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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q 

☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
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
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer
☒
Accelerated filer
☐
 
 
 
 
Non-accelerated filer
☐
Smaller reporting company
☐
 
 
 
 
 
 
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of April 16, 2020 was 583,707,826.



Synchrony Financial
PART I - FINANCIAL INFORMATION
Page
 
 
Item 1. Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
 


3


Certain Defined Terms
Except as the context may otherwise require in this report, references to:
•
“we,” “us,” “our” and the “Company” are to SYNCHRONY FINANCIAL and its subsidiaries;
•
“Synchrony” are to SYNCHRONY FINANCIAL only;
•
the “Bank” are to Synchrony Bank (a subsidiary of Synchrony);
•
the “Board of Directors” or “Board” are to Synchrony's board of directors;
•
“GE” are to General Electric Company and its subsidiaries; and
•
“FICO” are to a credit score developed by Fair Isaac & Co., which is widely used as a means of evaluating the likelihood that credit users will pay their obligations.
We provide a range of credit products through programs we have established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which, in our business and in this report, we refer to as our “partners.” The terms of the programs all require cooperative efforts between us and our partners of varying natures and degrees to establish and operate the programs. Our use of the term “partners” to refer to these entities is not intended to, and does not, describe our legal relationship with them, imply that a legal partnership or other relationship exists between the parties or create any legal partnership or other relationship. The “average length of our relationship” with respect to a specified group of partners or programs is measured on a weighted average basis by interest and fees on loans for the year ended December 31, 2019 for those partners or for all partners participating in a program, based on the date each partner relationship or program, as applicable, started.
Unless otherwise indicated, references to “loan receivables” do not include loan receivables held for sale.
For a description of certain other terms we use, including “active account” and “purchase volume,” see the notes to “Management’s Discussion and Analysis—Results of Operations—Other Financial and Statistical Data” in our Annual Report on Form 10-K for the year ended December 31, 2019 (our “2019 Form 10-K”). There is no standard industry definition for many of these terms, and other companies may define them differently than we do.

“Synchrony” and its logos and other trademarks referred to in this report, including CareCredit®, Quickscreen®, Dual Card™, Synchrony Car Care™ and SyPI™, belong to us. Solely for convenience, we refer to our trademarks in this report without the ™ and ® symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks. Other service marks, trademarks and trade names referred to in this report are the property of their respective owners.
On our website at www.synchronyfinancial.com, we make available under the "Investors-SEC Filings" menu selection, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such reports or amendments are electronically filed with, or furnished to, the SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information that we file electronically with the SEC.

4


Cautionary Note Regarding Forward-Looking Statements:
Various statements in this Quarterly Report on Form 10-Q may contain “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “seeks,” “targets,” “outlook,” “estimates,” “will,” “should,” “may” or words of similar meaning, but these words are not the exclusive means of identifying forward-looking statements.
Forward-looking statements are based on management’s current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include global political, economic, business, competitive, market, regulatory and other factors and risks, such as: the impact of macroeconomic conditions and whether industry trends we have identified develop as anticipated, including the future impacts of the novel coronavirus disease (“COVID-19”) outbreak and measures taken in response thereto for which future developments are highly uncertain and difficult to predict; retaining existing partners and attracting new partners, concentration of our revenue in a small number of Retail Card partners, and promotion and support of our products by our partners; cyber-attacks or other security breaches; disruptions in the operations of our computer systems and data centers; the financial performance of our partners; the sufficiency of our allowance for credit losses and the accuracy of the assumptions or estimates used in preparing our financial statements, including those related to the new CECL accounting guidance; higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings; our ability to grow our deposits in the future; damage to our reputation; our ability to securitize our 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,; 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; 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; our ability to attract, retain and motivate key officers and employees; tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations; a material indemnification obligation to GE under the Tax Sharing and Separation Agreement with GE if we cause the split-off from GE or certain preliminary transactions to fail to qualify for tax-free treatment or in the case of certain significant transfers of our stock following the split-off; regulation, supervision, examination and enforcement of our business by governmental authorities, the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and other legislative and regulatory developments and the impact of the Consumer Financial Protection Bureau's (the “CFPB”) regulation of our business; impact of capital adequacy rules and liquidity requirements; restrictions that limit our ability to pay dividends and repurchase our common stock, and restrictions that limit the Bank’s ability to pay dividends to us; regulations relating to privacy, information security and data protection; use of third-party vendors and ongoing third-party business relationships; and failure to comply with anti-money laundering and anti-terrorism financing laws.
For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this report and in our public filings, including under the heading “Risk Factors Relating to Our Business” and “Risk Factors Relating to Regulation” in our 2019 Form 10-K. You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties, or potentially inaccurate assumptions that could cause our current expectations or beliefs to change. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.

5


PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report and in our 2019 Form 10-K. The discussion below contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. See “Cautionary Note Regarding Forward-Looking Statements.”
Introduction and Business Overview
____________________________________________________________________________________________
We are a premier consumer financial services company delivering 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.” For the three months ended March 31, 2020, we financed $32.0 billion of purchase volume and had 72.1 million average active accounts, and at March 31, 2020, we had $82.5 billion of loan receivables.
We offer our credit products primarily through our wholly-owned subsidiary, the Bank. In addition, through the Bank, we offer, directly to retail and commercial customers, a range of deposit products insured by the Federal Deposit Insurance Corporation (“FDIC”), including certificates of deposit, individual retirement accounts (“IRAs”), money market accounts and savings accounts. We also take deposits at the Bank through third-party securities brokerage firms that offer our FDIC-insured deposit products to their customers. We have significantly expanded our online direct banking operations in recent years and our deposit base serves as a source of stable and diversified low cost funding for our credit activities. At March 31, 2020, we had $64.6 billion in deposits, which represented 79% of our total funding sources.
Our Sales Platforms
_________________________________________________________________
We conduct our operations through a single business segment. Profitability and expenses, including funding costs, credit 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.

6


platformpiesa70.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. We offer one or more of these products primarily through 26 national and regional retailers with which we have ongoing program agreements. The average length of our relationship with these Retail Card partners is 22 years. Retail Card’s revenue primarily consists of interest and fees on our loan receivables. Other income primarily consists of interchange fees earned when our Dual Card or general purpose co-branded credit cards are used outside of our partners' sales channels and fees paid to us by customers who purchase our debt cancellation products, less loyalty program payments. In addition, the majority of our retailer share arrangements, which provide for payments to our partner if the economic performance of the program exceeds a contractually-defined threshold, are with partners in the Retail Card sales platform. Substantially all of the credit extended in this platform is on standard terms.
Payment Solutions
Payment Solutions is a leading provider of promotional financing for major consumer purchases, offering consumer choice for financing at the point of sale, including primarily private label credit cards, Dual Cards and installment loans. Payment Solutions offers these products through participating partners consisting of national and regional retailers, manufacturers, buying groups and industry associations. Credit extended in this platform, other than for our oil and gas retail partners, is primarily promotional financing. Payment Solutions’ revenue primarily consists of interest and fees on our loan receivables, including “merchant discounts,” which are fees paid to us by our partners in almost all cases to compensate us for all or part of foregone interest income associated with promotional financing.
CareCredit
CareCredit is a leading provider of promotional financing to consumers for health, veterinary and personal care procedures, services and products. We have a network of CareCredit providers and health-focused retailers, the vast majority of which are individual or small groups of independent healthcare providers, through which we offer a CareCredit branded private label credit card and our CareCredit Dual Card offering. Substantially all of the credit extended in this platform is promotional financing. CareCredit’s revenue primarily consists of interest and fees on our loan receivables, including merchant discounts.

7


Our Credit Products
____________________________________________________________________________________________
Through our platforms, we offer three principal types of credit products: credit cards, commercial credit products and consumer installment loans. We also offer a debt cancellation product.
The following table sets forth each credit product by type and indicates the percentage of our total loan receivables that are under standard terms only or pursuant to a promotional financing offer at March 31, 2020.
 
