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

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to         
001-36560
(Commission File Number)
SYNCHRONY FINANCIAL
(Exact name of registrant as specified in its charter) 
Delaware
 
51-0483352
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
777 Long Ridge Road
 
 
Stamford, Connecticut
 
06902
(Address of principal executive offices)
 
(Zip Code)
(Registrant’s telephone number, including area code) (203) 585-2400
 
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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
Accelerated filer
o
 
 
 
 
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of April 26, 2016 was 833,920,403.




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


2



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 platform revenue in a small number of Retail Card partners, promotion and support of our products by our partners, and financial performance of our partners; higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings; our ability to securitize our loans, occurrence of an early amortization of our securitization facilities, loss of the right to service or subservice our securitized loans, and lower payment rates on our securitized loans; our ability to grow our deposits in the future; 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 strategic investments; reductions in interchange fees; fraudulent activity; cyber-attacks or other security breaches; failure of third parties to provide various services that are important to our operations; our transition to a replacement third-party vendor to manage the technology platform for our online retail deposits; 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 state sales tax rules and regulations; a material indemnification obligation to GE under the tax sharing and separation agreement with GE (the "TSSA") if we cause the split-off from GE or certain preliminary transactions to fail to qualify for tax-free treatment or in the case of certain significant transfers of our stock following the split-off; obligations associated with being an independent public company; 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 the impact of the Consumer Financial Protection Bureau's (the “CFPB”) regulation of our business; changes to our methods of offering our CareCredit products; 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 Synchrony 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” in our Annual Report on Form 10-K for the year ended December 31, 2015 (our “2015 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 the federal securities laws.

3



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 2015 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.” References in this Form 10-Q to the “Company”, “we”, “us” and “our” are to Synchrony Financial and its consolidated subsidiaries unless the context otherwise requires; references to “GE” are to General Electric Company and its subsidiaries; references to “GECC” are to General Electric Capital Corporation (a subsidiary of GE) and its subsidiaries; and references to the “Bank” are to our wholly-owned subsidiary, Synchrony Bank.
Introduction and Business Overview
____________________________________________________________________________________________
We are one of the premier consumer financial services companies in the United States. 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 we refer to as our “partners.” For the three months ended March 31, 2016, we financed $27.0 billion of purchase volume and had 66.1 million average active accounts, and at March 31, 2016, we had $65.8 billion of loan receivables. For the three months ended March 31, 2016, we had net earnings of $582 million, representing a return on assets of 2.8%.
We offer our credit products primarily through our wholly-owned subsidiary, the Bank. 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 expanded and continue to expand our online direct banking operations to increase our deposit base as a source of stable and diversified low cost funding for our credit activities. We had $45.0 billion in deposits at March 31, 2016.
In November 2015, Synchrony Financial became a stand-alone savings and loan holding company following the completion of GE's exchange offer, in which GE exchanged shares of GE common stock for all of the shares of our common stock it owned (the “Separation”).
Our Sales Platforms
_________________________________________________________________
We conduct our operations through a single business segment. Our revenue activities 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 platform revenues, loan receivables, new accounts and other sales metrics.



4



______________________
(1)
For a definition of platform revenue, which is a non-GAAP measure, and its reconciliation to interest and fees on loans, see “Results of OperationsPlatform AnalysisNon-GAAP Measure”.
Retail Card
Retail Card is a leading provider of private label credit cards, and also provides Dual Cards and small and medium-sized business credit products. 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 offer one or more of these products primarily through 23 national and regional retailers with which we have ongoing program agreements. The average length of our relationship with these Retail Card partners is 17 years. Retail Card’s platform revenue consists of interest and fees on our loan receivables, plus other income, less retailer share arrangements. Other income primarily consists of interchange fees earned on Dual Card transactions (when the card is used outside of our partners' sales channels) and fees paid to us by customers who purchase our debt cancellation products, less loyalty program payments. 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 private label credit 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 Payment Solutions is promotional financing. Payment Solutions’ platform 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 revenue associated with promotional financing.
CareCredit
CareCredit is a leading provider of promotional financing to consumers for elective healthcare procedures, products or services, such as dental, veterinary, cosmetic, vision and audiology. CareCredit offers financing through a CareCredit-branded private label credit card that may be used across our network of CareCredit providers in which the vast majority are individual or small groups of independent healthcare providers. Substantially all of the credit extended in this platform is promotional financing. CareCredit’s platform revenue primarily consists of interest and fees on our credit products and from merchant discounts. We also process general purpose card transactions for some providers as their acquiring bank within most of the credit card network associations, for which we obtain an interchange fee.

5



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, 2016.
 
 
 
Promotional Offer
 
 
Credit Product
Standard Terms Only
 
Deferred Interest
 
Other Promotional
 
Total
Credit cards
66.6
%
 
16.9
%
 
12.6
%
 
96.1
%
Commercial credit products
2.0

 

 

 
2.0

Consumer installment loans

 

 
1.8

 
1.8

Other
0.1

 

 

 
0.1

Total
68.7
%
 
16.9
%
 
14.4
%
 
100.0
%
Credit Cards
We offer two principal types of credit cards: private label credit cards and Dual 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., CarCareONE 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. Our patented Dual Cards are general purpose 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. Credit extended under our Dual Cards typically is extended under standard terms only. Currently, only our Retail Card platform offers Dual Cards. At March 31, 2016, we offered Dual Cards through 16 of our 23 ongoing Retail Card programs.
Commercial Credit Products
We offer private label cards and co-branded 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 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 product 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.

6



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
Extended duration of our Retail Card program agreements
Increases in retailer share arrangement payments and other expense under extended program agreements
Stable asset quality
Growth in interchange revenues and loyalty program costs
Impact of regulatory developments
Capital and liquidity levels
For a discussion of these trends and conditions, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Business Trends and Conditions” in our 2015 Form 10-K. For a discussion of how these trends and conditions impacted the three months ended March 31, 2016, 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. 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. 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.

