growth, partially offset by increases in interest expense reflecting higher benchmark interest rates and growth.


•	Retailer share arrangements increased 16.6% to $1,016 million and 26.1% to $2,829 million for the three and nine months ended September 30, 2019, respectively, primarily due to improved performance of the programs in which we have retailer share arrangements and growth.


•	Over-30 day loan delinquencies as a percentage of period-end loan receivables decreased 12 basis points to 4.47% at September 30, 2019, and the net charge-off rate increased 38 basis points to 5.35% and 13 basis points to 5.80% for the three and nine months ended September 30, 2019, respectively.

•

Provision for loan losses decreased by $432 million, or 29.8%, and $1,017 million, or 24.8%, for the three and nine months ended September 30, 2019, respectively, primarily driven by reductions in reserves for loan losses related to the Walmart consumer portfolio sale which was completed in October 2019. These reductions totaled $326 million and $1,095 million for the three and nine months ended September 30, 2019, respectively. Our allowance coverage ratio (allowance for loan losses as a percent of end of period loan receivables) decreased to 6.74% at September 30, 2019, as compared to 7.11% at September 30, 2018.

•

Other expense increased by $10 million, or 0.9%, and $149 million, or 4.9%, for the three and nine months ended September 30, 2019, respectively. The increase in the three months ended September 30, 2019 was primarily driven by business growth, partially offset by cost savings executed in advance of the Walmart consumer portfolio sale. The increase in the nine months ended September 30, 2019 was primarily driven by the PayPal Credit acquisition and business growth.


•	At September 30, 2019, deposits represented 76% of our total funding sources. Total deposits increased 3.1% to $66.0 billion at September 30, 2019, compared to December 31, 2018. Growth in our direct deposits of 8.7% to $53.7 billion, was partially offset by lower brokered deposits.

•

On May 9, 2019, we announced that our Board approved a share repurchase program of up to $4.0 billion through June 30, 2020 and plans to increase our quarterly dividend to $0.22 per common share commencing in the third quarter of 2019. During the nine months ended September 30, 2019, we repurchased $2.2 billion of our outstanding common stock, and declared and paid cash dividends of $0.64 per share, or $440 million.


•	In March 2019, we announced our acquisition of Pets Best and entry into the pet health insurance industry as a managing general agent.

2019 Partner Agreements


•	In our Retail Card sales platform, we extended and expanded our program with PayPal and will become the exclusive issuer of Venmo co-branded consumer credit card and extended our program agreement with Dick's Sporting Goods.


•	On October 11, 2019, we completed our sale and conversion of $8.2 billion of loan receivables associated with our Retail Card program agreement with Walmart.


•	In our Payment Solutions sales platform, we expanded our Synchrony Car Care program acceptance network, announced our new partnerships with Samsung HVAC and Zero Motorcycles, extended our program agreements with CCA Global Partners, Conn's HomePlus, La-Z-Boy, P.C. Richard & Son, Penske, Polaris, Rheem and Suzuki and launched our new program with Fanatics.


•	In our CareCredit sales platform, we expanded our network through our new partnerships with Baylor Scott & White Medical Center, Lehigh Valley Physician's Group, Loyale, Simplee and St. Luke's University Health Network, renewed our agreement with Bosley and launched our new program with Lighthouse.

Summary Earnings

The following table sets forth our results of operations for the periods indicated.



	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2019			2018			2019			2018
Interest income	$	4,981		$	4,694		$	14,505		$	13,112
Interest expense	592			488			1,735			1,327
Net interest income	4,389			4,206			12,770			11,785
Retailer share arrangements	(1,016		)	(871		)	(2,829		)	(2,244		)
Provision for loan losses	1,019			1,451			3,076			4,093
Net interest income, after retailer share arrangements and provision for loan losses	2,354			1,884			6,865			5,448
Other income	85			63			267			201
Other expense	1,064			1,054			3,166			3,017
Earnings before provision for income taxes	1,375			893			3,966			2,632
Provision for income taxes	319			222			950			625
Net earnings	$	1,056		$	671		$	3,016		$	2,007

