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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐
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)
synchronylogorgbpositive.jpg
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
Depositary Shares Each Representing a 1/40th Interest in a Share of 5.625% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A
SYFPrA
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
Title of class
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒




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 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, a smaller reporting company, or 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 Act).    Yes  ☐    No  ☒
The aggregate market value of the outstanding common equity of the registrant held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter was $23,206,326,259,
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of February 7, 2020 was 613,476,835
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant’s Annual Meeting of Stockholders, to be held May 21, 2020, is incorporated by reference into Part III to the extent described therein.




Synchrony Financial
Table of Contents
OUR ANNUAL REPORT ON FORM 10-K
To improve the readability of this document and better present both our financial results and how we manage our business, we present the content of our Annual Report on Form 10-K in the order listed in the table of contents below. See "Form 10-K Cross-Reference Index" on page 4 for a cross-reference index to the traditional U.S. Securities and Exchange Commission (SEC) Form 10-K format.
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

3


FORM 10-K CROSS REFERENCE INDEX
____________________________________________________________________________________________
 
Page(s)
 
 
 
8 - 24, 74 - 88
 
 
 
56 - 73, 88 - 93
 
 
 
Not Applicable
 
 
 
 
 
 
133 - 135
 
 
 
Not Applicable
 
 
 
 
 
 
 
 
138 - 140
 
 
 
25 - 26
 
 
 
25 - 49, 51 - 55
 
 
 
49 - 50
 
 
 
94 - 135
 
 
 
Not Applicable
 
 
 
 
 
 
Not Applicable
 
 
 
 
 
 
 
 
(a)
 
 
 
(b)
 
 
 
(c)
 
 
 
(d)
 
 
 
(e)
 
 
 
 
 
 
 
 
141 - 150
 
 
 
Not Applicable
 
 
 
 
151 - 153
______________________ 
(a)
Incorporated by reference to “Management”, “Election of Directors,” “Governance Principles,” “Code of Conduct” and “Committees of the Board of the Directors” in our definitive proxy statement for our 2020 Annual Meeting of Stockholders to be held on May 21, 2020, which will be filed within 120 days of the end our fiscal year ended December 31, 2019 (the “2020 Proxy Statement”).
(b)
Incorporated by reference to “Compensation Discussion and Analysis,” “2019 Executive Compensation,” “Management Development and Compensation Committee Report” and “Management Development and Compensation Committee Interlocks and Insider Participation” and “CEO Pay Ratio” in the 2020 Proxy Statement.
(c)
Incorporated by reference to “Beneficial Ownership” and “Equity Compensation Plan Information” in the 2020 Proxy Statement.
(d)
Incorporated by reference to “Related Person Transactions,” “Election of Directors” and “Committees of the Board of Directors” in the 2020 Proxy Statement.
(e)
Incorporated by reference to “Independent Auditor” in the 2020 Proxy Statement.

4


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;
•
the “Tax Act” are to P.L. 115-97, commonly referred to as the Tax Cut and Jobs Act, signed into law on December 22, 2017; 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, 2019 for those partners or for all partners participating in a program, based on the date each partner relationship or program, as applicable, started. Information with respect to partner “locations” in this report is given at December 31, 2019. “Open accounts” represents credit card or installment loan accounts that are not closed, blocked or more than 60 days delinquent.
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.” 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.
Industry and Market Data
This report contains various historical and projected financial information concerning our industry and market. Some of this information is from industry publications and other third-party sources, and other information is from our own data and market research that we commission. All of this information involves a variety of assumptions, limitations and methodologies and is inherently subject to uncertainties, and therefore you are cautioned not to give undue weight to it. Although we believe that those industry publications and other third-party sources are reliable, we have not independently verified the accuracy or completeness of any of the data from those publications or sources.


5


Cautionary Note Regarding Forward-Looking Statements:
Various statements in this Annual Report on Form 10-K 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 and our outsourced partners' computer systems and data centers; international risks and compliance and regulatory risks and costs associated with international operations; alleged infringement of intellectual property rights of others and our ability to protect our intellectual property; litigation and regulatory actions; damage to our reputation; our ability to attract, retain and motivate key officers and employees; tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations; a material indemnification obligation to GE under the Tax Sharing and Separation Agreement with GE (the "TSSA") if we cause the split-off from GE or certain preliminary transactions to fail to qualify for tax-free treatment or in the case of certain significant transfers of our stock following the split-off; regulation, supervision, examination and enforcement of our business by governmental authorities, the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and other legislative and regulatory developments and the impact of the Consumer Financial Protection Bureau’s (the “CFPB”) regulation of our business; impact of capital adequacy rules and liquidity requirements; restrictions that limit our ability to pay dividends and repurchase our common stock, and restrictions that limit the Bank’s ability to pay dividends to us; regulations relating to privacy, information security and data protection; use of third-party vendors and ongoing third-party business relationships; and failure to comply with anti-money laundering and anti-terrorism financing laws.
For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included in “Risk Factors Relating to Our Business” and “Risk Factors Relating to Regulation.” 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.

6


OUR BUSINESS
Our Company
____________________________________________________________________________________________
We are a premier consumer financial services company. We deliver a wide range of specialized financing programs, as well as innovative consumer banking products, across key industries including digital, retail, home, auto, travel, health and pet. We provide a range of credit products through our financing programs which we have established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which we refer to as our “partners.” Through our partners’ over 410,000 locations across the United States and Canada, and their websites and mobile applications, we offer their customers a variety of credit products to finance the purchase of goods and services. During 2019, we financed $149.4 billion of purchase volume, and at December 31, 2019, we had $87.2 billion of loan receivables and 75.5 million active accounts. Our active accounts represent a geographically diverse group of both consumers and businesses, with an average FICO score of 719 for active accounts at December 31, 2019.
Our business benefits from longstanding and collaborative relationships with our partners, including some of the nation’s leading retailers and manufacturers with well-known consumer brands, such as Lowe’s and Ashley HomeStore and also leading digital partners, such as Amazon and PayPal. We believe our partner-centric business model has been successful because it aligns our interests with those of our partners and provides substantial value to both our partners and our customers. Our partners promote our credit products because they generate increased sales and strengthen customer loyalty. Our customers benefit from instant access to credit, discounts, such as cash back rewards, and promotional offers. We seek to differentiate ourselves through deep partner integration and our extensive marketing expertise. We have omni-channel (in-store, online and mobile) technology and marketing capabilities, which allow us to offer and deliver our credit products instantly to customers across multiple channels.
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. 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. Payment Solutions is a leading provider of promotional financing for major consumer purchases, offering primarily private label credit cards and installment loans. CareCredit is a leading provider of promotional financing to consumers for health, veterinary and personal care procedures, services and products, including dental, vision, audiology and cosmetic.
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 December 31, 2019, we had $65.1 billion in deposits, which represented 77% of our total funding sources.

7


Our Sales Platforms
____________________________________________________________________________________________
We offer our credit products through three sales platforms: Retail Card, Payment Solutions and CareCredit. Set forth below is a summary of certain information relating to our Retail Card, Payment Solutions and CareCredit platforms:platformpies.jpg
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. Retail Card accounted for $13.6 billion, or 73%, of our total interest and fees on loans for the year ended December 31, 2019. Substantially all of the credit extended in this platform is on standard (i.e., non-promotional) terms.
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-brand 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.
Retail Card Partners
We have Retail Card programs with 25 national and regional retailers, which have approximately 10,000 retail locations and include department stores, specialty retailers, mass merchandisers and digital (multi-channel and online retailers). The average length of our relationship with our Retail Card partners is 21 years. Our oil and gas retail credit programs are no longer reported within our Retail Card sales platform and are now reported within our Payment Solutions sales platform.

8


rcbycategorya48.jpg rcpartnersa50.jpg
Our five largest ongoing programs are with Retail Card partners. Based upon interest and fees on loans for the year ended December 31, 2019, excluding the Walmart program, our five largest programs were: Gap, JCPenney, Lowe’s, PayPal and Sam’s Club. These programs accounted in aggregate for 47% of our total interest and fees on loans for the year ended December 31, 2019, and 48% of loan receivables at December 31, 2019. Our programs with Lowe's and PayPal each accounted for more than 10% of our total interest and fees on loans for the year ended December 31, 2019. In October 2019, we sold $8.2 billion of receivables associated with our consumer program agreement with Walmart.
The length of our relationship with each of our five largest ongoing Retail Card partners is over 15 years, and in the case of Lowe's, 40 years. The current expiration dates for these agreements range from 2022 through 2030. Within the last eighteen months, we have extended our program agreements with the majority of these key partners, including most recently our agreement announced in October 2019 to extend our program agreement with PayPal, and also to become the exclusive issuer of a Venmo co-branded consumer credit card.
New and Extended Partner Programs
During the year ended December 31, 2019, in addition to our agreement with PayPal discussed above, we announced our new partnerships with Norwegian Air, and in January 2020, with Verizon, and also extended our program agreement with Dick's Sporting Goods.
A total of 20 of our 25 ongoing Retail Card program agreements, now have an expiration date in 2022 or beyond. These 20 program agreements represented in the aggregate 98% of both our Retail Card interest and fees on loans for the year ended December 31, 2019 and of our Retail Card loan receivables at December 31, 2019 attributable to our ongoing programs.
Retail Card Program Agreements