 
 
Promotional Offer
 
 
Credit Product
Standard Terms Only
 
Deferred Interest
 
Other Promotional
 
Total
Credit cards
62.8
%
 
18.4
%
 
15.5
%
 
96.7
%
Commercial credit products
1.5

 
—

 
—

 
1.5

Consumer installment loans
—

 
—

 
1.7

 
1.7

Other
0.1

 
—

 
—

 
0.1

Total
64.4
%
 
18.4
%
 
17.2
%
 
100.0
%
Credit Cards
We typically offer the following principal types of credit cards:
•
Private Label Credit Cards. Private label credit cards are partner-branded credit cards (e.g., Lowe’s or Amazon) or program-branded credit cards (e.g., Synchrony Car Care or CareCredit) that are used primarily for the purchase of goods and services from the partner or within the program network. In addition, in some cases, cardholders may be permitted to access their credit card accounts for cash advances. In Retail Card, credit under our private label credit cards typically is extended on standard terms only, and in Payment Solutions and CareCredit, credit under our private label credit cards typically is extended pursuant to a promotional financing offer.
•
Dual Cards and General Purpose Co-Brand Cards. Our patented Dual Cards are credit cards that function as private label credit cards when used to purchase goods and services from our partners, and as general purpose credit cards when used to make purchases from other retailers whenever cards from those card networks are accepted or for cash advance transactions. We also offer general purpose co-branded credit cards that do not function as private label cards, 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. We offer either Dual Cards or general purpose co-branded credit cards across all of our sales platforms, spanning 22 ongoing credit partners and our CareCredit Dual Card, of which the majority are Dual Cards. Consumer Dual Cards and Co-Branded cards accounted for 24% of our total loan receivables portfolio at March 31, 2020.
Commercial Credit Products
We offer private label cards and Dual Cards for commercial customers that are similar to our consumer offerings. We also offer a commercial pay-in-full accounts receivable product to a wide range of business customers. We offer our commercial credit products primarily through our Retail Card platform to the commercial customers of our Retail Card partners.
Installment Loans
In Payment Solutions, we originate installment loans to consumers (and a limited number of commercial customers) in the United States, primarily in the power products market (motorcycles, ATVs and lawn and garden). Installment loans are closed-end credit accounts where the customer pays down the outstanding balance in installments. Installment loans are assessed periodic finance charges using fixed interest rates.

8


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.
•
Adoption of ASU 2016-13 Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“CECL”).
•
Asset quality.
•
Retailer share arrangement payments under our program agreements.
•
Extended duration of our Retail Card program agreements.
•
Growth in interchange revenues and loyalty program costs.
•
Capital and liquidity levels.
For a further discussion of the above trends and conditions, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Business Trends and Conditions” in our 2019 Form 10-K.
COVID-19
The outbreak of the global pandemic of COVID-19 and resultant economic effects of preventative measures taken across the United States and worldwide during the three months ended March 31, 2020 have resulted in significant and numerous changes to the previously disclosed trends and conditions referred to above. As of the date of filing of this report, the duration and magnitude of the effects of COVID-19 are unknown, and as such the expectations and guidance for 2020 provided during the Company’s earnings conference call on January 24, 2020 can no longer be relied upon. While the magnitude of the impact from COVID-19 is uncertain and difficult to predict, we anticipate the following key trends will be affected:
•
Growth in loan receivables and interest income. During the last two weeks of the first quarter of 2020, we experienced declines in purchase volume of approximately 26% compared to the prior year. We expect purchase volume to continue to decline as the current environment and preventative measures, such as closures of non-essential businesses and travel restrictions, remain in effect. This decline in purchase volume will ultimately reduce the growth of our loan receivables in 2020. In addition, we have experienced a reduction in benchmark interest rates and we also expect to provide, for a temporary period of time, forbearance in terms of waivers of interest, fees and minimum payments for our cardholders that are impacted by COVID-19. We expect these decreases will be partially offset by a higher number of cardholders that will maintain a revolving account balance. We expect these factors will result in a reduction in the growth of our interest income in 2020. As noted above, the extent of the impacts from these conditions is currently uncertain and dependent on various factors, including the nature of and duration for which the preventative measures remain in place and the type of stimulus measures and other policy responses that the U.S. government may adopt.

9


•
Adoption of ASU 2016-13 Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (“CECL”). In response to the COVID-19 pandemic, in March 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law, and includes a provision that permits financial institutions to defer temporarily the use of CECL. However, in a related action, the joint federal bank regulatory agencies issued an interim final rule that allows banking organizations to mitigate the effects of the CECL accounting standard in their regulatory capital. Banking organizations that are required under U.S. accounting standards to adopt CECL this year can elect to mitigate the estimated cumulative regulatory capital effects of CECL for up to two years. This two-year delay is in addition to the three-year transition period that the agencies had already made available. The Company has elected to adopt the option provided by the interim final rule, which will largely delay the effects of CECL on its regulatory capital for the next two years, after which the effects will be phased-in over a three-year period from January 1, 2022 through December 31, 2024. Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period includes both the initial impact of our adoption of CECL at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during each quarter of the two-year period ended December 31, 2021.
•
Asset quality. Prior to COVID-19, we had experienced slightly improving asset quality trends that reflected stable U.S. unemployment rates and consumer confidence. We anticipate that the recent increases in filings for unemployment benefits in the U.S., while partially mitigated by the effects of governmental actions such as the CARES Act, will now result in an increase in the Company’s delinquencies and net charge-off rate in 2020, as compared to the prior year. Similarly, we have experienced an increase to our allowance for credit losses and provision for credit losses during the three months ended March 31, 2020 attributable to the impact of COVID-19. To the extent the current environment continues beyond our expectations or deteriorates further, we may experience further increases to our allowance for credit losses and provision for credit losses related to COVID-19.
•
Retailer share arrangement payments under our program agreements. To the extent we experience the reductions in interest income and increases in expected net charge-offs related to COVID-19 discussed above, we expect that the growth in absolute terms of our payments to our partners under our retailer share arrangements, compared to the prior year, will decrease.
For a further discussion of the risks and uncertainties relating to COVID-19 for our results of operations and business condition, see Item 1A. Risk Factors. For a discussion of how certain trends and conditions impacted the three months ended March 31, 2020, see “—Results of Operations.”

10


Seasonality
____________________________________________________________________________________________
In our Retail Card and Payment Solutions platforms, we experience fluctuations in transaction volumes and the level of loan receivables as a result of higher seasonal consumer spending and payment patterns that typically result in an increase of loan receivables from August through a peak in late December, with reductions in loan receivables occurring over the first and second quarters of the following year as customers pay their balances down.
The seasonal impact to transaction volumes and the loan receivables balance typically results in fluctuations in our results of operations, delinquency metrics and the allowance for credit losses as a percentage of total loan receivables between quarterly periods.
In addition to the seasonal variance in loan receivables discussed above, we also experience a seasonal increase in delinquency rates and delinquent loan receivables balances during the third and fourth quarters of each year due to lower customer payment rates resulting in higher net charge-off rates in the first and second quarters. Our delinquency rates and delinquent loan receivables balances typically decrease during the subsequent first and second quarters as customers begin to pay down their loan balances and return to current status resulting in lower net charge-off rates in the third and fourth quarters. Because customers who were delinquent during the fourth quarter of a calendar year have a higher probability of returning to current status when compared to customers who are delinquent at the end of each of our interim reporting periods, we expect that a higher proportion of delinquent accounts outstanding at an interim period end will result in charge-offs, as compared to delinquent accounts outstanding at a year end. Consistent with this historical experience, we generally experience a higher allowance for credit losses as a percentage of total loan receivables at the end of an interim period, as compared to the end of a calendar year. In addition, despite improving credit metrics such as declining past due amounts, we may experience an increase in our allowance for credit losses at an interim period end compared to the prior year end, reflecting these same seasonal trends.
The seasonal trends discussed above are most evident between the fourth quarter and the first quarter of the following year. While other factors such as the implementation of CECL and initial impacts from COVID-19 have occurred in the three months ended March 31, 2020, we have still also experienced our usual seasonal trends. Loan receivables at March 31, 2020 decreased compared to December 31, 2019, primarily due to the effects of customers paying down their balances and past due balances declined to $3.5 billion at March 31, 2020 from $3.9 billion at December 31, 2019, primarily due to collections from customers that were previously delinquent. Despite these trends in our receivables and past due balances declining, our allowance for credit losses as a percentage of total loan receivables increased in excess of the amounts attributable to the implementation of CECL and initial impacts from COVID-19, reflecting the effects of the seasonality of our business.

