Synchrony Financial - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2019



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

For the transition period from to

001-36560

(Commission File Number)

SYNCHRONY FINANCIAL

(Exact name of registrant as specified in its charter)



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



777 Long Ridge Road
Stamford,	Connecticut	06902
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code) - (203)585-2400

Securities Registered Pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	SYF	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

Synchrony Financial



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

Item 1. Financial Statements:

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

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

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

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

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

Notes to Condensed Consolidated Financial Statements	39

Item 3. Quantitative and Qualitative Disclosures About Market Risk	59

Item 4. Controls and Procedures	59

PART II - OTHER INFORMATION

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

Certain Defined Terms

Except as the context may otherwise require in this report, references to:


•	“we,” “us,” “our” and the “Company” are to SYNCHRONY FINANCIAL and its subsidiaries;


•	“Synchrony” are to SYNCHRONY FINANCIAL only;


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


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


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


•	“FICO” are to a credit score developed by Fair Isaac & Co., which is widely used as a means of evaluating the likelihood that credit users will pay their obligations.

We provide a range of credit products through programs we have established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers, which, in our business and in this report, we refer to as our “partners.” The terms of the programs all require cooperative efforts between us and our partners of varying natures and degrees to establish and operate the programs. Our use of the term “partners” to refer to these entities is not intended to, and does not, describe our legal relationship with them, imply that a legal partnership or other relationship exists between the parties or create any legal partnership or other relationship. The “average length of our relationship” with respect to a specified group of partners or programs is measured on a weighted average basis by interest and fees on loans for the year ended December 31, 2018 for those partners or for all partners participating in a program, based on the date each partner relationship or program, as applicable, started.

Unless otherwise indicated, references to “loan receivables” do not include loan receivables held for sale.

For a description of certain other terms we use, including “active account” and “purchase volume,” see the notes to “Management’s Discussion and Analysis—Results of Operations—Other Financial and Statistical Data” in our Annual Report on Form 10-K for the year ended December 31, 2018 (our “2018 Form 10-K”). There is no standard industry definition for many of these terms, and other companies may define them differently than we do.

“Synchrony” and its logos and other trademarks referred to in this report, including CareCredit®, Quickscreen®, Dual Card™, Synchrony Car Care™ and SyPI™, belong to us. Solely for convenience, we refer to our trademarks in this report without the ™ and ® symbols, but such references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights to our trademarks. Other service marks, trademarks and trade names referred to in this report are the property of their respective owners.

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

Cautionary Note Regarding Forward-Looking Statements:

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

Forward-looking statements are based on management’s current expectations and assumptions, and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause actual results to differ materially include global political, economic, business, competitive, market, regulatory and other factors and risks, such as: the impact of macroeconomic conditions and whether industry trends we have identified develop as anticipated; retaining existing partners and attracting new partners, concentration of our revenue in a small number of Retail Card partners, promotion and support of our products by our partners, and financial performance of our partners; cyber-attacks or other security breaches; higher borrowing costs and adverse financial market conditions impacting our funding and liquidity, and any reduction in our credit ratings; our ability to grow our deposits in the future; our ability to securitize our loan receivables, occurrence of an early amortization of our securitization facilities, loss of the right to service or subservice our securitized loan receivables, and lower payment rates on our securitized loan receivables; changes in market interest rates and the impact of any margin compression; effectiveness of our risk management processes and procedures, reliance on models which may be inaccurate or misinterpreted, our ability to manage our credit risk, the sufficiency of our allowance for loan losses and the accuracy of the assumptions or estimates used in preparing our financial statements; our ability to offset increases in our costs in retailer share arrangements; competition in the consumer finance industry; our concentration in the U.S. consumer credit market; our ability to successfully develop and commercialize new or enhanced products and services; our ability to realize the value of acquisitions and strategic investments; reductions in interchange fees; fraudulent activity; failure of third-parties to provide various services that are important to our operations; disruptions in the operations of our computer systems and data centers; international risks and compliance and regulatory risks and costs associated with international operations; alleged infringement of intellectual property rights of others and our ability to protect our intellectual property; litigation and regulatory actions; damage to our reputation; our ability to attract, retain and motivate key officers and employees; tax legislation initiatives or challenges to our tax positions and/or interpretations, and state sales tax rules and regulations; a material indemnification obligation to GE under the Tax Sharing and Separation Agreement with GE if we cause the split-off from GE or certain preliminary transactions to fail to qualify for tax-free treatment or in the case of certain significant transfers of our stock following the split-off; regulation, supervision, examination and enforcement of our business by governmental authorities, the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and other legislative and regulatory developments and the impact of the Consumer Financial Protection Bureau's (the “CFPB”) regulation of our business; impact of capital adequacy rules and liquidity requirements; restrictions that limit our ability to pay dividends and repurchase our common stock, and restrictions that limit the Bank’s ability to pay dividends to us; regulations relating to privacy, information security and data protection; use of third-party vendors and ongoing third-party business relationships; and failure to comply with anti-money laundering and anti-terrorism financing laws.

For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this report and in our public filings, including under the heading “Risk Factors Relating to Our Business” and “Risk Factors Relating to Regulation” in our 2018 Form 10-K. You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties, or potentially inaccurate assumptions that could cause our current expectations or beliefs to change. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by law.

PART I. FINANCIAL INFORMATION

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report and in our 2018 Form 10-K. The discussion below contains forward-looking statements that are based upon current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. See “Cautionary Note Regarding Forward-Looking Statements.”

Introduction and Business Overview

____________________________________________________________________________________________

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

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

Our Sales Platforms

_________________________________________________________________

We conduct our operations through a single business segment. Profitability and expenses, including funding costs, loan losses and operating expenses, are managed for the business as a whole. Substantially all of our operations are within the United States. We offer our credit products through three sales platforms (Retail Card, Payment Solutions and CareCredit). Those platforms are organized by the types of products we offer and the partners we work with, and are measured on interest and fees on loans, loan receivables, active accounts and other sales metrics.

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

Retail Card

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

Payment Solutions

Payment Solutions is a leading provider of promotional financing for major consumer purchases, offering consumer choice for financing at the point of sale, including primarily private label credit cards, Dual Cards and installment loans. Payment Solutions offers these products through participating partners consisting of national and regional retailers, local merchants, manufacturers, buying groups and industry associations. Substantially all of the credit extended in this platform, other than for our oil and gas retail partners, is promotional financing. Payment Solutions’ revenue primarily consists of interest and fees on our loan receivables, including “merchant discounts,” which are fees paid to us by our partners in almost all cases to compensate us for all or part of foregone interest income associated with promotional financing.

CareCredit

CareCredit is a leading provider of promotional financing to consumers for health, veterinary and personal care procedures, services or products. We have a network of CareCredit providers and health-focused retailers, the vast majority of which are individual or small groups of independent healthcare providers, through which we offer a CareCredit branded private label credit card and our CareCredit Dual Card offering. Substantially all of the credit extended in this platform is promotional financing. CareCredit’s revenue primarily consists of interest and fees on our loan receivables, including merchant discounts.

Our Credit Products

____________________________________________________________________________________________

Through our platforms, we offer three principal types of credit products: credit cards, commercial credit products and consumer installment loans. We also offer a debt cancellation product.

The following table sets forth each credit product by type and indicates the percentage of our total loan receivables that are under standard terms only or pursuant to a promotional financing offer at September 30, 2019.



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

Credit Cards

We typically offer the following principal types of credit cards:

•

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

•

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

Commercial Credit Products

We offer private label cards and Dual Cards for commercial customers that are similar to our consumer offerings. We also offer a commercial pay-in-full accounts receivable product to a wide range of business customers. We offer our commercial credit products primarily through our Retail Card platform to the commercial customers of our Retail Card partners.

Installment Loans

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

Business Trends and Conditions

____________________________________________________________________________________________

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

Seasonality

____________________________________________________________________________________________

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

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

In addition to the seasonal variance in loan receivables discussed above, we also experience a seasonal increase in delinquency rates and delinquent loan receivables balances during the third and fourth quarters of each year due to lower customer payment rates resulting in higher net charge-off rates in the first and second quarters. Our delinquency rates and delinquent loan receivables balances typically decrease during the subsequent first and second quarters as customers begin to pay down their loan balances and return to current status resulting in lower net charge-off rates in the third and fourth quarters. Because customers who were delinquent during the fourth quarter of a calendar year have a higher probability of returning to current status when compared to customers who are delinquent at the end of each of our interim reporting periods, we expect that a higher proportion of delinquent accounts outstanding at an interim period end will result in charge-offs, as compared to delinquent accounts outstanding at a year end. Consistent with this historical experience, we generally experience a higher allowance for loan losses as a percentage of total loan receivables at the end of an interim period, as compared to the end of a calendar year. In addition, despite improving credit metrics such as declining past due amounts, we may experience an increase in our allowance for loan losses at an interim period end compared to the prior year end, reflecting these same seasonal trends.

Results of Operations

____________________________________________________________________________________________

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

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

•

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


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


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


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


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

•

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

•

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


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

•

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


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

2019 Partner Agreements


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


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


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


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

Summary Earnings

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



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

Other Financial and Statistical Data

The following table sets forth certain other financial and statistical data for the periods indicated.



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

______________________


(1)	Purchase volume, or net credit sales, represents the aggregate amount of charges incurred on credit cards or other credit product accounts less returns during the period.


(2)	Includes activity and accounts associated with loan receivables held for sale.


(3)	Active accounts represent credit card or installment loan accounts on which there has been a purchase, payment or outstanding balance in the current month.


(4)	Net interest margin represents net interest income divided by average interest-earning assets.


(5)	Allowance coverage ratio represents allowance for loan losses divided by total period-end loan receivables.


(6)	Return on assets represents net earnings as a percentage of average total assets.


(7)	Return on equity represents net earnings as a percentage of average total equity.


(8)	Equity to assets represents average equity as a percentage of average total assets.


(9)	Efficiency ratio represents (i) other expense, divided by (ii) sum of net interest income, plus other income, less retailer share arrangements.


(10)	Based on customer statement-end balances extrapolated to the respective period-end date.

Average Balance Sheet

The following tables set forth information for the periods indicated regarding average balance sheet data, which are used in the discussion of interest income, interest expense and net interest income that follows.