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)	2019			2018			2019			2018
Financial Position Data (Average):
Loan receivables, including held for sale	$	90,556		$	86,783		$	89,752		$	81,270
Total assets	$	106,413		$	100,449		$	105,542		$	97,474
Deposits	$	65,898		$	60,398		$	64,826		$	58,223
Borrowings	$	21,117		$	21,858		$	21,577		$	21,334
Total equity	$	14,828		$	14,421		$	14,812		$	14,369
Selected Performance Metrics:
Purchase volume⁽¹⁾⁽²⁾	$	38,395		$	36,443		$	109,199		$	100,337
Retail Card	$	29,282		$	27,863		$	83,472		$	75,930
Payment Solutions	$	6,281		$	6,007		$	17,478		$	16,773
CareCredit	$	2,832		$	2,573		$	8,249		$	7,634
Average active accounts (in thousands)⁽²⁾⁽³⁾	76,695			75,482			76,653			72,594
Net interest margin⁽⁴⁾	16.29		%	16.41		%	16.04		%	15.94		%
Net charge-offs	$	1,221		$	1,087		$	3,896		$	3,444
Net charge-offs as a % of average loan receivables, including held for sale	5.35		%	4.97		%	5.80		%	5.67		%
Allowance coverage ratio⁽⁵⁾	6.74		%	7.11		%	6.74		%	7.11		%
Return on assets⁽⁶⁾	3.9		%	2.7		%	3.8		%	2.8		%
Return on equity⁽⁷⁾	28.3		%	18.5		%	27.2		%	18.7		%
Equity to assets⁽⁸⁾	13.93		%	14.36		%	14.03		%	14.74		%
Other expense as a % of average loan receivables, including held for sale	4.66		%	4.82		%	4.72		%	4.96		%
Efficiency ratio⁽⁹⁾	30.8		%	31.0		%	31.0		%	31.0		%
Effective income tax rate	23.2		%	24.9		%	24.0		%	23.7		%
Selected Period-End Data:
Loan receivables	$	83,207		$	87,521		$	83,207		$	87,521
Allowance for loan losses	$	5,607		$	6,223		$	5,607		$	6,223
30+ days past due as a % of period-end loan receivables⁽¹⁰⁾	4.47		%	4.59		%	4.47		%	4.59		%
90+ days past due as a % of period-end loan receivables⁽¹⁰⁾	2.07		%	2.09		%	2.07		%	2.09		%
Total active accounts (in thousands)⁽²⁾⁽³⁾	77,094			75,457			77,094			75,457

______________________


(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 loan 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 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.



	2019							2018
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⁾	$	10,947		$	59	2.14	%	$	7,901		$	39	1.96	%
Securities available for sale	5,389			32		2.36	%	7,022			38		2.15	%
Loan receivables⁽³⁾:
Credit cards, including held for sale	87,156			4,807		21.88	%	83,609			4,538		21.53	%
Consumer installment loans	2,022			48		9.42	%	1,753			41		9.28	%
Commercial credit products	1,329			35		10.45	%	1,355			37		10.83	%
Other	49			—		—	%	66			1		NM
Total loan receivables	90,556			4,890		21.42	%	86,783			4,617		21.11	%
Total interest-earning assets	106,892			4,981		18.49	%	101,706			4,694		18.31	%
Non-interest-earning assets:
Cash and due from banks	1,374							1,217
Allowance for loan losses	(5,773		)					(5,956		)
Other assets	3,920							3,482
Total non-interest-earning assets	(479		)					(1,257		)
Total assets	$	106,413						$	100,449
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts	$	65,615		$	411	2.49	%	$	60,123		$	314	2.07	%
Borrowings of consolidated securitization entities	11,770			88		2.97	%	12,306			86		2.77	%
Senior unsecured notes	9,347			93		3.95	%	9,552			88		3.66	%
Total interest-bearing liabilities	86,732			592		2.71	%	81,981			488		2.36	%
Non-interest-bearing liabilities:
Non-interest-bearing deposit accounts	283							275
Other liabilities	4,570							3,772
Total non-interest-bearing liabilities	4,853							4,047
Total liabilities	91,585							86,028
Equity
Total equity	14,828							14,421
Total liabilities and equity	$	106,413						$	100,449
Interest rate spread⁽⁴⁾						15.78	%						15.95	%
Net interest income				$	4,389						$	4,206
Net interest margin⁽⁵⁾						16.29	%						16.41	%