11


Results of Operations
____________________________________________________________________________________________
Highlights for the Three Months Ended March 31, 2020
Below are highlights of our performance for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, as applicable, except as otherwise noted.
•
Net earnings decreased 74.2% to $286 million for the three months ended March 31, 2020, primarily driven by higher provision for credit losses as well as lower net interest income, partially offset by a decrease in other expense. These changes were primarily due to the effects from the sale of the Walmart consumer portfolio in 2019, including the increase in provision for credit losses driven by the prior year reduction in reserves for credit losses of $522 million related to Walmart.
•
We adopted the new CECL accounting guidance in January 2020 and recorded an increase to our allowance for loan losses of $3.0 billion. In addition, the increase in provision for credit losses for the three months ended March 31, 2020 included $101 million, or $76 million after-tax, attributable to applying the new CECL guidance as compared to the prior accounting guidance.
•
Loan receivables increased 2.6% to $82,469 million at March 31, 2020 compared to March 31, 2019, primarily driven by higher purchase volume and average active account growth for our ongoing partner programs, partially offset by the sale of loan receivables associated with the Yamaha portfolio.
•
Net interest income decreased 8.0% to $3,890 million for the three months ended March 31, 2020, primarily due to a decrease in interest and fees on loans due to the Walmart consumer portfolio sale, partially offset by a decrease in interest expense reflecting lower benchmark interest rates.
•
Retailer share arrangements decreased 2.9% to $926 million for the three months ended March 31, 2020, mainly driven by the higher credit loss reserve build.
•
Over-30 day loan delinquencies as a percentage of period-end loan receivables decreased 68 basis points to 4.24% at March 31, 2020, and the net charge-off rate decreased 70 basis points to 5.36% for the three months ended March 31, 2020.
•
Provision for credit losses increased by $818 million, or 95.2%, for the three months ended March 31, 2020, primarily driven by the prior year reduction in reserves for credit losses of $522 million related to the Walmart consumer portfolio sale and a higher reserve build in the current year period reflecting both the projected impacts of COVID-19 and the increase attributable to CECL. Our allowance coverage ratio (allowance for credit losses as a percent of end of period loan receivables) increased to 11.13% at March 31, 2020, as compared to 7.39% at March 31, 2019, primarily due to the impact of the CECL implementation.
•
Other expense decreased by $41 million, or 3.9%, for the three months ended March 31, 2020 driven primarily by the cost reductions related to the sale of the Walmart consumer portfolio.
•
At March 31, 2020, deposits represented 79% of our total funding sources. Total deposits decreased slightly by 0.8% to $64.6 billion at March 31, 2020, compared to December 31, 2019.
•
During the three months ended March 31, 2020, we declared and paid cash dividends on our Series A 5.625% non-cumulative preferred stock of $14.22 per share, or $11 million.
•
During the three months ended March 31, 2020, we repurchased $1.0 billion of our outstanding common stock, and declared and paid cash dividends of $0.22 per share, or $135 million. In response to COVID-19, we suspended the remaining authorized share repurchase capacity of $366 million.

12


2020 Partner Agreements
•
In our Retail Card sales platform, we launched our new program with Harbor Freight Tools.
•
In our Payment Solutions sales platform, we announced our new partnership with Piaggio, extended our program agreements with ABC Warehouse, Living Spaces, Icahn Enterprises LP automotive brands (Pep Boys, AAMCO Transmissions, Precision Tune Auto Care, Cottman Transmission, and Auto Plus Auto Parts) and Vanderhall, and completed the sale of loan receivables associated with the Yamaha portfolio.
•
In our CareCredit sales platform, we extended Pets Best's partnership with Progressive and renewed our agreement with Vision Group Holdings.
Summary Earnings
The following table sets forth our results of operations for the periods indicated.
 
Three months ended March 31,
($ in millions)
2020
 
2019
Interest income
$
4,407

 
$
4,786

Interest expense
517

 
560

Net interest income
3,890

 
4,226

Retailer share arrangements
(926
)
 
(954
)
Provision for credit losses
1,677

 
859

Net interest income, after retailer share arrangements and provision for credit losses
1,287

 
2,413

Other income
97

 
92

Other expense
1,002

 
1,043

Earnings before provision for income taxes
382

 
1,462

Provision for income taxes
96

 
355

Net earnings
$
286

 
$
1,107

Net earnings available to common stockholders
$
275

 
$
1,107


13


Other Financial and Statistical Data
The following table sets forth certain other financial and statistical data for the periods indicated.    
 
At and for the
 
Three months ended March 31,
($ in millions)
2020
 
2019
Financial Position Data (Average):
 
 
 
Loan receivables, including held for sale
$
84,428

 
$
89,903

Total assets
$
100,722

 
$
105,299

Deposits
$
64,665

 
$
64,062

Borrowings
$
18,793

 
$
22,299

Total equity
$
12,592

 
$
14,790

Selected Performance Metrics:
 
 
 
Purchase volume(1)(2)
$
32,042

 
$
32,513

Retail Card
$
24,008

 
$
24,660

Payment Solutions
$
5,375

 
$
5,249

CareCredit
$
2,659

 
$
2,604

Average active accounts (in thousands)(2)(3)
72,078

 
77,132

Net interest margin(4)
15.15
%
 
16.08
%
Net charge-offs
$
1,125

 
$
1,344

Net charge-offs as a % of average loan receivables, including held for sale
5.36
%
 
6.06
%
Allowance coverage ratio(5)
11.13
%
 
7.39
%
Return on assets(6)
1.1
%
 
4.3
%
Return on equity(7)
9.1
%
 
30.4
%
Equity to assets(8)
12.50
%
 
14.05
%
Other expense as a % of average loan receivables, including held for sale
4.77
%
 
4.71
%
Efficiency ratio(9)
32.7
%
 
31.0
%
Effective income tax rate
25.1
%
 
24.3
%
Selected Period-End Data:
 
 
 
Loan receivables
$
82,469

 
$
80,405

Allowance for credit losses
$
9,175

 
$
5,942

30+ days past due as a % of period-end loan receivables(10)
4.24
%
 
4.92
%
90+ days past due as a % of period-end loan receivables(10)
2.10
%
 
2.51
%
Total active accounts (in thousands)(2)(3)
68,849

 
74,812

______________________
(1)
Purchase volume, or net credit sales, represents the aggregate amount of charges incurred on credit cards or other credit product accounts less returns during the period.
(2)
Includes activity and accounts associated with loan receivables held for sale.
(3)
Active accounts represent credit card or installment loan accounts on which there has been a purchase, payment or outstanding balance in the current month.
(4)
Net interest margin represents net interest income divided by average interest-earning assets.
(5)
Allowance coverage ratio represents allowance for credit losses divided by total period-end loan receivables.
(6)
Return on assets represents net earnings as a percentage of average total assets.
(7)
Return on equity represents net earnings as a percentage of average total equity.
(8)
Equity to assets represents average total equity as a percentage of average total assets.
(9)
Efficiency ratio represents (i) other expense, divided by (ii) sum of net interest income, plus other income, less retailer share arrangements.
(10)
Based on customer statement-end balances extrapolated to the respective period-end date.

14


Average Balance Sheet
The following tables set forth information for the periods indicated regarding average balance sheet data, which are used in the discussion of interest income, interest expense and net interest income that follows.
 
2020
 
2019
Three months ended March 31 ($ in millions)
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield /
Rate(1)
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield /
Rate(1)
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning cash and equivalents(2)
$
12,902

 
$
42

 
1.31
%
 
$
11,033

 
$
65

 
2.39
%
Securities available for sale
5,954

 
25

 
1.69
%
 
5,640

 
34

 
2.44
%
Loan receivables, including held for sale(3):
 
 
 
 
 
 
 
 
 
 
 
Credit cards
81,716

 
4,272

 
21.03
%
 
86,768

 
4,611

 
21.55
%
Consumer installment loans
1,432

 
35

 
9.83
%
 
1,844

 
42

 
9.24
%
Commercial credit products
1,243

 
33

 
10.68
%
 
1,252

 
34

 
11.01
%
Other
37

 
—

 
—
%
 
39

 
—

 
—
%
Total loan receivables, including held for sale
84,428

 
4,340

 
20.67
%
 
89,903

 
4,687

 
21.14
%
Total interest-earning assets
103,284

 
4,407

 
17.16
%
 
106,576

 
4,786

 
18.21
%
Non-interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
1,450

 
 
 
 
 
1,335

 
 
 
 
Allowance for credit losses
(8,708
)
 
 
 
 
 
(6,341
)
 
 
 
 
Other assets
4,696

 
 
 
 
 
3,729

 
 
 
 
Total non-interest-earning assets
(2,562
)
 
 
 
 
 
(1,277
)
 
 
 
 
Total assets
$
100,722

 
 
 
 