	2019							2018
Three months ended September 30 ($ in millions)	Average Balance			Interest Income / Expense		Average Yield / Rate⁽¹⁾		Average Balance			Interest Income/ Expense		Average Yield / Rate⁽¹⁾
Assets
Interest-earning assets:
Interest-earning cash and equivalents⁽²⁾	$	10,947		$	59	2.14	%	$	7,901		$	39	1.96	%
Securities available for sale	5,389			32		2.36	%	7,022			38		2.15	%
Loan receivables⁽³⁾:
Credit cards, including held for sale	87,156			4,807		21.88	%	83,609			4,538		21.53	%
Consumer installment loans	2,022			48		9.42	%	1,753			41		9.28	%
Commercial credit products	1,329			35		10.45	%	1,355			37		10.83	%
Other	49			—		—	%	66			1		NM
Total loan receivables	90,556			4,890		21.42	%	86,783			4,617		21.11	%
Total interest-earning assets	106,892			4,981		18.49	%	101,706			4,694		18.31	%
Non-interest-earning assets:
Cash and due from banks	1,374							1,217
Allowance for loan losses	(5,773		)					(5,956		)
Other assets	3,920							3,482
Total non-interest-earning assets	(479		)					(1,257		)
Total assets	$	106,413						$	100,449
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts	$	65,615		$	411	2.49	%	$	60,123		$	314	2.07	%
Borrowings of consolidated securitization entities	11,770			88		2.97	%	12,306			86		2.77	%
Senior unsecured notes	9,347			93		3.95	%	9,552			88		3.66	%
Total interest-bearing liabilities	86,732			592		2.71	%	81,981			488		2.36	%
Non-interest-bearing liabilities:
Non-interest-bearing deposit accounts	283							275
Other liabilities	4,570							3,772
Total non-interest-bearing liabilities	4,853							4,047
Total liabilities	91,585							86,028
Equity
Total equity	14,828							14,421
Total liabilities and equity	$	106,413						$	100,449
Interest rate spread⁽⁴⁾						15.78	%						15.95	%
Net interest income				$	4,389						$	4,206
Net interest margin⁽⁵⁾						16.29	%						16.41	%




	2019							2018
Nine months ended September 30 ($ in millions)	Average Balance			Interest Income / Expense		Average Yield / Rate⁽¹⁾		Average Balance			Interest Income/ Expense		Average Yield / Rate⁽¹⁾
Assets
Interest-earning assets:
Interest-earning cash and equivalents⁽²⁾	$	10,989		$	190	2.31	%	$	11,128		$	145	1.74	%
Securities available for sale	5,679			102		2.40	%	6,475			97		2.00	%
Loan receivables⁽³⁾:
Credit cards, including held for sale	86,471			13,975		21.61	%	78,227			12,647		21.62	%
Consumer installment loans	1,931			134		9.28	%	1,658			114		9.19	%
Commercial credit products	1,304			103		10.56	%	1,329			107		10.76	%
Other	46			1		2.91	%	56			2		4.77	%
Total loan receivables	89,752			14,213		21.17	%	81,270			12,870		21.17	%
Total interest-earning assets	106,420			14,505		18.22	%	98,873			13,112		17.73	%
Non-interest-earning assets:
Cash and due from banks	1,327							1,192
Allowance for loan losses	(6,006		)					(5,779		)
Other assets	3,801							3,188
Total non-interest-earning assets	(878		)					(1,399		)
Total assets	$	105,542						$	97,474
Liabilities
Interest-bearing liabilities:
Interest-bearing deposit accounts	$	64,546		$	1,183	2.45	%	$	57,941		$	836	1.93	%
Borrowings of consolidated securitization entities	12,315			278		3.02	%	12,178			240		2.63	%
Senior unsecured notes	9,262			274		3.96	%	9,156			251		3.67	%
Total interest-bearing liabilities	86,123			1,735		2.69	%	79,275			1,327		2.24	%
Non-interest-bearing liabilities:
Non-interest-bearing deposit accounts	280							282
Other liabilities	4,327							3,548
Total non-interest-bearing liabilities	4,607							3,830
Total liabilities	90,730							83,105
Equity

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

______________________


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


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


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


(4)	Interest rate spread represents the difference between the yield on total interest-earning assets and the rate on total interest-bearing liabilities.


(5)	Net interest margin represents net interest income divided by average total interest-earning assets.

For a summary description of the composition of our key line items included in our Statements of Earnings, see Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Form 10-K.

Interest Income

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

Average interest-earning assets



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




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

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

Yield on average interest-earning assets

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

Interest Expense

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

Average interest-bearing liabilities



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




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

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

Net Interest Income

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

Retailer Share Arrangements

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

Provision for Loan Losses

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

Other Income



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

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

Other Expense



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

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

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

Provision for Income Taxes



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

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

Platform Analysis

As discussed above under “—Our Sales Platforms,” we offer our products through three sales platforms (Retail Card, Payment Solutions and CareCredit), which management measures based on their revenue-generating activities. The following is a discussion of certain supplemental information for the three and nine months ended September 30, 2019, for each of our sales platforms.

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

Retail Card



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

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

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

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

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

Payment Solutions



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

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

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

CareCredit



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

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

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

Loan Receivables

____________________________________________________________________________________________

The following discussion provides supplemental information regarding our loan receivables portfolio.

Loan receivables are our largest category of assets and represent our primary source of revenue. The following table sets forth the composition of our loan receivables portfolio by product type at the dates indicated.



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

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

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

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



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

Impaired Loans and Troubled Debt Restructurings

Our loss mitigation strategy is intended to minimize economic loss and at times can result in rate reductions, principal forgiveness, extensions or other actions, which may cause the related loan to be classified as a Troubled Debt Restructuring (“TDR”) and also be impaired. We use long-term modification programs for borrowers experiencing financial difficulty as a loss mitigation strategy to improve long-term collectability of the loans that are classified as TDRs. The long-term program involves changing the structure of the loan to a fixed payment loan with a maturity no longer than 60 months and reducing the interest rate on the loan. The long-term program does not normally provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee assessments. We also make loan modifications for some customers who request financial assistance through external sources, such as a consumer credit counseling agency program. The loans that are modified typically receive a reduced interest rate but continue to be subject to the original minimum payment terms and do not normally include waiver of unpaid principal, interest or fees. The determination of whether these changes to the terms and conditions meet the TDR criteria includes our consideration of all relevant facts and circumstances.

Loans classified as TDRs are recorded at their present value with impairment measured as the difference between the loan balance and the discounted present value of cash flows expected to be collected, discounted at the original effective interest rate of the loan. Our allowance for loan losses on TDRs is generally measured based on the difference between the recorded loan receivable and the present value of the expected future cash flows.

Interest income from loans accounted for as TDRs is accounted for in the same manner as other accruing loans. We accrue interest on credit card balances until the accounts are charged-off in the period the accounts become 180 days past due. The following table presents the amount of loan receivables that are not accruing interest, loans that are 90 days or more past-due and still accruing interest, and earning TDRs for the periods presented.



($ in millions)	At September 30, 2019		At December 31, 2018
Non-accrual loan receivables⁽¹⁾	$	5	$	5
Loans contractually 90 days past-due and still accruing interest	1,715		2,116
Earning TDRs⁽²⁾	978		1,085
Non-accrual, past-due and restructured loan receivables	$	2,698	$	3,206

______________________


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

(2)

At September 30, 2019 and December 31, 2018, balances exclude $114 million and $122 million, respectively, of TDRs which are included in loans contractually 90 days past-due and still accruing interest on the balance. See Note 4. Loan Receivables and Allowance for Loan Losses to our condensed consolidated financial statements for additional information on the financial effects of TDRs for the three and nine months ended September 30, 2019 and 2018.



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

Delinquencies

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

Net Charge-Offs

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

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



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

Allowance for Loan Losses

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

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



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

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



($ in millions)	Balance at July 1, 2018		Provision charged to operations		Gross charge-offs			Recoveries		Balance at September 30, 2018

Credit cards	$	5,757	$	1,427	$	(1,269	)	$	202	$	6,117
Consumer installment loans	51		9		(13		)	4		51
Commercial credit products	50		15		(13		)	2		54
Other	1		—		—			—		1
Total	$	5,859	$	1,451	$	(1,295	)	$	208	$	6,223




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

Credit cards	$	6,327	$	2,994	$	(4,584	)	$	761	$	5,498
Consumer installment loans	44		46		(47		)	13		56
Commercial credit products	55		35		(43		)	5		52
Other	1		1		(1		)	—		1
Total	$	6,427	$	3,076	$	(4,675	)	$	779	$	5,607




	Balance at January 1, 2018		Provision charged to operations		Gross charge- offs			Recoveries		Balance at September 30, 2018
($ in millions)
Credit cards	$	5,483	$	4,016	$	(4,016	)	$	634	$	6,117
Consumer installment loans	40		39		(40		)	12		51
Commercial credit products	50		38		(39		)	5		54
Other	1		—		—			—		1
Total	$	5,574	$	4,093	$	(4,095	)	$	651	$	6,223

Funding, Liquidity and Capital Resources

____________________________________________________________________________________________

We maintain a strong focus on liquidity and capital. Our funding, liquidity and capital policies are designed to ensure that our business has the liquidity and capital resources to support our daily operations, our business growth, our credit ratings and our regulatory and policy requirements, in a cost effective and prudent manner through expected and unexpected market environments.

Funding Sources

Our primary funding sources include cash from operations, deposits (direct and brokered deposits), securitized financings and senior unsecured notes.

The following table summarizes information concerning our funding sources during the periods indicated:



	2019						2018
Three months ended September 30 ($ in millions)	Average Balance		%		Average Rate		Average Balance		%		Average Rate
Deposits⁽¹⁾	$	65,615	75.6	%	2.5	%	$	60,123	73.3	%	2.1	%
Securitized financings	11,770		13.6		3.0		12,306		15.0		2.8
Senior unsecured notes	9,347		10.8		4.0		9,552		11.7		3.7
Total	$	86,732	100.0	%	2.7	%	$	81,981	100.0	%	2.4	%

______________________


(1)	Excludes $283 million and $275 million average balance of non-interest-bearing deposits for the three months ended September 30, 2019 and 2018, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the three months ended September 30, 2019 and 2018.




	2019						2018
Nine months ended September 30 ($ in millions)	Average Balance		%		Average Rate		Average Balance		%		Average Rate
Deposits⁽¹⁾	$	64,546	74.9	%	2.5	%	$	57,941	73.1	%	1.9	%
Securitized financings	12,315		14.3		3.0		12,178		15.4		2.6
Senior unsecured notes	9,262		10.8		4.0		9,156		11.5		3.7
Total	$	86,123	100.0	%	2.7	%	$	79,275	100.0	%	2.2	%

______________________


(1)	Excludes $280 million and $282 million average balance of non-interest-bearing deposits for the nine months ended September 30, 2019 and 2018, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the nine months ended September 30, 2019 and 2018.

