Company Quick10K Filing
Quick10K
Synchrony Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$34.40 689 $23,710
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
8-K 2019-08-07 Regulation FD, Exhibits
8-K 2019-07-24 Officers, Exhibits
8-K 2019-07-22 Other Events, Exhibits
8-K 2019-07-19 Earnings, Exhibits
8-K 2019-07-19 Regulation FD, Exhibits
8-K 2019-06-20 Regulation FD, Exhibits
8-K 2019-06-17 Regulation FD, Exhibits
8-K 2019-05-23 Shareholder Vote
8-K 2019-05-15 Regulation FD, Exhibits
8-K 2019-05-09 Regulation FD, Exhibits
8-K 2019-05-09 Regulation FD, Exhibits
8-K 2019-05-02 Officers, Exhibits
8-K 2019-04-18 Regulation FD, Exhibits
8-K 2019-04-18 Earnings, Exhibits
8-K 2019-03-15 Regulation FD, Exhibits
8-K 2019-03-14 Other Events, Exhibits
8-K 2019-02-15 Regulation FD, Exhibits
8-K 2019-02-04 Regulation FD, Exhibits
8-K 2019-02-04 Officers, Exhibits
8-K 2019-01-23 Earnings, Exhibits
8-K 2019-01-23 Regulation FD, Exhibits
8-K 2018-12-17 Regulation FD, Exhibits
8-K 2018-11-15 Regulation FD, Exhibits
8-K 2018-11-01 Officers
8-K 2018-10-29 Regulation FD, Exhibits
8-K 2018-10-19 Regulation FD, Exhibits
8-K 2018-10-19 Earnings, Exhibits
8-K 2018-09-17 Regulation FD, Exhibits
8-K 2018-08-15 Regulation FD, Exhibits
8-K 2018-07-27 Regulation FD, Exhibits
8-K 2018-07-27 Earnings, Exhibits
8-K 2018-07-26 Regulation FD, Exhibits
8-K 2018-06-27 Regulation FD, Exhibits
8-K 2018-06-15 Regulation FD, Exhibits
8-K 2018-05-17 Shareholder Vote
8-K 2018-05-15 Regulation FD, Exhibits
8-K 2018-05-11 Regulation FD, Exhibits
8-K 2018-04-20 Regulation FD, Exhibits
8-K 2018-03-15 Regulation FD, Exhibits
8-K 2018-02-15 Regulation FD, Exhibits
8-K 2018-01-30 Regulation FD, Exhibits
8-K 2018-01-19 Regulation FD, Exhibits
APLE Apple Hospitality REIT 3,670
MTDR Matador Resources 2,320
SFLY Shutterfly 1,530
RMAX RE/MAX 669
AQ Aquantia 462
EDAP EDAP TMS 126
SVVC Firsthand Technology Value Fund 78
WMTS World Monitor Trust III - Series J 0
BVTK Bravatek Solutions 0
JADG Jade Global Holdings 0
SYF 2019-06-30
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 1. Financial Statements
Note 1. Business Description
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Note 3. Debt Securities
Note 4. Loan Receivables and Allowance for Loan Losses
Note 5. Variable Interest Entities
Note 6. Intangible Assets
Note 7. Deposits
Note 8. Borrowings
Note 9. Fair Value Measurements
Note 10. Regulatory and Capital Adequacy
Note 11. Earnings per Share
Note 12. Income Taxes
Note 13. Legal Proceedings and Regulatory Matters
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.A ex-31a6302019.htm
EX-31.B ex-31b6302019.htm
EX-32 ex-326302019.htm

Synchrony Financial Earnings 2019-06-30

SYF 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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 June 30, 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)
sflogoa01a20.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
 
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 July 22, 2019 was 663,440,036.




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, 2018 for those partners or for all partners participating in a program, based on the date each partner relationship or program, as applicable, started.
Unless otherwise indicated, references to “loan receivables” do not include loan receivables held for sale.
For a description of certain other terms we use, including “active account” and “purchase volume,” see the notes to “Management’s Discussion and AnalysisResults of OperationsOther Financial and Statistical Data” in our Annual Report on Form 10-K for the year ended December 31, 2018 (our “2018 Form 10-K”). There is no standard industry definition for many of these terms, and other companies may define them differently than we do.

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

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; retaining existing partners and attracting new partners, concentration of our revenue in a small number of Retail Card partners, promotion and support of our products by our partners, and financial performance of our partners; cyber-attacks or other security breaches; higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings; our ability to grow our deposits in the future; our ability to securitize our loan receivables, occurrence of an early amortization of our securitization facilities, loss of the right to service or subservice our securitized loan receivables, and lower payment rates on our securitized loan receivables; changes in market interest rates and the impact of any margin compression; effectiveness of our risk management processes and procedures, reliance on models which may be inaccurate or misinterpreted, our ability to manage our credit risk, the sufficiency of our allowance for loan losses and the accuracy of the assumptions or estimates used in preparing our financial statements; our ability to offset increases in our costs in retailer share arrangements; competition in the consumer finance industry; our concentration in the U.S. consumer credit market; our ability to successfully develop and commercialize new or enhanced products and services; our ability to realize the value of acquisitions and strategic investments; reductions in interchange fees; fraudulent activity; failure of third-parties to provide various services that are important to our operations; disruptions in the operations of our computer systems and data centers; international risks and compliance and regulatory risks and costs associated with international operations; alleged infringement of intellectual property rights of others and our ability to protect our intellectual property; litigation and regulatory actions; damage to our reputation; our ability to attract, retain and motivate key officers and employees; tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations; a material indemnification obligation to GE under the Tax Sharing and Separation Agreement with GE if we cause the split-off from GE or certain preliminary transactions to fail to qualify for tax-free treatment or in the case of certain significant transfers of our stock following the split-off; regulation, supervision, examination and enforcement of our business by governmental authorities, the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and other legislative and regulatory developments and the impact of the Consumer Financial Protection Bureau's (the “CFPB”) regulation of our business; impact of capital adequacy rules and liquidity requirements; restrictions that limit our ability to pay dividends and repurchase our common stock, and restrictions that limit the Bank’s ability to pay dividends to us; regulations relating to privacy, information security and data protection; use of third-party vendors and ongoing third-party business relationships; and failure to comply with anti-money laundering and anti-terrorism financing laws.
For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this report and in our public filings, including under the heading “Risk Factors Relating to Our Business” and “Risk Factors Relating to Regulation” in our 2018 Form 10-K. You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties, or potentially inaccurate assumptions that could cause our current expectations or beliefs to change. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.