 
$
105,299

 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposit accounts
$
64,366

 
$
356

 
2.22
%
 
$
63,776

 
$
375

 
2.38
%
Borrowings of consolidated securitization entities
9,986

 
73

 
2.94
%
 
13,407

 
100

 
3.02
%
Senior unsecured notes
8,807

 
88

 
4.02
%
 
8,892

 
85

 
3.88
%
Total interest-bearing liabilities
83,159

 
517

 
2.50
%
 
86,075

 
560

 
2.64
%
Non-interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing deposit accounts
299

 
 
 
 
 
286

 
 
 
 
Other liabilities
4,672

 
 
 
 
 
4,148

 
 
 
 
Total non-interest-bearing liabilities
4,971

 
 
 
 
 
4,434

 
 
 
 
Total liabilities
88,130

 
 
 
 
 
90,509

 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
Total equity
12,592

 
 
 
 
 
14,790

 
 
 
 
Total liabilities and equity
$
100,722

 
 
 
 
 
$
105,299

 
 
 
 
Interest rate spread(4)
 
 
 
 
14.66
%
 
 
 
 
 
15.57
%
Net interest income
 
 
$
3,890

 
 
 
 
 
$
4,226

 
 
Net interest margin(5)
 
 
 
 
15.15
%
 
 
 
 
 
16.08
%
_______________________
(1)
Average yields/rates are based on total interest income/expense over average balances.
(2)
Includes average restricted cash balances of $981 million and $989 million for the three months ended March 31, 2020 and 2019, respectively.
(3)
Interest income on loan receivables includes fees on loans of $656 million and $693 million for the three months ended March 31, 2020 and 2019, 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.

15


For a summary description of the composition of our key line items included in our Statements of Earnings, see Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Form 10-K.
Interest Income
Interest income decreased by $379 million, or 7.9%, for the three months ended March 31, 2020, primarily driven by a decrease in interest and fees on loans due to the Walmart consumer portfolio sale.
Average interest-earning assets
Three months ended March 31 ($ in millions)
2020
 
%
 
2019
 
%
Loan receivables, including held for sale
$
84,428

 
81.7
%
 
$
89,903

 
84.4
%
Liquidity portfolio and other
18,856

 
18.3
%
 
16,673

 
15.6
%
Total average interest-earning assets
$
103,284

 
100.0
%
 
$
106,576

 
100.0
%
The decrease in average loan receivables, including held for sale, of 6.1% for the three months ended March 31, 2020 was driven by the sale of loan receivables associated with the Walmart and Yamaha portfolios. This decrease was partially offset by higher purchase volume and average active account growth at our ongoing partner programs of 5.5% and 3.7%, for the three months ended March 31, 2020, respectively.
Yield on average interest-earning assets
The yield on average interest-earning assets decreased for the three months ended March 31, 2020, primarily due to a decrease in the percentage of interest-earning assets attributable to loan receivables. The decrease in loan receivable yield was 47 basis points to 20.67% for the three months ended March 31, 2020, primarily driven by the sale of the Walmart consumer portfolio.
Interest Expense
Interest expense decreased by $43 million, or 7.7%, for the three months ended March 31, 2020, driven primarily by lower benchmark interest rates and a decrease in borrowings of our securitization entities. Our cost of funds decreased to 2.50% for the three months ended March 31, 2020, compared to 2.64% for the three months ended March 31, 2019.
Average interest-bearing liabilities
Three months ended March 31 ($ in millions)
2020
 
%
 
2019
 
%
Interest-bearing deposit accounts
$
64,366

 
77.4
%
 
$
63,776

 
74.1
%
Borrowings of consolidated securitization entities
9,986

 
12.0
%
 
13,407

 
15.6
%
Senior unsecured notes
8,807

 
10.6
%
 
8,892

 
10.3
%
Total average interest-bearing liabilities
$
83,159

 
100.0
%
 
$
86,075

 
100.0
%
Net Interest Income
Net interest income decreased by $336 million, or 8.0%, for the three months ended March 31, 2020, primarily driven by a decrease in interest and fees on loans due to the Walmart consumer portfolio sale, partially offset by decreases in interest expense reflecting lower benchmark interest rates.
Retailer Share Arrangements
Retailer share arrangements decreased by $28 million, or 2.9%, for the three months ended March 31, 2020, mainly driven by the higher credit loss reserve build.

16


Provision for Credit Losses
Provision for credit losses increased by $818 million, or 95.2%, for the three months ended March 31, 2020, primarily driven by the prior year reduction of $522 million in reserves for credit losses related to the Walmart consumer portfolio sale and a higher reserve build in the current year period reflecting both the projected impacts of COVID-19 and the increase attributable to the CECL implementation. These increases were partially offset by lower net charge-offs. The portion of the increase in provision for credit losses attributable to applying the new CECL guidance as compared to the prior accounting guidance was $101 million.
Other Income
 
Three months ended March 31,
($ in millions)
2020
 
2019
Interchange revenue
$
161

 
$
165

Debt cancellation fees
69

 
68

Loyalty programs
(158
)
 
(167
)
Other
25

 
26

Total other income
$
97

 
$
92

Other income increased by $5 million, or 5.4%, for the three months ended March 31, 2020, primarily driven by lower loyalty costs, partially offset by a decrease in interchange revenue.
The decreases in loyalty costs and interchange revenue were primarily due to the Walmart consumer portfolio sale.
Other Expense
 
Three months ended March 31,
($ in millions)
2020
 
2019
Employee costs
$
324

 
$
353

Professional fees
197

 
232

Marketing and business development
111

 
123

Information processing
123

 
113

Other
247

 
222

Total other expense
$
1,002

 
$
1,043

Other expense decreased by $41 million, or 3.9%, for the three months ended March 31, 2020, primarily driven by decreases in professional fees and employee costs, partially offset by higher other expense.
The decrease in professional fees was primarily driven by interim servicing costs in the prior year associated with acquired portfolios, including the PayPal Credit portfolio. The decrease in employee costs, despite the subsequent conversion of acquired portfolios, was primarily due to cost reductions associated with the Walmart consumer portfolio sale and lower stock-based and other compensation expense. The "other" component increased primarily due to higher operational losses and expenditures related to our response to COVID-19.
Provision for Income Taxes
 
Three months ended March 31,
($ in millions)
2020
 
2019
Effective tax rate
25.1
%
 
24.3
%
Provision for income taxes
$
96

 
$
355

The effective tax rate for the three months ended March 31, 2020 increased compared to the same period in the prior year primarily due to an increase in state tax rates. In each period, the effective tax rate differs from the applicable U.S. federal statutory rate primarily due to state income taxes.

17


Platform Analysis
As discussed above under “—Our Sales Platforms,” we offer our products through three sales platforms (Retail Card, Payment Solutions and CareCredit), which management measures based on their revenue-generating activities. The following is a discussion of certain supplemental information for the three months ended March 31, 2020, for each of our sales platforms.
Retail Card
 
Three months ended March 31,
($ in millions)
2020
 
2019
Purchase volume
$
24,008

 
$
24,660

Period-end loan receivables
$
52,390

 
$
51,572

Average loan receivables, including held for sale
$
53,820

 
$
60,964

Average active accounts (in thousands)
53,018

 
58,632

 
 
 
 
Interest and fees on loans
$
3,037

 
$
3,454

Retailer share arrangements
$
(904
)
 
$
(940
)
Other income
$
59

 
$
76

Retail Card interest and fees on loans decreased by $417 million, or 12.1%, for the three months ended March 31, 2020. The decrease was primarily driven by the sale of the Walmart consumer portfolio.
Retailer share arrangements decreased by $36 million, or 3.8%, for the three months ended March 31, 2020, primarily as a result of the factors discussed under the heading “Retailer Share Arrangements” above.
Other income decreased by $17 million, or 22.4%, for the three months ended March 31, 2020, primarily as a result of decreases in debt cancellation fees and interchange revenue.
Payment Solutions
 
Three months ended March 31,
($ in millions)
2020
 
2019
Purchase volume
$
5,375

 
$
5,249

Period-end loan receivables
$
19,973

 
$
19,379

Average loan receivables, including held for sale
$
20,344

 
$
19,497

Average active accounts (in thousands)
12,681

 
12,406

 
 
 
 
Interest and fees on loans
$
706

 
$
686

Retailer share arrangements
$
(18
)
 
$
(12
)
Other income
$
13

 
$
1

Payment Solutions interest and fees on loans increased by $20 million, or 2.9%, for the three months ended March 31, 2020. The increase was primarily driven by growth in average loan receivables, partially offset by the sale of the Yamaha portfolio in January 2020.