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 September 30, 2019, we had $53.7 billion in direct deposits and $12.3 billion in deposits originated through brokerage firms (including network deposit sweeps procured through a program arranger that channels brokerage account deposits to us). A key part of our liquidity plan and funding strategy is to continue to expand our direct deposits base as a source of stable and diversified low-cost funding.

Our direct deposits include a range of FDIC-insured deposit products, including certificates of deposit, IRAs, money market accounts and savings accounts.

Brokered deposits are primarily from retail customers of large brokerage firms. We have relationships with 11 brokers that offer our deposits through their networks. Our brokered deposits consist primarily of certificates of deposit that bear interest at a fixed rate and at September 30, 2019, had a weighted average remaining life of 2.1 years. These deposits generally are not subject to early withdrawal.

Our ability to attract deposits is sensitive to, among other things, the interest rates we pay, and therefore, we bear funding risk if we fail to pay higher rates, or interest rate risk if we are required to pay higher rates, to retain existing deposits or attract new deposits. To mitigate these risks, our funding strategy includes a range of deposit products, and we seek to maintain access to multiple other funding sources, such as securitized financings (including our undrawn committed capacity) and unsecured debt.

The following table summarizes certain information regarding our interest-bearing deposits by type (all of which constitute U.S. deposits) for the periods indicated:



Three months ended September 30 ($ in millions)	2019						2018
Three months ended September 30 ($ in millions)	Average Balance		% of Total		Average Rate		Average Balance		% of Total		Average Rate
Direct deposits:
Certificates of deposit (including IRA certificates of deposit)	$	34,100	52.0	%	2.6	%	$	28,804	47.9	%	2.0	%
Savings accounts (including money market accounts)	18,856		28.7		2.1		18,072		30.1		1.8
Brokered deposits	12,659		19.3		2.7		13,247		22.0		2.6
Total interest-bearing deposits	$	65,615	100.0	%	2.5	%	$	60,123	100.0	%	2.1	%




Nine months ended September 30 ($ in millions)	2019						2018
Nine months ended September 30 ($ in millions)	Average Balance		% of Total		Average Rate		Average Balance		% of Total		Average Rate
Direct deposits:
Certificates of deposit (including IRA certificates of deposit)	$	33,147	51.3	%	2.5	%	$	27,255	47.1	%	1.9	%
Savings accounts (including money market accounts)	18,626		28.9		2.1		18,031		31.1		1.6
Brokered deposits	12,773		19.8		2.7		12,655		21.8		2.5
Total interest-bearing deposits	$	64,546	100.0	%	2.5	%	$	57,941	100.0	%	1.9	%

Our deposit liabilities provide funding with maturities ranging from one day to ten years. At September 30, 2019, the weighted average maturity of our interest-bearing time deposits was 1.2 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 September 30, 2019.



($ 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⁾	$	10,507	$	3,865	$	5,490	$	8,626	$	28,488
U.S. deposits ($100,000 or more)
Direct deposits:
Certificates of deposit (including IRA certificates of deposit)	2,474		6,470		7,725		5,440		22,109
Savings accounts (including money market accounts)	13,520		—		—		—		13,520
Brokered deposits:
Sweep accounts	1,855		—		—		—		1,855
Total	$	28,356	$	10,335	$	13,215	$	14,066	$	65,972

______________________


(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”) and the Synchrony Card Issuance Trust (“SYNIT”) through which we issue asset-backed securities through both public transactions and private transactions funded by financial institutions and commercial paper conduits. In addition, we issue asset-backed securities in private transactions through the Synchrony Sales Finance Master Trust (“SFT”).

The following table summarizes expected contractual maturities of the investors’ interests in securitized financings, excluding debt premiums, discounts and issuance costs at September 30, 2019.



($ in millions)	Less Than One Year		One Year Through Three Years		After Three Through Five Years		After Five Years		Total
Scheduled maturities of long-term borrowings—owed to securitization investors:
SYNCT⁽¹⁾	$	2,408	$	2,800	$	1,591	$	—	$	6,799
SFT	300		725		—		—		1,025
SYNIT⁽¹⁾	—		3,100		—		—		3,100
Total long-term borrowings—owed to securitization investors	$	2,708	$	6,625	$	1,591	$	—	$	10,924

______________________


(1)	Excludes any subordinated classes of SYNCT notes and SYNIT notes that we owned at September 30, 2019.

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

All of our securitized financings include early repayment triggers, referred to as early amortization events, including events related to material breaches of representations, warranties or covenants, inability or failure of the Bank to transfer loan receivables to the trusts as required under the securitization documents, failure to make required payments or deposits pursuant to the securitization documents, and certain insolvency-related events with respect to the related securitization depositor, Synchrony (solely with respect to SYNCT) or the Bank. In addition, an early amortization event will occur with respect to a series if the excess spread as it relates to a particular series or for the trust, as applicable, falls below zero. Following an early amortization event, principal collections on the loan receivables in the applicable trust are applied to repay principal of the trust's asset-backed securities rather than being available on a revolving basis to fund the origination activities of our business. The occurrence of an early amortization event also would limit or terminate our ability to issue future series out of the trust in which the early amortization event occurred. No early amortization event has occurred with respect to any of the securitized financings in SYNCT, SFT or SYNIT.

The following table summarizes for each of our trusts the three-month rolling average excess spread at September 30, 2019.



	Note Principal Balance ($ in millions)		# of Series Outstanding	Three-Month Rolling Average Excess Spread⁽¹⁾
SYNCT	$	7,324	11	~15.6% to 16.6%
SFT	$	1,025	9	12.5	%
SYNIT	$	3,100	5	~15.9% to 16.2%

______________________

(1)

Represents the excess spread (generally calculated as interest income collected from the applicable pool of loan receivables less applicable net charge-offs, interest expense and servicing costs, divided by the aggregate principal amount of loan receivables in the applicable pool) for SFT or, in the case of SYNCT and SYNIT, a range of the excess spreads relating to the particular series issued within each trust and omitting any series that have not been outstanding for at least three full monthly periods, in each case calculated in accordance with the applicable trust or series documentation, for the three securitization monthly periods ended September 30, 2019.

Senior Unsecured Notes

The following table provides a summary of our outstanding senior unsecured notes at September 30, 2019, which includes $2.0 billion of senior unsecured notes issued during the nine months ended September 30, 2019.



Issuance Date	Interest Rate⁽¹⁾	Maturity	Principal Amount Outstanding⁽²⁾
($ in millions)
Fixed rate senior unsecured notes:
Synchrony Financial
August 2014	3.750%	August 2021	750
August 2014	4.250%	August 2024	1,250
February 2015	2.700%	February 2020	750
July 2015	4.500%	July 2025	1,000
August 2016	3.700%	August 2026	500
December 2017	3.950%	December 2027	1,000
March 2019	4.375%	March 2024	600
March 2019	5.150%	March 2029	650
July 2019	2.850%	July 2022	750
Synchrony Bank
June 2017	3.000%	June 2022	750
May 2018	3.650%	May 2021	750
Total fixed rate senior unsecured notes			$	8,750

Floating rate senior unsecured notes:
Synchrony Financial
February 2015	Three-month LIBOR plus 1.23%	February 2020	$	250
Synchrony Bank
January 2018	Three-month LIBOR plus 0.625%	March 2020	500
Total floating rate senior unsecured notes			$	750

______________________


(1)	Weighted average interest rate of all senior unsecured notes at September 30, 2019 was 3.77%.


(2)	The amounts shown exclude unamortized debt discount, premiums and issuance cost.

Short-Term Borrowings

Except as described above, there were no material short-term borrowings for the periods presented.

Other

At September 30, 2019, we had more than $25.0 billion of unencumbered assets in the Bank available to be used to generate additional liquidity through secured borrowings or asset sales or to be pledged to the Federal Reserve Board for credit at the discount window.

Covenants

The indenture pursuant to which our senior unsecured notes have been issued includes various covenants. If we do not satisfy any of these covenants, the maturity of amounts outstanding thereunder may be accelerated and become payable. We were in compliance with all of these covenants at September 30, 2019.

At September 30, 2019, we were not in default under any of our credit facilities or senior unsecured notes.

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.

The table below reflects our current credit ratings and outlooks:



	S&P	Fitch Ratings
Synchrony Financial
Senior unsecured debt	BBB-	BBB-
Outlook for Synchrony Financial senior unsecured debt	Stable	Stable
Synchrony Bank
Senior unsecured debt	BBB	BBB-
Outlook for Synchrony Bank senior unsecured debt	Stable	Stable

In addition, certain of the asset-backed securities issued by SYNCT and SYNIT are rated by Fitch, S&P and/or Moody’s. A credit rating is not a recommendation to buy, sell or hold securities, may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. Downgrades in these credit ratings could materially increase the cost of our funding from, and restrict our access to, the capital markets.

Liquidity

____________________________________________________________________________________________

We seek to ensure that we have adequate liquidity to sustain business operations, fund asset growth, satisfy debt obligations and to meet regulatory expectations under normal and stress conditions.

We maintain policies outlining the overall framework and general principles for managing liquidity risk across our business, which is the responsibility of our Asset and Liability Management Committee, a subcommittee of our Risk 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 September 30, 2019 had $15.2 billion of liquid assets, primarily consisting of cash and equivalents and short-term obligations of the U.S. Treasury, less cash in transit which is not considered to be liquid, compared to $14.8 billion of liquid assets at December 31, 2018. The increase in liquid assets was primarily due to the retention of excess cash flows from operations and the seasonality of our business, partially offset by deployment of capital through the execution of our capital plan. On October 11, 2019, we completed our sale and conversion of $8.2 billion of loan receivables associated with our Retail Card program agreement with Walmart.

As additional sources of liquidity, at September 30, 2019, we had an aggregate of $6.0 billion of undrawn committed capacity on our securitized financings, subject to customary borrowing conditions, from private lenders under our securitization programs and $0.5 billion of undrawn committed capacity under our unsecured revolving credit facility with private lenders, and we had more than $25.0 billion of unencumbered assets in the Bank available to be used to generate additional liquidity through secured borrowings or asset sales or to be pledged to the Federal Reserve Board for credit at the discount window.