	2019							2018
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⁾	$	10,989		$	190	2.31	%	$	11,128		$	145	1.74	%
Securities available for sale	5,679			102		2.40	%	6,475			97		2.00	%
Loan receivables⁽³⁾:
Credit cards, including held for sale	86,471			13,975		21.61	%	78,227			12,647		21.62	%
Consumer installment loans	1,931			134		9.28	%	1,658			114		9.19	%
Commercial credit products	1,304			103		10.56	%	1,329			107		10.76	%
Other	46			1		2.91	%	56			2		4.77	%
Total loan receivables	89,752			14,213		21.17	%	81,270			12,870		21.17	%
Total interest-earning assets	106,420			14,505		18.22	%	98,873			13,112		17.73	%
Non-interest-earning assets:
Cash and due from banks	1,327							1,192
Allowance for loan losses	(6,006		)					(5,779		)
Other assets	3,801							3,188
Total non-interest-earning assets	(878		)					(1,399		)
Total assets	$	105,542						$	97,474
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts	$	64,546		$	1,183	2.45	%	$	57,941		$	836	1.93	%
Borrowings of consolidated securitization entities	12,315			278		3.02	%	12,178			240		2.63	%
Senior unsecured notes	9,262			274		3.96	%	9,156			251		3.67	%
Total interest-bearing liabilities	86,123			1,735		2.69	%	79,275			1,327		2.24	%
Non-interest-bearing liabilities:
Non-interest-bearing deposit accounts	280							282
Other liabilities	4,327							3,548
Total non-interest-bearing liabilities	4,607							3,830
Total liabilities	90,730							83,105
Equity

Total equity	14,812							14,369
Total liabilities and equity	$	105,542						$	97,474
Interest rate spread⁽⁴⁾						15.53	%						15.49	%
Net interest income				$	12,770						$	11,785
Net interest margin⁽⁵⁾						16.04	%						15.94	%

______________________


(1)	Average yields/rates are based on total interest income/expense over average balances.


(2)	Includes average restricted cash balances of $1,219 million and $480 million for the three months ended September 30, 2019 and 2018, respectively and $879 million and $538 million for the nine months ended September 30, 2019 and 2018, respectively.


(3)	Interest income on loan receivables includes fees on loans of $737 million and $732 million for the three months ended September 30, 2019 and 2018, respectively and $2,091 million and $1,971 million for the nine months ended September 30, 2019 and 2018, 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.

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 2018 Form 10-K.

Interest Income

Interest income increased by $287 million, or 6.1%, and $1,393 million, or 10.6%, for the three and nine months ended September 30, 2019, driven primarily by growth in our average loan receivables.

Average interest-earning assets



Three months ended September 30 ($ in millions)	2019		%		2018		%
Loan receivables, including held for sale	$	90,556	84.7	%	$	86,783	85.3	%
Liquidity portfolio and other	16,336		15.3	%	14,923		14.7	%
Total average interest-earning assets	$	106,892	100.0	%	$	101,706	100.0	%




Nine months ended September 30 ($ in millions)	2019		%		2018		%
Loan receivables, including held for sale	$	89,752	84.3	%	$	81,270	82.2	%
Liquidity portfolio and other	16,668		15.7	%	17,603		17.8	%
Total average interest-earning assets	$	106,420	100.0	%	$	98,873	100.0	%

The increase in average loan receivables of 4.3% and 10.4% for the three and nine months ended September 30, 2019, respectively, was driven by higher purchase volume and average active account growth. The increase in the nine months ended September 30, 2019 was also driven by the PayPal Credit acquisition. Purchase volume increased 5.4% and 8.8%, and average active accounts increased 1.6% and 5.6%, for the three and nine months ended September 30, 2019, respectively, including the effects of the PayPal Credit acquisition in the nine months ended September 30, 2019.

Yield on average interest-earning assets

The yield on average interest-earning assets increased for the three and nine months ended September 30, 2019. The increase for the three months ended September 30, 2019 is primarily due to an increase in the yield on our average loan receivables, partially offset by a decrease in the percentage of interest-earnings assets attributable to loan receivables. The increase in the nine months ended September 30, 2019 was primarily due to an increase in the percentage of interest-earning assets attributable to loan receivables. The increase in yield was 31 basis points to 21.42% for the three months ended September 30, 2019, which included the purchase accounting impact related to the PayPal Credit program in the prior year and remained flat at 21.17% for the nine months ended September 30, 2019, respectively.

Interest Expense

Interest expense increased by $104 million, or 21.3%, and $408 million, or 30.7%, for the three and nine months ended September 30, 2019, respectively, driven primarily by higher benchmark interest rates and growth in our deposit liabilities. Our cost of funds increased to 2.71% and 2.69% for the three and nine months ended September 30, 2019, respectively, compared to 2.36% and 2.24% for the three and nine months ended September 30, 2018, respectively.