Our Retail Card programs are governed by program agreements that are each negotiated separately with our partners. Although the terms of the agreements are partner-specific, and may be amended from time to time, under a typical program agreement, our partner agrees to support and promote the program to its customers, but we control credit criteria and issue credit cards to customers who qualify under those criteria. We own the underlying accounts and all loan receivables generated under the program from the time of origination. Other key provisions in the Retail Card program agreements include:

9


Term
Retail Card program agreements typically have contract terms ranging from approximately five to ten years. Many program agreements have renewal clauses that provide for automatic renewal for one or more years until terminated by us or our partner. We typically seek to renew the program agreements well in advance of their termination dates.
Exclusivity
The program agreements typically are exclusive for the products we offer and limit our partners’ ability to originate or promote other private label or co-branded credit cards during the term of the agreement.
Retailer Share Arrangements
Most of our Retail Card program agreements contain retailer share arrangements that provide for payments to our partner if the economic performance of the program exceeds a contractually-defined threshold. Economic performance for the purposes of these arrangements is typically measured based on agreed upon program revenues (including interest income and certain other income) less agreed upon program expenses (including interest expense, provision for loan losses, retailer payments and operating expenses). We may also provide other economic benefits to our partners such as royalties on purchase volume or payments for new accounts, in some cases instead of retailer share arrangements (for example, on our co-branded credit cards). All of these arrangements align our interests and provide an additional incentive to our partners to promote our credit products.
Other Economic Terms
In addition to the retailer share arrangements, the program agreements typically provide that the parties will develop a marketing plan to support the program, and they set the terms by which a joint marketing budget is funded, the basic terms of the rewards program linked to the use of our product (such as opportunities to receive double rewards points for purchases made on a Retail Card product), and the allocation of costs related to the rewards program.
Termination
The program agreements set forth the circumstances in which a party may terminate the agreement prior to expiration. Our program agreements generally permit us and our partner to terminate the agreement prior to its scheduled termination date for various reasons, including if the other party materially breaches its obligations. Some program agreements also permit our partner to terminate the program if we fail to meet certain service levels or change certain key cardholder terms or our credit criteria, we fail to achieve certain approval rate targets with respect to approvals of new customers, we elect not to increase the program size when the outstanding loan receivables under the program reach certain thresholds, we are not adequately capitalized, certain force majeure events occur or certain changes in our ownership occur. Certain program agreements are also subject to early termination by a party if the other party has a material adverse change in its financial condition. Historically, these rights have not typically been triggered or exercised. Some of our program agreements provide that, upon termination or expiration, our partner may purchase or designate a third party to purchase the accounts and loan receivables generated with respect to its program at fair market value or a stated price, including all related customer data.
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 accounted for $2.8 billion, or 15%, of our total interest and fees on loans for the year ended December 31, 2019. Credit extended in this platform, other than for our oil and gas retail partners, is primarily promotional financing.

10


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 the foregone interest income associated with promotional financing. The types of promotional financing we offer include deferred interest (interest accrues during a promotional period and becomes payable if the full purchase amount is not paid off during the promotional period), no interest (no interest on a promotional purchase) and reduced interest (interest is assessed monthly at a promotional interest rate during the promotional period). As a result, during the promotional period we do not generate interest income or generate it at a lower rate, although we continue to generate fee income relating to late fees on required minimum payments.
Payment Solutions Partners
In Payment Solutions, we create customized credit programs for national and regional retailers, manufacturers, buying groups, and industry associations. In addition, we create our own industry vertical programs, which are available to local, small and medium size merchants to provide financing offers to their customers.
At December 31, 2019, our Payment Solutions partners had approximately 160,000 retail locations, including oil and gas retail locations. Payment Solutions is diversified by program, with no one Payment Solutions program accounting for more than 1.3% of our total interest and fees on loans for the year ended December 31, 2019. At December 31, 2019, the average length of our relationships with our ten largest ongoing Payment Solutions programs was 13 years.
psbycategory.jpg pspartners.jpg
_____________________
(1)
Ongoing partners. Based on interest and fees on loans for the year ended December 31, 2019.
In Payment Solutions, we generally partner with sellers of “big-ticket” products or services (generally priced from $500 to $25,000) to consumers where our financing products and industry expertise provide strong incremental value to our partners and their customers. We also promote our programs to sellers through direct marketing activities such as industry trade publications, trade shows and sales efforts by dedicated internal and external sales teams, leveraging our existing partner network or through endorsements from manufacturers, buying groups and industry associations. Our broad array of point of sale technologies and quick enrollment process allow us to quickly and cost-effectively integrate new partners.
During the year ended December 31, 2019, we expanded our Synchrony Car Care and Synchrony HOME program acceptance networks and announced our new partnerships with Grand Home Furnishings, Leisure Pro, Mor furniture for less, Samsung HVAC, Travis Industries, and Zero Motorcycles. We also extended our program agreements with BuyMax Alliance, CCA Global Partners, CFMOTO, Conn's HomePlus, Continental Tires, La-Z-Boy, P.C. Richard & Son, Penske, Polaris, Rheem, Rooms To Go, and Suzuki. In January 2020, we completed the sale of loan receivables associated with the Yamaha portfolio.
 

11


Payment Solutions Program Agreements
National and Regional Retailers and Manufacturers
The terms of our program agreements with national and regional retailers and manufacturers are typically similar to the terms of our Retail Card program agreements in that we are the exclusive program provider of financing for the national or regional retailer or manufacturer with respect to the financing products that we offer. Some program agreements, however, allow the merchant to use a second source lender after an application has been submitted to us and declined, or in the case of some of our programs, may allow the manufacturer to have several primary lenders. The terms of the program agreements generally run from three to five years and are subject to termination prior to the scheduled termination date by us or our partner for various reasons, including if the other party materially breaches its obligations. Some of these programs also permit our partner to terminate the program if we change certain key cardholder terms, exceed certain pricing thresholds, certain force majeure events occur, certain changes in our ownership occur or there is a material adverse change in our financial condition. A few of these programs also may be terminated at will by the partner on specified notice to us (e.g., several months). Many of these program agreements have renewal clauses which allow the program agreement to be renewed for successive one or more year terms until terminated by us or our partner. We typically negotiate with program participants to renew the program agreements well in advance of their termination dates.
We control credit criteria and issue credit cards or provide installment loans to customers who qualify under those credit criteria. We own the underlying accounts and all loan receivables generated under the program from the time of origination. Our Payment Solutions program agreements set forth the program’s economic terms, including the merchant discount applicable to each promotional finance offering. We typically do not pay fees to our Payment Solutions partners pursuant to any retailer share arrangements, but in some cases we pay a sign-up fee to a partner or provide volume-based rebates on the merchant discount paid by the partner.
Buying Groups and Industry Associations
The programs we have established with buying groups and industry associations, such as the Home Furnishings Association, Jewelers of America and Nationwide Marketing Group, are governed by program agreements under which we make our credit products available to their respective members or dealers, but these agreements generally do not require the members or dealers to offer our products to their customers. Under the terms of the program agreements, buying groups and industry associations generally agree to support and promote the respective programs. These arrangements may include sign-up fees and volume-based incentives paid by us to the groups and their members.
Synchrony-Branded Networks
Our Synchrony-branded networks are focused on specific industries, where we create either company-branded or company and partner-branded private label credit cards that are usable across all participating locations within the industry-specific network. For example, our Synchrony Car Care network, comprised of merchants selling automotive parts, repair services and tires, covers over 730,000 locations across the United States, and cards issued may be dual branded with Synchrony Car Care and partners such as Midas, Michelin Tires or Pep Boys. Under the terms of these networks, we establish merchant discounts applicable to each financing offer, and, in some cases, the fees we charge partners for their membership in the network. In addition, we also earn interchange fees through credit card transactions outside of the program network. The Synchrony Car Care network allows for expanded use outside of the program network at certain related merchants, such as gas stations. Similarly, the Synchrony HOME credit card is accepted at more than one million home-related retail locations nationwide, including both partner locations and retailers outside of our program network.

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Dealer Agreements
For the programs we have established with manufacturers, buying groups, industry associations, industry vertical programs and Synchrony-branded networks described above, we enter into individual agreements with the merchants and dealers that offer our credit products under these programs. These agreements generally are not exclusive and some parties who offer our financing products also offer financing from our competitors. Our agreements generally continue until terminated by either party, with termination typically available to either party at will upon 15 days’ written notice. Our dealer agreements set forth the economic terms associated with the program, including the fees charged to dealers to offer promotional financing, and in some cases, allow us to periodically change the fees we charge.
CareCredit
CareCredit is a leading provider of promotional financing to consumers for health, veterinary and personal care procedures, services and products. CareCredit accounted for $2.3 billion, or 12%, of our total interest and fees on loans for the year ended December 31, 2019. Substantially all of the credit extended in CareCredit is promotional financing.
We offer customers a CareCredit-branded private label credit card that may be used across our network of CareCredit providers and our CareCredit Dual Card offering. We generate revenue in CareCredit primarily from interest and fees on our loan receivables and from merchant discounts paid by providers to compensate us for all or part of the foregone interest income associated with promotional financing.
In March 2019, we announced our acquisition of Pets Best and entry into the pet health insurance industry as a managing general agent. This acquisition allows CareCredit to offer comprehensive financial options to consumers for veterinary care.
CareCredit Partners
The vast majority of our partners are individual and small groups of independent healthcare providers, which includes networks of healthcare practitioners that provide elective and other procedures that generally are not fully covered by insurance. The remainder are primarily national and regional healthcare providers and health-focused retailers, such as pharmacies. At December 31, 2019, we had a network of CareCredit providers and health-focused retailers that collectively have over 240,000 locations.
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During 2019, over 200,000 locations either processed a CareCredit application or made a sale on a CareCredit credit card. No one CareCredit partner accounted for more than 0.2% of our total interest and fees on loans for the year ended December 31, 2019.