As a general matter, investments included in our liquidity portfolio are expected to be highly liquid, giving us the ability to readily convert them to cash. The level and composition of our liquidity portfolio may fluctuate based upon the level of expected maturities of our funding sources as well as operational requirements and market conditions.

We rely significantly on dividends and other distributions and payments from the Bank for liquidity; however, bank regulations, contractual restrictions and other factors limit the amount of dividends and other distributions and payments that the Bank may pay to us. For a discussion of regulatory restrictions on the Bank’s ability to pay dividends, see “Regulation—Risk Factors Relating to Regulation—We are subject to restrictions that limit our ability to pay dividends and repurchase our common stock; the Bank is subject to restrictions that limit its ability to pay dividends to us, which could limit our ability to pay dividends, repurchase our common stock or make payments on our indebtedness” and “Regulation—Regulation Relating to Our Business—Savings Association Regulation—Dividends and Stock Repurchases” in our 2018 Form 10-K.

Debt Securities

____________________________________________________________________________________________

The following discussion provides supplemental information regarding our debt securities portfolio. All of our debt securities are classified as available-for-sale at September 30, 2019 and December 31, 2018, and are held to meet our liquidity objectives and to comply with the Community Reinvestment Act. Debt 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 debt securities at the dates indicated:



	At September 30, 2019				At December 31, 2018
($ in millions)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
U.S. government and federal agency	$	1,196	$	1,196	$	2,889	$	2,888
State and municipal	47		46		50		48
Residential mortgage-backed	1,107		1,102		1,180		1,139
Asset-backed	2,236		2,240		1,988		1,985
U.S. corporate debt	—		—		2		2
Total	$	4,586	$	4,584	$	6,109	$	6,062

Unrealized gains and losses, net of the related tax effects, on available-for-sale debt 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 September 30, 2019, our debt securities had gross unrealized gains of $11 million and gross unrealized losses of $13 million. At December 31, 2018, our debt securities had gross unrealized gains of $1 million and gross unrealized losses of $48 million.

Our debt securities portfolio had the following maturity distribution at September 30, 2019.



($ 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
U.S. government and federal agency	$	1,196		$	—		$	—		$	—		$	1,196
State and municipal	—			1			3			42			46
Residential mortgage-backed	—			—			132			970			1,102
Asset-backed	1,745			495			—			—			2,240
Total⁽¹⁾	$	2,941		$	496		$	135		$	1,012		$	4,584
Weighted average yield⁽²⁾	2.3		%	2.3		%	3.2		%	2.9		%	2.5		%

______________________


(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 September 30, 2019, 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.

Capital

____________________________________________________________________________________________

Our primary sources of capital have been earnings generated by our business and existing equity capital. We seek to manage capital to a level and composition sufficient to support the risks of our business, meet regulatory requirements, adhere to rating agency targets and support future business growth. The level, composition and utilization of capital are influenced by changes in the economic environment, strategic initiatives and legislative and regulatory developments. Within these constraints, we are focused on deploying capital in a manner that will provide attractive returns to our stockholders.

Synchrony is not currently required to conduct stress tests. See “Regulation—Regulation Relating to Our Business—Legislative and Regulatory Developments” in our 2018 Form 10-K. In addition, while as a savings and loan holding company, we have not been subject to the Federal Reserve Board's capital planning rule to-date, we submitted a capital plan to the Federal Reserve Board in 2019. While not required, our capital plan process does include certain internal stress testing. See “—Regulation and Supervision” below, for discussion of the final rules issued by the Federal Reserve Board on October 10, 2019, related to the Federal Reserve Boards enhanced prudential standards and their applicability to savings and loan holding companies.

Dividend and Share Repurchases



Cash Dividends Declared	Month of Payment	Amount per Common Share		Amount
($ in millions, except per share data)
Three months ended March 31, 2019	February, 2019	$	0.21	$	150
Three months ended June 30, 2019	May, 2019	0.21		145
Three months ended September 30, 2019	August, 2019	0.22		145
Total dividends declared		$	0.64	$	440

On May 9, 2019, we announced that our Board plans to increase our quarterly dividend to $0.22 per common share commencing in the third quarter of 2019. The declaration and payment of future dividends to holders of our common stock will be at the discretion of the Board and will depend on many factors. For a discussion of regulatory and other restrictions on our ability to pay dividends and repurchase stock, see “Regulation—Risk Factors Relating to Regulation—We are subject to restrictions that limit our ability to pay dividends and repurchase our common stock; the Bank is subject to restrictions that limit its ability to pay dividends to us, which could limit our ability to pay dividends, repurchase our common stock or make payments on our indebtedness” in our 2018 Form 10-K.



Shares Repurchased Under Publicly Announced Programs	Total Number of Shares Purchased	Dollar Value of Shares Purchased

($ and shares in millions)
Three months ended March 31, 2019	30.9	$	966
Three months ended June 30, 2019	21.1	$	725
Three months ended September 30, 2019	15.6	550
Total	67.6	$	2,241

In March 2019, we completed our 2018 Share Repurchase Program of $2.2 billion. On May 9, 2019, we announced our Board's approval of a new share repurchase program of up to $4.0 billion through June 30, 2020 (the “2019 Share Repurchase Program”).

Through the end of the third quarter of 2019, we have repurchased $1.3 billion of common stock as part of the 2019 Share Repurchase Program and expect to complete the share repurchase program by the end of the second quarter of 2020. We made, and expect to continue to make, share repurchases subject to market conditions and other factors, including legal and regulatory restrictions and required approvals.

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 2018 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 September 30, 2019, Synchrony Financial met all the requirements to be deemed well-capitalized.

The following table sets forth the composition of our capital ratios for the Company calculated under the Basel III Standardized Approach rules at September 30, 2019 and December 31, 2018, respectively.



	Basel III
	At September 30, 2019				At December 31, 2018
($ in millions)	Amount		Ratio⁽¹⁾		Amount		Ratio⁽¹⁾
Total risk-based capital	$	14,345	15.8	%	$	14,013	15.3	%
Tier 1 risk-based capital	$	13,155	14.5	%	$	12,801	14.0	%
Tier 1 leverage	$	13,155	12.6	%	$	12,801	12.3	%
Common equity Tier 1 capital	$	13,155	14.5	%	$	12,801	14.0	%
Risk-weighted assets	$	90,772			$	91,742

______________________


(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 our net earnings, including the reductions in reserves for loan losses associated with the Walmart portfolio, as well as the seasonal decrease in loan receivables and a corresponding decrease in risk-weighted assets in the nine months ended September 30, 2019. These changes were partially offset by share repurchases and dividend payments.

Regulatory Capital Requirements - Synchrony Bank

At September 30, 2019 and December 31, 2018, the Bank met all applicable requirements to be deemed well-capitalized pursuant to OCC regulations and for purposes of the Federal Deposit Insurance Act. The following table sets forth the composition of the Bank’s capital ratios calculated under the Basel III Standardized Approach rules at September 30, 2019 and December 31, 2018.



	At September 30, 2019				At December 31, 2018				Minimum to be Well- Capitalized under Prompt Corrective Action Provisions
($ in millions)	Amount		Ratio		Amount		Ratio		Ratio
Total risk-based capital	$	12,504	15.9	%	$	12,258	15.4	%	10.0%
Tier 1 risk-based capital	$	11,470	14.6	%	$	11,207	14.1	%	8.0%
Tier 1 leverage	$	11,470	12.7	%	$	11,207	12.4	%	5.0%
Common equity Tier 1 capital	$	11,470	14.6	%	$	11,207	14.1	%	6.5%

Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could limit our business activities and have a material adverse effect on our business, results of operations and financial condition. See “Regulation—Risk Factors Relating to Regulation—Failure by Synchrony and the Bank to meet applicable capital adequacy and liquidity requirements could have a material adverse effect on us” in our 2018 Form 10-K.

Off-Balance Sheet Arrangements and Unfunded Lending Commitments

____________________________________________________________________________________________

We do not have any material off-balance sheet arrangements, including guarantees of third-party obligations. Guarantees are contracts or indemnification agreements that contingently require us to make a guaranteed payment or perform an obligation to a third-party based on certain trigger events. At September 30, 2019, we had not recorded any contingent liabilities in our Condensed Consolidated Statement of Financial Position related to any guarantees. See Note 9 - Fair Value Measurements to our condensed consolidated financial statements for information on contingent consideration liabilities related to business acquisitions.

We extend credit, primarily arising from agreements with customers for unused lines of credit on our credit cards, in the ordinary course of business. See Note 4 - Loan Receivables and Allowance for Loan Losses to our condensed consolidated financial statements for more information on our unfunded lending commitments.

Critical Accounting Estimates

____________________________________________________________________________________________

In preparing our condensed consolidated financial statements, we have identified certain accounting estimates and assumptions that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. The critical accounting estimates we have identified relate to allowance for loan losses and fair value measurements. These estimates reflect our best judgment about current, and for some estimates future, economic and market conditions and their effects based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that these judgments and estimates could change, which may result in incremental losses on loan receivables, or material changes to our Condensed Consolidated Statement of Financial Position, among other effects. See “Management's Discussion and Analysis—Critical Accounting Estimates” in our 2018 Form 10-K, for a detailed discussion of these critical accounting estimates.

New Accounting Standards

____________________________________________________________________________________________

Current Expected Credit Loss

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which is effective for the Company on January 1, 2020. This ASU replaces the existing incurred loss impairment guidance with a new impairment model known as the Current Expected Credit Loss (“CECL”) model, which is based on expected credit losses.

We continue to test and refine our estimation models and methodology, assess and develop our internal processes and systems, as well as evaluate the impact on our financial statement disclosures. While we continue to assess the impact CECL will have on January 1, 2020, given the change to expected losses for the estimated life of the financial asset and other significant differences compared to existing GAAP, we estimate that had we adopted this standard at September 30, 2019, this would have resulted in an increase of approximately 50% to 60% to the Company’s allowance for loan losses. Such estimate is provided to enhance investors’ understanding of the potential effects of CECL to our company, and is based on our preliminary analysis, current economic conditions and expectations at September 30, 2019. This preliminary estimate is contingent upon continued testing and refinement of models, methodologies and judgments, as well as ongoing discussions with our banking regulators. We also expect a decrease in the Company's regulatory capital as a result of adoption. Further, the extent of the actual impact of the adoption of CECL at the effective date will depend on the size and asset quality of the portfolio, and economic conditions and forecasts at adoption.

See Note 2. Basis of Presentation and Summary of Significant Accounting Policies — New Accounting Standards, for additional information related to CECL and other recent accounting pronouncements.