7



The seasonal trends discussed above are most evident between the fourth quarter and the first quarter of the following year. Loan receivables decreased by $2.4 billion, or 3.6%, to $65.8 billion at March 31, 2016, and our allowance for loan losses as a percentage of total loan receivables increased to 5.50% at March 31, 2016, from 5.12% at December 31, 2015, reflecting the effects of these trends. Past due balances declined to $2.5 billion at March 31, 2016 from $2.8 billion at December 31, 2015, primarily due to collections from customers that were previously delinquent. The increase in the allowance for loan losses at March 31, 2016 compared to December 31, 2015, despite a decrease in our past due balances as a percentage of loan receivables at March 31, 2016 compared to December 31, 2015, reflects these same seasonal trends.
Results of Operations
____________________________________________________________________________________________
Highlights for the Three Months Ended March 31, 2016
Below are highlights of our performance for the three months ended March 31, 2016 compared to the three months ended March 31, 2015, as applicable, except as otherwise noted.
Net earnings increased 5.4% to $582 million for the three months ended March 31, 2016, driven by higher net interest income, partially offset by increases in provision for loan losses and other expenses.
Loan receivables increased 13.0% to $65,849 million at March 31, 2016 compared to March 31, 2015, primarily driven by higher purchase volume and average active account growth, and included growth associated with the BP portfolio acquired in the second quarter of 2015.
Net interest income increased 11.6% to $3,209 million for the three months ended March 31, 2016, primarily due to higher average loan receivables.
Retailer share arrangements increased 1.5% to $670 million for the three months ended March 31, 2016, primarily as a result of growth and improved performance of the programs in which we have retailer share arrangements, partially offset by higher provision for loan losses and loyalty costs associated with these programs.
Asset quality continued to remain relatively stable, sustained by general improvement in the U.S. economy. Over-30 day loan delinquencies as a percentage of period-end loan receivables increased slightly to 3.85% at March 31, 2016 from 3.79% at March 31, 2015, and the net charge-off rate increased 17 basis points to 4.70% for the three months ended March 31, 2016.
Provision for loan losses increased by $216 million, or 31.4%, for the three months ended March 31, 2016, primarily due to portfolio growth and a lower loan loss reserve build in the prior year. Our allowance coverage ratio (allowance for loan losses as a percent of end of period loan receivables) decreased slightly to 5.50% at March 31, 2016, as compared to 5.59% at March 31, 2015.
Other expense increased by $54 million, or 7.2%, for the three months ended March 31, 2016, driven by growth and infrastructure build.
We continue to invest in our direct banking activities to grow our deposit base. Total deposits increased 3.7% to $45.0 billion at March 31, 2016, compared to December 31, 2015, driven primarily by growth in our direct deposits of 9.4% to $32.5 billion, partially offset by a reduction in our brokered deposits.
New and Extended Partner Agreements
We extended our Retail Card program agreement with Stein Mart, launched our new program with Citgo, and announced our new partnership with Marvel.
We extended our Payment Solutions program agreement with La-Z-Boy.

8



Summary Earnings
The following table sets forth our results of operations for the periods indicated.
 
Three months ended March 31,
($ in millions)
2016
 
2015
Interest income
$
3,520

 
$
3,150

Interest expense
311

 
275

Net interest income
3,209

 
2,875

Retailer share arrangements
(670
)
 
(660
)
Net interest income, after retailer share arrangements
2,539

 
2,215

Provision for loan losses
903

 
687

Net interest income, after retailer share arrangements and provision for loan losses
1,636

 
1,528

Other income
92

 
101

Other expense
800

 
746

Earnings before provision for income taxes
928

 
883

Provision for income taxes
346

 
331

Net earnings
$
582

 
$
552


9



Other Financial and Statistical Data(1) 
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)
2016
 
2015
Financial Position Data (Average):
 
 
 
Loan receivables, including held for sale
$
66,705

 
$
59,775

Total assets
$
82,835

 
$
73,695

Deposits
$
44,327

 
$
35,029

Borrowings
$
22,073

 
$
25,063

Total equity
$
12,901

 
$
10,749

Selected Performance Metrics:
 
 
 
Purchase volume(2)
$
26,977

 
$
23,139

Retail Card
$
21,550

 
$
18,410

Payment Solutions
$
3,392

 
$
2,948

CareCredit
$
2,035

 
$
1,781

Average active accounts (in thousands)(3)
66,134

 
61,604

Net interest margin(4)
15.76
%
 
15.79
%
Net charge-offs
$
780

 
$
668

Net charge-offs as a % of average loan receivables, including held for sale
4.70
%
 
4.53
%
Allowance coverage ratio(5)
5.50
%
 
5.59
%
Return on assets(6)
2.8
%
 
3.0
%
Return on equity(7)
18.1
%
 
20.8
%
Equity to assets(8)
15.57
%
 
14.59
%
Other expense as a % of average loan receivables, including held for sale
4.82
%
 
5.06
%
Efficiency ratio(9)
30.4
%
 
32.2
%
Effective income tax rate
37.3
%
 
37.5
%
Selected Period End Data:
 
 
 
Loan receivables
$
65,849

 
$
58,248

Allowance for loan losses
$
3,620

 
$
3,255

30+ days past due as a % of period-end loan receivables(10)
3.85
%
 
3.79
%
90+ days past due as a % of period-end loan receivables(10)
1.84
%
 
1.81
%
Total active accounts (in thousands)(3)
64,689

 
59,761

______________________
(1)
Certain balance sheet amounts and related metrics have been updated to reflect the adoption of ASU 2015-03. See “Management's Discussion and Analysis—New Accounting Standards” for a more detailed discussion.
(2)
Purchase volume, or net credit sales, represents the aggregate amount of charges incurred on credit cards or other credit product accounts less returns during the period. Purchase volume includes activity related to our portfolios classified as held for sale.
(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) net interest income, after retailer share arrangements, plus other income.
(10)
Based on customer statement-end balances extrapolated to the respective period-end date.


10



Average Balance Sheet
The following table 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.
 
2016
 
2015
Three months ended March 31 ($ in millions)
Average
Balance(1)
 
Interest
Income /
Expense
 
Average
Yield /
Rate(2)
 
Average
Balance(1)
 
Interest
Income/
Expense
 
Average
Yield /
Rate(2)
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning cash and equivalents(3)
$
12,185

 
$
16

 
0.53
%
 
$
11,331

 
$
6

 
0.21
%
Securities available for sale
2,995

 
6

 
0.81
%
 
2,725

 
4

 
0.60
%
Loan receivables:
 
 
 
 
 
 
 
 
 
 
 
Credit cards, including held for sale(4)
64,194

 
3,436

 
21.53
%
 
57,390

 
3,079

 
21.76
%
Consumer installment loans
1,159

 
27

 
9.37
%
 
1,057

 
25

 
9.59
%
Commercial credit products
1,313

 
35

 
10.72
%
 
1,305

 
36

 
11.19
%
Other
39

 

 
%
 
23

 

 
%
Total loan receivables
66,705

 
3,498

 
21.09
%
 
59,775

 
3,140

 
21.30
%
Total interest-earning assets
81,885

 
3,520

 
17.29
%
 
73,831

 
3,150

 
17.30
%
Non-interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
1,277

 
 
 
 
 
497

 
 
 
 
Allowance for loan losses
(3,583
)
 
 
 
 
 
(3,272
)
 
 
 
 
Other assets
3,256

 
 
 
 
 
2,639

 
 
 
 
Total non-interest-earning assets
950

 
 
 
 
 
(136
)
 
 
 
 
Total assets
$
82,835

 
 
 
 