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We enter into provider agreements with individual healthcare providers who become part of our CareCredit network. These provider agreements are similar to the dealer agreements that govern our relationships with the merchants and dealers offering our Payment Solutions products in that the agreements are not exclusive and typically may be terminated at will upon 15 days’ notice. Multi-year agreements are in place for larger multi-location relationships across all markets. There are typically no retailer share arrangements with partners in CareCredit.
At December 31, 2019, we had relationships with over 120 professional and other associations (including the American Dental Association and the American Veterinary Medical Association), manufacturers and buying groups, which endorse and promote our credit products to their members. Of these relationships, over 70 were paid endorsements linked to member enrollment in, and volume under, the relevant program.
We screen potential partners using a variety of criteria, including whether the potential provider specializes in one of our approved specialties, carries the appropriate licensing and certifications, and meets our underwriting criteria. We also screen potential partners for reputational issues. We work with professional and other associations, manufacturers, buying groups, industry associations and healthcare consultants to educate their constituents about the products and services we offer. We believe our ability to attract new partners is aided by our customer satisfaction rate, which our research in 2019 showed is 91%. We also approach individual healthcare service providers through direct mail, advertising, and at trade shows.
During the year ended December 31, 2019, we expanded our network through our new partnerships with Baylor Scott & White Medical Center, Kaiser Permanente, Lehigh Valley Physician's Group, Loyale, Simplee and St. Luke's University Health Network, renewed our agreements with Bosley and William Demant Holdings, and launched our new program with Lighthouse. The network also expanded by over 20,000 provider locations and grew average active cardholder accounts by 4%.

Our Customers
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Acquiring and Marketing to Retail Card & Payment Solutions Customers
In our Retail Card and Payment Solutions platforms we work directly with our partners using their distribution network, communication channels and customer interactions to market our products to their existing and potential customers. We believe our presence at partners’ points of sale (in-store, online and mobile) locations and our ability to make credit decisions instantly for a customer already predisposed to make a purchase enables us to acquire new customer accounts at a lower cost than issuers of general purpose cards.
To acquire new customers, we collaborate and deeply integrate with our partners and leverage our marketing expertise to create programs that promote our products to creditworthy customers. Frequently, our partners market the availability of credit as part of the advertising for their goods and services. Our marketing programs include marketing offers (e.g., 10% off the customer’s first purchase) and consumer communications that are delivered through a variety of channels, including in-store signage, online advertising, retailer website placement, associate communication, emails, text messages, direct mail campaigns, advertising circulars, and outside marketing via television, radio, print, and digital marketing (search engine optimization, paid search and personalization). We also employ our proprietary Quickscreen acquisition method to make targeted pre-approved credit offers at the point-of-sale. Our Quickscreen technology allows us to process customer information obtained from our partners through our risk models such that when these customers seek to make payment for goods and services at our partners' points-of-sale, we can offer them credit instantly, if appropriate. Based on our experience, due to the personalized and immediate nature of the offer, Quickscreen significantly outperforms traditional direct-to-consumer pre-approved channels, such as direct mail or email, in response rate and dollar spending.
In Payment Solutions we also market the value of cross-network benefits to our partners. For example, the Synchrony Car Care credit card offers motorists the convenience of one card to pay for comprehensive auto care at thousands of service and parts locations, as well as fuel at gas stations nationwide. In addition, we launched Synchrony HOME Network, which allows customers to finance items from home décor to mattresses to flooring at thousands of participating HOME locations nationwide.

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Acquiring and Marketing to CareCredit Customers
We market our products through our network of providers by training them on the advantages of CareCredit and by creating marketing materials for providers to use to promote the program and educate customers. Our training helps our providers learn to discuss payment options during the pre-treatment consultation phase, including the option to apply for a CareCredit credit card and the offer of promotional credit. According to a 2019 survey of our CareCredit customers, 50% indicated they would have postponed or reduced the scope of treatment if financing was not offered by their provider. Consumers can apply for our CareCredit products in the provider’s office or online via the web or mobile device.
As the market continues to evolve, we are increasingly seeing more customers from mobile and internet channels. Consumers are going online to look for information about the types of procedures or care they need, where to receive that care and how to pay for it. As such, we are promoting CareCredit directly to potential and existing customers using digital marketing. Our provider locator, on our website, allows customers to search among the more than 240,000 locations that accept the CareCredit credit card by desired geography and provider type. According to our records, our CareCredit provider locator averaged over 1.3 million searches per month during the year ended December 31, 2019. We believe our partners recognize the locator as an important source of new customer acquisition and information about their practice.
We believe going direct to consumers through digital marketing will have several benefits. Customers will have a better understanding of the types of care they can pay for, the different financing options available and where they can use CareCredit. In addition, whether they choose to apply online or in the provider’s office, once approved, they can move forward with the care they want or need to feel better.
Enterprise Customer Engagement ("ECE") / Analytics
After a customer obtains one of our products, our marketing programs encourage ongoing card usage by communicating the benefits of our products’ value propositions. Examples of such programs include: promotional financing offers, cardholder events, product and partner discounts, dollar-off certificates, account holder sales, reward points and offers, new product announcements and previews, and other specific partner value offerings. These programs are executed through our partners’ and our own (direct to consumer) distribution channels.
Our ECE and data analytics teams, help us optimize these programs through detailed test-and-learn tracking of cardholder responsiveness and subsequent behavior. This data is leveraged by applying machine learning and other analytic techniques to create tools that allow for customized marketing messages and promotional offers to cardholders. For example, if a cardholder consistently responds to a coupon sent by text message versus other channels, we will tailor future marketing messages to be delivered by text message and use such insight to identify other populations that are likely to behave in similar ways. Our Dual Card and general purpose co-branded credit card programs are further enhanced by the collection and analysis of data on customers' spend patterns at both our partners and at other retailers. The objective of these efforts is to drive incremental volume for our programs while maximizing return on investment.
Our extensive marketing activities targeted to existing customers have yielded high levels of re-use across both our Payment Solutions and CareCredit sales platforms. During the year ended December 31, 2019, 30% (excluding oil and gas retail partner programs) and 54% of purchase volume across our Payment Solutions platform and CareCredit network, respectively, resulted from repeat use at one or more retailers or providers.
Digital and mobile capabilities
We remain focused on investing in our digital and mobile capabilities, bringing to market new features, channels and experiences for our customers and enhancing our existing digital design and user experience. Our approach continues to be customer and partner-centric to reach our customers in unique ways at home, in store, online or wherever they prefer. We believe these investments are critical to driving growth in our existing programs as well as securing renewals and winning new programs such as our new co-branded consumer credit cards for Venmo and Verizon.

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In 2019, we continued to focus on our digital apply platform (“dApply”) and driving a simplified experience for our customers. We have launched capabilities that can securely pre-fill data from a variety of sources and bring the application process down to just 2 or 3 input fields while also improving the authentication of the customer. Combined with introducing more ways to start a new application, such as our new text-to-apply capability, and modernizing the user experience design of our terms display to be easier for our customers, the dApply platform continues to be critical in how we engage with our customers. In the fourth quarter of 2019, digital applications represented more than 50% of our total applications received.
We have also continued to introduce new ways for our customers to interact with their accounts. We’ve expanded our voice assistant offerings including, enabling our Store Card Skill on Amazon Alexa to now be available across all Alexa devices including those with screens. Our Amazon customers can now access and service their account using just their voice from their living room TV. We are also developing an account servicing capability on Google Home. With the continuing customer shift towards mobile, we’ve also introduced a mobile account lookup capability to give customers a secure, fast and easy way to access a digital representation of their card from their personal device that can be used at the retailer point of sale.
Digital account servicing now represents over 62% of all account servicing done by our customers and we continue to invest in capabilities to improve this experience. We’ve introduced technology to allow our customers to securely link their Synchrony account servicing credentials to an online account they may have with a retailer, allowing for a seamless single-sign-on experience that more deeply merges the shopping and account management experiences. Finally, we are also developing the digital capabilities for our commercial account platforms, enabling many new features for digital servicing, and rolling out new modern digital apply platforms for in-store and online as well.
We are also investing in opening our platform to partners via application program interfaces (APIs) in the creation of our Synchrony Developer Portal. Through exposing an increasing array of APIs for the credit life-cycle, we are creating opportunities to build new and richer experiences with our partners and in 2019 we launched multiple new experiences with partners integrating our APIs into their digital assets focused on credit applications, rewards and account servicing. This will continue to be a significant strategic focus for Synchrony.
In our online direct banking operations we launched a native application on iOS and Android and a new website focused on enhancing the customer experience.
Finally, we’ve continued to expand the reach of our virtual assistant, Sydney, across our digital platforms and mobile servicing, and deepened her knowledge and ability to respond to the questions and tasks that our customers ask.
Loyalty Programs
The credit rewards loyalty programs we manage typically provide cardholders with statement credit or cash back rewards. Other programs include rewards points, which are redeemable for a variety of products or awards, or merchandise discounts that are earned by achieving a pre-set spending level on their private label credit card, Dual Card or general purpose co-branded credit card. The merchandise discounts can be mailed to the cardholder, accessed digitally or may be immediately redeemable at the partner’s store. These loyalty programs are designed to generate incremental purchase volume per customer, while reinforcing the value of the card to the customer and strengthening customer loyalty. We continue to support and integrate into our partners’ loyalty programs to customers that utilize non-credit payment types such as cash, debit or check. These multi-tender loyalty programs allow our partners to market to an expanded customer base and allow us access to additional prospective cardholders.
Commercial Customers
In addition to our efforts to acquire consumer cardholders, we continue to increase our focus on small to mid-sized commercial customers. We offer these customers private label credit cards and Dual Cards that can be used primarily at our Retail Card partners and are similar to our consumer offerings. We are also increasing our focus on marketing our commercial pay-in-full accounts receivable product that supports a wide range of business customers.