Regulation and Supervision

____________________________________________________________________________________________

Our business, including our relationships with our customers, is subject to regulation, supervision and examination under U.S. federal, state and foreign laws and regulations. These laws and regulations cover all aspects of our business, including lending practices, treatment of our customers, safeguarding deposits, customer privacy and information security, capital structure, liquidity, dividends and other capital distributions, transactions with affiliates, and conduct and qualifications of personnel.

As a savings and loan holding company and a financial holding company, Synchrony is subject to regulation, supervision and examination by the Federal Reserve Board. As a large provider of consumer financial services, we are also subject to regulation, supervision and examination by the CFPB.

The Bank is a federally chartered savings association. As such, the Bank is subject to regulation, supervision and examination by the OCC, which is its primary regulator, and by the CFPB. In addition, the Bank, as an insured depository institution, is supervised by the FDIC.

On October 10, 2019, the Federal Reserve Board issued final rules that, among other things, tailor the applicability of the Federal Reserve Board’s enhanced prudential standards and apply certain standards for the first time to savings and loan holding companies, including Synchrony.

The final rules tailor existing regulatory requirements related to liquidity, capital, and other enhanced prudential standards to an institution’s risk and complexity profile for certain mid-size and large banking organizations using categories based on size and other factors. Synchrony, like most banking organizations with total assets of $100 billion or more, but less than $250 billion, will be categorized as a Category IV organization.

The new standards applicable to Synchrony include supervisory stress testing to be performed biennially, commencing in 2022, and also include liquidity risk management, liquidity stress testing, and liquidity buffer requirements, and requirements to have in place a global risk-management framework and a risk committee of the board of directors, each of which becomes applicable to Synchrony in 2021.

Under the final rules, while our current capital plan process includes certain internal stress testing, Synchrony continues not to be required to conduct company-run stress tests, and, provided we continue to have less than $50 billion of weighted short-term wholesale funding, we also are not subject to the Liquidity Coverage Ratio or, once finalized, the Net Stable Funding Ratio.

In connection with the final rules, the Federal Reserve Board noted that it intends to propose a rule to conform capital plan submission requirements for certain savings and loan holding companies, including Synchrony, to those of comparably-sized bank holding companies, which would also result in Synchrony becoming subject to the Comprehensive Capital Analysis and Review (CCAR) process.

See “Regulation” in our 2018 Form 10-K for additional information on regulations that are currently applicable to us. See also “—Capital” above, for discussion of the impact of regulations and supervision on our capital and liquidity, including our ability to pay dividends and repurchase stock.

ITEM 1. FINANCIAL STATEMENTS

Synchrony Financial and subsidiaries

Condensed Consolidated Statements of Earnings (Unaudited)

____________________________________________________________________________________________



	Three months ended September 30,						Nine months ended September 30,
($ in millions, except per share data)	2019			2018			2019			2018
Interest income:
Interest and fees on loans (Note 4)	$	4,890		$	4,617		$	14,213		$	12,870
Interest on cash and debt securities	91			77			292			242
Total interest income	4,981			4,694			14,505			13,112
Interest expense:
Interest on deposits	411			314			1,183			836
Interest on borrowings of consolidated securitization entities	88			86			278			240
Interest on senior unsecured notes	93			88			274			251
Total interest expense	592			488			1,735			1,327
Net interest income	4,389			4,206			12,770			11,785
Retailer share arrangements	(1,016		)	(871		)	(2,829		)	(2,244		)
Provision for loan losses (Note 4)	1,019			1,451			3,076			4,093
Net interest income, after retailer share arrangements and provision for loan losses	2,354			1,884			6,865			5,448
Other income:
Interchange revenue	197			182			556			517
Debt cancellation fees	64			65			201			197
Loyalty programs	(203		)	(196		)	(562		)	(543		)
Other	27			12			72			30
Total other income	85			63			267			201
Other expense:
Employee costs	359			365			1,070			1,074
Professional fees	205			232			668			575
Marketing and business development	139			131			397			362
Information processing	127			105			363			308
Other	234			221			668			698
Total other expense	1,064			1,054			3,166			3,017
Earnings before provision for income taxes	1,375			893			3,966			2,632
Provision for income taxes (Note 12)	319			222			950			625
Net earnings	$	1,056		$	671		$	3,016		$	2,007

Earnings per share
Basic	$	1.60		$	0.91		$	4.42		$	2.68
Diluted	$	1.60		$	0.91		$	4.40		$	2.66

See accompanying notes to condensed consolidated financial statements.

Synchrony Financial and subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

____________________________________________________________________________________________



	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2019			2018			2019			2018

Net earnings	$	1,056		$	671		$	3,016		$	2,007

Other comprehensive income (loss)
Debt securities	3			(5		)	35			(29		)
Currency translation adjustments	(1		)	—			—			(6		)
Employee benefit plans	(3		)	(1		)	(4		)	—
Other comprehensive income (loss)	(1		)	(6		)	31			(35		)

Comprehensive income	$	1,055		$	665		$	3,047		$	1,972

Amounts presented net of taxes.

See accompanying notes to condensed consolidated financial statements.

Synchrony Financial and subsidiaries

Condensed Consolidated Statements of Financial Position (Unaudited)

____________________________________________________________________________________________



($ in millions)	At September 30, 2019			At December 31, 2018
Assets
Cash and equivalents	$	11,461		$	9,396
Debt securities (Note 3)	4,584			6,062
Loan receivables: (Notes 4 and 5)
Unsecuritized loans held for investment	56,220			64,969
Restricted loans of consolidated securitization entities	26,987			28,170
Total loan receivables	83,207			93,139
Less: Allowance for loan losses	(5,607		)	(6,427		)
Loan receivables, net	77,600			86,712
Loan receivables held for sale (Note 4)	8,182			—
Goodwill	1,078			1,024
Intangible assets, net (Note 6)	1,177			1,137
Other assets	1,861			2,461
Total assets	$	105,943		$	106,792

Liabilities and Equity
Deposits: (Note 7)
Interest-bearing deposit accounts	$	65,677		$	63,738
Non-interest-bearing deposit accounts	295			281
Total deposits	65,972			64,019
Borrowings: (Notes 5 and 8)
Borrowings of consolidated securitization entities	10,912			14,439
Senior unsecured notes	9,451			9,557
Total borrowings	20,363			23,996
Accrued expenses and other liabilities	4,488			4,099
Total liabilities	$	90,823		$	92,114

Equity:
Common Stock, par share value $0.001 per share; 4,000,000,000 shares authorized; 833,984,684 shares issued at both September 30, 2019 and December 31, 2018; 653,656,880 and 718,758,598 shares outstanding at September 30, 2019 and December 31, 2018, respectively	$	1		$	1
Additional paid-in capital	9,520			9,482
Retained earnings	11,533			8,986
Accumulated other comprehensive income (loss):
Debt securities	(2		)	(32		)
Currency translation adjustments	(28		)	(25		)
Other	(14		)	(5		)
Treasury Stock, at cost; 180,327,804 and 115,226,086 shares at September 30, 2019 and December 31, 2018, respectively	(5,890		)	(3,729		)
Total equity	15,120			14,678
Total liabilities and equity	$	105,943		$	106,792

See accompanying notes to condensed consolidated financial statements.

Synchrony Financial and subsidiaries

Condensed Consolidated Statements of Changes in Equity (Unaudited)

____________________________________________________________________________________________



	Common Stock
($ in millions, shares in thousands)	Shares Issued	Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Equity

Balance at January 1, 2018	833,985	$	1	$	9,445		$	6,809		$	(64	)	$	(1,957	)	$	14,234
Net earnings	—	—		—			640			—			—			640
Other comprehensive income	—	—		—			—			(22		)	—			(22		)
Purchases of treasury stock	—	—		—			—			—			(410		)	(410		)
Stock-based compensation	—	—		25			(1		)	—			4			28
Dividends - common stock ($0.15 per share)	—	—		—			(114		)	—			—			(114		)
Balance at March 31, 2018	833,985	$	1	$	9,470		$	7,334		$	(86	)	$	(2,363	)	$	14,356
Net earnings	—	—		—			696			—			—			696
Other comprehensive income	—	—		—			—			(7		)	—			(7		)
Purchases of treasury stock	—	—		—			—			—			(491		)	(491		)
Stock-based compensation	—	—		16			(11		)	—			12			17
Dividends - common stock ($0.15 per share)	—	—		—			(113		)	—			—			(113		)
Balance at June 30, 2018	833,985	$	1	$	9,486		$	7,906		$	(93	)	$	(2,842	)	$	14,458
Net earnings	—	—		—			671			—			—			671
Other comprehensive income	—	—		—			—			(6		)	—			(6		)
Purchases of treasury stock	—	—		—			—			—			(967		)	(967		)
Stock-based compensation	—	—		(16		)	(69		)	—			78			(7		)
Dividends - common stock ($0.21 per share)	—	—		—			(156		)	—			—			(156		)
Other	—	—		—			3			—			—			3
Balance at September 30, 2018	833,985	$	1	$	9,470		$	8,355		$	(99	)	$	(3,731	)	$	13,996

Synchrony Financial and subsidiaries

Condensed Consolidated Statements of Changes in Equity (Unaudited)

(Continued)

____________________________________________________________________________________________



	Common Stock
($ in millions, shares in thousands)	Shares Issued	Amount		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Equity

Balance at January 1, 2019	833,985	$	1	$	9,482	$	8,986		$	(62	)	$	(3,729	)	$	14,678
Net earnings	—	—		—		1,107			—			—			1,107
Other comprehensive income	—	—		—		—			19			—			19
Purchases of treasury stock	—	—		—		—			—			(967		)	(967		)
Stock-based compensation	—	—		7		(17		)	—			32			22
Dividends - common stock ($0.21 per share)	—	—		—		(150		)	—			—			(150		)
Other	—	—		—		13			(13		)	—			—
Balance at March 31, 2019	833,985	$	1	$	9,489	$	9,939		$	(56	)	$	(4,664	)	$	14,709
Net earnings	—	—		—		853			—			—			853
Other comprehensive income	—	—		—		—			13			—			13
Purchases of treasury stock	—	—		—		—			—			(725		)	(725		)
Stock-based compensation	—	—		11		(20		)	—			38			29
Dividends - common stock ($0.21 per share)	—	—		—		(145		)	—			—			(145		)
Balance at June 30, 2019	833,985	$	1	$	9,500	$	10,627		$	(43	)	$	(5,351	)	$	14,734
Net earnings	—	—		—		1,056			—			—			1,056
Other comprehensive income	—	—		—		—			(1		)	—			(1		)
Purchases of treasury stock	—	—		—		—			—			(550		)	(550		)
Stock-based compensation	—	—		20		(5		)	—			11			26
Dividends - common stock ($0.22 per share)	—	—		—		(145		)	—			—			(145		)
Balance at September 30, 2019	833,985	$	1	$	9,520	$	11,533		$	(44	)	$	(5,890	)	$	15,120

See accompanying notes to condensed consolidated financial statements.