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 2018 Form 10-K. The discussion below contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. See “Cautionary Note Regarding Forward-Looking Statements.”
Introduction and Business Overview
____________________________________________________________________________________________
We are a premier consumer financial services company delivering customized financing programs across key industries including retail, health, auto, travel and home, along with award-winning consumer banking products. We provide a range of credit products through our financing programs which we have established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which we refer to as our “partners.” For the three and six months ended June 30, 2019, we financed $38.3 billion and $70.8 billion of purchase volume, respectively, and had 75.5 million and 76.5 million average active accounts, respectively, and at June 30, 2019, we had $81.8 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 June 30, 2019, we had $65.6 billion in deposits, which represented 75% of our total funding sources.
Our Sales Platforms
_________________________________________________________________
We conduct our operations through a single business segment. Profitability and expenses, including funding costs, loan losses and operating expenses, are managed for the business as a whole. Substantially all of our operations are within the United States. We offer our credit products through three sales platforms (Retail Card, Payment Solutions and CareCredit). Those platforms are organized by the types of products we offer and the partners we work with, and are measured on interest and fees on loans, loan receivables, active accounts and other sales metrics.
Beginning in the first quarter of 2019, our oil and gas retail credit programs, previously reported within our Retail Card sales platform, are now reported within our Payment Solutions sales platform. Payment Solutions now includes a broad range of automotive-related credit programs, comprising of these retail partners, our Synchrony Car Care program network and other automotive partners. We have recast all prior-period reported metrics for our Retail Card and Payment Solutions sales platforms to conform to the current-period presentation.



6



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. We offer one or more of these products primarily through 24 national and regional retailers with which we have ongoing program agreements. The average length of our relationship with these Retail Card partners is 22 years. Retail Card’s revenue primarily consists of interest and fees on our loan receivables. Other income primarily consists of interchange fees earned when our Dual Card or general purpose co-branded credit cards are used outside of our partners' sales channels and fees paid to us by customers who purchase our debt cancellation products, less loyalty program payments. In addition, the majority of our retailer share arrangements, which generally provide for payment to our partner if the economic performance of the program exceeds a contractually-defined threshold, are with partners in the Retail Card sales platform. Substantially all of the credit extended in this platform is on standard terms.
Payment Solutions
Payment Solutions is a leading provider of promotional financing for major consumer purchases, offering consumer choice for financing at the point of sale, including primarily private label credit cards, Dual Cards and installment loans. Payment Solutions offers these products through participating partners consisting of national and regional retailers, local merchants, manufacturers, buying groups and industry associations. Substantially all of the credit extended in this platform, other than for our oil and gas retail partners, is promotional financing. Payment Solutions’ revenue primarily consists of interest and fees on our loan receivables, including “merchant discounts,” which are fees paid to us by our partners in almost all cases to compensate us for all or part of foregone interest income associated with promotional financing.
CareCredit
CareCredit is a leading provider of promotional financing to consumers for health, veterinary and personal care procedures, services or products. We have a network of CareCredit providers and health-focused retailers, the vast majority of which are individual or small groups of independent healthcare providers, through which we offer a CareCredit branded private label credit card and our CareCredit Dual Card offering. Substantially all of the credit extended in this platform is promotional financing. CareCredit’s revenue primarily consists of interest and fees on our loan receivables, including merchant discounts.

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 June 30, 2019.
 
 
 
Promotional Offer
 
 
Credit Product
Standard Terms Only
 
Deferred Interest
 
Other Promotional
 
Total
Credit cards
62.6
%
 
18.6
%
 
14.8
%
 
96.0
%
Commercial credit products
1.6

 

 

 
1.6

Consumer installment loans

 

 
2.4

 
2.4

Other

 

 

 

Total
64.2
%
 
18.6
%
 
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 elsewhere. We also offer general purpose co-branded credit cards that do not function as private label cards. Credit extended under our Dual Cards and general purpose co-branded credit cards typically is extended under standard terms only. We offer either Dual Cards or general purpose co-branded credit cards across all of our sales platforms, spanning 21 ongoing credit partners and our CareCredit Dual Card.
Commercial Credit Products
We offer private label cards and Dual Cards for commercial customers that are similar to our consumer offerings. We also offer a commercial pay-in-full accounts receivable product to a wide range of business customers. We offer our commercial credit products primarily through our Retail Card platform to the commercial customers of our Retail Card partners.
Installment Loans
In Payment Solutions, we originate installment loans to consumers (and a limited number of commercial customers) in the United States, primarily in the power products market (motorcycles, ATVs and lawn and garden). Installment loans are closed-end credit accounts where the customer pays down the outstanding balance in installments. Installment loans are assessed periodic finance charges using fixed interest rates.