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Our Credit Products
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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 December 31, 2019.
 
 
 
Promotional Offer
 
 
Credit Product
Standard Terms Only
 
Deferred Interest
 
Other Promotional
 
Total
Credit cards
63.1
%
 
18.8
%
 
15.2
%
 
97.1
%
Commercial credit products
1.4

 
—

 
—

 
1.4

Consumer installment loans
—

 
—

 
1.5

 
1.5

Other
—

 
—

 
—

 
—

Total
64.5
%
 
18.8
%
 
16.7
%
 
100.0
%
Credit Cards
Our credit card products are loans we extend through open-ended revolving credit card accounts. We offer the following principal types of credit cards:
Private Label Credit Cards
Private label credit cards are partner-branded credit cards (e.g., Lowe’s or Amazon) or program-branded credit cards (e.g., Synchrony Car Care or CareCredit) that are used primarily for the purchase of goods and services from the partner or within the program network. In addition, in some cases, cardholders may be permitted to access their credit card accounts for cash advances.
Credit under a private label credit card typically is extended either on standard terms only in our Retail Card sales platform, which means accounts are assessed periodic interest charges using an agreed non-promotional fixed and/or variable interest rate, or pursuant to a promotional financing offer in our Payment Solutions and CareCredit sales platforms, involving deferred interest, no interest or reduced interest during a set promotional period. Promotional periods typically range between six and 60 months, but we may agree to longer terms with the partner. In almost all cases, we receive a merchant discount from our partners to compensate us for all or part of the foregone interest income associated with promotional financing. The terms of these promotions vary by partner, but generally the longer the deferred interest, reduced interest or interest-free period, the greater the partner’s merchant discount. Some offers permit customers to pay for a purchase in equal monthly payments with no interest or at a reduced interest rate, rather than deferring or delaying interest charges. For our deferred interest products, approximately 80% of customer transactions are typically paid off before interest is assessed. In CareCredit, standard rate financing generally applies to charges under $200.
We typically do not charge interchange or other fees to our partners when a customer uses a private label credit card to purchase our partners’ goods and services through our payment system.
Most of our private label credit card business is in the United States. For some of our partners who have locations in Canada, we also support the issuance and acceptance of private label credit cards at their locations in Canada and from customers in Canada.

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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 to make purchases from other retailers wherever cards from those card networks are accepted or for cash advance transactions. We currently issue Dual Cards for use on the MasterCard and Visa networks and we have the potential capability to issue Dual Cards for use on the American Express and Discover networks.
We have been granted two U.S. patents relating to the process by which our Dual Cards function as a private label credit card when used to make purchases from our partners and function as a general purpose credit card when used on the systems of other credit card associations.
We also offer general purpose co-branded credit cards that do not function as private label credit cards, as well as, in limited circumstances, a Synchrony-branded general purpose credit card.
Credit extended under our Dual Cards and general purpose co-branded credit cards typically is extended on standard terms only. Dual Cards and general purpose co-branded credit cards are offered across all of our sales platforms. At December 31, 2019, we offered either Dual Cards or general purpose co-branded credit cards through 22 ongoing partners and our CareCredit Dual Card, of which the majority are Dual Cards. We expect to continue to increase the number of partner programs that offer Dual Cards or general purpose co-branded credit cards and seek to increase the portion of our loan receivables attributable to these products.
Charges using a Dual Card or general purpose co-branded credit card generate interchange income for us in connection with purchases made by cardholders other than in-store or online from that partner.
We currently do not issue Dual Cards or general purpose co-branded credit cards in Canada.
Terms and Conditions
As a general matter, the financial terms and conditions governing our credit card products vary by program and product type and change over time, although we seek to standardize the non-financial provisions consistently across all products. The terms and conditions of our credit card products are governed by a cardholder agreement and applicable laws and regulations.
We assign each card account a credit limit when the account is initially opened. Thereafter, we may increase or decrease individual credit limits from time to time, at our discretion, based primarily on our evaluation of the customer’s creditworthiness and ability to pay.
For the vast majority of accounts, periodic interest charges are calculated using the daily balance method, which results in daily compounding of periodic interest charges, subject to, at times, a grace period on new purchases. Cash advances are not subject to a grace period, and some credit card programs do not provide a grace period for promotional purchases. In addition to periodic interest charges, we may impose other charges and fees on credit card accounts, including, as applicable and provided in the cardholder agreement, cash advance transaction fees and late fees where a customer has not paid at least the minimum payment due by the required due date.
Typically, each customer with an outstanding debit balance on his or her credit card account must make a minimum payment each month. A customer may pay the total amount due at any time without penalty. We also may enter into arrangements with delinquent customers to extend or otherwise change payment schedules and to waive interest charges and/or fees.
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.

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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. The terms of our installment loans are governed by customer agreements and applicable laws and regulations.
Installment loans are assessed periodic finance charges using fixed interest rates. In addition to periodic finance charges, we may impose other charges and fees on loan accounts, including late fees where a customer has not made the required payment by the required due date and returned payment fees.
Debt Cancellation Products
We offer a debt cancellation product to our credit card customers via online, mobile and, on a limited basis, direct mail. Customers who choose to purchase this product are charged a monthly fee based on their ending balance on each billing statement. In return, the Bank will cancel all or a portion of a customer’s credit card balance in the event of certain qualifying life events.

Direct-to-Consumer Banking
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Through the Bank, we offer our customers a range of FDIC-insured deposit products. The Bank also takes brokered deposits through third-party securities brokerage firms that offer our FDIC-insured deposit products to their customers. At December 31, 2019, we had $65.1 billion in deposits, $54.2 billion of which were direct deposits and $10.9 billion of which were brokered deposits. At December 31, 2019, deposits represented 77% of our total funding sources. During 2019, direct deposits were received from approximately 491,000 customers that had a total of approximately 1 million accounts. Retail customers accounted for substantially all of our direct deposits at December 31, 2019. The Bank had a 85% retention rate on certificates of deposit balances up for renewal for the year ended December 31, 2019. FDIC insurance is provided for our deposit products up to applicable limits.
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. Our online platform is highly scalable allowing us to expand without having to rely on a traditional “brick and mortar” branch network. During 2019 we launched a native application on iOS and Android and a new website focused on enhancing the customer experience. We expect the continued growth in our direct banking platform to come primarily from retail deposits from consumer customers.
We continue to grow our direct banking operations and believe we are well-positioned to continue to benefit from the consumer-driven shift from branch banking to direct banking. According to the 2019 American Bankers Association survey, approximately 77% of customers primarily use direct channels (internet, mail, phone and mobile) to manage their bank accounts.
Our deposit products include certificates of deposit, IRAs, money market accounts and savings accounts. We market our deposit products through multiple channels including digital and print. Customers can apply for, fund, and service their deposit accounts online or via phone. We have dedicated banking representatives within our call centers to service deposit accounts. Fiserv, Inc. ("Fiserv") provides the core banking platform for our online retail deposits including a customer-facing account opening and servicing platform.
To attract new deposits and retain existing ones, we intend to introduce new deposit products, enhancements to our existing products, and deliver new capabilities. This may include the introduction of checking accounts, overdraft protection lines of credit, bill payment and person-to-person payment features, and Synchrony-branded debit cards. Our focus on deposit-taking and related branding efforts will also enable us to offer other branded direct-banking products more efficiently in the future.