Synchrony Financial and subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

____________________________________________________________________________________________



	Nine months ended September 30,
($ in millions)	2019			2018
Cash flows - operating activities
Net earnings	$	3,016		$	2,007
Adjustments to reconcile net earnings to cash provided from operating activities
Provision for loan losses	3,076			4,093
Deferred income taxes	103			(53		)
Depreciation and amortization	273			222
(Increase) decrease in interest and fees receivable	(430		)	(36		)
(Increase) decrease in other assets	46			(39		)
Increase (decrease) in accrued expenses and other liabilities	125			120
All other operating activities	445			452
Cash provided from (used for) operating activities	6,654			6,766

Cash flows - investing activities
Maturity and sales of debt securities	6,766			3,961
Purchases of debt securities	(5,178		)	(6,805		)
Acquisition of loan receivables	(72		)	(7,342		)
Net (increase) decrease in loan receivables, including held for sale	(2,016		)	(1,950		)
All other investing activities	(442		)	(615		)
Cash provided from (used for) investing activities	(942		)	(12,751		)

Cash flows - financing activities
Borrowings of consolidated securitization entities
Proceeds from issuance of securitized debt	3,345			4,493
Maturities and repayment of securitized debt	(6,877		)	(2,807		)
Senior unsecured notes
Proceeds from issuance of senior unsecured notes	1,985			1,244
Maturities and repayment of senior unsecured notes	(2,100		)	—
Net increase (decrease) in deposits	1,940			5,792
Purchases of treasury stock	(2,242		)	(1,868		)
Dividends paid on common stock	(440		)	(383		)
All other financing activities	22			(32		)
Cash provided from (used for) financing activities	(4,367		)	6,439

Increase (decrease) in cash and equivalents, including restricted amounts	1,345			454
Cash and equivalents, including restricted amounts, at beginning of period	10,376			11,817
Cash and equivalents at end of period:
Cash and equivalents	11,461			12,068
Restricted cash and equivalents included in other assets	260			203
Total cash and equivalents, including restricted amounts, at end of period	$	11,721		$	12,271

See accompanying notes to condensed consolidated financial statements.

Synchrony Financial and subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

____________________________________________________________________________________________

NOTE 1. BUSINESS DESCRIPTION

Synchrony Financial (the “Company”) provides a range of credit products through financing programs it has established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and healthcare service providers. We primarily offer private label, Dual Card and general purpose co-branded credit cards, promotional financing and installment lending, and FDIC-insured savings products through Synchrony Bank (the “Bank”).

References to the “Company”, “we”, “us” and “our” are to Synchrony Financial and its consolidated subsidiaries unless the context otherwise requires.

NOTE 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles (“GAAP”).

Preparing financial statements in conformity with U.S. GAAP requires us to make estimates based on assumptions about current, and for some estimates, future, economic and market conditions (for example, unemployment, housing, interest rates and market liquidity) which affect reported amounts and related disclosures in our condensed consolidated financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, as appropriate, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially affect our results of operations and financial position. Among other effects, such changes could result in incremental losses on loan receivables, future impairments of debt securities, goodwill and intangible assets, increases in reserves for contingencies, establishment of valuation allowances on deferred tax assets and increases in our tax liabilities.

We primarily conduct our operations within the United States and Canada. Substantially all of our revenues are from U.S. customers. The operating activities conducted by our non-U.S. affiliates use the local currency as their functional currency. The effects of translating the financial statements of these non-U.S. affiliates to U.S. dollars are included in equity. Asset and liability accounts are translated at period-end exchange rates, while revenues and expenses are translated at average rates for the respective periods.

Consolidated Basis of Presentation

The Company’s financial statements have been prepared on a consolidated basis. Under this basis of presentation, our financial statements consolidate all of our subsidiaries – i.e., entities in which we have a controlling financial interest, most often because we hold a majority voting interest.

To determine if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply the variable interest entity (“VIE”) model to the entity, otherwise the entity is evaluated under the voting interest model. Where we hold current or potential rights that give us the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance (“power”) combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses (“significant economics”), we have a controlling financial interest in that VIE. Rights held by others to remove the party with power over the VIE are not considered unless one party can exercise those rights unilaterally. We consolidate certain securitization entities under the VIE model because we have both power and significant economics. See Note 5. Variable Interest Entities.

Interim Period Presentation

The condensed consolidated financial statements and notes thereto are unaudited. These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these condensed consolidated financial statements should not be considered as necessarily indicative of results that may be expected for the entire year. These condensed consolidated financial statements should be read in conjunction with our 2018 annual consolidated financial statements and the related notes in our Annual Report on Form 10-K for the year ended December 31, 2018 (our "2018 Form 10-K").

New Accounting Standards

Newly Adopted Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU requires lessees to recognize most leases on their balance sheet. Leases which are identified as capital leases, are now generally identified as financing leases under the new guidance but otherwise their accounting treatment remains relatively unchanged. Leases identified as operating leases generally remain in that category under the new standard, but both a right-of-use asset and a liability for the remaining lease payments are required to be recognized on our statement of financial position. We adopted this guidance retrospectively in the current year as of January 1, 2019, which did not have a material impact on our consolidated financial statements.

Recently Issued But Not Yet Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU replaces the existing incurred loss impairment guidance with a new impairment model known as the Current Expected Credit Loss (“CECL”) model, which is based on expected credit losses. The CECL model permits the use of judgment in determining an approach which is most appropriate for the Company, based on their facts and circumstances. The CECL model requires, upon origination of a loan, the recognition of all expected credit losses over the life of the loan based on historical experience, current conditions and reasonable and supportable forecasts. Upon origination of a loan, the estimate of expected credit losses, and any subsequent changes to such estimate, will be recorded through provision for loan losses in our Consolidated Statement of Earnings.

This standard is effective for annual and interim reporting periods for fiscal years beginning after December 15, 2019, with early adoption permitted for annual and interim periods for fiscal years beginning after December 15, 2018. We plan to adopt the standard on its effective date, which for us is January 1, 2020. Upon adoption, the amendments in this standard will be recognized through a cumulative-effect adjustment to retained earnings.

We have created a company-wide approach to evaluating the effects of implementing this standard. We continue to test and refine the related estimation models to meet the requirements of the standard and have commenced parallel testing on our core model. We are finalizing the evaluation of key accounting interpretations and methodologies. As we finalize the estimation models and technical decisions, as well as ongoing discussions with our banking regulators, we expect to perform additional parallel tests, including running the full estimation framework prior to adoption.

We continue to assess and develop our internal processes and systems, in addition to evaluating the impact on our financial statement disclosures. We expect that the impact of adopting this new standard at the effective date will result in a material increase to the Company’s allowance for loan losses and result in a decrease in regulatory capital. The extent of the impact of the adoption of CECL at the effective date will depend on the size and asset quality of the portfolio, and economic conditions and forecasts at adoption, as well as any refinements to our models, methodology and other assumptions.

See Note 2. Basis of Presentation and Summary of Significant Accounting Policies to our 2018 annual consolidated financial statements in our 2018 Form 10-K, for additional information on our significant accounting policies.

NOTE 3. DEBT SECURITIES

All of our debt securities are classified as available-for-sale and are held to meet our liquidity objectives or to comply with the Community Reinvestment Act (“CRA”). Our debt securities consist of the following:



	September 30, 2019									December 31, 2018
			Gross		Gross							Gross		Gross
	Amortized		unrealized		unrealized			Estimated		Amortized		unrealized		unrealized			Estimated
($ in millions)	cost		gains		losses			fair value		cost		gains		losses			fair value
U.S. government and federal agency	$	1,196	$	—	$	—		$	1,196	$	2,889	$	—	$	(1	)	$	2,888
State and municipal	47		1		(2		)	46		50		—		(2		)	48
Residential mortgage-backed^(a)	1,107		6		(11		)	1,102		1,180		1		(42		)	1,139
Asset-backed^(b)	2,236		4		—			2,240		1,988		—		(3		)	1,985
U.S. corporate debt	—		—		—			—		2		—		—			2
Total	$	4,586	$	11	$	(13	)	$	4,584	$	6,109	$	1	$	(48	)	$	6,062

_______________________


(a)	All of our residential mortgage-backed securities have been issued by government-sponsored entities and are collateralized by U.S. mortgages. At September 30, 2019 and December 31, 2018, $343 million and $313 million of residential mortgage-backed securities, respectively, are pledged by the Bank as collateral to the Federal Reserve to secure Federal Reserve Discount Window advances.


(b)	All of our asset-backed securities are collateralized by credit card loans.

The following table presents the estimated fair values and gross unrealized losses of our available-for-sale debt securities:



	In loss position for
	Less than 12 months					12 months or more
			Gross					Gross
	Estimated		unrealized			Estimated		unrealized
($ in millions)	fair value		losses			fair value		losses
At September 30, 2019
U.S. government and federal agency	$	—	$	—		$	—	$	—
State and municipal	—		—			25		(2		)
Residential mortgage-backed	86		—			662		(11		)
Asset-backed	396		—			10		—
Total	$	482	$	—		$	697	$	(13	)

At December 31, 2018
U.S. government and federal agency	$	2,838	$	(1	)	$	—	$	—
State and municipal	23		(1		)	8		(1		)
Residential mortgage-backed	102		—			933		(42		)
Asset-backed	1,665		(2		)	114		(1		)
Total	$	4,628	$	(4	)	$	1,055	$	(44	)

We regularly review debt securities for impairment using both qualitative and quantitative criteria. We presently do not intend to sell our debt securities that are in an unrealized loss position and believe that it is not more likely than not that we will be required to sell these securities before recovery of our amortized cost.

There were no other-than-temporary impairments recognized during the nine months ended September 30, 2019 and 2018.