 
$
73,695

 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposit accounts
$
44,101

 
$
172

 
1.57
%
 
$
34,887

 
$
137

 
1.59
%
Borrowings of consolidated securitization entities
12,950

 
58

 
1.80
%
 
14,087

 
52

 
1.50
%
Bank term loan
2,565

 
24

 
3.76
%
 
6,498

 
47

 
2.93
%
Senior unsecured notes
6,558

 
57

 
3.50
%
 
4,071

 
35

 
3.49
%
Related party debt

 

 
%
 
407

 
4

 
3.99
%
Total interest-bearing liabilities
66,174

 
311

 
1.89
%
 
59,950

 
275

 
1.86
%
Non-interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Non-interest-bearing deposit accounts
226

 
 
 
 
 
142

 
 
 
 
Other liabilities
3,534

 
 
 
 
 
2,854

 
 
 
 
Total non-interest-bearing liabilities
3,760

 
 
 
 
 
2,996

 
 
 
 
Total liabilities
69,934

 
 
 
 
 
62,946

 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
Total equity
12,901

 
 
 
 
 
10,749

 
 
 
 
Total liabilities and equity
$
82,835

 
 
 
 
 
$
73,695

 
 
 
 
Interest rate spread(5)
 
 
 
 
15.40
%
 
 
 
 
 
15.44
%
Net interest income
 
 
$
3,209

 
 
 
 
 
$
2,875

 
 
Net interest margin(6)
 
 
 
 
15.76
%
 
 
 
 
 
15.79
%
 
 
 
 
 
 
 
 
 
 
 
 
______________________
(1)
Average balances are based on monthly balances, including beginning of period balances, except where monthly balances are unavailable and quarterly balances are used. Collection of daily averages involves undue burden and expense. We believe our average balance sheet data appropriately incorporates the seasonality in the level of our loan receivables and is representative of our operations.
(2)
Average yields/rates are based on total interest income/expense over average monthly balances.

11



(3)
Includes average restricted cash balances of $541 million and $723 million for the three months ended March 31, 2016 and 2015, respectively.
(4)
Interest income on credit cards includes fees on loans of $584 million and $534 million for the three months ended March 31, 2016 and 2015, respectively.
(5)
Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities.
(6)
Net interest margin represents net interest income divided by average total interest-earning assets.
For a summary description of the composition of our key line items included in our Statements of Earnings, see Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2015 Form 10-K.
Interest Income
Interest income increased by $370 million, or 11.7%, for the three months ended March 31, 2016, driven primarily by growth in our average loan receivables.
Average interest-earning assets
 
Three months ended March 31,
($ in millions)
2016
 
2015
Loan receivables, including held for sale
$
66,705

 
$
59,775

Liquidity portfolio and other
15,180

 
14,056

Total average interest-earning assets
$
81,885

 
$
73,831

The increase in average loan receivables of 11.6% was driven primarily by higher purchase volume of 16.6% for the three months ended March 31, 2016, as a result of average active account growth and higher purchase volume per account, and also included growth associated with the BP portfolio acquired in the second quarter of 2015. Average active accounts increased 7.4% to 66.1 million for the three months ended March 31, 2016 from 61.6 million for the three months ended March 31, 2015.
Yield on average interest-earning assets
 
Three months ended
 
 
Yield on average interest-earning assets for the period ended March 31, 2015
17.30
 %
Yield on loan receivables, including held for sale
(0.21
)%
Liquidity portfolio
0.20
 %
Yield on average interest-earning assets for the period ended March 31, 2016
17.29
 %
 
 
The yield on interest-earning assets remained stable for the three months ended March 31, 2016 as the decline in yield on our average loan receivables was largely offset by improved rates earned by our liquidity portfolio. The yield on our average loan receivables decreased to 21.09% for the three months ended March 31, 2016, reflecting the impact of higher payment rates from our customers and growth in promotional balances.
Interest Expense
Interest expense increased by $36 million, or 13.1%, for the three months ended March 31, 2016, driven primarily by the increase in our deposit liabilities. Our cost of funds remained stable at 1.89% for the three months ended March 31, 2016, compared to 1.86% for the three months ended March 31, 2015.

12



Average interest-bearing liabilities
 
Three months ended March 31,
($ in millions)
2016
 
2015
Interest-bearing deposit accounts
$
44,101

 
$
34,887

Borrowings of consolidated securitization entities
12,950

 
14,087

Third-party debt
9,123

 
10,569

Related party debt

 
407

Total average interest-bearing liabilities
$
66,174

 
$
59,950

The increase in average interest-bearing liabilities for the three months ended March 31, 2016 was driven primarily by growth in our direct deposits partially offset by the repayment of third-party debt.
Net Interest Income
Net interest income increased by $334 million, or 11.6%, for the three months ended March 31, 2016, driven by higher average loan receivables.
Retailer Share Arrangements
Retailer share arrangements increased by $10 million, or 1.5%, for the three months ended March 31, 2016, driven primarily by the growth and improved performance of the programs in which we have retailer share arrangements, partially offset by higher provision for loan losses and loyalty costs associated with these programs.
Provision for Loan Losses
Provision for loan losses increased by $216 million, or 31.4%, for the three months ended March 31, 2016, primarily due to portfolio growth and a lower loan loss reserve build in prior year.
Our allowance coverage ratio decreased slightly to 5.50% at March 31, 2016, as compared to 5.59% at March 31, 2015.
Other Income
 
Three months ended March 31,
($ in millions)
2016
 
2015
Interchange revenue
$
130

 
$
100

Debt cancellation fees
64

 
65

Loyalty programs
(110
)
 
(78
)
Other
8

 
14

Total other income
$
92

 
$
101

Other income decreased by $9 million, or 8.9%, for the three months ended March 31, 2016. The decrease was primarily due to higher loyalty costs arising from the launch of new partner programs and new rewards programs with our existing partners, partially offset by increased interchange revenue driven by increased purchase volume outside of our retail partners' sales channels.

13



Other Expense
 
Three months ended March 31,
($ in millions)
2016
 
2015
Employee costs
$
280

 
$
239

Professional fees
146

 
162

Marketing and business development
94

 
82

Information processing
82

 
63

Other
198

 
200

Total other expense
$
800

 
$
746

Other expense increased by $54 million, or 7.2%, for the three months ended March 31, 2016, primarily due to increases in employee costs, marketing and business development and information processing, partially offset by a decrease in professional fees.
Employee costs increased primarily due to new employees added to support the continued growth of the business and build the necessary infrastructure for Separation. Professional fees decreased due to lower third-party expenses following the completion of the Separation. Marketing and business development costs increased due to increases in portfolio marketing campaigns and promotional offers. Information processing costs increased primarily due to higher information technology investment and higher transaction volume.
Provision for Income Taxes
 
Three months ended March 31,
($ in millions)
2016
 
2015
Effective tax rate
37.3
%
 
37.5
%
Provision for income taxes
$
346

 
$
331

The effective tax rate for the three months ended March 31, 2016 decreased slightly compared to the same period in the prior year primarily due to the discrete impact of a change in state tax rates. In each period, the effective tax rate differs from the U.S. federal statutory tax rate of 35.0%, 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 the platform revenue for each of our platforms.