8



Business Trends and Conditions
____________________________________________________________________________________________
We believe our business and results of operations will be impacted in the future by various trends and conditions. For a discussion of certain trends and conditions, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Business Trends and Conditions” in our 2018 Form 10-K. For a discussion of how certain trends and conditions impacted the three and six months ended June 30, 2019, see “—Results of Operations.
Seasonality
____________________________________________________________________________________________
In our Retail Card and Payment Solutions platforms, we experience fluctuations in transaction volumes and the level of loan receivables as a result of higher seasonal consumer spending and payment patterns that typically result in an increase of loan receivables from August through a peak in late December, with reductions in loan receivables occurring over the first and second quarters of the following year as customers pay their balances down.
The seasonal impact to transaction volumes and the loan receivables balance typically results in fluctuations in our results of operations, delinquency metrics and the allowance for loan losses as a percentage of total loan receivables between quarterly periods.
In addition to the seasonal variance in loan receivables discussed above, we also experience a seasonal increase in delinquency rates and delinquent loan receivables balances during the third and fourth quarters of each year due to lower customer payment rates resulting in higher net charge-off rates in the first and second quarters. Our delinquency rates and delinquent loan receivables balances typically decrease during the subsequent first and second quarters as customers begin to pay down their loan balances and return to current status resulting in lower net charge-off rates in the third and fourth quarters. Because customers who were delinquent during the fourth quarter of a calendar year have a higher probability of returning to current status when compared to customers who are delinquent at the end of each of our interim reporting periods, we expect that a higher proportion of delinquent accounts outstanding at an interim period end will result in charge-offs, as compared to delinquent accounts outstanding at a year end. Consistent with this historical experience, we generally experience a higher allowance for loan losses as a percentage of total loan receivables at the end of an interim period, as compared to the end of a calendar year. In addition, despite improving credit metrics such as declining past due amounts, we may experience an increase in our allowance for loan losses at an interim period end compared to the prior year end, reflecting these same seasonal trends.







9



Results of Operations
____________________________________________________________________________________________
Highlights for the Three and Six Months Ended June 30, 2019
Below are highlights of our performance for the three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018, as applicable, except as otherwise noted.
Net earnings increased 22.6% to $853 million and 46.7% to $1,960 million for the three and six months ended June 30, 2019, respectively, driven by higher net interest income and decreases in provision for loan losses, partially offset by increases in retailer share arrangements, other expense and provision for income taxes.
Loan receivables increased 3.7% to $81,796 million at June 30, 2019 compared to June 30, 2018, primarily driven by the PayPal Credit acquisition, higher purchase volume and average active account growth, partially offset by the reclassification of $8.1 billion of loan receivables associated with the Walmart portfolio to loan receivables held for sale.
Net interest income increased 11.2% to $4,155 million and 10.6% to $8,381 million for the three and six months ended June 30, 2019, respectively, primarily due to higher average loan receivables growth, partially offset by increases in interest expense reflecting higher benchmark interest rates and growth.
Retailer share arrangements increased 31.5% to $859 million and 32.0% to $1,813 million for the three and six months ended June 30, 2019, respectively, primarily due to growth, including the PayPal Credit acquisition, and improved performance of the programs in which we have retailer share arrangements.
Over-30 day loan delinquencies as a percentage of period-end loan receivables increased 26 basis points to 4.43% at June 30, 2019 primarily due to the impact of reclassification of the Walmart portfolio to loan receivables held for sale, and the net charge-off rate remained relatively stable, increasing 4 basis points to 6.01% and decreasing 2 basis points to 6.04% for the three and six months ended June 30, 2019, respectively.
Provision for loan losses decreased by $82 million, or 6.4%, and $585 million, or 22.1%, for the three and six months ended June 30, 2019, respectively, primarily driven by reductions in reserves for loan losses related to the expected sale of the Walmart portfolio. These reductions totaled $247 million and $769 million for the three and six months ended June 30, 2019, respectively. These reductions in reserves were partially offset by higher net charge-offs in line with loan receivables growth. Our allowance coverage ratio (allowance for loan losses as a percent of end of period loan receivables) decreased to 7.10% at June 30, 2019, as compared to 7.43% at June 30, 2018.
Other expense increased by $84 million, or 8.6%, and $139 million, or 7.1%, for the three and six months ended June 30, 2019, respectively, primarily driven by the PayPal Credit acquisition.
At June 30, 2019, deposits represented 75% of our total funding sources. Total deposits increased 2.5% to $65.6 billion at June 30, 2019, compared to December 31, 2018. Growth in our direct deposits of 6.9% to $52.8 billion, was partially offset by lower brokered deposits.
On May 9, 2019, we announced that our Board approved a share repurchase program of up to $4.0 billion through June 30, 2020 and intends to increase our quarterly dividend to $0.22 per common share commencing in the third quarter of 2019. During the six months ended June 30, 2019, we repurchased $1.7 billion of our outstanding common stock, and declared and paid cash dividends of $0.42 per share, or $295 million.
In March 2019, we announced our acquisition of Pets Best and entry into the pet health insurance industry as a managing general agent.

10



2019 Partner Agreements
In our Payment Solutions sales platform, we expanded our Synchrony Car Care program acceptance network, announced our new partnerships with Samsung HVAC and Zero Motorcycles, extended our program agreements with CCA Global Partners, P.C. Richard & Son, Penske, Rheem and Suzuki and launched our new program with Fanatics.
In our CareCredit sales platform, we expanded our network through our new partnerships with Baylor Scott & White Medical Center, Lehigh Valley Physician's Group and Simplee, renewed our agreement with Bosley and launched our new program with Lighthouse.
Summary Earnings
The following table sets forth our results of operations for the periods indicated.
 