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We seek to differentiate our deposit product offerings from our competitors on the basis of brand, reputation, convenience, customer service and value. Our deposit products emphasize reliability, trust, security, convenience and attractive rates. We offer rewards to customers based on their tenure or balance amounts, including reduced fees, travel offers and concierge telephone support.
Credit Risk Management
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Credit risk management is a critical component of our management and growth strategy. Credit risk refers to the risk of loss arising from customer default when customers are unable or unwilling to meet their financial obligations to us. Our credit risk arising from credit products is generally highly diversified across approximately 135 million open accounts at December 31, 2019, without significant individual exposures. We manage credit risk primarily according to customer segments and product types.
Customer Account Acquisition
We have developed programs to promote credit with each of our partners and have developed varying credit decision guidelines for the different partners. We originate credit accounts through several different channels, including in-store, mail, internet, mobile, telephone and pre-approved solicitations. In addition, we have, and may in the future, acquire accounts that were originated by third parties in connection with establishing programs with new partners.
Regardless of the channel, in making the initial credit approval decision to open a credit card or other account or otherwise grant credit, we follow a series of credit risk and underwriting procedures. In most cases, when applications are made in-store or by internet or mobile, the process is fully automated and applicants are notified of our credit decision immediately. We generally obtain certain information provided by the applicant and obtain a credit bureau report from one of the major credit bureaus. The credit report information we obtain is electronically transmitted into industry scoring models and our proprietary scoring models developed to calculate a credit score. The credit risk management team determines in advance the qualifying credit scores and initial credit line assignments for each portfolio and product type. We periodically analyze performance trends of accounts originated at different score levels as compared to projected performance and adjust the minimum score or the opening credit limit to manage credit risk.
We also apply additional application screens based on various inputs, including credit bureau information, alternative data, our previous experience with the customer and information provided by our partner, to help identify additional factors, such as potential fraud and prior bankruptcies, before qualifying the application for approval. We compare applicants’ names against the Specially Designated Nationals list maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), as well as screens that account for adherence to USA PATRIOT Act of 2001 (the “Patriot Act”) and Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “CARD Act”) requirements, including ability to pay requirements.
We also use pre-approved account solicitations for certain programs. Potential applicants are pre-screened using information provided by our partner or obtained from outside lists, and qualified individuals receive a pre-approved credit offer by mail or email.
Acquired Portfolio Evaluation
Our risk management team evaluates each portfolio that we acquire in connection with establishing programs with new partners to ensure the portfolio satisfies our credit risk guidelines. As part of this review, we receive data on the third-party accounts and loans, which allows us to assess the portfolio on the basis of certain core characteristics, such as historical performance of the assets and distributions of credit and loss information. In addition, we benchmark potential portfolio acquisitions against our existing programs to assess relative current and projected risks. Finally, our risk management team must approve the acquisition, taking into account the results of our risk assessment process. Once assets are migrated to our systems, our account management protocols will apply immediately as described below under “—Customer Account Management,” “—Credit Authorizations of Individual Transactions” and “—Collections.”

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Customer Account Management
We regularly assess the credit risk exposure of our customer accounts. This ongoing assessment includes information relating to the customer’s performance with respect to their account with us, as well as information from credit bureaus relating to the customer’s broader credit performance. To monitor and control the quality of our loan portfolio (including the portion of the portfolio originated by third parties), we use behavioral scoring models that we have developed to score each active account on its monthly cycle date. Proprietary risk models, together with the credit scores obtained on each active account no less than quarterly, are an integral part of our credit decision-making process. Depending on the duration of the customer’s account, risk profile and other performance metrics, the account may be subject to a range of account actions, including limits on transaction authorization and increases or decreases in purchase and cash credit limits.
Credit Authorizations of Individual Transactions
Once an account has been opened, when a credit card is used to make a purchase in-store at one of our partners’ locations or online, point-of-sale terminals or online sites have an online connection with our credit authorization system, which allows for real-time updating of accounts. Each potential sales transaction is passed through a transaction authorization system, which considers a variety of behavior and risk factors to determine whether the transaction should be approved or declined, and whether a credit limit adjustment is warranted.
Fraud Investigation
We provide follow up and research with respect to different types of fraud such as fraud rings, new account fraud and transactional fraud. We have developed a proprietary fraud model to identify new account fraud and deployed tools that help identify transaction purchase behavior outside a customer’s established pattern. Our proprietary model is also complemented by externally sourced models and tools used across the industry to better identify fraud and protect our customers. We also are continuously implementing new and improved technologies to detect and prevent fraud such as utilizing embedded security chips ("EMV") for our active Dual Card and general purpose co-branded credit card products with all our retail partners.
Collections
All monthly billing statements of accounts with past due amounts include a request for payment of these amounts. Collections personnel generally initiate contact with customers within 30 days after any portion of their balance becomes past due. The nature and the timing of the initial contact, typically a personal call, e-mail, text message or letter, are determined by a review of the customer’s prior account activity and payment habits.
We re-evaluate our collection efforts and consider the implementation of other techniques, including internal collection activities, use of external vendors and the sale of debt to third-party buyers, as a customer becomes increasingly delinquent. We limit our exposure to delinquencies through controls within the transaction authorization processes, the imposition of credit limits and criteria-based account suspension and revocation processes. In certain situations, we may enter into arrangements to extend or otherwise change payment schedules, decrease interest rates and/or waive fees to aid customers experiencing financial difficulties in their efforts to become current on their obligations to us.
Customer Service
____________________________________________________________________________________________
Customer service is an important feature of our relationship with our partners. Our customers can contact us via phone, mail, email, eService and eChat. During the year ended December 31, 2019, we handled over 300 million inquiries.
We assign a dedicated toll-free customer service phone number to each of our Retail Card programs. Our Payment Solutions customers access customer service through one general purpose toll-free customer service phone number (except for a few large Payment Solutions programs, which have dedicated toll-free numbers). Our CareCredit platform has its own, dedicated toll-free customer service phone number. We also have dedicated toll-free customer service phone numbers for our deposit business.

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We service all programs through our nine domestic and three off-shore call centers. We blend domestic and off-shore locations as an important part of our servicing strategy, to maintain service availability beyond normal work hours in the United States and to seek optimal costs. Customer service for cards issued to customers in Canada is supported through agents based in the United States.
Given the nature of our business and the high volume of calls, we maintain several centers of excellence to ensure the quality of our customer service across all of our sites. Examples of these centers of excellence include back office, quality assurance, customer experience, training, workforce and capacity planning, surveillance and process control.
Production Services
____________________________________________________________________________________________
Our production services organization oversees a number of services, including:
•
payment processing (more than 700 million paper and electronic payments in 2019);
•
embossing and mailing credit cards (more than 50 million cards in 2019);
•
printing and mailing and eService delivery of credit card statements (more than 750 million paper and electronic statements in 2019); and
•
other letters mailed or sent electronically (more than 90 million in 2019).
In December 2019, our payment processing services were outsourced to a third party under a multi-year agreement. U.S. credit card statement printing and mailing, card embossing and mailing and letter production and mailing for customers are provided through outsourced services with Fiserv. While these services are outsourced, we monitor and maintain oversight of these other services. Fiserv also produces our statements and other mailings for deposit customers.
Card production embossing, mailing, statement printing and mailing services related to cards issued to customers in Canada are outsourced to Canadian suppliers.
Technology and Data Security
____________________________________________________________________________________________
Products and Services
We leverage information technology to deliver products and services that meet the needs of our customers and partners and enables us to operate our business efficiently. The integration of our technology with our partners is at the core of our value proposition, enabling, among other things, customers to “apply and buy” at the point of sale, and many of our partners to settle transactions directly with us without an interchange fee. A key part of our strategic focus is the continued development of innovative, efficient, flexible technology and operational platforms to support marketing, risk management, account acquisition and account management, customer service, and new product innovation and development. We believe that the continued investment in and development of these platforms is an important part of our efforts to increase our competitive capabilities, reduce costs, improve quality and provide faster, more flexible technology services. Therefore, we continuously review capabilities and develop or acquire systems, processes and competencies to meet our business needs.
As part of our continuous efforts to enhance our technological capabilities, we may either develop these capabilities internally or in partnership with third-party providers. Our internal approach involves deployment of cross-functional product teams, often in collaboration with our partners, focused on driving rapid delivery of in-house product innovation and development, and the commercialization of new products. In addition, at times we also partner with third-party providers to help us deliver systems and operational infrastructure based on strategies and, in some cases, architecture, designed by us. We leverage Fiserv (including their recent acquisition of First Data) for our credit card transaction processing and production and our retail banking operations.

22


Data Security
The protection and security of financial and personal information of our consumers is one of our highest priorities. We have implemented a comprehensive information security program that includes administrative, technical and physical safeguards that we believe provide an appropriate level of protection to maintain the confidentiality, integrity, and availability of our Company's and our customers' information. This includes protecting against any known or evolving threats to the security or integrity of customer records and information, and against unauthorized access to or use of customer records or information.
Our information security program is continuously adapting to an evolving landscape of emerging threats and available technology. Through data gathering and evaluation of emerging threats from internal and external incidents and technology investment, security controls are adjusted on a continuous basis. We work directly with our partners on an ongoing basis to expand our intelligence ecosystem and facilitate awareness and communications of events outside of the Company.
We have developed a security strategy and implemented multiple layers of controls embedded throughout our technology environment that establish multiple control points between threats and our assets. Our security program is designed to provide oversight of third parties who store, process or have access to sensitive data, and we require the same level of protection from such third-party service providers. We evaluate the effectiveness of the key security controls through ongoing assessment and measurement.
In addition, we identify risks that may threaten customer information and utilize both internal and external resources to perform a variety of vulnerability and penetration testing on the platforms, systems and applications used to provide our products and services. We employ backup and disaster recovery procedures for all the systems that are used for storing, processing and transferring customer information, and we periodically test and validate our disaster recovery plans. Further, we regularly utilize independent assessors to evaluate the appropriateness of our overall program. We are compliant with the Payment Card Industry (PCI) program.
Intellectual Property
____________________________________________________________________________________________
We use a variety of methods, such as trademarks, patents, copyrights and trade secrets, to protect our intellectual property, including our brand, "Synchrony." We also place appropriate restrictions on our proprietary information to control access and prevent unauthorized disclosures. Our brands are important assets, and we take steps to protect the value of these assets and our reputation.
Employees
____________________________________________________________________________________________
At December 31, 2019, we had over 16,500 full time employees. None of our employees are represented by a labor union or are covered by a collective bargaining agreement. We have not experienced any material employment-related work stoppages and consider relations with our employees to be good. We also have relationships with third-party call center providers in the United States and other countries that provide us with additional contractors for customer service, collections and other functions.
Regulation
____________________________________________________________________________________________
Our business, including our relationships with our customers, is subject to regulation, supervision and examination under U.S. federal, state and foreign laws and regulations. These laws and regulations cover all aspects of our business, including lending practices, treatment of our customers, safeguarding deposits, customer privacy and information security, capital structure, liquidity, dividends and other capital distributions, transactions with affiliates, and conduct and qualifications of personnel.
As a savings and loan holding company and financial holding company, Synchrony is subject to regulation, supervision and examination by the Federal Reserve Board. As a large provider of consumer financial services, we are also subject to regulation, supervision and examination by the CFPB.