18


CareCredit
 
Three months ended March 31,
($ in millions)
2020
 
2019
Purchase volume
$
2,659

 
$
2,604

Period-end loan receivables
$
10,106

 
$
9,454

Average loan receivables
$
10,264

 
$
9,442

Average active accounts (in thousands)
6,379

 
6,094

 
 
 
 
Interest and fees on loans
$
597

 
$
547

Retailer share arrangements
$
(4
)
 
$
(2
)
Other income
$
25

 
$
15

CareCredit interest and fees on loans increased by $50 million, or 9.1%, for the three months ended March 31, 2020. The increase was primarily driven by growth in average loan receivables.
Loan Receivables
____________________________________________________________________________________________
Loan receivables are our largest category of assets and represent our primary source of revenue. The following discussion provides supplemental information regarding our loan receivables portfolio. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 4. Loan Receivables and Allowance for Credit Losses to our condensed consolidated financial statements for additional information related to our Loan Receivables, including troubled debt restructurings.
Our loan receivables portfolio had the following geographic concentration at March 31, 2020.
($ in millions)
 
Loan Receivables
Outstanding
 
% of Total Loan
Receivables
Outstanding
State
 
California
 
$
8,769

 
10.6
%
Texas
 
$
8,366

 
10.1
%
Florida
 
$
7,010

 
8.5
%
New York
 
$
4,668

 
5.7
%
Pennsylvania
 
$
3,353

 
4.1
%
Delinquencies
Over-30 day loan delinquencies as a percentage of period-end loan receivables decreased to 4.24% at March 31, 2020 from 4.92% at March 31, 2019, and decreased from 4.44% at December 31, 2019. The decrease compared to the prior year period was primarily driven by effects of the sale of the Walmart consumer portfolio, and the current quarter decrease as compared to December 31, 2019 primarily reflects the seasonality of our business.
Net Charge-Offs
Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine are uncollectible, net of recovered amounts. We exclude accrued and unpaid finance charges and fees and third-party fraud losses from charge-offs. Charged-off and recovered finance charges and fees are included in interest and fees on loans while third-party fraud losses are included in other expense. Charge-offs are recorded as a reduction to the allowance for credit losses and subsequent recoveries of previously charged-off amounts are credited to the allowance for credit losses. Costs incurred to recover charged-off loans are recorded as collection expense and included in other expense in our Condensed Consolidated Statements of Earnings.

19


The table below sets forth the ratio of net charge-offs to average loan receivables, including held for sale, ("net charge-off rate") for the periods indicated.
 
Three months ended March 31,
 
2020
 
2019
Net charge-off rate
5.36
%
 
6.06
%
Allowance for Credit Losses and Impact of Adoption of CECL
The allowance for credit losses totaled $9,175 million at March 31, 2020, compared with allowance for loan losses of $5,602 million at December 31, 2019 and $5,942 million at March 31, 2019. Similarly, our allowance for credit losses as a percentage of total loan receivables increased to 11.13% at March 31, 2020, from 6.42% at December 31, 2019 and increased from 7.39% at March 31, 2019.
The increases in the allowance for credit losses and allowance coverage ratio reflect the impact of the CECL adoption and implementation in January 2020. Upon adoption of the new accounting standard on January 1, 2020, we recorded an increase to our allowance for loan losses of $3.0 billion. The allowance for credit losses at March 31, 2020 reflects our estimate of expected credit losses for the life of the loan receivables on our condensed consolidated statement of financial position at March 31, 2020, which includes the consideration of current and expected macroeconomic conditions that existed at that date.
During the initial year of implementation of the new CECL accounting standard we continue to determine what our allowance for credit losses and allowance coverage ratio would have been if the prior accounting guidance were still in effect, in order to help provide comparability with our prior year results. The following table illustrates the effects of the implementation of the new accounting standard to our allowance for credit losses and allowance coverage ratio at March 31, 2020.
($ in millions)
 
Amounts under prior accounting guidance(1)
 
Impact of adoption of CECL
 
Ongoing implementation of CECL model
 
GAAP reported amounts
At March 31, 2020
 
 
 
 
Allowance for credit losses
 
$
6,053

 
$
3,021

 
$
101

 
$
9,175

Allowance coverage ratio
 
7.34
%
 
3.66
%
 
0.13
%
 
11.13
%
 
 
 
 
 
 
 
 
 
______________________
(1)
Amounts shown above as if the prior accounting guidance remained in effect are non-GAAP measures, and are presented only in this initial year after adoption for comparability with the prior year reported GAAP metrics.
In addition to the effects of the increases attributable to CECL noted in the above table, our allowance coverage ratio increased as compared to December 31, 2019 primarily due to the effects of the seasonality of our business and projected impacts from COVID-19 and remained relatively flat as compared to March 31, 2019, reflecting improving credit trends prior to COVID-19.
Funding, Liquidity and Capital Resources
____________________________________________________________________________________________
We maintain a strong focus on liquidity and capital. Our funding, liquidity and capital policies are designed to ensure that our business has the liquidity and capital resources to support our daily operations, our business growth, our credit ratings and our regulatory and policy requirements, in a cost effective and prudent manner through expected and unexpected market environments.
Funding Sources
Our primary funding sources include cash from operations, deposits (direct and brokered deposits), securitized financings and senior unsecured notes.

20


The following table summarizes information concerning our funding sources during the periods indicated:
 
2020
 
2019
Three months ended March 31 ($ in millions)
Average
Balance
 
%
 
Average
Rate
 
Average
Balance
 
%
 
Average
Rate
Deposits(1)
$
64,366

 
77.4
%
 
2.2
%
 
$
63,776

 
74.1
%
 
2.4
%
Securitized financings
9,986

 
12.0

 
2.9

 
13,407

 
15.6

 
3.0

Senior unsecured notes
8,807

 
10.6

 
4.0

 
8,892

 
10.3

 
3.9

Total
$
83,159

 
100.0
%
 
2.5
%
 
$
86,075

 
100.0
%
 
2.6
%
______________________
(1)
Excludes $299 million and $286 million average balance of non-interest-bearing deposits for the three months ended March 31, 2020 and 2019, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the three months ended March 31, 2020 and 2019.
Deposits
We obtain deposits directly from retail and commercial customers (“direct deposits”) or through third-party brokerage firms that offer our deposits to their customers (“brokered deposits”). At March 31, 2020, we had $53.5 billion in direct deposits and $11.1 billion in deposits originated through brokerage firms (including network deposit sweeps procured through a program arranger that channels brokerage account deposits to us). A key part of our liquidity plan and funding strategy is to continue to expand our direct deposits base as a source of stable and diversified low-cost funding.
Our direct deposits include a range of FDIC-insured deposit products, including certificates of deposit, IRAs, money market accounts and savings accounts.
Brokered deposits are primarily from retail customers of large brokerage firms. We have relationships with 11 brokers that offer our deposits through their networks. Our brokered deposits consist primarily of certificates of deposit that bear interest at a fixed rate and at March 31, 2020, had a weighted average remaining life of 2.1 years. These deposits generally are not subject to early withdrawal.
Our ability to attract deposits is sensitive to, among other things, the interest rates we pay, and therefore, we bear funding risk if we fail to pay higher rates, or interest rate risk if we are required to pay higher rates, to retain existing deposits or attract new deposits. To mitigate these risks, our funding strategy includes a range of deposit products, and we seek to maintain access to multiple other funding sources, such as securitized financings (including our undrawn committed capacity) and unsecured debt.
The following table summarizes certain information regarding our interest-bearing deposits by type (all of which constitute U.S. deposits) for the periods indicated:
Three months ended March 31 ($ in millions)
2020
 
2019
Average
Balance
 
%
 
Average
Rate
 
Average
Balance
 
%
 
Average
Rate
Direct deposits:
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit (including IRA certificates of deposit)
$
34,019

 
52.9
%
 
2.5
%
 
$
31,822

 
49.9
%
 
2.4
%
Savings accounts (including money market accounts)
19,644

 
30.5

 
1.7

 
18,389

 
28.8

 
2.2

Brokered deposits
10,703

 
16.6

 
2.4

 
13,565

 
21.3

 
2.7

Total interest-bearing deposits
$
64,366

 
100.0
%
 
2.2
%
 
$
63,776

 
100.0
%
 
2.4
%
Our deposit liabilities provide funding with maturities ranging from one day to ten years.