Three months ended June 30,
 
Six months ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Interest income
$
4,738

 
$
4,174

 
$
9,524

 
$
8,418

Interest expense
583

 
437

 
1,143

 
839

Net interest income
4,155

 
3,737

 
8,381

 
7,579

Retailer share arrangements
(859
)
 
(653
)
 
(1,813
)
 
(1,373
)
Provision for loan losses
1,198

 
1,280

 
2,057

 
2,642

Net interest income, after retailer share arrangements and provision for loan losses
2,098

 
1,804

 
4,511

 
3,564

Other income
90

 
63

 
182

 
138

Other expense
1,059

 
975

 
2,102

 
1,963

Earnings before provision for income taxes
1,129

 
892

 
2,591

 
1,739

Provision for income taxes
276

 
196

 
631

 
403

Net earnings
$
853

 
$
696

 
$
1,960

 
$
1,336


11



Other Financial and Statistical Data
The following table sets forth certain other financial and statistical data for the periods indicated.    
 
At and for the
 
At and for the
 
Three months ended June 30,
 
Six months ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Financial Position Data (Average):
 
 
 
 
 
 
 
Loan receivables, including held for sale
$
88,792

 
$
77,853

 
$
89,344

 
$
78,468

Total assets
$
104,903

 
$
96,214

 
$
105,100

 
$
95,962

Deposits
$
64,497

 
$
57,573

 
$
64,280

 
$
57,117

Borrowings
$
21,328

 
$
20,935

 
$
21,811

 
$
21,069

Total equity
$
14,818

 
$
14,407

 
$
14,804

 
$
14,342

Selected Performance Metrics:
 
 
 
 
 
 
 
Purchase volume(1)(2)
$
38,291

 
$
34,268

 
$
70,804

 
$
63,894

Retail Card
$
29,530

 
$
25,926

 
$
54,190

 
$
48,067

Payment Solutions
$
5,948

 
$
5,702

 
$
11,197

 
$
10,766

CareCredit
$
2,813

 
$
2,640

 
$
5,417

 
$
5,061

Average active accounts (in thousands)(2)(3)
75,525

 
69,344

 
76,545

 
70,540

Net interest margin(4)
15.75
%
 
15.33
%
 
15.92
%
 
15.69
%
Net charge-offs
$
1,331

 
$
1,159

 
$
2,675

 
$
2,357

Net charge-offs as a % of average loan receivables, including held for sale
6.01
%
 
5.97
%
 
6.04
%
 
6.06
%
Allowance coverage ratio(5)
7.10
%
 
7.43
%
 
7.10
%
 
7.43
%
Return on assets(6)
3.3
%
 
2.9
%
 
3.8
%
 
2.8
%
Return on equity(7)
23.1
%
 
19.4
%
 
26.7
%
 
18.8
%
Equity to assets(8)
14.13
%
 
14.97
%
 
14.09
%
 
14.95
%
Other expense as a % of average loan receivables, including held for sale
4.78
%
 
5.02
%
 
4.74
%
 
5.04
%
Efficiency ratio(9)
31.3
%
 
31.0
%
 
31.1
%
 
30.9
%
Effective income tax rate
24.4
%
 
22.0
%
 
24.4
%
 
23.2
%
Selected Period-End Data:
 
 
 
 
 
 
 
Loan receivables
$
81,796

 
$
78,879

 
$
81,796

 
$
78,879

Allowance for loan losses
$
5,809

 
$
5,859

 
$
5,809

 
$
5,859

30+ days past due as a % of period-end loan receivables(10)
4.43
%
 
4.17
%
 
4.43
%
 
4.17
%
90+ days past due as a % of period-end loan receivables(10)
2.16
%
 
1.98
%
 
2.16
%
 
1.98
%
Total active accounts (in thousands)(2)(3)
76,065

 
69,767

 
76,065

 
69,767

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

12



Average Balance Sheet
The following tables set forth information for the periods indicated regarding average balance sheet data, which are used in the discussion of interest income, interest expense and net interest income that follows.
 
2019
 
2018
Three months ended June 30 ($ in millions)
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield /
Rate(1)
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield /
Rate(1)
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning cash and equivalents(2)
$
10,989

 
$
66

 
2.41
%
 
$
13,097

 
$
59

 
1.81
%
Securities available for sale
6,010

 
36

 
2.40
%
 
6,803

 
34

 
2.00
%
Loan receivables(3):
 
 
 
 
 
 
 
 
 
 
 
Credit cards, including held for sale
85,488

 
4,557

 
21.38
%
 
74,809

 
4,010

 
21.50
%
Consumer installment loans
1,924

 
44

 
9.17
%
 
1,648

 
37

 
9.01
%
Commercial credit products
1,330

 
34

 
10.25
%
 
1,346

 
34

 
10.13
%
Other
50

 
1

 
NM

 
50

 

 
%
Total loan receivables
88,792

 
4,636

 
20.94
%
 
77,853

 
4,081

 
21.03
%
Total interest-earning assets
105,791

 
4,738

 
17.96
%
 
97,753

 
4,174

 
17.13
%
Non-interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
1,271

 
 
 
 
 
1,161

 
 
 
 
Allowance for loan losses
(5,911
)
 
 
 
 
 
(5,768
)
 
 
 
 
Other assets
3,752

 
 
 
 