14



Non-GAAP Measure
In order to assess and internally report the revenue performance of our three sales platforms, we use a measure we refer to as “platform revenue.” Platform revenue is the sum of three line items in our Condensed Consolidated Statements of Earnings prepared in accordance with GAAP: “interest and fees on loans,” plus “other income,” less “retailer share arrangements.” Platform revenue itself is not a measure presented in accordance with GAAP. We deduct retailer share arrangements but do not deduct other line item expenses, such as interest expense, provision for loan losses and other expense, because those items are managed for the business as a whole. We believe that platform revenue is a useful measure to investors because it represents management’s view of the net revenue contribution of each of our platforms. This measure should not be considered a substitute for interest and fees on loans or other measures of performance we have reported in accordance with GAAP. The reconciliation of platform revenue to interest and fees on loans for each platform is set forth in the table included in the discussion of each of our three platforms below. The following table sets forth the reconciliation of total platform revenue to total interest and fees on loans for the periods indicated.
 
Three months ended March 31,
($ in millions)
2016
 
2015
Interest and fees on loans
$
3,498

 
$
3,140

Other income
92

 
101

Retailer share arrangements
(670
)
 
(660
)
Platform revenue
$
2,920

 
$
2,581

Retail Card
The following table sets forth supplemental information related to our Retail Card platform for the periods indicated.
 
Three months ended March 31,
($ in millions)
2016
 
2015
Purchase volume
$
21,550

 
$
18,410

Period-end loan receivables
$
45,113

 
$
39,685

Average loan receivables, including held for sale
$
45,900

 
$
40,986

Average active accounts (in thousands)
52,969

 
49,617

 
 
 
 
Platform revenue:
 
 
 
Interest and fees on loans
$
2,614

 
$
2,337

Other income
79

 
86

Retailer share arrangements
(661
)
 
(651
)
Platform revenue
$
2,032

 
$
1,772

Retail Card platform revenue increased by $260 million, or 14.7%, for the three months ended March 31, 2016. The increase was primarily the result of an increase in interest and fees on loans driven by an increase in average loan receivables.

15



Payment Solutions
The following table sets forth supplemental information related to our Payment Solutions platform for the periods indicated.
 
Three months ended March 31,
($ in millions)
2016
 
2015
Purchase volume
$
3,392

 
$
2,948

Period-end loan receivables
$
13,420

 
$
11,833

Average loan receivables
$
13,482

 
$
11,970

Average active accounts (in thousands)
8,134

 
7,271

 
 
 
 
Platform revenue:
 
 
 
Interest and fees on loans
$
457

 
$
403

Other income
4

 
5

Retailer share arrangements
(7
)
 
(8
)
Platform revenue
$
454

 
$
400

Payment Solutions platform revenue increased by $54 million, or 13.5%, for the three months ended March 31, 2016. The increase was primarily the result of higher interest and fees on loans driven primarily by an increase in average loan receivables.
CareCredit
The following table sets forth supplemental information related to our CareCredit platform for the periods indicated.
 
Three months ended March 31,
($ in millions)
2016
 
2015
Purchase volume
$
2,035

 
$
1,781

Period-end loan receivables
$
7,316

 
$
6,730

Average loan receivables
$
7,323

 
$
6,819

Average active accounts (in thousands)
5,031

 
4,716

 
 
 
 
Platform revenue:
 
 
 
Interest and fees on loans
$
427

 
$
400

Other income
9

 
10

Retailer share arrangements
(2
)
 
(1
)
Platform revenue
$
434

 
$
409

CareCredit platform revenue increased by $25 million, or 6.1%, for the three months ended March 31, 2016. The increase was primarily the result of an increase in interest and fees on loans driven primarily by an increase in average loan receivables, partially offset with a reduction in receivable yield.

16



Investment Securities
____________________________________________________________________________________________
The following discussion provides supplemental information regarding our investment securities portfolio. All of our investment securities are classified as available-for-sale at March 31, 2016 and December 31, 2015, and are primarily short-term obligations of the U.S. Treasury or held to comply with the Community Reinvestment Act. Investment securities classified as available-for-sale are reported in our Condensed Consolidated Statements of Financial Position at fair value.
The following table sets forth the amortized cost and fair value of our portfolio of investment securities at the dates indicated:
 
At March 31, 2016
 
At December 31, 2015
($ in millions)
Amortized
Cost
 
Estimated Fair Value
 
Amortized
Cost
 
Estimated Fair Value
Debt:
 
 
 
 
 
 
 
U.S. government and federal agency
$
2,564

 
$
2,563

 
$
2,768

 
$
2,761

State and municipal
49

 
48

 
51

 
49

Residential mortgage-backed
319

 
323

 
323

 
317

Equity
15

 
15

 
15

 
15

Total
$
2,947

 
$
2,949

 
$
3,157

 
$
3,142

Unrealized gains and losses, net of the related tax effect, on available-for-sale securities that are not other-than-temporarily impaired are excluded from earnings and are reported as a separate component of comprehensive income (loss) until realized. At March 31, 2016, our investment securities had gross unrealized gains of $5 million and gross unrealized losses of $3 million. At December 31, 2015, our investment securities had gross unrealized gains of $2 million and gross unrealized losses of $17 million.
Our investment securities portfolio had the following maturity distribution at March 31, 2016. Equity securities have been excluded from the table because they do not have a maturity.
($ in millions)
Due in 1 Year
or Less
 
Due After 1
through
5 Years
 
Due After 5
through
10 Years
 
Due After
10 years
 
Total
Debt:
 
 
 
 
 
 
 
 
 
U.S. government and federal agency
$
1,114

 
$
1,449

 
$

 
$

 
$
2,563

State and municipal

 

 

 
48

 
48

Residential mortgage-backed

 

 

 
323

 
323

Total(1)
$
1,114

 
$
1,449

 
$

 
$
371

 
$
2,934

Weighted average yield(2)
0.3
%
 
0.7
%
 
%
 
3.5
%
 
0.9
%
______________________
(1)
Amounts stated represent estimated fair value.
(2)
Weighted average yield is calculated based on the amortized cost of each security. In calculating yield, no adjustment has been made with respect to any tax exempt obligations.
At March 31, 2016, we did not hold investments in any single issuer with an aggregate book value that exceeded 10% of equity, excluding obligations of the U.S. government.