21


The following table summarizes total deposits by contractual maturity at March 31, 2020.
($ in millions)
3 Months or
Less
 
Over
3 Months
but within
6 Months
 
Over
6 Months
but within
12 Months
 
Over
12 Months
 
Total
U.S. deposits (less than FDIC insurance limit)(1)(2)
$
26,371

 
$
3,406

 
$
10,000

 
$
11,965

 
$
51,742

U.S. deposits (in excess of FDIC insurance limit)(2)
 
 
 
 
 
 
 
 
 
Direct deposits:
 
 
 
 
 
 
 
 
 
Certificates of deposit (including IRA certificates of deposit)
1,956

 
1,103

 
3,069

 
2,047

 
8,175

Savings accounts (including money market accounts)
4,679

 
—

 
—

 
—

 
4,679

Brokered deposits:
 
 
 
 
 
 
 
 
 
Sweep accounts
19

 
—

 
—

 
—

 
19

Total
$
33,025

 
$
4,509

 
$
13,069

 
$
14,012

 
$
64,615

______________________
(1)
Includes brokered certificates of deposit for which underlying individual deposit balances are assumed to be less than $250,000.
(2)
The standard deposit insurance amount is $250,000 per depositor, for each account ownership category. Deposits in excess of FDIC insurance limit presented above include partially uninsured accounts.
At March 31, 2020, the weighted average maturity of our interest-bearing time deposits was 1.1 years. See Note 7. Deposits to our condensed consolidated financial statements for more information on the maturities of our time deposits.
Securitized Financings
We have been engaged in the securitization of our credit card receivables since 1997. We access the asset-backed securitization market using the Synchrony Credit Card Master Note Trust (“SYNCT”) and the Synchrony Card Issuance Trust (“SYNIT”) through which we issue asset-backed securities through both public transactions and private transactions funded by financial institutions and commercial paper conduits. In addition, we issue asset-backed securities in private transactions through the Synchrony Sales Finance Master Trust (“SFT”).
The following table summarizes expected contractual maturities of the investors’ interests in securitized financings, excluding debt premiums, discounts and issuance costs at March 31, 2020.
($ in millions)
Less Than
One Year
 
One Year
Through
Three
Years
 
Four Years
Through
Five
Years
 
After Five
Years
 
Total
Scheduled maturities of long-term borrowings—owed to securitization investors:
 
 
 
 
 
 
 
 
 
SYNCT(1)
$
2,379

 
$
3,015

 
$
707

 
$
—

 
$
6,101

SFT
—

 
600

 
—

 
—

 
600

SYNIT(1)
—

 
2,600

 
—

 
—

 
2,600

Total long-term borrowings—owed to securitization investors
$
2,379

 
$
6,215

 
$
707

 
$
—

 
$
9,301

______________________
(1)
Excludes any subordinated classes of SYNCT notes and SYNIT notes that we owned at March 31, 2020.
We retain exposure to the performance of trust assets through: (i) in the case of SYNCT, SFT and SYNIT, subordinated retained interests in the loan receivables transferred to the trust in excess of the principal amount of the notes for a given series to provide credit enhancement for a particular series, as well as a pari passu seller’s interest in each trust and (ii) in the case of SYNCT and SYNIT, any subordinated classes of notes that we own.

22


All of our securitized financings include early repayment triggers, referred to as early amortization events, including events related to material breaches of representations, warranties or covenants, inability or failure of the Bank to transfer loan receivables to the trusts as required under the securitization documents, failure to make required payments or deposits pursuant to the securitization documents, and certain insolvency-related events with respect to the related securitization depositor, Synchrony (solely with respect to SYNCT) or the Bank. In addition, an early amortization event will occur with respect to a series if the excess spread as it relates to a particular series or for the trust, as applicable, falls below zero. Following an early amortization event, principal collections on the loan receivables in the applicable trust are applied to repay principal of the trust's asset-backed securities rather than being available on a revolving basis to fund the origination activities of our business. The occurrence of an early amortization event also would limit or terminate our ability to issue future series out of the trust in which the early amortization event occurred. No early amortization event has occurred with respect to any of the securitized financings in SYNCT, SFT or SYNIT.
The following table summarizes for each of our trusts the three-month rolling average excess spread at March 31, 2020.
 
Note Principal Balance
($ in millions)
 
# of Series
Outstanding
 
Three-Month Rolling
Average Excess
Spread(1)
SYNCT
$
6,460

 
11

 
~15% to 16.5%

SFT
$
600

 
8

 
13.6
%
SYNIT
$
2,600

 
2

 
16.7
%
______________________
(1)
Represents the excess spread (generally calculated as interest income collected from the applicable pool of loan receivables less applicable net charge-offs, interest expense and servicing costs, divided by the aggregate principal amount of loan receivables in the applicable pool) for SFT or, in the case of SYNCT and SYNIT, a range of the excess spreads relating to the particular series issued within each trust and omitting any series that have not been outstanding for at least three full monthly periods, in each case calculated in accordance with the applicable trust or series documentation, for the three securitization monthly periods ended March 31, 2020.

23


Senior Unsecured Notes
During the three months ended March 31, 2020 we made repayments of $1.5 billion, which included all of our previously outstanding floating rate senior unsecured notes.
The following table provides a summary of our outstanding fixed rate senior unsecured notes at March 31, 2020.
Issuance Date
 
Interest Rate(1)
 
Maturity
 
Principal Amount Outstanding(2)
($ in millions)
 
 
 
 
 
 
Fixed rate senior unsecured notes:
 
 
 
 
 
 
Synchrony Financial
 
 
 
 
 
 
August 2014
 
3.750%
 
August 2021
 
$
750

August 2014
 
4.250%
 
August 2024
 
1,250

July 2015
 
4.500%
 
July 2025
 
1,000

August 2016
 
3.700%
 
August 2026
 
500

December 2017
 
3.950%
 
December 2027
 
1,000

March 2019
 
4.375%
 
March 2024
 
600

March 2019
 
5.150%
 
March 2029
 
650

July 2019
 
2.850%
 
July 2022
 
750

Synchrony Bank
 
 
 
 
 
 
June 2017
 
3.000%
 
June 2022
 
750

May 2018
 
3.650%
 
May 2021
 
750

Total fixed rate senior unsecured notes
 
 
 
 
 
$
8,000

______________________
(1)
Weighted average interest rate of all senior unsecured notes at March 31, 2020 was 3.94%.
(2)
The amounts shown exclude unamortized debt discount, premiums and issuance cost.
Short-Term Borrowings
Except as described above, there were no material short-term borrowings for the periods presented.
Other
At March 31, 2020, we had more than $25.0 billion of unencumbered assets in the Bank available to be used to generate additional liquidity through secured borrowings or asset sales or to be pledged to the Federal Reserve Board for credit at the discount window.
Covenants
The indenture pursuant to which our senior unsecured notes have been issued includes various covenants. If we do not satisfy any of these covenants, the maturity of amounts outstanding thereunder may be accelerated and become payable. We were in compliance with all of these covenants at March 31, 2020.
At March 31, 2020, we were not in default under any of our credit facilities.
Credit Ratings
Our borrowing costs and capacity in certain funding markets, including securitizations and senior and subordinated debt, may be affected by the credit ratings of the Company, the Bank and the ratings of our asset-backed securities.

24


The table below reflects our current credit ratings and outlooks:
 
 
S&P
 
Fitch Ratings
Synchrony Financial
 
 
 
 
Senior unsecured debt
 
BBB-
 
BBB-
Preferred stock
 
BB-
 
B
Outlook for Synchrony Financial senior unsecured debt
 
Stable
 
Stable
Synchrony Bank
 
 
 