 
3,068

 
 
 
 
Total non-interest-earning assets
(888
)
 
 
 
 
 
(1,539
)
 
 
 
 
Total assets
$
104,903

 
 
 
 
 
$
96,214

 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposit accounts
$
64,226

 
$
397

 
2.48
%
 
$
57,303

 
$
273

 
1.91
%
Borrowings of consolidated securitization entities
11,785

 
90

 
3.06
%
 
11,821

 
80

 
2.71
%
Senior unsecured notes
9,543

 
96

 
4.03
%
 
9,114

 
84

 
3.70
%
Total interest-bearing liabilities
85,554

 
583

 
2.73
%
 
78,238

 
437

 
2.24
%
Non-interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing deposit accounts
271

 
 
 
 
 
270

 
 
 
 
Other liabilities
4,260

 
 
 
 
 
3,299

 
 
 
 
Total non-interest-bearing liabilities
4,531

 
 
 
 
 
3,569

 
 
 
 
Total liabilities
90,085

 
 
 
 
 
81,807

 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
Total equity
14,818

 
 
 
 
 
14,407

 
 
 
 
Total liabilities and equity
$
104,903

 
 
 
 
 
$
96,214

 
 
 
 
Interest rate spread(4)
 
 
 
 
15.23
%
 
 
 
 
 
14.89
%
Net interest income
 
 
$
4,155

 
 
 
 
 
$
3,737

 
 
Net interest margin(5)
 
 
 
 
15.75
%
 
 
 
 
 
15.33
%

13



 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
2018
Six months ended June 30 ($ in millions)
Average
Balance
 
Interest
Income /
Expense
 
Average
Yield /
Rate(1)
 
Average
Balance
 
Interest
Income/
Expense
 
Average
Yield /
Rate(1)
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning cash and equivalents(2)
$
11,011

 
$
131

 
2.40
%
 
$
12,768

 
$
106

 
1.67
%
Securities available for sale
5,826

 
70

 
2.42
%
 
6,197

 
59

 
1.92
%
Loan receivables(3):
 
 
 
 
 
 
 
 
 
 
 
Credit cards, including held for sale
86,125

 
9,168

 
21.47
%
 
75,492

 
8,109

 
21.66
%
Consumer installment loans
1,884

 
86

 
9.21
%
 
1,610

 
73

 
9.14
%
Commercial credit products
1,291

 
68

 
10.62
%
 
1,316

 
70

 
10.73
%
Other
44

 
1

 
4.58
%
 
50

 
1

 
4.03
%
Total loan receivables
89,344

 
9,323

 
21.04
%
 
78,468

 
8,253

 
21.21
%
Total interest-earning assets
106,181

 
9,524

 
18.09
%
 
97,433

 
8,418

 
17.42
%
Non-interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
1,303

 
 
 
 
 
1,179

 
 
 
 
Allowance for loan losses
(6,125
)
 
 
 
 
 
(5,689
)
 
 
 
 
Other assets
3,741

 
 
 
 
 
3,039

 
 
 
 
Total non-interest-earning assets
(1,081
)
 
 
 
 
 
(1,471
)
 
 
 
 
Total assets
$
105,100

 
 
 
 
 
$
95,962

 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposit accounts
$
64,002

 
$
772

 
2.43
%
 
$
56,832

 
$
522

 
1.85
%
Borrowings of consolidated securitization entities
12,592

 
190

 
3.04
%
 
12,114

 
154

 
2.56
%
Senior unsecured notes
9,219

 
181

 
3.96
%
 
8,955

 
163

 
3.67
%
Total interest-bearing liabilities
85,813

 
1,143

 
2.69
%
 
77,901

 
839

 
2.17
%
Non-interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing deposit accounts
278

 
 
 
 
 
285

 
 
 
 
Other liabilities
4,205

 
 
 
 
 
3,434

 
 
 
 
Total non-interest-bearing liabilities
4,483

 
 
 
 
 
3,719

 
 
 
 
Total liabilities
90,296

 
 
 
 
 
81,620

 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total equity
14,804

 
 
 
 
 
14,342

 
 
 
 
Total liabilities and equity
$
105,100

 
 
 
 
 
$
95,962

 
 
 
 
Interest rate spread(4)
 
 
 
 
15.40
%
 
 
 
 
 
15.25
%
Net interest income
 
 
$
8,381

 
 
 
 
 
$
7,579

 
 
Net interest margin(5)
 
 
 
 
15.92
%
 
 
 
 
 
15.69
%
______________________
(1)
Average yields/rates are based on total interest income/expense over average balances.
(2)
Includes average restricted cash balances of $426 million and $365 million for the three months ended June 30, 2019 and 2018, respectively and $706 million and $567 million for the six months ended June 30, 2019 and 2018, respectively.
(3)
Interest income on loan receivables includes fees on loans of $661 million and $595 million for the three months ended June 30, 2019 and 2018, respectively and $1,354 million and $1,239 million for the six months ended June 30, 2019 and 2018, respectively.
(4)
Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities.
(5)
Net interest margin represents net interest income divided by average total interest-earning assets.