17



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 revenues. The following table sets forth the composition of our loan receivables portfolio by product type at the dates indicated.
($ in millions)
At March 31, 2016
 
(%)
 
At December 31, 2015
 
(%)
Loans
 
 
 
 
 
Credit cards
$
63,309

 
96.1
%
 
$
65,773

 
96.3
%
Consumer installment loans
1,184

 
1.8

 
1,154

 
1.7

Commercial credit products
1,318

 
2.0

 
1,323

 
1.9

Other
38

 
0.1

 
40

 
0.1

Total loans
$
65,849

 
100.0
%
 
$
68,290

 
100.0
%
Loan receivables decreased by $2,441 million, or 3.6%, at March 31, 2016 compared to December 31, 2015, primarily driven by the seasonality of our business.
Loan receivables increased by $7,601 million, or 13.0%, at March 31, 2016 compared to March 31, 2015, primarily driven by higher purchase volume, average active account growth and also included growth associated with the BP portfolio acquired in the second quarter of 2015.
Our loan receivables portfolio had the following geographic concentration at March 31, 2016.
($ in millions)
 
Loan Receivables
Outstanding(1)
 
% of Total Loan
Receivables
Outstanding
State
 
Texas
 
$
6,542

 
9.9
%
California
 
$
6,448

 
9.8
%
Florida
 
$
5,254

 
8.0
%
New York
 
$
3,663

 
5.6
%
Pennsylvania
 
$
2,886

 
4.4
%
______________________
(1)
Based on March 2016 customer statement-end balances extrapolated to March 31, 2016. Individual customer balances at March 31, 2016 are not available without undue burden and expense.

18



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 short-term (3 to 12 months) or long-term (12 to 60 months) 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. For our credit card customers, the short-term program primarily consists of a reduced minimum payment and an interest rate reduction, both lasting for a period no longer than 12 months. 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 March 31, 2016
 
At December 31, 2015
Non-accrual loan receivables
$
2

 
$
3

Loans contractually 90 days past-due and still accruing interest
1,210

 
1,270

Earning TDRs(1)
725

 
712

Non-accrual, past-due and restructured loan receivables
$
1,937

 
$
1,985

______________________
(1)
At March 31, 2016 and December 31, 2015, balances exclude $53 million and $51 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 months ended March 31, 2016 and 2015.
 
Three months ended March 31,
($ in millions)
2016
 
2015
Gross amount of interest income that would have been recorded in accordance with the original contractual terms
$
42

 
$
36

Interest income recognized
12

 
13

Total interest income foregone
$
30

 
$
23

Delinquencies
Asset quality continued to remain relatively stable, sustained by general improvements in the U.S. economy. Over-30 day loan delinquencies as a percentage of period-end loan receivables increased slightly to 3.85% at March 31, 2016 from 3.79% at March 31, 2015 and decreased from 4.06% at December 31, 2015. The decrease as compared to December 31, 2015 was primarily driven by the seasonality of our business.

19



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 March 31,
 
2016
 
2015
Ratio of net charge-offs to average loan receivables, including held for sale
4.70
%
 
4.53
%
Allowance for Loan Losses
The allowance for loan losses totaled $3,620 million at March 31, 2016 compared with $3,497 million at December 31, 2015, representing our best estimate of probable losses inherent in the portfolio. Our allowance for loan losses as a percentage of total loan receivables increased to 5.50% at March 31, 2016, from 5.12% at December 31, 2015 due to the seasonality of our business.
The following tables provide changes in our allowance for loan losses for the periods presented:
 ($ in millions)
Balance at January 1, 2016

 
Provision charged to operations

 
Gross charge-offs(1)

 
Recoveries

 
Balance at
March 31, 2016

 
 
 
 
 
 
 
 
 
 
Credit cards
$
3,420

 
$
884

 
$
(954
)
 
$
193

 
$
3,543

Consumer installment loans
26

 
13

 
(11
)
 
3

 
31

Commercial credit products
50

 
5

 
(13
)
 
2

 
44

Other
1

 
1

 

 

 
2

Total
$
3,497

 
$
903

 
$
(978
)
 
$
198

 
$
3,620

($ in millions)
Balance at January 1, 2015

 
Provision charged to operations

 
Gross charge-offs(1)

 
Recoveries

 
Balance at March 31, 2015

 
 
 
 
 
 
 
 
 
 
Credit cards
$
3,169

 
$
669

 
$
(834
)
 
$
180

 
$
3,184

Consumer installment loans
22

 
7

 
(9
)
 
4

 
24

Commercial credit products
45

 
11

 
(11
)
 
2

 
47

Total
$
3,236

 
$
687

 
$
(854
)
 
$
186

 
$
3,255

______________________
(1)
Net charge-offs (gross charge-offs less recoveries) in certain portfolios may exceed the beginning allowance for loan losses as our revolving credit portfolios turn over more than once per year or, in all portfolios, can reflect losses that are incurred subsequent to the beginning of the period due to information becoming available during the period, which may identify further deterioration of existing loan receivables.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

20



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), third-party debt and securitized financings.
The following table summarizes information concerning our funding sources during the periods indicated:
 
2016
 
2015
Three months ended March 31 ($ in millions)
Average
Balance
 
%
 
Average
Rate
 
Average
Balance
 
%
 
Average
Rate
Deposits(1)
$
44,101

 
66.6
%
 
1.6
%
 
$
34,887

 
58.2
%
 
1.6
%
Securitized financings
12,950

 
19.6

 
1.8

 
14,087

 
23.5

 
1.5

Senior unsecured notes
6,558

 
9.9

 
3.5

 
4,071

 
6.8

 
3.5

Bank term loan
2,565

 
3.9

 
3.8

 
6,498

 
10.8

 
2.9

Related party debt(2)

 

 

 
407

 
0.7

 
4.0

Total
$
66,174

 
100.0
%
 
1.9
%
 
$
59,950

 
100.0
%
 
1.9
%
______________________
(1)
Excludes $226 million and $142 million average balance of non-interest-bearing deposits for the three months ended March 31, 2016 and March 31, 2015, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the three months ended March 31, 2016 and 2015.
(2)
Represents amounts outstanding under GECC Term Loan, which were fully repaid in the three months ended March 31, 2015.
 
 
 
 
 
 
 
 
 
 
 
 
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, 2016, we had $32.5 billion in direct deposits (which includes deposits from banks and financial institutions) and $12.5 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 10 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, 2016, had a weighted average remaining life of 3.2 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 and interest rate risk if we fail, or are required to pay higher rates, to attract new deposits or retain existing deposits. To mitigate these risks, we pursue a funding strategy that seeks to match our assets and liabilities by interest rate and expected maturity characteristics, and we seek to maintain access to multiple other funding sources, including securitized financings (including our undrawn committed capacity) and unsecured debt.