Contractual Maturities of Investments in Available-for-Sale Debt Securities



	Amortized		Estimated
At September 30, 2019 ($ in millions)	cost		fair value

Due
Within one year	$	2,938	$	2,941
After one year through five years	$	495	$	496
After five years through ten years	$	133	$	135
After ten years	$	1,020	$	1,012

We expect actual maturities to differ from contractual maturities because borrowers have the right to prepay certain obligations.

There were no material realized gains or losses recognized for the nine months ended September 30, 2019 and 2018.

Although we generally do not have the intent to sell any specific securities held at September 30, 2019, in the ordinary course of managing our debt securities portfolio, we may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield, liquidity requirements and funding obligations.

NOTE 4. LOAN RECEIVABLES AND ALLOWANCE FOR LOAN LOSSES



($ in millions)	September 30, 2019		December 31, 2018

Credit cards	$	79,788	$	89,994
Consumer installment loans	2,050		1,845
Commercial credit products	1,317		1,260
Other	52		40
Total loan receivables, before allowance for losses^(a)(b)	$	83,207	$	93,139

_______________________


(a)	Total loan receivables include $27.0 billion and $28.2 billion of restricted loans of consolidated securitization entities at September 30, 2019 and December 31, 2018, respectively. See Note 5. Variable Interest Entities for further information on these restricted loans.


(b)	At September 30, 2019 and December 31, 2018, loan receivables included deferred costs, net of deferred income, of $110 million and $105 million, respectively.

Loan Receivables Held for Sale

During the first quarter of 2019, we entered into an agreement to sell loan receivables associated with our Retail Card program agreement with Walmart. As a result, at September 30, 2019, $8.2 billion of loan receivables are classified as loan receivables held for sale on our Condensed Consolidated Statement of Financial Position and we recorded a $522 million reserve release in our provision for loan losses in the first quarter of 2019 following the reclassification of the Walmart portfolio to loan receivables held for sale. At September 30, 2019, approximately $1.1 billion of the loan receivables held for sale are restricted loans of our consolidated securitization entities. See Note 5. Variable Interest Entities for further information. On October 11, 2019, we completed our sale of $8.2 billion of loan receivables associated with our Retail Card program agreement with Walmart.

Allowance for Loan Losses



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

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



($ in millions)	Balance at July 1, 2018		Provision charged to operations		Gross charge-offs			Recoveries		Balance at September 30, 2018

Credit cards	$	5,757	$	1,427	$	(1,269	)	$	202	$	6,117
Consumer installment loans	51		9		(13		)	4		51
Commercial credit products	50		15		(13		)	2		54
Other	1		—		—			—		1
Total	$	5,859	$	1,451	$	(1,295	)	$	208	$	6,223



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

Credit cards	$	6,327	$	2,994	$	(4,584	)	$	761	$	5,498
Consumer installment loans	44		46		(47		)	13		56
Commercial credit products	55		35		(43		)	5		52
Other	1		1		(1		)	—		1
Total	$	6,427	$	3,076	$	(4,675	)	$	779	$	5,607



($ in millions)	Balance at January 1, 2018		Provision charged to operations		Gross charge-offs			Recoveries		Balance at September 30, 2018

Credit cards	$	5,483	$	4,016	$	(4,016	)	$	634	$	6,117
Consumer installment loans	40		39		(40		)	12		51
Commercial credit products	50		38		(39		)	5		54
Other	1		—		—			—		1
Total	$	5,574	$	4,093	$	(4,095	)	$	651	$	6,223

Delinquent and Non-accrual Loans



At September 30, 2019 ($ in millions)	30-89 days delinquent			90 or more days delinquent			Total past due			90 or more days delinquent and accruing			Total non-accruing^(a)

Credit cards	$	1,935		$	1,703		$	3,638		$	1,700		$	—
Consumer installment loans	29			5			34			—			5
Commercial credit products	36			15			51			15			—
Total delinquent loans	$	2,000		$	1,723		$	3,723		$	1,715		$	5
Percentage of total loan receivables	2.4		%	2.1		%	4.5		%	2.1		%	—		%



At December 31, 2018 ($ in millions)	30-89 days delinquent			90 or more days delinquent			Total past due			90 or more days delinquent and accruing			Total non-accruing^(a)

Credit cards	$	2,229		$	2,113		$	4,342		$	2,099		$	—
Consumer installment loans	28			5			33			—			5
Commercial credit products	38			17			55			17			—
Total delinquent loans	$	2,295		$	2,135		$	4,430		$	2,116		$	5
Percentage of total loan receivables	2.5		%	2.3		%	4.8		%	2.3		%	0.1		%

_______________________


(a)	Excludes purchase credit impaired loan receivables.

Impaired Loans and Troubled Debt Restructurings

Most of our non-accrual loan receivables are smaller balance loans evaluated collectively, by portfolio, for impairment and therefore are outside the scope of the disclosure requirements for impaired loans. Accordingly, impaired loans represent restructured smaller balance homogeneous loans meeting the definition of a Troubled Debt Restructuring (“TDR”). We use certain loan modification programs for borrowers experiencing financial difficulties. These loan modification programs include interest rate reductions and payment deferrals in excess of three months, which were not part of the terms of the original contract. Our TDR loans do not include loans that are classified as loan receivables held for sale.

We have both internal and external loan modification programs. 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 customers who request financial assistance through external sources, such as consumer credit counseling agency programs. These loans 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 following table provides information on loans that entered a loan modification program during the periods presented:



	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2019		2018		2019		2018
Credit cards	$	226	$	227	$	633	$	644
Consumer installment loans	—		—		—		—
Commercial credit products	1		1		3		3
Total	$	227	$	228	$	636	$	647

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, discounted at the original effective interest rate of the loan. Interest income from loans accounted for as TDRs is accounted for in the same manner as other accruing loans.

The following table provides information about loans classified as TDRs and specific reserves. We do not evaluate credit card loans for impairment on an individual basis but instead estimate an allowance for loan losses on a collective basis. As a result, there are no impaired loans for which there is no allowance.



At September 30, 2019 ($ in millions)	Total recorded investment		Related allowance			Net recorded investment		Unpaid principal balance
Credit cards	$	1,088	$	(513	)	$	575	$	985
Consumer installment loans	—		—			—		—
Commercial credit products	4		(2		)	2		4
Total	$	1,092	$	(515	)	$	577	$	989



At December 31, 2018 ($ in millions)	Total recorded investment		Related allowance			Net recorded investment		Unpaid principal balance
Credit cards	$	1,203	$	(546	)	$	657	$	1,086
Consumer installment loans	—		—			—		—
Commercial credit products	4		(2		)	2		4
Total	$	1,207	$	(548	)	$	659	$	1,090

Financial Effects of TDRs

As part of our loan modifications for borrowers experiencing financial difficulty, we may provide multiple concessions to minimize our economic loss and improve long-term loan performance and collectability. The following table presents the types and financial effects of loans modified and accounted for as TDRs during the periods presented:



Three months ended September 30,	2019						2018
($ in millions)	Interest income recognized during period when loans were impaired		Interest income that would have been recorded with original terms		Average recorded investment		Interest income recognized during period when loans were impaired		Interest income that would have been recorded with original terms		Average recorded investment
Credit cards	$	11	$	67	$	1,074	$	13	$	67	$	1,122
Consumer installment loans	—		—		—		—		—		—
Commercial credit products	—		1		4		—		1		5
Total	$	11	$	68	$	1,078	$	13	$	68	$	1,127




Nine months ended September 30,	2019						2018
($ in millions)	Interest income recognized during period when loans were impaired		Interest income that would have been recorded with original terms		Average recorded investment		Interest income recognized during period when loans were impaired		Interest income that would have been recorded with original terms		Average recorded investment
Credit cards	$	33	$	197	$	1,103	$	37	$	194	$	1,089
Consumer installment loans	—		—		—		—		—		—
Commercial credit products	—		1		4		—		1		5
Total	$	33	$	198	$	1,107	$	37	$	195	$	1,094

Payment Defaults

The following table presents the type, number and amount of loans accounted for as TDRs that enrolled in a modification plan within the previous 12 months from the applicable balance sheet date and experienced a payment default during the periods presented. A customer defaults from a modification program after two consecutive missed payments.



Three months ended September 30,	2019			2018
($ in millions)	Accounts defaulted	Loans defaulted		Accounts defaulted	Loans defaulted
Credit cards	15,059	$	37	18,719	$	43
Consumer installment loans	—	—		—	—
Commercial credit products	40	—		74	—
Total	15,099	$	37	18,793	$	43




Nine months ended September 30,	2019			2018
($ in millions)	Accounts defaulted	Loans defaulted		Accounts defaulted	Loans defaulted
Credit cards	36,529	$	88	43,361	$	101
Consumer installment loans	—	—		—	—
Commercial credit products	80	1		340	1
Total	36,609	$	89	43,701	$	102

Credit Quality Indicators

Our loan receivables portfolio includes both secured and unsecured loans. Secured loan receivables are largely comprised of consumer installment loans secured by equipment. Unsecured loan receivables are largely comprised of our open-ended consumer and commercial revolving credit card loans. As part of our credit risk management activities, on an ongoing basis, we assess overall credit quality by reviewing information related to the performance of a customer’s account with us, as well as information from credit bureaus, such as a Fair Isaac Corporation (“FICO”) or other credit scores, relating to the customer’s broader credit performance. FICO scores are generally obtained at origination of the account and are refreshed, at a minimum quarterly, but could be as often as weekly, to assist in predicting customer behavior. We categorize these credit scores into the following three credit score categories: (i) 661 or higher, which are considered the strongest credits; (ii) 601 to 660, considered moderate credit risk; and (iii) 600 or less, which are considered weaker credits. There are certain customer accounts for which a FICO score is not available where we use alternative sources to assess their credit and predict behavior. The following table provides the most recent FICO scores available for our customers at September 30, 2019, December 31, 2018 and September 30, 2018, respectively, as a percentage of each class of loan receivable. The table below excludes 0.9%, 0.5% and 0.5% of our total loan receivables balance at each of September 30, 2019, December 31, 2018 and September 30, 2018, respectively, which represents those customer accounts for which a FICO score is not available.