14



For a summary description of the composition of our key line items included in our Statements of Earnings, see Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Form 10-K.
Interest Income
Interest income increased by $564 million, or 13.5%, and $1,106 million, or 13.1%, for the three and six months ended June 30, 2019, driven primarily by growth in our average loan receivables.
Average interest-earning assets
Three months ended June 30 ($ in millions)
2019
 
%
 
2018
 
%
Loan receivables, including held for sale
$
88,792

 
83.9
%
 
$
77,853

 
79.6
%
Liquidity portfolio and other
16,999

 
16.1
%
 
19,900

 
20.4
%
Total average interest-earning assets
$
105,791

 
100.0
%
 
$
97,753

 
100.0
%
 
 
 
 
 
 
 
 
Six months ended June 30 ($ in millions)
2019
 
%
 
2018
 
%
Loan receivables, including held for sale
$
89,344

 
84.1
%
 
$
78,468

 
80.5
%
Liquidity portfolio and other
16,837

 
15.9
%
 
18,965

 
19.5
%
Total average interest-earning assets
$
106,181

 
100.0
%
 
$
97,433

 
100.0
%
The increase in average loan receivables of 14.1% and 13.9% for the three and six months ended June 30, 2019, respectively, was driven by the PayPal Credit acquisition, higher purchase volume and average active account growth. Purchase volume increased 11.7% and 10.8%, and average active accounts increased 8.9% and 8.5%, for the three and six months ended June 30, 2019, respectively, including the effects of the PayPal Credit acquisition.
Yield on average interest-earning assets
The yield on average interest-earning assets increased for the three and six months ended June 30, 2019, primarily due to increases in the percentage of interest-earning assets attributable to loan receivables, partially offset by a decrease in the yield on our average loan receivables. The decrease in yield was 9 basis points to 20.94% and 17 basis points to 21.04% for the three and six months ended June 30, 2019, respectively, primarily due to the impact of adding the PayPal Credit program.
Interest Expense
Interest expense increased by $146 million, or 33.4%, and $304 million, or 36.2%, for the three and six months ended June 30, 2019, respectively, driven primarily by higher benchmark interest rates and growth. Our cost of funds increased to 2.73% and 2.69% for the three and six months ended June 30, 2019, respectively, compared to 2.24% and 2.17% for the three and six months ended June 30, 2018, respectively.

15



Average interest-bearing liabilities
Three months ended June 30 ($ in millions)
2019
 
%
 
2018
 
%
Interest-bearing deposit accounts
$
64,226

 
75.1
%
 
$
57,303

 
73.2
%
Borrowings of consolidated securitization entities
11,785

 
13.8
%
 
11,821

 
15.1
%
Senior unsecured notes
9,543

 
11.1
%
 
9,114

 
11.7
%
Total average interest-bearing liabilities
$
85,554

 
100.0
%
 
$
78,238

 
100.0
%
 
 
 
 
 
 
 
 
Six months ended June 30 ($ in millions)
2019
 
%
 
2018
 
%
Interest-bearing deposit accounts
$
64,002

 
74.6
%
 
$
56,832

 
73.0
%
Borrowings of consolidated securitization entities
12,592

 
14.7
%
 
12,114

 
15.5
%
Senior unsecured notes
9,219

 
10.7
%
 
8,955

 
11.5
%
Total average interest-bearing liabilities
$
85,813

 
100.0
%
 
$
77,901

 
100.0
%
The increases in average interest-bearing liabilities for the three and six months ended June 30, 2019 were driven primarily by growth in our direct deposits.
Net Interest Income
Net interest income increased by $418 million, or 11.2%, and $802 million, or 10.6%, for the three and six months ended June 30, 2019, respectively, driven primarily by higher average loan receivables, partially offset by increases in interest expense reflecting higher benchmark interest rates and growth.
Retailer Share Arrangements
Retailer share arrangements increased by $206 million, or 31.5%, and $440 million, or 32.0%, for the three and six months ended June 30, 2019, respectively, primarily due to growth, including the PayPal Credit acquisition, and improved performance of the programs in which we have retailer share arrangements.
Provision for Loan Losses
Provision for loan losses decreased by $82 million, or 6.4%, and $585 million, or 22.1%, for the three and six months ended June 30, 2019, respectively, primarily driven by reductions in reserves for loan losses related to the expected sale of the Walmart portfolio. These reductions totaled $247 million and $769 million for the three and six months ended June 30, 2019, respectively. The reduction for the six months ended June 30, 2019 includes a $522 million reserve release following the reclassification of the Walmart portfolio to loan receivables held for sale on our Condensed Consolidated Statement of Financial Position in the first quarter of 2019. These reductions in reserves were partially offset by higher net charge-offs in line with loan receivables growth. Our allowance coverage ratio decreased to 7.10% at June 30, 2019, as compared to 7.43% at June 30, 2018.
Other Income
 
Three months ended June 30,
 
Six months ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Interchange revenue
$
194

 
$
177

 
$
359

 
$
335

Debt cancellation fees
69

 
66

 
137

 
132

Loyalty programs
(192
)
 
(192
)
 
(359
)
 
(347
)
Other
19

 
12

 
45

 
18

Total other income
$
90

 
$
63

 
$
182

 
$
138


16



Other income increased by $27 million, or 42.9%, and $44 million, or 31.9%, for the three and six months ended June 30, 2019, respectively. The increase for the three months ended June 30, 2019 was primarily due to an increase in interchange revenue driven by increased purchase volume outside of our retail partners' sales channels. The increase for the six months ended June 30, 2019 was primarily due to an increase in interchange revenue, a reduction in certain contingent consideration obligations and higher investment gains, partially offset by higher loyalty costs.
Other Expense
 
Three months ended June 30,
 
Six months ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Employee costs
$
358

 
$
351

 
$
711

 
$
709

Professional fees
231

 
177

 
463

 
343

Marketing and business development
135

 
110

 
258

 
231

Information processing
123

 
99

 
236

 
203

Other
212

 
238

 
434

 
477

Total other expense
$
1,059

 
$
975

 
$
2,102

 
$
1,963

Other expense increased by $84 million, or 8.6%, and $139 million, or 7.1%, for the three and six months ended June 30, 2019, respectively, primarily due to an increase in professional fees. The increase in professional fees was primarily due to interim servicing costs associated with acquired portfolios, including the PayPal Credit portfolio.