21



Over the next several years, we are seeking to increase our direct deposits through investing in our direct deposit programs and capabilities. The growth of direct deposits will be supported by a significant investment in marketing and brand awareness.
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)
2016
 
2015
Average
Balance
 
% of
Total
 
Average
Rate
 
Average
Balance
 
% of
Total
 
Average
Rate
Direct deposits:
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit (including IRA certificates of deposit)
$
18,291

 
41.5
%
 
1.5
%
 
$
13,830

 
39.6
%
 
1.4
%
Savings accounts (including money market accounts)
12,602

 
28.6

 
1.0

 
6,487

 
18.6

 
0.9

Brokered deposits
13,208

 
29.9

 
2.1

 
14,570

 
41.8

 
2.1

Total interest-bearing deposits
$
44,101

 
100.0
%
 
1.6
%
 
$
34,887

 
100.0
%
 
1.6
%
 
 
 
 
 
 
 
 
 
 
 
 
Our deposit liabilities provide funding with maturities ranging from one day to ten years. At March 31, 2016, the weighted average maturity of our interest-bearing time deposits was 2.1 years. See Note 7. Deposits to our condensed consolidated financial statements for more information on their maturities.
The following table summarizes deposits by contractual maturity at March 31, 2016.
($ 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 $100,000)(1)
$
5,416

 
$
1,269

 
$
3,036

 
$
11,094

 
$
20,815

U.S. deposits ($100,000 or more)
 
 
 
 
 
 
 
 
 
Direct deposits:
 
 
 
 
 
 
 
 
 
Certificates of deposit (including IRA certificates of deposit)
2,183

 
1,693

 
3,491

 
5,498

 
12,865

Savings accounts (including money market accounts)
10,331

 

 

 

 
10,331

Brokered deposits:
 
 
 
 
 
 
 
 
 
Sweep accounts
966

 

 

 

 
966

Total
$
18,896

 
$
2,962

 
$
6,527

 
$
16,592

 
$
44,977

______________________
(1)
Includes brokered certificates of deposit for which underlying individual deposit balances are assumed to be less than $100,000.
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”) 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”) and the Synchrony Receivables Trust ("SRT").

22



The following table summarizes expected contractual maturities of the investors’ interests in securitized financings, excluding debt premiums, discounts and issuance cost, at March 31, 2016.
($ 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)
$
1,701

 
$
6,885

 
$
1,588

 
$

 
$
10,174

SFT
275

 
1,450

 
375

 

 
2,100

SRT
165

 

 

 

 
165

Total long-term borrowings—owed to securitization investors
$
2,141

 
$
8,335

 
$
1,963

 
$

 
$
12,439

______________________
(1)
Excludes subordinated classes of SYNCT notes that we own.
We retain exposure to the performance of trust assets through: (i) in the case of SYNCT, SFT and SRT, subordinated retained interests in the 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) subordinated classes of SYNCT notes that we own.
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 loans 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 falls below zero. Following an early amortization event, principal collections on the loans in our trusts are applied to repay principal of the 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 SRT.
The following table summarizes for each of our trusts the three-month rolling average excess spread at March 31, 2016.
 
Note Principal Balance
($ in millions)
 
# of Series
Outstanding
 
Three-Month Rolling
Average Excess
Spread(1)
SYNCT(2)
$
11,711

 
22

 
~13.7% to 18.3%

SFT
$
2,100

 
9

 
14.1
%
SRT
$
165

 
1

 
42.5
%
______________________
(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 each trust (or, in the case of SYNCT, represents a range of the excess spreads relating to the particular series issued within the trust), in each case calculated in accordance with the applicable trust or series documentation, for the three securitization monthly periods ending prior to March 31, 2016.
(2)
Includes subordinated classes of SYNCT notes that we own.

23



Third-Party Debt
Senior Unsecured Notes
The following table provides a summary of our outstanding senior unsecured notes at March 31, 2016.
($ in millions)
 
Maturity
 
Principal Amount Outstanding(1)
Fixed senior unsecured notes:
 
 
 
 
1.875% senior unsecured notes
 
August, 2017
 
$
500

2.600% senior unsecured notes
 
January, 2019
 
1,000

3.000% senior unsecured notes
 
August, 2019
 
1,100

2.700% senior unsecured notes
 
February, 2020
 
750

3.750% senior unsecured notes
 
August, 2021
 
750

4.250% senior unsecured notes
 
August, 2024
 
1,250

4.500% senior unsecured notes
 
July, 2025
 
1,000

Total fixed rate senior unsecured notes
 
 
 
$
6,350

 
 
 
 
 
Floating rate senior unsecured notes
 
February, 2020
 
$
250

______________________
(1)
The amounts shown exclude unamortized debt discount, premiums and issuance cost.
At March 31, 2016, the aggregate amount of outstanding senior unsecured notes was $6.6 billion and the weighted average interest rate was 3.33%.
Bank Term Loan
During the three months ended March 31, 2016, we prepaid $2.7 billion in the aggregate of the Bank Term Loan. At March 31, 2016, the total indebtedness outstanding under the Bank Term Loan was $1.5 billion and the weighted average interest rate was 2.34%. On April 5, 2016, we prepaid all of the remaining outstanding indebtedness under the Bank Term Loan.
Short-Term Borrowings
Except as described above, there were no material short-term borrowings for the periods presented.
Undrawn Securitized Financings
At March 31, 2016, we had an aggregate of $7.3 billion of undrawn committed capacity on our securitized financings, subject to customary borrowing conditions, from private lenders under two of our existing securitization programs.
Other
At March 31, 2016, 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.