23


The Bank is a federally chartered savings association. As such, the Bank is subject to regulation, supervision and examination by the Office of the Comptroller of the Currency of the U.S. Treasury (the “OCC”), which is its primary regulator, and by the CFPB. In addition, the Bank, as an insured depository institution, is supervised by the FDIC. For a discussion of the specific regulations related to our business see “Regulation—Regulation Relating to Our Business” of this Form 10-K Report.
Competition
____________________________________________________________________________________________
Our industry continues to be highly competitive. We compete for relationships with partners in connection with retaining existing or establishing new consumer credit programs. Our primary competitors for partners include major financial institutions such as Alliance Data Systems, American Express, Capital One, JPMorgan Chase, Citibank, TD Bank and Wells Fargo, and to a lesser extent, financial technology companies and potential partners’ own in-house financing capabilities. We compete for partners on the basis of a number of factors, including program financial and other terms, underwriting standards, marketing expertise, service levels, product and service offerings (including incentive and loyalty programs), technological capabilities and integration, brand and reputation. In addition, some of our competitors for partners have a business model that allows for their partners to manage underwriting (e.g., new account approval), customer service and collections, and other core banking responsibilities that we retain.
We also compete for customer usage of our credit products. Consumer credit provided, and credit card payments made, using our cards constitute only a small percentage of overall consumer credit provided and credit card payments in the United States. Consumers have numerous financing and payment options available to them. As a form of payment, our products compete with cash, checks, debit cards, Visa and MasterCard credit cards, as well as American Express, Discover Card, other private-label card brands, and, to a certain extent, prepaid cards. In the future, we expect our products may face increased competition from new emerging payment technologies, such as Apple Pay, Chase Pay, Samsung Pay and Square, to the extent that our products are not, or do not continue to be, accepted in, or compatible with, such technologies. We may also face increased competition from current competitors or others who introduce or embrace disruptive technology that significantly changes the consumer credit and payment industry. We compete for customers and their usage of our deposit products, and to minimize transfers to competitors of our customers’ outstanding balances, based on a number of factors, including pricing (interest rates and fees), product offerings, credit limits, incentives (including loyalty programs) and customer service. Some of our competitors provide a broader selection of services, including home and automobile loans, debit cards and bank branch ATM access, which may position them better among customers who prefer to use a single financial institution to meet all of their financial needs. In addition, some of our competitors are substantially larger than we are, may have substantially greater resources than we do or may offer a broader range of products and services than we do. Moreover, some of our competitors, including new and emerging competitors in the digital and mobile payments space, are not subject to the same regulatory requirements or legislative scrutiny to which we are subject, which also could place us at a competitive disadvantage.
In our retail deposits business, we have acquisition and servicing capabilities similar to other direct-banking competitors. We compete for deposits with traditional banks, and in seeking to grow our direct-banking business, we compete with other banks that have direct-banking models similar to ours, such as Ally Financial, American Express, Capital One 360 (ING), CIT, Discover, Marcus by Goldman Sachs, PurePoint, Sallie Mae and United Services Automobile Association (“USAA"). Competition among direct banks is intense because online banking provides customers the ability to quickly and easily deposit and withdraw funds and open and close accounts in favor of products and services offered by competitors.

24


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 consolidated financial statements and related notes included elsewhere in this report. For a discussion and analysis of our financial condition and results of operations comparing 2018 vs. 2017, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018 (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.”
 
Selected Financial Data
____________________________________________________________________________________________
Consolidated Statements of Earnings Information
 
Years Ended December 31,
($ in millions, except per share data)
2019
 
2018
 
2017
 
2016
 
2015
Interest income
$
19,090

 
$
17,988

 
$
16,407

 
$
14,778

 
$
13,228

Interest expense
2,291

 
1,870

 
1,391

 
1,248

 
1,135

Net interest income
16,799

 
16,118

 
15,016

 
13,530

 
12,093

Retailer share arrangements
(3,858
)
 
(3,099
)
 
(2,937
)
 
(2,902
)
 
(2,738
)
Provision for loan losses
4,180

 
5,545

 
5,296

 
3,986

 
2,952

Net interest income, after retailer share arrangements and provision for loan losses
8,761

 
7,474

 
6,783

 
6,642

 
6,403

Other income
371

 
265

 
288

 
344

 
392

Other expense
4,245

 
4,095

 
3,747

 
3,416

 
3,264

Earnings before provision for income taxes
4,887

 
3,644

 
3,324

 
3,570

 
3,531

Provision for income taxes
1,140

 
854

 
1,389

 
1,319

 
1,317

Net earnings
$
3,747

 
$
2,790

 
$
1,935

 
$
2,251

 
$
2,214

Net earnings available to common stockholders
$
3,747

 
$
2,790

 
$
1,935

 
$
2,251

 
$
2,214

Weighted average shares outstanding (in millions)
 
 
 
 
 
 
 
 
 
Basic
670.2

 
742.3

 
795.6

 
829.2

 
833.8

Diluted
673.5

 
746.9

 
799.7

 
831.5

 
835.5

Earnings per share
 
 
 
 
 
 
 
 
 
Basic
$
5.59

 
$
3.76

 
$
2.43

 
$
2.71

 
$
2.66

Diluted
$
5.56

 
$
3.74

 
$
2.42

 
$
2.71

 
$
2.65

Dividends declared per common share
$
0.86

 
$
0.72

 
$
0.56

 
$
0.26

 
$
—


25


Consolidated Statements of Financial Position Information
($ in millions)
At December 31,
2019
 
2018
 
2017
 
2016
 
2015
Assets:
 
 
 
 
 
 
 
 
 
Cash and equivalents
$
12,147

 
$
9,396

 
$
11,602

 
$
9,321

 
$
12,325

Debt securities
5,911

 
6,062

 
4,473

 
5,095

 
3,127

Loan receivables
87,215

 
93,139

 
81,947

 
76,337

 
68,290

Allowance for loan losses
(5,602
)
 
(6,427
)
 
(5,574
)
 
(4,344
)
 
(3,497
)
Loan receivables held for sale
725

 
—

 
—

 
—

 
—

Goodwill
1,078

 
1,024

 
991

 
949

 
949

Intangible assets, net
1,265

 
1,137

 
749

 
712

 
701

Other assets
2,087

 
2,461

 
1,620

 
2,137

 
2,095

Total assets
$
104,826

 
$
106,792

 
$
95,808

 
$
90,207

 
$
83,990

Liabilities and Equity:
 
 
 
 
 
 
 
 
 
Total deposits
$
65,154

 
$
64,019

 
$
56,488

 
$
52,055

 
$
43,367

Total borrowings
19,866

 
23,996

 
20,799

 
20,147

 
24,279

Accrued expenses and other liabilities
4,718

 
4,099

 
4,287

 
3,809

 
3,740

Total liabilities
89,738

 
92,114

 
81,574

 
76,011

 
71,386

Total equity
15,088

 
14,678

 
14,234

 
14,196

 
12,604

Total liabilities and equity
$
104,826

 
$
106,792

 
$
95,808

 
$
90,207

 
$
83,990


26


Results of Operations for the Three Years Ended December 31, 2019
____________________________________________________________________________________________
Key Earnings Metrics
niandearningsa45.jpg
nimefficiencya46.jpg
Growth Metrics
purchesvolumeloanreceivables.jpg
activeaccountsandifa03.jpg

27


Asset Quality Metrics
a30andncoa03.jpg
a90andalla02.jpg
Capital and Liquidity
capitalliquiditya05.jpg