17



Provision for Income Taxes
 
Three months ended June 30,
 
Six months ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Effective tax rate
24.4
%
 
22.0
%
 
24.4
%
 
23.2
%
Provision for income taxes
$
276

 
$
196

 
$
631

 
$
403

The effective tax rate for the three and six months ended June 30, 2019 increased compared to the same periods in the prior year primarily due to a tax benefit recorded in the prior year following a methodology change related to loyalty costs. In each period, the effective tax rate differs from the applicable U.S. federal statutory rate primarily due to state income taxes.
Platform Analysis
As discussed above under “—Our Sales Platforms,” we offer our products through three sales platforms (Retail Card, Payment Solutions and CareCredit), which management measures based on their revenue-generating activities. The following is a discussion of certain supplemental information for the three and six months ended June 30, 2019, for each of our sales platforms.
Beginning in the first quarter of 2019, our oil and gas retail credit programs, previously reported within our Retail Card sales platform, are now reported within our Payment Solutions sales platform. We have recast all prior-period reported metrics for our Retail Card and Payment Solutions sales platforms to conform to the current-period presentation.
Retail Card
 
Three months ended June 30,
 
Six months ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Purchase volume
$
29,530

 
$
25,926

 
$
54,190

 
$
48,067

Period-end loan receivables
$
52,307

 
$
51,473

 
$
52,307

 
$
51,473

Average loan receivables, including held for sale
$
59,861

 
$
51,011

 
$
60,409

 
$
51,628

Average active accounts (in thousands)
57,212

 
51,680

 
58,132

 
52,769

 
 
 
 
 
 
 
 
Interest and fees on loans
$
3,390

 
$
2,915

 
$
6,844

 
$
5,930

Retailer share arrangements
$
(836
)
 
$
(637
)
 
$
(1,776
)
 
$
(1,345
)
Other income
$
59

 
$
54

 
$
135

 
$
123

Retail Card interest and fees on loans increased by $475 million, or 16.3%, and $914 million, or 15.4%, for the three and six months ended June 30, 2019, respectively. The increase was primarily the result of growth in average loan receivables largely driven by the PayPal Credit acquisition.
Retailer share arrangements increased by $199 million, or 31.2%, and $431 million, or 32.0%, for the three and six months ended June 30, 2019, respectively, primarily as a result of the factors discussed under the heading “Retailer Share Arrangements” above.
Other income increased by $5 million, or 9.3%, and $12.0 million, or 9.8%, for the three and six months ended June 30, 2019, primarily as a result of the factors discussed under the heading “Other Income” above.

18



Payment Solutions
 
Three months ended June 30,
 
Six months ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Purchase volume
$
5,948

 
$
5,702

 
$
11,197

 
$
10,766

Period-end loan receivables
$
19,766

 
$
18,320

 
$
19,766

 
$
18,320

Average loan receivables
$
19,409

 
$
17,978

 
$
19,453

 
$
18,014

Average active accounts (in thousands)
12,227

 
11,845

 
12,321

 
11,934

 
 
 
 
 
 
 
 
Interest and fees on loans
$
685

 
$
644

 
$
1,371

 
$
1,287

Retailer share arrangements
$
(21
)
 
$
(14
)
 
$
(33
)
 
$
(24
)
Other income
$
11

 
$
(2
)
 
$
12

 
$
(4
)
Payment Solutions interest and fees on loans increased by $41 million, or 6.4%, and $84 million, or 6.5%, for the three and six months ended June 30, 2019, respectively. The increase was primarily driven by growth in average loan receivables.
CareCredit
 
Three months ended June 30,
 
Six months ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Purchase volume
$
2,813

 
$
2,640

 
$
5,417

 
$
5,061

Period-end loan receivables
$
9,723

 
$
9,086

 
$
9,723

 
$
9,086

Average loan receivables
$
9,522

 
$
8,864

 
$
9,482

 
$
8,826

Average active accounts (in thousands)
6,086

 
5,819

 
6,092

 
5,837

 
 
 
 
 
 
 
 
Interest and fees on loans
$
561

 
$
522

 
$
1,108

 
$
1,036

Retailer share arrangements
$
(2
)
 
$
(2
)
 
$
(4
)
 
$
(4
)
Other income
$
20

 
$
11

 
$
35

 
$
19

CareCredit interest and fees on loans increased by $39 million, or 7.5%, and $72 million, or 6.9%, for the three and six months ended June 30, 2019, respectively. The increase was primarily driven by growth in average loan receivables.
Loan Receivables
____________________________________________________________________________________________
The following discussion provides supplemental information regarding our loan receivables portfolio.
Loan receivables are our largest category of assets and represent our primary source of revenue. The following table sets forth the composition of our loan receivables portfolio by product type at the dates indicated.
($ in millions)
At June 30, 2019
 
(%)
 
At December 31, 2018
 
(%)
Loans
 
 
 
 
 
Credit cards
$
78,446

 
96.0
%
 
$
89,994

 
96.6
%
Consumer installment loans
1,983

 
2.4

 
1,845

 
2.0

Commercial credit products
1,328

 
1.6

 
1,260

 
1.4

Other
39

 

 
40

 