24



Covenants
The indenture pursuant to which our senior unsecured notes have been issued includes various covenants, including covenants that restrict (subject to certain exceptions) Synchrony’s ability to dispose of, or incur liens on, any of the voting stock of the Bank or otherwise permit the Bank to be merged, consolidated, leased or sold in a manner that results in the Bank being less than 80% controlled by us. If we do not satisfy any of these covenants discussed above, the maturity of amounts outstanding thereunder may be accelerated and become payable. We were in compliance with all of these covenants at March 31, 2016.
Our real estate leases also include various covenants, but typically do not include financial covenants. If we do not satisfy the covenants in the real estate leases, the leases may be terminated and we may be liable for damage claims.
At March 31, 2016, we were not in default under our senior unsecured notes and had not received any notices of default under any of our real estate leases.
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.
Our senior unsecured debt issued in 2014 and 2015, was rated BBB- (stable outlook) by Fitch and BBB- (stable outlook) by S&P. In addition, certain of the asset-backed securities issued by SYNCT 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 our Enterprise Risk Management Committee. 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, 2016 had $14.9 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 a $14.8 billion liquidity portfolio at December 31, 2015. The increase in liquid assets was primarily due to the retention of excess cash flows from operations within our Company.
As additional sources of liquidity, at March 31, 2016, we had an aggregate of $7.3 billion of undrawn committed capacity, subject to customary borrowing conditions, from private lenders under two of our existing securitization programs, 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 will 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 “Item 1A. Risk Factors—Risks 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 or make payments on our indebtedness” and “Regulation—Savings Association Regulation—Dividends and Stock Repurchases” in our 2015 Form 10-K.
Capital
____________________________________________________________________________________________
Our primary sources of capital have been earnings generated by our businesses and existing equity capital. We seek to manage capital to a level and composition sufficient to support the risks of our businesses, 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.
Our capital adequacy assessment also includes tax and accounting considerations in accordance with regulatory guidance. We maintain a deferred tax asset on our balance sheet, and we include this asset when calculating our regulatory capital levels. However, for regulatory capital purposes, deferred tax assets are (i) limited to the amount of taxes previously paid that a company could recover through loss carrybacks; and (ii) 10% of the amount of our Tier 1 capital. At March 31, 2016, no portion of our deferred tax asset was disallowed for regulatory capital purposes.
The Bank is required to conduct stress tests on an annual basis, and beginning on January 1, 2017, the Company will be required to conduct stress tests on an annual basis under the OCC's and the Federal Reserve Board's stress test regulations. The Bank is, and the Company will be, required to use stress-testing methodologies providing for results under at least three different sets of conditions, including baseline, adverse and severely adverse conditions. In addition, while as a savings and loan holding company we currently are not subject to the Federal Reserve Board's capital planning rule, we prepared and submitted a capital plan to the Federal Reserve Board in April 2016.
Dividend and Share Repurchases
The declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors and will depend on many factors, including the financial condition, earnings, capital and liquidity requirements of us and the Bank, regulatory restrictions, corporate law and contractual restrictions and other factors that our board of directors deems relevant. In addition, banking laws and regulations and our banking regulators may limit our ability to pay dividends and make repurchases of our stock. For a discussion of regulatory restrictions on our and the Bank’s ability to pay dividends and repurchase stock, see “Risk Factors—Risks 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 or make payments on our indebtedness” in our 2015 Form 10-K.
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 2015 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, 2016, Synchrony Financial met all the requirements to be deemed well-capitalized.
The following table sets forth at March 31, 2016 and December 31, 2015 the composition of our capital ratios for the Company calculated under the Basel III regulatory capital standards.
 
Basel III Transition
(unless otherwise stated)
 
At March 31, 2016
 
At December 31, 2015
($ in millions)
Amount
 
Ratio(1)
 
Amount
 
Ratio(1)
Total risk-based capital
$
12,968

 
19.4
%
 
$
12,531

 
18.1
%
Tier 1 risk-based capital
$
12,099

 
18.1
%
 
$
11,633

 
16.8
%
Tier 1 leverage
$
12,099

 
14.8
%
 
$
11,633

 
14.4
%
Common equity Tier 1 capital
$
12,099

 
18.1
%
 
$
11,633

 
16.8
%
Common equity Tier 1 capital - fully phased-in (estimated)
$
11,834

 
17.5
%
 
$
11,234

 
15.9
%
______________________
(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.
The increase in our Common equity Tier 1 capital ratio was primarily due to the retention of the Company's net earnings for the three months ended March 31, 2016 and a reduction in risk-weighted assets primarily due to the seasonal decrease in our loan receivables.
Non-GAAP Measures
The capital ratios presented above include common equity Tier 1 capital ("CET1") as calculated under the U.S. Basel III capital rules on a fully phased-in basis, which is not currently required by our regulators to be disclosed and, as such, is considered to be a non-GAAP measure. We believe that this capital ratio is a useful measure to investors because it is widely used by analysts and regulators to assess the capital position of financial services companies, although this ratio may not be comparable to similarly titled measures reported by other companies. The following table sets forth a reconciliation of our CET1 capital ratio as calculated on a fully phased-in basis set forth above to the comparable GAAP component at March 31, 2016 and December 31, 2015.

26



($ in millions)
At March 31, 2016
 
At December 31, 2015
Basel III - Common equity Tier 1 (transition)
$
12,099

 
$
11,633

Adjustments related to capital components during transition(1)
(265
)
 
(399
)
 
 
 
 
Basel III - Common equity Tier 1 (fully phased-in)
$
11,834

 
$
11,234

 
 
 
 
Risk-weighted assets - Basel III (transition)
$
66,689

 
$
69,224

Adjustments related to risk weighted assets during transition(2)
1,008

 
1,269

 
 
 
 
Risk-weighted assets - Basel III (fully phased-in)
$
67,697

 
$
70,493

 
 
 
 
______________________ 
(1)
Adjustments related to capital components to determine CET1 (fully phased-in) include the phase-in of the intangible asset exclusion.
(2)
Key differences between Basel III transition rules and fully phased-in Basel III rules relate to the calculation of risk-weighted assets including, but not limited to, risk weighting of deferred tax assets and adjustments to capital for certain intangible assets.
Regulatory Capital Requirements - Synchrony Bank
At March 31, 2016 and December 31, 2015, the Bank met all applicable requirements to be deemed well-capitalized pursuant to OCC regulations and for purposes of the Federal Deposit Insurance Act. Effective January 1, 2015, the Bank became subject to the U.S. Basel III regulatory capital standards, subject to transition provisions. The following table sets forth the composition of the Bank’s capital ratios calculated under the Basel III rules at March 31, 2016 and December 31, 2015.
 
At March 31, 2016
 
At December 31, 2015
 
Minimum to be Well-
Capitalized under 
Prompt Corrective Action Provisions
 - Basel III
($ in millions)
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
Total risk-based capital
$
8,718

 
17.7
%
 
$
8,442

 
16.6
%
 
$
4,931

 
10.0
%
Tier 1 risk-based capital
$
8,073

 
16.4
%
 
$
7,781

 
15.3
%
 
$
3,945

 
8.0
%
Tier 1 leverage
$
8,073

 
13.0
%
 
$
7,781

 
13.1
%
 
$
3,102

 
5.0
%
Common equity Tier 1 capital
$
8,073

 
16.4
%
 
$
7,781

 
15.3
%
 
$
3,205

 
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 “Risk Factors—Risks 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 2015 Form 10-K.
Off-Balance Sheet Arrangements and Unfunded Lending Commitments
____________________________________________________________________________________________
We do not have any significant 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, 2016, we had not recorded any contingent liabilities in our Condensed Consolidated Statement of Financial Position related to any guarantees.
We extend credit, primarily arising from agreements with customers for unused lines of credit on our credit cards, in the ordinary course of business. See Note 4 - Loan Receivables and Allowance for Loan Losses to our condensed consolidated financial statements for more information on our unfunded lending commitments.