28


Highlights for Year Ended December 31, 2019
Below are highlights of our performance for the year ended December 31, 2019 compared to the year ended December 31, 2018, as applicable, except as otherwise noted.
•
Net earnings increased 34.3% to $3.7 billion for the year ended December 31, 2019, which included the impact of reductions in reserves related to the sale of the Walmart consumer portfolio of $857 million. The increase in net earnings was also driven primarily by higher net interest income, partially offset by an increase in retailer share arrangements, and other expense.
•
Loan receivables decreased 6.4% to $87.2 billion at December 31, 2019 compared to December 31, 2018, primarily driven by the sale of loan receivables associated with the Walmart portfolio. The decrease was partially offset by growth in our remaining loan receivables of 5.2%, driven by higher purchase volume and average active account growth.
•
Net interest income increased 4.2% to $16.8 billion for the year ended December 31, 2019, primarily due to higher average loan receivables growth, partially offset by the Walmart consumer portfolio sale and increases in interest expense reflecting higher benchmark interest rates and growth.
•
Retailer share arrangements increased 24.5% to $3.9 billion for the year ended December 31, 2019, 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 32 basis points to 4.44% at December 31, 2019 from 4.76% at December 31, 2018, and net charge-off rate increased 2 basis points to 5.65% for the year ended December 31, 2019.
•
Provision for loan losses decreased by $1.4 billion, or 24.6%, for the year ended December 31, 2019, primarily driven by reductions in reserves for loan losses related to the Walmart consumer portfolio sale which was completed in October 2019. The reduction totaled $1.1 billion for the year ended December 31, 2019. Our allowance coverage ratio (allowance for loan losses as a percentage of end of period loan receivables) decreased to 6.42% at December 31, 2019, as compared to 6.90% at December 31, 2018.
•
Other expense increased by $150 million, or 3.7%, for the year ended December 31, 2019, primarily driven by the PayPal Credit acquisition in July 2018, and business growth.
•
At December 31, 2019, deposits represented 77% of our total funding sources. Total deposits increased 1.8% to $65.1 billion at December 31, 2019, compared to December 31, 2018. Growth in our direct deposits of 9.7% to $54.2 billion, was partially offset by lower brokered deposits.
•
In November 2019, we issued depositary shares representing $750 million of non-cumulative perpetual preferred stock, with dividends payable quarterly beginning in February 2020.
•
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 increased our quarterly dividend to $0.22 per common share in the third quarter of 2019. During the year ended December 31, 2019, we repurchased $3.6 billion of our outstanding common stock, and also declared and paid cash dividends of $0.86 per common share, or $581 million.
•
In March 2019, we announced our acquisition of Pets Best and entry into the pet health insurance industry as a managing general agent.

29


2019 Partner Agreements
•
In our Retail Card sales platform, we:
•
announced our new partnerships with Norwegian Air, and in January 2020, with Verizon.
•
successfully converted all PayPal Credit accounts and extended and expanded our program with PayPal and will become the exclusive issuer of a Venmo co-branded consumer credit card.
•
extended our program agreement with Dick's Sporting Goods.
•
completed our sale and conversion of $8.2 billion of loan receivables associated with our Retail Card program agreement with Walmart in October 2019.
•
In our Payment Solutions sales platform, we:
▪
expanded our Synchrony Car Care and Synchrony HOME program acceptance networks.
▪
announced our new partnerships with:
◦
Grand Home Furnishings, Leisure Pro, Mor furniture for less, Samsung HVAC, Travis Industries, and Zero Motorcycles.
•
extended our program agreements with:
◦
BuyMax Alliance, CCA Global Partners, CFMOTO, Conn's HomePlus, Continental Tires, La-Z-Boy, P.C. Richard & Son, Penske, Polaris, Rheem, Rooms to Go, and Suzuki.
▪
sold loan receivables associated with our program agreement with Yamaha in January 2020.
•
In our CareCredit sales platform, we:
▪
expanded our network through our new partnerships with:
◦
Baylor Scott & White Medical Center, Kaiser Permanente, Lehigh Valley Physician's Group, Loyale, Simplee and St. Luke's University Health Network.
▪
renewed our agreements with Bosley and William Demant and launched our new program with Lighthouse.





30


Other Financial and Statistical Data
The following table sets forth certain other financial and statistical data for the periods indicated.    
At and for the years ended December 31 ($ in millions)
2019
 
2018
 
2017
Financial Position Data (Average):
 
 
 
 
 
Loan receivables, including held for sale
$
88,649

 
$
83,304

 
$
75,702

Total assets
$
105,677

 
$
99,568

 
$
91,107

Deposits
$
65,036

 
$
59,498

 
$
53,400

Borrowings
$
21,251

 
$
21,951

 
$
20,151

Total equity
$
14,917

 
$
14,386

 
$
14,427

Selected Performance Metrics:
 
 
 
 
 
Purchase volume(1)
$
149,411

 
$
140,657

 
$
131,814

Retail Card
$
114,440

 
$
107,685

 
$
100,757

Payment Solutions
$
23,880

 
$
22,808

 
$
21,642

CareCredit
$
11,091

 
$
10,164

 
$
9,415

Average active accounts (in thousands)(2)
75,721

 
73,847

 
69,968

Net interest margin(3)
15.78
%
 
15.97
%
 
16.35
%
Net charge-offs
$
5,005

 
$
4,692

 
$
4,066

Net charge-offs as a % of average loan receivables, including held for sale
5.65
%
 
5.63
%
 
5.37
%
Allowance coverage ratio(4)
6.42
%
 
6.90
%
 
6.80
%
Return on assets(5)
3.5
%
 
2.8
%
 
2.1
%
Return on equity(6)
25.1
%
 
19.4
%
 
13.4
%
Equity to assets(7)
14.12
%
 
14.45
%
 
15.84
%
Other expense as a % of average loan receivables, including held for sale
4.79
%
 
4.92
%
 
4.95
%
Efficiency ratio(8)
31.9
%
 
30.8
%
 
30.3
%
Effective income tax rate
23.3
%
 
23.4
%
 
41.8
%
Selected Period End Data:
 
 
 
 
 
Loan receivables
$
87,215

 
$
93,139

 
$
81,947

Allowance for loan losses
$
5,602

 
$
6,427

 
$
5,574

30+ days past due as a % of period-end loan receivables(9)
4.44
%
 
4.76
%
 
4.67
%
90+ days past due as a % of period-end loan receivables(9)
2.15
%
 
2.29
%
 
2.28
%
Total active accounts (in thousands)(2)
75,471

 
80,339

 
74,541

__________________
(1)
Purchase volume, or net credit sales, represents the aggregate amount of charges incurred on credit cards or other credit product accounts less returns during the period. Purchase volume includes activity related to our portfolios classified as held for sale.
(2)
Active accounts represent credit card or installment loan accounts on which there has been a purchase, payment or outstanding balance in the current month.
(3)
Net interest margin represents net interest income divided by average interest-earning assets.
(4)
Allowance coverage ratio represents allowance for loan losses divided by total period-end loan receivables.
(5)
Return on assets represents net earnings as a percentage of average total assets.
(6)
Return on equity represents net earnings as a percentage of average total equity.
(7)
Equity to assets represents average equity as a percentage of average total assets.
(8)
Efficiency ratio represents (i) other expense, divided by (ii) sum of net interest income, plus other income, less retailer share arrangements.
(9)
Based on customer statement-end balances extrapolated to the respective period-end date.



31


Average Balance Sheet
The following table sets 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
2017
Years ended December 31  ($ in millions)
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield /
Rate(1)
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield /
Rate(1)
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield /
Rate(1)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning cash and equivalents(2)
$
12,320

 
$
258

 
2.09
%
 
$
11,059

 
$
207

 
1.87
%
 
$
11,707

 
$
129

 
1.10
%
Securities available for sale
5,464

 
127

 
2.32
%
 
6,566

 
137

 
2.09
%
 
4,449

 
59

 
1.33
%
Loan receivables, including held for sale(3):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit cards
85,334

 
18,384

 
21.54
%
 
80,219

 
17,342

 
21.62
%
 
72,795

 
15,941

 
21.90
%
Consumer installment loans
1,963

 
182

 
9.27
%
 
1,698

 
156

 
9.19
%
 
1,491

 
137

 
9.19
%
Commercial credit products
1,306

 
137

 
10.49
%
 
1,333

 
144

 
10.80
%
 
1,366

 
139

 
10.18
%
Other
46

 
2

 
4.35
%
 
54

 
2

 
3.70
%
 
50

 
2

 
4.00
%
Total loan receivables, including held for sale
88,649

 
18,705

 
21.10
%
 
83,304

 
17,644

 
21.18
%
 
75,702

 
16,219

 
21.42
%
Total interest-earning assets
106,433

 
19,090

 
17.94
%
 
100,929

 
17,988

 
17.82
%
 
91,858

 
16,407

 
17.86
%
Non-interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
1,327

 
 
 
 
 
1,224

 
 
 
 
 
887

 
 
 
 
Allowance for loan losses
(5,902
)
 
 
 
 
 
(5,900
)
 
 
 
 
 
(4,942
)
 
 
 
 
Other assets
3,819

 
 
 
 
 
3,315

 
 
 
 
 
3,304

 
 
 
 
Total non-interest-earning assets
(756
)
 
 
 
 
 
(1,361
)
 
 
 
 
 
(751
)
 
 
 
 
Total assets
$
105,677

 
 
 
 
 
$
99,568

 
 
 
 
 
$
91,107

 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposit accounts
$
64,756

 
$
1,566

 
2.42
%
 
$
59,216

 
$
1,186

 
2.00
%
 
$
53,173

 
$
848

 
1.59
%
Borrowings of consolidated securitization entities
11,941

 
358

 
3.00
%
 
12,694

 
344

 
2.71
%
 
12,179

 
263

 
2.16
%
Senior unsecured notes
9,310

 
367

 
3.94
%
 
9,257

 
340

 
3.67
%
 
7,972

 
280

 
3.51
%
Total interest-bearing liabilities
86,007

 
2,291

 
2.66
%
 
81,167

 
1,870

 
2.30
%
 
73,324

 
1,391

 
1.90
%
Non-interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing deposit accounts
280