 
Senior unsecured debt
 
BBB
 
BBB-
Outlook for Synchrony Bank senior unsecured debt
 
Stable
 
Stable
In addition, certain of the asset-backed securities issued by SYNCT and SYNIT are rated by Fitch, S&P and/or Moody’s. A credit rating is not a recommendation to buy, sell or hold securities, may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. Downgrades in these credit ratings could materially increase the cost of our funding from, and restrict our access to, the capital markets.
Liquidity
____________________________________________________________________________________________
We seek to ensure that we have adequate liquidity to sustain business operations, fund asset growth, satisfy debt obligations and to meet regulatory expectations under normal and stress conditions.
We maintain policies outlining the overall framework and general principles for managing liquidity risk across our business, which is the responsibility of our Asset and Liability Management Committee, a subcommittee of the Risk Committee of our Board of Directors. We employ a variety of metrics to monitor and manage liquidity. We perform regular liquidity stress testing and contingency planning as part of our liquidity management process. We evaluate a range of stress scenarios including Company specific and systemic events that could impact funding sources and our ability to meet liquidity needs.
We maintain a liquidity portfolio, which at March 31, 2020 had $19.2 billion of liquid assets, primarily consisting of cash and equivalents and short-term obligations of the U.S. Treasury, less cash in transit which is not considered to be liquid, compared to $17.3 billion of liquid assets at December 31, 2019. The increase in liquid assets was primarily due to the retention of excess cash flows from operations and the seasonality of our business. Additionally, on March 15, 2020, in response to the COVID-19 pandemic, the Federal Reserve Board reduced reserve requirements for insured depository institutions to zero percent, which further increased the Bank’s available liquidity. We believe our liquidity position at March 31, 2020 remains strong as we move into a period of uncertain economic conditions related to COVID-19 and we will continue to closely monitor our liquidity as economic conditions change.
As additional sources of liquidity, at March 31, 2020, we had an aggregate of $5.1 billion of undrawn committed capacity on our securitized financings, subject to customary borrowing conditions, from private lenders under our securitization programs and $0.5 billion of undrawn committed capacity under our unsecured revolving credit facility with private lenders, and we had more than $25.0 billion of unencumbered assets in the Bank available to be used to generate additional liquidity through secured borrowings or asset sales or to be pledged to the Federal Reserve Board for credit at the discount window.
As a general matter, investments included in our liquidity portfolio are expected to be highly liquid, giving us the ability to readily convert them to cash. The level and composition of our liquidity portfolio may fluctuate based upon the level of expected maturities of our funding sources as well as operational requirements and market conditions.

25


We rely significantly on dividends and other distributions and payments from the Bank for liquidity; however, bank regulations, contractual restrictions and other factors limit the amount of dividends and other distributions and payments that the Bank may pay to us. For a discussion of regulatory restrictions on the Bank’s ability to pay dividends, see “Regulation—Risk Factors Relating to Regulation—We are subject to restrictions that limit our ability to pay dividends and repurchase our common stock; the Bank is subject to restrictions that limit its ability to pay dividends to us, which could limit our ability to pay dividends, repurchase our common stock or make payments on our indebtedness” and “Regulation—Regulation Relating to Our Business—Savings Association Regulation—Dividends and Stock Repurchases” in our 2019 Form 10-K.
Capital
____________________________________________________________________________________________
Our primary sources of capital have been earnings generated by our business and existing equity capital. We seek to manage capital to a level and composition sufficient to support the risks of our business, meet regulatory requirements, adhere to rating agency targets and support future business growth. The level, composition and utilization of capital are influenced by changes in the economic environment, strategic initiatives and legislative and regulatory developments. Within these constraints, we are focused on deploying capital in a manner that will provide attractive returns to our stockholders.
Synchrony is not currently required to conduct stress tests. See “Regulation—Regulation Relating to Our Business—Legislative and Regulatory Developments” in our 2019 Form 10-K. In addition, while as a savings and loan holding company, we have not been subject to the Federal Reserve Board's capital planning rule to-date, we submitted a capital plan to the Federal Reserve Board in 2019. While not required, our capital plan process does include certain internal stress testing.
Dividend and Share Repurchases
Common Stock Cash Dividends Declared
 
Month of Payment
 
Amount per Common Share
 
Amount
($ in millions, except per share data)
 
 
 
 
 
 
Three months ended March 31, 2020
 
February 2020
 
$
0.22

 
$
135

Total dividends declared
 
 
 
$
0.22

 
$
135

In the three months ended March 31, 2020, we declared and paid preferred stock dividends of $11 million on our Series A 5.625% non-cumulative preferred stock that was issued in November 2019. The following table summarizes the dividends paid per share in the three months ended March 31, 2020.
Preferred Stock Cash Dividends Declared
 
Month of Payment
 
Amount per Preferred Share
 
Amount
($ in millions, except per share data)
 
 
 
 
 
 
Three months ended March 31, 2020
 
February 2020
 
$
14.22

 
$
11

Total dividends declared
 
 
 
$
14.22

 
$
11

The declaration and payment of future dividends to holders of our common and preferred stock will be at the discretion of the Board and will depend on many factors. For a discussion of regulatory and other restrictions on our ability to pay dividends and repurchase stock, see “Regulation—Risk Factors Relating to Regulation—We are subject to restrictions that limit our ability to pay dividends and repurchase our common stock; the Bank is subject to restrictions that limit its ability to pay dividends to us, which could limit our ability to pay dividends, repurchase our common stock or make payments on our indebtedness” in our 2019 Form 10-K.
Common Shares Repurchased Under Publicly Announced Programs
 
Total Number of Shares Purchased
 
Dollar Value of Shares Purchased
 
 
 
 
 
($ and shares in millions)
 
 
 
 
Three months ended March 31, 2020
 
33.6

 
$
984

Total
 
33.6

 
$
984


26


On May 9, 2019, we announced our Board's approval of a share repurchase program of up to $4.0 billion through June 30, 2020 (the “2019 Share Repurchase Program”).
Through the end of the first quarter of 2020, we have repurchased $3.6 billion of common stock as part of the 2019 Share Repurchase Program and have $366 million of remaining authorized share repurchase capacity under the 2019 Share Repurchase Program at March 31, 2020. In response to COVID-19, we have temporarily suspended the remaining authorized share repurchase capacity until we have greater visibility as to the current economic environment.
Regulatory Capital Requirements - Synchrony Financial
As a savings and loan holding company, we are required to maintain minimum capital ratios, under the applicable U.S. Basel III capital rules. For more information, see “Regulation—Savings and Loan Holding Company Regulation” in our 2019 Form 10-K.
For Synchrony Financial to be a well-capitalized savings and loan holding company, Synchrony Bank must be well-capitalized and Synchrony Financial must not be subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Federal Reserve Board to meet and maintain a specific capital level for any capital measure. As of March 31, 2020, Synchrony Financial met all the requirements to be deemed well-capitalized.
The following table sets forth the composition of our capital ratios for the Company calculated under the Basel III Standardized Approach rules at March 31, 2020 and December 31, 2019, respectively.
 
Basel III
 
At March 31, 2020
 
At December 31, 2019
($ in millions)
Amount
 
Ratio(1)
 
Amount
 
Ratio(1)
Total risk-based capital
$
13,487

 
16.5
%
 
$
14,211

 
16.3
%
Tier 1 risk-based capital
$
12,405

 
15.2
%
 
$
13,064

 
15.0
%
Tier 1 leverage
$
12,405

 
12.3
%
 
$
13,064

 
12.6
%
Common equity Tier 1 capital
$
11,671

 
14.3
%
 
$
12,330

 
14.1
%
Risk-weighted assets
$
81,639

 
 
 
$
87,302

 
 
______________________
(1)
Tier 1 leverage ratio represents total tier 1 capital as a percentage of total average assets, after certain adjustments. All other ratios presented above represent the applicable capital measure as a percentage of risk-weighted assets.
In response to the COVID-19 pandemic, in March 2020 the joint federal bank regulatory agencies issued an interim final rule that allows banking organizations to mitigate the effects of the CECL accounting standard in their regulatory capital. Banking organizations that adopt CECL in 2020 can elect to mitigate the estimated cumulative regulatory capital effects of CECL for two years. This two-year delay is in addition to the three-year transition period that the agencies had already made available. The Company has elected to adopt the option provided by the interim final rule, which will largely delay the effects of CECL on its regulatory capital for the next two years, after which the effects will be phased-in over a three-year period from January 1, 2022 through December 31, 2024. Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period includes both the initial impact of our adoption of CECL at January 1, 2020 and 25% of subsequent changes in our allowance for credit losses during each quarter of the two-year period ended December 31, 2021, collectively the “CECL regulatory capital transition adjustment”.
Capital amounts and ratios at March 31, 2020 in the above table all reflect the application of the CECL regulatory capital transition adjustment. The increase in our common equity Tier 1 capital ratio compared to December 31, 2019 was primarily due to the seasonal decrease in loan receivables and a corresponding decrease in risk-weighted assets in the three months ended March 31, 2020. These changes were partially offset by share repurchases and dividend payments.

27


Regulatory Capital Requirements - Synchrony Bank
At March 31, 2020 and December 31, 2019, the Bank met all applicable requirements to be deemed well-capitalized pursuant to OCC regulations and for purposes of the Federal Deposit Insurance Act. The following table sets forth the composition of the Bank’s capital ratios calculated under the Basel III Standardized Approach rules at March 31, 2020 and December 31, 2019, and also reflects the CECL regulatory capital transition adjustment in the March 31, 2020 amounts and ratios.
 