27



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 loan losses, asset impairment, income taxes and fair value measurements. All of 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, future impairments of investment securities, goodwill and intangible assets, and the establishment of valuation allowances on deferred tax assets and increases in our tax liabilities, among other effects. See “Management's Discussion and Analysis—Critical Accounting Estimates” in our 2015 Form 10-K, for a detailed discussion of these critical accounting estimates.
New Accounting Standards
____________________________________________________________________________________________
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB approved a one-year deferral of this standard, with a revised effective date for fiscal years beginning after December 15, 2017. The standard permits the use of either the retrospective or modified retrospective (cumulative effect) transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
In January 2016, we adopted ASU 2015-03, Interest–Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires the presentation of deferred issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of the debt liability. Accordingly, we have reclassified issuance costs associated with our borrowings and certain brokered deposits, from other assets, and reflected as a reduction of borrowings and interest-bearing deposit accounts, as applicable, for each period presented to conform to the current period presentation. Related selected financial metrics have also been updated where applicable to reflect this reclassification. See “Management's Discussion and Analysis—Results of Operations—Other Financial and Statistical Data” and Note 8. Deposits and Note 9. Borrowings to our condensed consolidated financial statements.
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, 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.
See “Regulation” in our 2015 Form 10-K for additional information. 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.

28



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)
2016
 
2015
Interest income:
 
 
 
Interest and fees on loans (Note 4)
$
3,498

 
$
3,140

Interest on investment securities
22

 
10

Total interest income
3,520

 
3,150

Interest expense:
 
 
 
Interest on deposits
172

 
137

Interest on borrowings of consolidated securitization entities
58

 
52

Interest on third-party debt
81

 
82

Interest on related party debt

 
4

Total interest expense
311

 
275

Net interest income
3,209

 
2,875

Retailer share arrangements
(670
)
 
(660
)
Net interest income, after retailer share arrangements
2,539

 
2,215

Provision for loan losses (Note 4)
903

 
687

Net interest income, after retailer share arrangements and provision for loan losses
1,636

 
1,528

Other income:
 
 
 
Interchange revenue
130

 
100

Debt cancellation fees
64

 
65

Loyalty programs
(110
)
 
(78
)
Other
8

 
14

Total other income
92

 
101

Other expense:
 
 
 
Employee costs
280

 
239

Professional fees
146

 
162

Marketing and business development
94

 
82

Information processing
82

 
63

Other
198

 
200

Total other expense
800

 
746

Earnings before provision for income taxes
928

 
883

Provision for income taxes (Note 12)
346

 
331

Net earnings
$
582

 
$
552

 
 
 
 
Earnings per share
 
 
 
Basic
$
0.70

 
$
0.66

Diluted
$
0.70

 
$
0.66



See accompanying notes to condensed consolidated financial statements.

29



Synchrony Financial and subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
____________________________________________________________________________________________
 
Three months ended March 31,
($ in millions)
2016
 
2015
 
 
 
 
Net earnings
$
582

 
$
552

 
 
 
 
Other comprehensive income (loss)
 
 
 
Investment securities
11

 
1

Currency translation adjustments
1

 
(6
)
Employee benefit plans
(2
)
 
1

Other comprehensive income (loss)
10

 
(4
)
 
 
 
 
Comprehensive income
$
592

 
$
548

Amounts presented net of taxes.




































See accompanying notes to condensed consolidated financial statements.


30



Synchrony Financial and subsidiaries
Condensed Consolidated Statements of Financial Position
____________________________________________________________________________________________

($ in millions)
At March 31, 2016
 
At December 31, 2015
 
(Unaudited)
 
 
Assets
 
 
 
Cash and equivalents
$
12,500

 
$
12,325

Investment securities (Note 3)
2,949

 
3,142

Loan receivables: (Notes 4 and 5)
 
 
 
Unsecuritized loans held for investment
41,730

 
42,826

Restricted loans of consolidated securitization entities
24,119

 
25,464

Total loan receivables
65,849

 
68,290

Less: Allowance for loan losses
(3,620
)
 
(3,497
)
Loan receivables, net
62,229

 
64,793

Goodwill
949

 
949

Intangible assets, net (Note 6)
702

 
701

Other assets(a)
2,327

 
2,080

Total assets
$
81,656

 
$
83,990

 
 
 
 
Liabilities and Equity
 
 
 
Deposits: (Note 7)
 
 
 
Interest-bearing deposit accounts
$
44,721

 
$
43,215

Non-interest-bearing deposit accounts
256

 
152

Total deposits
44,977

 
43,367

Borrowings: (Notes 5 and 8)
 
 
 
Borrowings of consolidated securitization entities
12,423

 
13,589

Bank term loan
1,494

 
4,133

Senior unsecured notes
6,559

 
6,557

Total borrowings
20,476

 
24,279

Accrued expenses and other liabilities
2,999

 
3,740

Total liabilities
$
68,452

 
$
71,386

 
 
 
 
Equity:
 
 
 
Common Stock, par share value $0.001 per share; 4,000,000,000 shares authorized, 833,830,398 and 833,828,340 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
$
1

 
$
1

Additional paid-in capital
9,359

 
9,351

Retained earnings
3,875

 
3,293

Accumulated other comprehensive income (loss):
 
 
 
Investment securities
1

 
(10
)
Currency translation adjustments
(18
)
 
(19
)
Other
(14
)
 
(12
)
Total equity
13,204

 
12,604

Total liabilities and equity
$
81,656

 
$
83,990

_______________________
(a) Other assets include restricted cash and equivalents of $844 million and $391 million at March 31, 2016 and December 31, 2015, respectively.
See accompanying notes to condensed consolidated financial statements.

31



Synchrony Financial and subsidiaries
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
____________________________________________________________________________________________
 
Common Stock
 
 
 
 
 
 
 
 
($ in millions, shares in thousands)
Shares
 
Amount
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total Equity
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
833,765

 
$
1

 
$
9,408

 
$
1,079

 
$
(10
)
 
$
10,478

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net earnings

 

 

 
552

 

 
552

Other comprehensive income

 

 

 

 
(4
)
 
(4
)
Stock-based compensation

 

 
7

 

 

 
7

Other

 

 
3

 

 

 
3

Balance at March 31, 2015
833,765

 
$
1

 
$
9,418

 
$
1,631

 
$
(14
)
 
$
11,036

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
833,828

 
$
1

 
$
9,351

 
$
3,293

 
$
(41
)
 
$
12,604

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net earnings

 

 

 
582

 

 
582

Other comprehensive income

 

 

 

 
10

 
10

Stock-based compensation
2

 

 
8

 

 

 
8

Balance at March 31, 2016
833,830

 
$
1

 
$
9,359

 
$
3,875

 
$
(31
)
 
$
13,204
























See accompanying notes to condensed consolidated financial statements.

32