Average interest-bearing liabilities



Three months ended September 30 ($ in millions)	2019		%		2018		%
Interest-bearing deposit accounts	$	65,615	75.6	%	$	60,123	73.3	%
Borrowings of consolidated securitization entities	11,770		13.6	%	12,306		15.0	%
Senior unsecured notes	9,347		10.8	%	9,552		11.7	%
Total average interest-bearing liabilities	$	86,732	100.0	%	$	81,981	100.0	%




Nine months ended September 30 ($ in millions)	2019		%		2018		%
Interest-bearing deposit accounts	$	64,546	74.9	%	$	57,941	73.1	%
Borrowings of consolidated securitization entities	12,315		14.3	%	12,178		15.4	%
Senior unsecured notes	9,262		10.8	%	9,156		11.5	%
Total average interest-bearing liabilities	$	86,123	100.0	%	$	79,275	100.0	%

The increases in average interest-bearing liabilities for the three and nine months ended September 30, 2019 were driven primarily by growth in our direct deposits.

Net Interest Income

Net interest income increased by $183 million, or 4.4%, and $985 million, or 8.4%, for the three and nine months ended September 30, 2019, respectively, primarily driven by higher average loan receivables, partially offset by increases in interest expense reflecting higher benchmark interest rates and growth in our deposit liabilities.

Retailer Share Arrangements

Retailer share arrangements increased by $145 million, or 16.6%, and $585 million, or 26.1%, for the three and nine months ended September 30, 2019, respectively, primarily due to improved performance of the programs in which we have retailer share arrangements and growth. The increase in the nine months ended September 30, 2019 also included the effects of the PayPal Credit acquisition.

Provision for Loan Losses

Provision for loan losses decreased by $432 million, or 29.8%, and $1,017 million, or 24.8%, for the three and nine months ended September 30, 2019, respectively, primarily driven by reductions in reserves for loan losses related to the Walmart consumer portfolio sale which was completed in October 2019. These reductions totaled $326 million and $1,095 million for the three and nine months ended September 30, 2019, respectively. The reduction for the nine months ended September 30, 2019 includes a $522 million reserve release following the reclassification of the Walmart portfolio to loan receivables held for sale on our Condensed Consolidated Statement of Financial Position in the first quarter of 2019. Our allowance coverage ratio decreased to 6.74% at September 30, 2019, as compared to 7.11% at September 30, 2018.

Other Income



	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2019			2018			2019			2018
Interchange revenue	$	197		$	182		$	556		$	517
Debt cancellation fees	64			65			201			197
Loyalty programs	(203		)	(196		)	(562		)	(543		)
Other	27			12			72			30
Total other income	$	85		$	63		$	267		$	201

Other income increased by $22 million, or 34.9%, and $66 million, or 32.8%, for the three and nine months ended September 30, 2019, respectively. The increases for the three and nine months ended September 30, 2019 were primarily due to an increase in interchange revenue and reductions in certain contingent consideration obligations, partially offset by higher loyalty costs. The increases in interchange revenue were driven by increased purchase volume outside of our retail partners' sales channels.

Other Expense



	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2019		2018		2019		2018
Employee costs	$	359	$	365	$	1,070	$	1,074
Professional fees	205		232		668		575
Marketing and business development	139		131		397		362
Information processing	127		105		363		308
Other	234		221		668		698
Total other expense	$	1,064	$	1,054	$	3,166	$	3,017

Other expense increased by $10 million, or 0.9%, for the three months ended September 30, 2019. The increase in the three months ended September 30, 2019 was primarily due to an increase in information processing costs, partially offset by a decrease in professional fees and cost savings executed in advance of the Walmart portfolio sale. The increase in information processing costs was primarily due to business growth, including strategic investments. In June 2019 we completed the conversion of the PayPal Credit portfolio, which also contributed to both the increase in information processing costs and the decrease in professional fees.

Other expense increased by $149 million, or 4.9%, for the nine months ended September 30, 2019, primarily due to increases in professional fees and information processing costs. The increase in professional fees was primarily due to interim servicing costs associated with acquired portfolios, including the PayPal Credit portfolio prior to the conversion in June 2019 and the increase in information processing costs was primarily due to business growth, including strategic investments.