 
 
 
 
 
282

 
 
 
 
 
227

 
 
 
 
Other liabilities
4,473

 
 
 
 
 
3,733

 
 
 
 
 
3,129

 
 
 
 
Total non-interest-bearing liabilities
4,753

 
 
 
 
 
4,015

 
 
 
 
 
3,356

 
 
 
 
Total liabilities
90,760

 
 
 
 
 
85,182

 
 
 
 
 
76,680

 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total equity
14,917

 
 
 
 
 
14,386

 
 
 
 
 
14,427

 
 
 
 
Total liabilities and equity
$
105,677

 
 
 
 
 
$
99,568

 
 
 

 
$
91,107

 
 
 
 
Interest rate spread(4)
 
 
 
 
15.28
%
 
 
 
 
 
15.52
%
 
 
 
 
 
15.96
%
Net interest income
 
 
$
16,799

 
 
 
 
 
$
16,118

 
 
 
 
 
$
15,016

 
 
Net interest margin(5)
 
 
 
 
15.78
%
 
 
 
 
 
15.97
%
 
 
 
 
 
16.35
%
____________________
(1)
Average yields/rates are based on total interest income/expense over average balances.
(2)
Includes average restricted cash balances of $754 million, $512 million and $642 million for the years ended December 31, 2019, 2018 and 2017, respectively.

32


(3)
Interest income on loan receivables includes fees on loans of $2,773 million, $2,723 million and $2,609 million for the years ended December 31, 2019, 2018 and 2017, 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.
The following table sets forth the amount of changes in interest income and interest expense due to changes in average volume and average yield/rate. Variances due to changes in both average volume and average yield/rate have been allocated between the average volume and average yield/rate variances on a consistent basis based upon the respective percentage changes in average volume and average yield/rate.
 
2019 vs. 2018
 
2018 vs. 2017
 
Increase (decrease) due to change in:
 
Increase (decrease) due to change in:
($ in millions)
Average Volume
 
Average Yield / Rate
 
Net Change
 
Average Volume
 
Average Yield / Rate
 
Net Change
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning cash and equivalents
$
25

 
$
26

 
$
51

 
$
(7
)
 
$
85

 
$
78

Securities available for sale
(24
)
 
14

 
(10
)
 
35

 
43

 
78

Loan receivables, including held for sale:
 
 
 
 
 
 
 
 
 
 
 
Credit cards
1,106

 
(64
)
 
1,042

 
1,607

 
(206
)
 
1,401

Consumer installment loans
25

 
1

 
26

 
19

 
—

 
19

Commercial credit products
(3
)
 
(4
)
 
(7
)
 
(3
)
 
8

 
5

Other
—

 
—

 
—

 
—

 
—

 
—

Total loan receivables, including held for sale
1,128

 
(67
)
 
1,061

 
1,623

 
(198
)
 
1,425

Change in interest income from total interest-earning assets
$
1,129

 
$
(27
)
 
$
1,102

 
$
1,651

 
$
(70
)
 
$
1,581

 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposit accounts
$
117

 
$
263

 
$
380

 
$
103

 
$
235

 
$
338

Borrowings of consolidated securitization entities
(21
)
 
35

 
14

 
11

 
70

 
81

Senior unsecured notes
2

 
25

 
27

 
47

 
13

 
60

Change in interest expense from total interest-bearing liabilities
98

 
323

 
421

 
161

 
318

 
479

Total change in net interest income
$
1,031

 
$
(350
)
 
$
681

 
$
1,490

 
$
(388
)
 
$
1,102

 
 
 
 
 
 
 
 
 
 
 
 


33


Business Trends and Conditions
We believe our business and results of operations will be impacted in the future by various trends and conditions, including the following:
•
Growth in loan receivables and interest income. We believe continuing stability in the U.S. economy and employment rates will contribute to an increase in consumer credit spending. In addition, we expect the use of credit cards to continue to increase versus other forms of payment such as cash and checks. We anticipate that these trends, combined with our marketing and partner engagement strategies, will contribute to growth in our loan receivables. In the near-to-medium term, we expect our total interest income to continue to grow, driven by the expected growth in average loan receivables. Our historical growth rates in loan receivables and interest income have benefited from new partner acquisitions, and therefore, if we do not continue to acquire new partners, replace the programs that are not extended or otherwise grow our business, our growth rates in loan receivables and interest income in the future will be lower than in recent periods. In October 2019, we completed the sale of the Walmart consumer portfolio. Due to the timing of our prior reclassification of these loan receivables as loan receivables held for sale on our Consolidated Statement of Financial Position in the first quarter of 2019, the sale will not impact our loan receivable growth in 2020. However, we do expect the sale to result in reductions in both our interest income and the yields generated from our loan receivables. For our ongoing programs, we do not expect to make any significant changes to customer pricing or merchant discount pricing in the near term other than those associated with changes in the prime rate and London Interbank Offered Rate (“LIBOR”), and therefore we expect yields generated from interest and fees on loan receivables will remain relatively stable.
•
Adoption of ASU 2016-13 Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“CECL”). We have adopted the new accounting standard for credit losses effective January 1, 2020. This new guidance replaces the existing incurred loss impairment guidance with a new impairment model known as the Current Expected Credit Loss (“CECL”) model, which is based on expected credit losses. While we continue to finalize our estimate and assumptions, we estimate the adoption will result in an increase of approximately $3.0 billion, or 54%, to the Company’s allowance for loan losses. This will also result in a corresponding significant increase to our allowance coverage ratio. As required under the new guidance, upon adoption in the first quarter of 2020, we will record a net decrease to retained earnings in our Consolidated Statement of Financial Position of approximately $2.3 billion. Such decrease will also result in a reduction in the Company’s Common Equity Tier 1 capital ratio of approximately 60 basis points per year, during the phase-in period permitted by the federal banking agencies, which runs through 2023. Following adoption of the new CECL guidance, upon origination of a loan, the estimate of expected credit losses, and any subsequent changes to our estimates of total expected losses for our loan receivables, will be recorded through provision for loan losses in our Consolidated Statement of Earnings.
•
Asset quality. In 2019, net charge-off rates were relatively flat compared to 2018, increasing slightly by 2 basis points to 5.65% for the year ended December 31, 2019, reflecting stable U.S. unemployment rates and consumer confidence. Delinquency metrics improved at December 31, 2019 compared to the same period in the prior year, primarily driven by the effects of the sale of the Walmart consumer portfolio. The assessment of our credit profile includes the evaluation of portfolio mix, account maturation, as well as broader consumer trends, such as payment behavior and overall indebtedness. We expect our net charge-off rate for the year ended December 31, 2020 to decrease slightly from 2019, primarily due to the effects of the Walmart consumer portfolio sale. We expect credit trends in the near term for our ongoing portfolio to be relatively stable. However, we do expect Provision for Loan Losses in our Consolidated Statement of Financial Position to increase in 2020 due to two significant factors that do not impact the asset quality of our ongoing programs. The increase will be driven by the comparability to the reductions in reserves experienced in 2019 related to the Walmart portfolio and also from the effects of the new CECL guidance discussed above.

34


•
Retailer share arrangement payments under our program agreements. We believe that the payments we make to our partners under our retailer share arrangements, for our on-going programs, in the aggregate, are likely to increase in absolute terms compared to the year ended December 31, 2019, primarily as a result of both the overall growth, mix and the performance of our programs. This increase is expected to be largely offset by the impact of the sale of the Walmart consumer portfolio. See Management’s Discussion and Analysis—Retailer Share Arrangements for additional information on these agreements.
•
Extended duration of our Retail Card program agreements. Our Retail Card program agreements typically have contract terms ranging from approximately five to ten years, and the average length of our relationship with our Retail Card partners is 21 years. We expect to continue to benefit from these programs on a long-term basis.
A total of 20 of our 25 ongoing Retail Card program agreements have an expiration date in 2022 or beyond. These 20 program agreements represented in the aggregate 98% of both our Retail Card interest and fees on loans for the year ended December 31, 2019 and of our Retail Card loan receivables at December 31, 2019 attributable to our ongoing programs.
•
Growth in interchange revenues and loyalty program costs. We believe that as a result of the overall growth in Dual Card and general purpose co-branded credit card transactions occurring outside of our Retail Card partners’ locations, interchange revenues will continue to increase in excess of the growth of our Retail Card loan receivables. The expected growth in these transactions is driven, in part, by both existing and new loyalty programs with our Retail Card partners. In addition, we continue to offer and add new loyalty programs for our private label credit cards, for which we typically do not receive interchange fees. The growth in these existing and new loyalty programs will result in an increase in costs associated with these programs. Overall, we expect our loyalty program costs to continue to be largely offset by our interchange revenues. These changes have been contemplated in our program agreements with our Retail Card partners and are a component of the calculation of our payments due under our retailer share arrangements.
•
Capital and liquidity levels. We continue to expect to maintain sufficient capital and liquidity resources to support our daily operations, our business growth, and our credit ratings as well as regulatory and compliance requirements in a cost effective and prudent manner through expected and unexpected market environments. During the year ended December 31, 2019, we declared and paid dividends of