Total loans
$
81,796

 
100.0
%
 
$
93,139

 
100.0
%

19



Loan receivables decreased by $11.3 billion, or 12.2%, at June 30, 2019 compared to December 31, 2018, primarily driven by the reclassification of $8.1 billion of loan receivables associated with the Walmart portfolio to loan receivables held for sale and the seasonality of our business.
Loan receivables increased by $2.9 billion, or 3.7%, at June 30, 2019 compared to June 30, 2018, primarily driven by the PayPal Credit acquisition, higher purchase volume and average active account growth, partially offset by the reclassification of the Walmart portfolio to loan receivables held for sale.
Our loan receivables portfolio had the following geographic concentration at June 30, 2019.
($ in millions)
 
Loan Receivables
Outstanding
 
% of Total Loan
Receivables
Outstanding
State
 
California
 
$
8,668

 
10.6
%
Texas
 
$
8,098

 
9.9
%
Florida
 
$
6,846

 
8.4
%
New York
 
$
4,698

 
5.7
%
Pennsylvania
 
$
3,401

 
4.2
%
Impaired Loans and Troubled Debt Restructurings
Our loss mitigation strategy is intended to minimize economic loss and at times can result in rate reductions, principal forgiveness, extensions or other actions, which may cause the related loan to be classified as a Troubled Debt Restructuring (“TDR”) and also be impaired. We use long-term modification programs for borrowers experiencing financial difficulty as a loss mitigation strategy to improve long-term collectability of the loans that are classified as TDRs. The long-term program involves changing the structure of the loan to a fixed payment loan with a maturity no longer than 60 months and reducing the interest rate on the loan. The long-term program does not normally provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee assessments. We also make loan modifications for some customers who request financial assistance through external sources, such as a consumer credit counseling agency program. The loans that are modified typically receive a reduced interest rate but continue to be subject to the original minimum payment terms and do not normally include waiver of unpaid principal, interest or fees. The determination of whether these changes to the terms and conditions meet the TDR criteria includes our consideration of all relevant facts and circumstances.
Loans classified as TDRs are recorded at their present value with impairment measured as the difference between the loan balance and the discounted present value of cash flows expected to be collected, discounted at the original effective interest rate of the loan. Our allowance for loan losses on TDRs is generally measured based on the difference between the recorded loan receivable and the present value of the expected future cash flows.
Interest income from loans accounted for as TDRs is accounted for in the same manner as other accruing loans. We accrue interest on credit card balances until the accounts are charged-off in the period the accounts become 180 days past due. The following table presents the amount of loan receivables that are not accruing interest, loans that are 90 days or more past-due and still accruing interest, and earning TDRs for the periods presented.
($ in millions)
At June 30, 2019
 
At December 31, 2018
Non-accrual loan receivables(1)
$
4

 
$
5

Loans contractually 90 days past-due and still accruing interest
1,759

 
2,116

Earning TDRs(2)
931

 
1,085

Non-accrual, past-due and restructured loan receivables
$
2,694

 
$
3,206

______________________
(1)
Excludes purchase credit impaired (“PCI”) loan receivables.
(2)
At June 30, 2019 and December 31, 2018, balances exclude $132 million and $122 million, respectively, of TDRs which are included in loans contractually 90 days past-due and still accruing interest on the balance. See Note 4. Loan Receivables and Allowance for Loan Losses to our condensed consolidated financial statements for additional information on the financial effects of TDRs for the three and six months ended June 30, 2019 and 2018.

20



 
Three months ended June 30,
 
Six months ended June 30,
($ in millions)
2019
 
2018
 
2019
 
2018
Gross amount of interest income that would have been recorded in accordance with the original contractual terms
$
66

 
$
65

 
$
130

 
$
127

Interest income recognized
11

 
12

 
22

 
24

Total interest income foregone
$
55

 
$
53

 
$
108

 
$
103

Delinquencies
Over-30 day loan delinquencies as a percentage of period-end loan receivables increased to 4.43% at June 30, 2019 from 4.17% at June 30, 2018, and decreased from 4.76% at December 31, 2018. The increase was primarily driven by the reclassification of loan receivables related to the Walmart portfolio to loan receivables held for sale. The decrease as compared to December 31, 2018 was due to the seasonality of our business partially offset by the increase related to the Walmart portfolio discussed above.
Net Charge-Offs
Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine are uncollectible, net of recovered amounts. We exclude accrued and unpaid finance charges and fees and third-party fraud losses from charge-offs. Charged-off and recovered finance charges and fees are included in interest and fees on loans while third-party fraud losses are included in other expense. Charge-offs are recorded as a reduction to the allowance for loan losses and subsequent recoveries of previously charged-off amounts are credited to the allowance for loan losses. Costs incurred to recover charged-off loans are recorded as collection expense and included in other expense in our Condensed Consolidated Statements of Earnings.
The table below sets forth the ratio of net charge-offs to average loan receivables, including held for sale, for the periods indicated.
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
Ratio of net charge-offs to average loan receivables, including held for sale
6.01
%
 
5.97
%
 
6.04
%
 
6.06
%
Allowance for Loan Losses
The allowance for loan losses totaled $5,809 million at June 30, 2019, compared with $6,427 million at December 31, 2018 and $5,859 million at June 30, 2018, representing our best estimate of probable losses inherent in the portfolio. Our allowance for loan losses as a percentage of total loan receivables increased to 7.10% at June 30, 2019, from 6.90% at December 31, 2018 and decreased from 7.43% at June 30, 2018. The increase from December 31, 2018 is primarily driven by the seasonality of our business. The decrease compared to the prior year is primarily driven by the reclassification of loan receivables associated with the Walmart portfolio to loan receivables held for sale. See