Provision for Income Taxes



	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2019			2018			2019			2018
Effective tax rate	23.2		%	24.9		%	24.0		%	23.7		%
Provision for income taxes	$	319		$	222		$	950		$	625

The effective tax rate for the three months ended September 30, 2019 decreased compared to the same period in the prior year primarily due to the impact of research and development credits recorded in the current year. The effective tax rate for the nine months ended September 30, 2019 increased compared to the same period in the prior year primarily due to a tax benefit recorded in the prior year following a methodology change related to loyalty costs. In each period, the effective tax rate differs from the applicable U.S. federal statutory rate primarily due to state income taxes.

Platform Analysis

As discussed above under “—Our Sales Platforms,” we offer our products through three sales platforms (Retail Card, Payment Solutions and CareCredit), 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, 2019, for each of our sales platforms.

Beginning in the first quarter of 2019, our oil and gas retail credit programs, previously reported within our Retail Card sales platform, are now reported within our Payment Solutions sales platform. We have recast all prior-period reported metrics for our Retail Card and Payment Solutions sales platforms to conform to the current-period presentation.

Retail Card



	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2019			2018			2019			2018
Purchase volume	$	29,282		$	27,863		$	83,472		$	75,930
Period-end loan receivables	$	52,697		$	59,139		$	52,697		$	59,139
Average loan receivables, including held for sale	$	60,660		$	58,964		$	60,494		$	54,101
Average active accounts (in thousands)	58,082			57,459			58,156			54,717

Interest and fees on loans	$	3,570		$	3,383		$	10,414		$	9,313
Retailer share arrangements	$	(998	)	$	(844	)	$	(2,774	)	$	(2,189	)
Other income	$	65		$	57		$	200		$	180

Retail Card interest and fees on loans increased by $187 million, or 5.5%, and $1,101 million, or 11.8%, for the three and nine months ended September 30, 2019, respectively. The increase was primarily the result of growth in average loan receivables. The increase in the nine months ended September 30, 2019 was also driven by the PayPal Credit acquisition.

Retailer share arrangements increased by $154 million, or 18.2%, and $585 million, or 26.7%, for the three and nine months ended September 30, 2019, respectively, primarily as a result of the factors discussed under the heading “Retailer Share Arrangements” above.

Other income increased by $8 million, or 14.0%, and $20.0 million, or 11.1%, for the three and nine months ended September 30, 2019, primarily as a result of the factors discussed under the heading “Other Income” above.

Payment Solutions



	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2019			2018			2019			2018
Purchase volume	$	6,281		$	6,007		$	17,478		$	16,773
Period-end loan receivables	$	20,478		$	19,064		$	20,478		$	19,064
Average loan receivables	$	20,051		$	18,659		$	19,654		$	18,231
Average active accounts (in thousands)	12,384			12,062			12,354			11,992

Interest and fees on loans	$	721		$	683		$	2,092		$	1,970
Retailer share arrangements	$	(15	)	$	(24	)	$	(48	)	$	(48	)
Other income	$	(1	)	$	(2	)	$	11		$	(6	)

Payment Solutions interest and fees on loans increased by $38 million, or 5.6%, and $122 million, or 6.2%, for the three and nine months ended September 30, 2019, respectively. The increase was primarily driven by growth in average loan receivables.

CareCredit



	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2019			2018			2019			2018
Purchase volume	$	2,832		$	2,573		$	8,249		$	7,634
Period-end loan receivables	$	10,032		$	9,318		$	10,032		$	9,318
Average loan receivables	$	9,845		$	9,160		$	9,604		$	8,938
Average active accounts (in thousands)	6,229			5,961			6,143			5,885

Interest and fees on loans	$	599		$	551		$	1,707		$	1,587
Retailer share arrangements	$	(3	)	$	(3	)	$	(7	)	$	(7	)
Other income	$	21		$	8		$	56		$	27

CareCredit interest and fees on loans increased by $48 million, or 8.7%, and $120 million, or 7.6%, for the three and nine months ended September 30, 2019, respectively. The increase was primarily driven by growth in average loan receivables.

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 table sets forth the composition of our loan receivables portfolio by product type at the dates indicated.



($ in millions)	At September 30, 2019		(%)		At December 31, 2018		(%)
Loans
Credit cards	$	79,788	95.8	%	$	89,994	96.6	%
Consumer installment loans	2,050		2.5		1,845		2.0
Commercial credit products	1,317		1.6		1,260		1.4
Other	52		0.1		40		—
Total loans	$	83,207	100.0	%	$	93,139	100.0	%

Loan receivables decreased by $9.9 billion, or 10.7%, at September 30, 2019 compared to December 31, 2018, primarily driven by the reclassification of $8.2 billion of loan receivables associated with the Walmart portfolio to loan receivables held for sale and the seasonality of our business.