At March 31, 2020
 
At December 31, 2019
 
Minimum to be Well-
Capitalized
under Prompt Corrective Action Provisions
($ in millions)
Amount
 
Ratio
 
Amount
 
Ratio
 
Ratio
Total risk-based capital
$
11,775

 
16.4
%
 
$
11,911

 
15.6
%
 
10.0%
Tier 1 risk-based capital
$
10,823

 
15.1
%
 
$
10,907

 
14.3
%
 
8.0%
Tier 1 leverage
$
10,823

 
12.2
%
 
$
10,907

 
11.9
%
 
5.0%
Common equity Tier 1 capital
$
10,823

 
15.1
%
 
$
10,907

 
14.3
%
 
6.5%
Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could limit our business activities and have a material adverse effect on our business, results of operations and financial condition. See “Regulation—Risk Factors Relating to Regulation—Failure by Synchrony and the Bank to meet applicable capital adequacy and liquidity requirements could have a material adverse effect on us” in our 2019 Form 10-K.
Off-Balance Sheet Arrangements and Unfunded Lending Commitments
____________________________________________________________________________________________
We do not have any material off-balance sheet arrangements, including guarantees of third-party obligations. Guarantees are contracts or indemnification agreements that contingently require us to make a guaranteed payment or perform an obligation to a third-party based on certain trigger events. At March 31, 2020, we had not recorded any contingent liabilities in our Condensed Consolidated Statement of Financial Position related to any guarantees. See Note 9 - Fair Value Measurements to our condensed consolidated financial statements for information on contingent consideration liabilities related to business acquisitions.
We extend credit, primarily arising from agreements with customers for unused lines of credit on our credit cards, in the ordinary course of business. Each unused credit card line is unconditionally cancellable by us. See Note 4 - Loan Receivables and Allowance for Credit Losses to our condensed consolidated financial statements for more information on our unfunded lending commitments.
Critical Accounting Estimates
____________________________________________________________________________________________
In preparing our condensed consolidated financial statements, we have identified certain accounting estimates and assumptions that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. The critical accounting estimates we have identified relate to allowance for credit losses and fair value measurements. These estimates reflect our best judgment about current, and for some estimates future, economic and market conditions and their effects based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that these judgments and estimates could change, which may result in incremental losses on loan receivables, or material changes to our Condensed Consolidated Statement of Financial Position, among other effects.

28


Allowance for Credit Losses
Effective January 1, 2020, losses on loan receivables are estimated and recognized upon origination of the loan, based on expected credit losses for the life of the loan balance as of the period end date. This requires us to estimate expected losses in the portfolio as of each balance sheet date. The method for calculating the estimate of expected credit loss takes into account historical experience and current conditions for homogeneous pools of loans, and reasonable and supportable forecasts about the future. We also perform a qualitative assessment beyond model estimates, and apply qualitative adjustments as necessary. The reasonable and supportable period is determined based upon the accuracy level of historical loss forecast estimates, model and methodology utilized, and considers material changes in growth and credit strategy, and historical business changes which may not be applicable within the current environment. The Company regularly evaluates the reasonable and supportable forecast period. Beyond a reasonable and supportable period, we generally revert to historical loss information over a 6-month period, gradually increasing the weight of historical losses in the reversion period, and utilize historical loss information thereafter for the remaining life of the portfolio. The reversion period, similar to the reasonable and supportable period, may change in the future depending on multiple factors such as forecasting methods, portfolio changes, and macroeconomic environment.

We evaluate each portfolio quarterly. For credit card receivables, our estimation process includes analysis of historical data, and there is a significant amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the allowance for credit losses. Our risk process includes standards and policies for reviewing major risk exposures and concentrations, and evaluates relevant data either for individual loans or on a portfolio basis, as appropriate. More specifically, we use an enhanced migration analysis to estimate the likelihood that a loan will progress through the various stages of delinquency. The enhanced migration analysis considers uncollectible principal, interest and fees reflected in the loan receivables, segmented by credit and business parameters. We use other analyses to estimate losses incurred on non-delinquent accounts, which include past performance, bankruptcy activity such as filings, policy changes, loan volume and amounts. Holistically, for assessing the portfolio credit loss content, we also evaluate portfolio risk management techniques applied to various accounts, historical behavior of different account vintages, account seasoning, economic conditions, recent trends in delinquencies, account collection management, forecasting uncertainties, expectations about the future, and a qualitative assessment of the adequacy of the allowance for credit losses.
We estimate our allowance for credit card loan losses using pools of homogeneous loans. Further, experience is not available for new portfolios; therefore, while we accumulate experience, we utilize our experience with the most closely analogous products and segments in our portfolio. The underlying assumptions, estimates and assessments we use to provide for losses are updated periodically to reflect our view of current conditions and expectations about the future and are subject to the regulatory examination process, which can result in changes to our assumptions. Changes in such estimates can significantly affect the allowance and provision for credit losses. It is possible that we will experience credit losses that are different from our current estimates of expected losses.
See “Management's Discussion and Analysis—Critical Accounting Estimates” in our 2019 Form 10-K, for a detailed discussion of the critical accounting estimate related to fair value measurements.
New Accounting Standards
____________________________________________________________________________________________
See Note 2. Basis of Presentation and Summary of Significant Accounting Policies — New Accounting Standards, to our consolidated financial statements for additional information related recent accounting pronouncements, including ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which was effective and adopted by the Company on January 1, 2020.

29


Regulation and Supervision
____________________________________________________________________________________________
Our business, including our relationships with our customers, is subject to regulation, supervision and examination under U.S. federal, state and foreign laws and regulations. These laws and regulations cover all aspects of our business, including lending 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 a financial holding company, Synchrony is subject to regulation, supervision and examination by the Federal Reserve Board. As a large provider of consumer financial services, we are also subject to regulation, supervision and examination by the CFPB.
The Bank is a federally chartered savings association. As such, the Bank is subject to regulation, supervision and examination by the OCC, which is its primary regulator, and by the CFPB. In addition, the Bank, as an insured depository institution, is supervised by the FDIC.
On March 27, 2020, the CARES Act was signed into law, and includes a provision that permits financial institutions to defer temporarily the use of CECL. However, in a related action, the joint federal bank regulatory agencies issued an interim final rule effective March 31, 2020, that allows banking organizations that implement CECL this year to elect to mitigate the effects of the CECL accounting standard on their regulatory capital for two years. This two-year delay is in addition to the three-year transition period that the agencies had already made available. The Company has elected to defer the regulatory capital effects of CECL in accordance with the interim final rule, and not to apply the provision of the CARES Act discussed above. See “—Capital” above for additional details.
The CARES Act also includes a provision that permits a financial institution to elect to suspend temporarily troubled debt restructuring accounting under ASC Subtopic 310-40 in certain circumstances (“section 4013”).
To be eligible under section 4013, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020. In response to this section of the CARES Act, the federal banking agencies issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings under ASC Subtopic 310-40. This includes short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.
The CARES Act also includes a range of other provisions designed to support the U.S. economy and mitigate the impact of COVID-19 on financial institutions and their customers, including through the authorization of various programs and measures that the U.S. Department of the Treasury, the Small Business Administration, the Federal Reserve Board, and other federal banking agencies may or are required to implement. Further, in response to the COVID-19 outbreak, the Federal Reserve Board has implemented or announced a number of facilities to provide emergency liquidity to various segments of the U.S. economy and financial markets.
See “Regulation” in our 2019 Form 10-K for additional information on regulations that are currently applicable to us. See also “—Capital” above, for discussion of the impact of regulations and supervision on our capital and liquidity, including our ability to pay dividends and repurchase stock.

30


ITEM 1. FINANCIAL STATEMENTS
Synchrony Financial and subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
____________________________________________________________________________________________
 
Three months ended March 31,
($ in millions, except per share data)
2020
 
2019
Interest income:
 
 
 
Interest and fees on loans (Note 4)
$
4,340

 
$
4,687

Interest on cash and debt securities
67

 
99

Total interest income
4,407

 
4,786

Interest expense:
 
 
 
Interest on deposits
356

 
375

Interest on borrowings of consolidated securitization entities
73

 
100

Interest on senior unsecured notes
88

 
85

Total interest expense
517

 
560

Net interest income
3,890

 
4,226

Retailer share arrangements
(926
)
 
(954
)
Provision for credit losses (Note 4)
1,677

 
859

Net interest income, after retailer share arrangements and provision for credit losses
1,287

 
2,413

Other income:
 
 
 
Interchange revenue
161

 
165

Debt cancellation fees
69

 
68

Loyalty programs
(158
)
 
(167
)
Other
25

 
26

Total other income
97

 
92

Other expense:
 
 
 
Employee costs
324

 
353

Professional fees
197