Loan receivables decreased by $4.3 billion, or 4.9%, at September 30, 2019 compared to September 30, 2018, primarily driven by the reclassification of the Walmart portfolio to loan receivables held for sale, partially offset by higher purchase volume and average active account growth.

Our loan receivables portfolio had the following geographic concentration at September 30, 2019.



($ in millions)	Loan Receivables Outstanding		% of Total Loan Receivables Outstanding
State	Loan Receivables Outstanding		% of Total Loan Receivables Outstanding
California	$	8,836	10.6	%
Texas	$	8,301	10.0	%
Florida	$	7,004	8.4	%
New York	$	4,784	5.7	%
Pennsylvania	$	3,430	4.1	%

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. Our allowance for loan losses on TDRs is generally measured based on the difference between the recorded loan receivable and the present value of the expected future cash flows.

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, 2019		At December 31, 2018
Non-accrual loan receivables⁽¹⁾	$	5	$	5
Loans contractually 90 days past-due and still accruing interest	1,715		2,116
Earning TDRs⁽²⁾	978		1,085
Non-accrual, past-due and restructured loan receivables	$	2,698	$	3,206

______________________


(1)	Excludes purchase credit impaired (“PCI”) loan receivables.

(2)

At September 30, 2019 and December 31, 2018, balances exclude $114 million and $122 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, 2019 and 2018.



	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2019		2018		2019		2018
Gross amount of interest income that would have been recorded in accordance with the original contractual terms	$	68	$	68	$	198	$	195
Interest income recognized	11		13		33		37
Total interest income foregone	$	57	$	55	$	165	$	158

Delinquencies

Over-30 day loan delinquencies as a percentage of period-end loan receivables decreased to 4.47% at September 30, 2019 from 4.59% at September 30, 2018, and decreased from 4.76% at December 31, 2018. The decreases were primarily driven by the Walmart portfolio, as the current year rate included minimal delinquencies associated with the Walmart portfolio due to the timing of the portfolio sale in October 2019. The decrease as compared to December 31, 2018 also included the effects of the seasonality of our business.

Net Charge-Offs

Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine are uncollectible, net of recovered amounts. We exclude accrued and unpaid finance charges and fees and third-party fraud losses from charge-offs. Charged-off and recovered finance charges and fees are included in interest and fees on loans while third-party fraud losses are included in other expense. Charge-offs are recorded as a reduction to the allowance for loan losses and subsequent recoveries of previously charged-off amounts are credited to the allowance for loan losses. Costs incurred to recover charged-off loans are recorded as collection expense and included in other expense in our Condensed Consolidated Statements of Earnings.

The table below sets forth the ratio of net charge-offs to average loan receivables, including held for sale, for the periods indicated.



	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Ratio of net charge-offs to average loan receivables, including held for sale	5.35	%	4.97	%	5.80	%	5.67	%

Allowance for Loan Losses

The allowance for loan losses totaled $5,607 million at September 30, 2019, compared with $6,427 million at December 31, 2018 and $6,223 million at September 30, 2018, representing our best estimate of probable losses inherent in the portfolio. Our allowance for loan losses as a percentage of total loan receivables decreased to 6.74% at September 30, 2019, from 6.90% at December 31, 2018 and decreased from 7.11% at September 30, 2018. The decrease from December 31, 2018 is primarily driven by the reclassification of loan receivables associated with the Walmart portfolio to loan receivables held for sale, partially offset by the seasonality of our business. The decrease compared to the prior year is primarily driven by the reclassification of loan receivables associated with the Walmart portfolio to loan receivables held for sale. See "Business Trends and Conditions — Asset Quality" in our 2018 Form 10-K for discussion of the various factors that contribute to forecasted net charge-offs over the next twelve months.

The following tables provide changes in our allowance for loan losses for the periods presented:



($ in millions)	Balance at July 1, 2019		Provision charged to operations			Gross charge-offs			Recoveries		Balance at September 30, 2019

Credit cards	$	5,702	$	993		$	(1,422	)	$	225	$	5,498
Consumer installment loans	50		18			(16		)	4		56
Commercial credit products	55		9			(14		)	2		52
Other	2		(1		)	—			—		1
Total	$	5,809	$	1,019		$	(1,452	)	$	231	$	5,607

($ in millions)

Balance at July 1, 2018

Provision charged to operations

Gross charge-offs

Recoveries

Balance at
September 30, 2018