	September 30, 2019						December 31, 2018						September 30, 2018
	661 or		601 to		600 or		661 or		601 to		600 or		661 or		601 to		600 or
	higher		660		less		higher		660		less		higher		660		less

Credit cards	75	%	19	%	6	%	74	%	18	%	8	%	74	%	18	%	8	%
Consumer installment loans	80	%	14	%	6	%	80	%	14	%	6	%	81	%	14	%	5	%
Commercial credit products	91	%	5	%	4	%	90	%	5	%	5	%	91	%	5	%	4	%

Unfunded Lending Commitments

We manage the potential risk in credit commitments by limiting the total amount of credit, both by individual customer and in total, by monitoring the size and maturity of our portfolios and by applying the same credit standards for all of our credit products. Unused credit card lines available to our customers totaled approximately $435 billion and $418 billion at September 30, 2019 and December 31, 2018, respectively. While these amounts represented the total available unused credit card lines, we have not experienced and do not anticipate that all of our customers will access their entire available line at any given point in time.

Interest Income by Product

The following table provides additional information about our interest and fees on loans, including merchant discounts, from our loan receivables, including held for sale:



	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2019		2018		2019		2018
Credit cards	$	4,807	$	4,538	$	13,975	$	12,647
Consumer installment loans	48		41		134		114
Commercial credit products	35		37		103		107
Other	—		1		1		2
Total	$	4,890	$	4,617	$	14,213	$	12,870

NOTE 5. VARIABLE INTEREST ENTITIES

We use VIEs to securitize loan receivables and arrange asset-backed financing in the ordinary course of business. Investors in these entities only have recourse to the assets owned by the entity and not to our general credit. We do not have implicit support arrangements with any VIE and we did not provide non-contractual support for previously transferred loan receivables to any VIE in the three and nine months ended September 30, 2019 and 2018. Our VIEs are able to accept new loan receivables and arrange new asset-backed financings, consistent with the requirements and limitations on such activities placed on the VIE by existing investors. Once an account has been designated to a VIE, the contractual arrangements we have require all existing and future loan receivables originated under such account to be transferred to the VIE. The amount of loan receivables held by our VIEs in excess of the minimum amount required under the asset-backed financing arrangements with investors may be removed by us under removal of accounts provisions. All loan receivables held by a VIE are subject to claims of third-party investors.

In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise of professional judgment in deciding which decision-making rights are most important.

In determining whether we have the right to receive benefits or the obligation to absorb losses that could potentially be significant to a VIE, we evaluate all of our economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual arrangements). This evaluation considers all relevant factors of the entity’s design, including: the entity’s capital structure, contractual rights to earnings or losses, subordination of our interests relative to those of other investors, as well as any other contractual arrangements that might exist that could have the potential to be economically significant. The evaluation of each of these factors in reaching a conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional judgment.

We consolidate VIEs where we have the power to direct the activities that significantly affect the VIEs' economic performance, typically because of our role as either servicer or administrator for the VIEs. The power to direct exists because of our role in the design and conduct of the servicing of the VIEs’ assets as well as directing certain affairs of the VIEs, including determining whether and on what terms debt of the VIEs will be issued.

The loan receivables in these entities have risks and characteristics similar to our other financing receivables and were underwritten to the same standard. Accordingly, the performance of these assets has been similar to our other comparable loan receivables, and the blended performance of the pools of receivables in these entities reflects the eligibility criteria that we apply to determine which receivables are selected for transfer. Contractually, the cash flows from these financing receivables must first be used to pay third-party debt holders, as well as other expenses of the entity. Excess cash flows, if any, are available to us. The creditors of these entities have no claim on our other assets.

The table below summarizes the assets and liabilities of our consolidated securitization VIEs described above.



($ in millions)	September 30, 2019		December 31, 2018
Assets
Loan receivables, net^(a)	$	25,481	$	26,454
Loan receivables held for sale	1,080		—
Other assets^(b)	64		813
Total	$	26,625	$	27,267

Liabilities
Borrowings	$	10,912	$	14,439
Other liabilities	29		36
Total	$	10,941	$	14,475

_______________________


(a)	Includes $1.5 billion and $1.7 billion of related allowance for loan losses resulting in gross restricted loans of $27.0 billion and $28.2 billion at September 30, 2019 and December 31, 2018, respectively.


(b)	Includes $58 million and $803 million of segregated funds held by the VIEs at September 30, 2019 and December 31, 2018, respectively, which are classified as restricted cash and equivalents and included as a component of other assets in our Condensed Consolidated Statements of Financial Position.

The balances presented above are net of intercompany balances and transactions that are eliminated in our condensed consolidated financial statements.

We provide servicing for all of our consolidated VIEs. Collections are required to be placed into segregated accounts owned by each VIE in amounts that meet contractually specified minimum levels. These segregated funds are invested in cash and cash equivalents and are restricted as to their use, principally to pay maturing principal and interest on debt and the related servicing fees. Collections above these minimum levels are remitted to us on a daily basis.

Income (principally, interest and fees on loans) earned by our consolidated VIEs was $1.4 billion and $1.3 billion for the three months ended September 30, 2019 and 2018, respectively. Related expenses consisted primarily of provision for loan losses of $184 million and $261 million for the three months ended September 30, 2019 and 2018, respectively, and interest expense of $88 million and $86 million for the three months ended September 30, 2019 and 2018, respectively.

Income (principally, interest and fees on loans) earned by our consolidated VIEs was $3.9 billion and $3.7 billion for the nine months ended September 30, 2019 and 2018, respectively. Related expenses consisted primarily of provision for loan losses of $743 million and $1.1 billion for the nine months ended September 30, 2019 and 2018, respectively, and interest expense of $278 million and $240 million for the nine months ended September 30, 2019 and 2018, respectively.

NOTE 6. INTANGIBLE ASSETS



	September 30, 2019							December 31, 2018
($ in millions)	Gross carrying amount		Accumulated amortization			Net		Gross carrying amount		Accumulated amortization			Net
Customer-related	$	1,752	$	(918	)	$	834	$	1,630	$	(803	)	$	827
Capitalized software and other	699		(356		)	343		562		(252		)	310
Total	$	2,451	$	(1,274	)	$	1,177	$	2,192	$	(1,055	)	$	1,137

During the nine months ended September 30, 2019, we recorded additions to intangible assets subject to amortization of $264 million, primarily related to capitalized software expenditures, as well as customer-related intangible assets.

Customer-related intangible assets primarily relate to retail partner contract acquisitions and extensions, as well as purchased credit card relationships. During the nine months ended September 30, 2019 and 2018, we recorded additions to customer-related intangible assets subject to amortization of $123 million and $342 million, respectively, primarily related to payments made to extend certain retail partner relationships. These additions had a weighted average amortizable life of 7 years and 9 years for the nine months ended September 30, 2019 and 2018.

Amortization expense related to retail partner contracts was $34 million for both the three months ended September 30, 2019 and 2018, respectively, and $100 million and $92 million for the nine months ended September 30, 2019 and 2018, respectively, and is included as a component of marketing and business development expense in our Condensed Consolidated Statements of Earnings. All other amortization expense was $44 million and $29 million for the three months ended September 30, 2019 and 2018, respectively, and $123 million and $84 million for the nine months ended September 30, 2019 and 2018, respectively, and is included as a component of other expense in our Condensed Consolidated Statements of Earnings.

NOTE 7. DEPOSITS



	September 30, 2019				December 31, 2018
($ in millions)	Amount		Average rate^(a)		Amount		Average rate^(a)

Interest-bearing deposits	$	65,677	2.5	%	$	63,738	2.0	%
Non-interest-bearing deposits	295		—		281		—
Total deposits	$	65,972			$	64,019

____________________


(a)	Based on interest expense for the nine months ended September 30, 2019 and the year ended December 31, 2018 and average deposits balances.

At September 30, 2019 and December 31, 2018, interest-bearing deposits included $22.1 billion and $20.2 billion of certificates of deposit of $100,000 or more, respectively. Of the total certificates of deposit of $100,000 or more, $7.7 billion and $6.9 billion were certificates of deposit of $250,000 or more at September 30, 2019 and December 31, 2018, respectively.

At September 30, 2019, our interest-bearing time deposits maturing for the remainder of 2019 and over the next four years and thereafter were as follows:



($ in millions)	2019		2020		2021		2022		2023		Thereafter
Deposits	$	5,426	$	25,927	$	4,976	$	2,977	$	1,310	$	2,426

The above maturity table excludes $19.0 billion of demand deposits with no defined maturity, of which $17.9 billion are savings accounts. In addition, at September 30, 2019, we had $3.7 billion of broker network deposit sweeps procured through a program arranger who channels brokerage account deposits to us that are also excluded from the above maturity table. Unless extended, the contracts associated with these broker network deposit sweeps will terminate between 2020 and 2025.

NOTE 8. BORROWINGS



	September 30, 2019							December 31, 2018
($ in millions)	Maturity date	Interest Rate		Weighted average interest rate		Outstanding Amount^(a)		Outstanding Amount^(a)

Borrowings of consolidated securitization entities:
Fixed securitized borrowings	2020 - 2023	1.93% - 3.87%		2.71	%	$	7,512	$	8,664
Floating securitized borrowings	2020 - 2022	2.62% - 3.33%		2.80	%	3,400		5,775
Total borrowings of consolidated securitization entities				2.74	%	10,912		14,439

Senior unsecured notes:
Synchrony Financial senior unsecured notes:
Fixed senior unsecured notes	2020 - 2029	2.70% - 5.15%		3.94	%	7,210		7,318
Floating senior unsecured notes	2020	3.52	%	3.52	%	250		250

Synchrony Bank senior unsecured notes:
Fixed senior unsecured notes	2021 - 2022	3.00% - 3.65%		3.33	%	1,491		1,490
Floating senior unsecured notes	2020	2.73	%	2.73	%	500		499
Total senior unsecured notes				3.77	%	9,451		9,557

Total borrowings						$	20,363	$	23,996

___________________


(a)	The amounts presented above for outstanding borrowings include unamortized debt premiums, discounts and issuance cost.

Debt Maturities

The following table summarizes the maturities of the principal amount of our borrowings of consolidated securitization entities and senior unsecured notes for the remainder of 2019 and over the next four years and thereafter:



($ in millions)	2019		2020		2021		2022		2023		Thereafter
Borrowings	$	—	$	4,708	$	5,659	$	4,350	$	707	$	5,000

Senior Unsecured Notes




2019 Issuances ($ in millions):
Synchrony Financial
Issuance Date	Principal Amount		Maturity	Interest Rate
March 2019	$	600	2024	4.375	%
March 2019	$	650	2029	5.150	%
July 2019	$	750	2022	2.850	%

Credit Facilities

As additional sources of liquidity, we have undrawn committed capacity under credit facilities, primarily related to our securitization programs.

At September 30, 2019, we had an aggregate of $6.0 billion of undrawn committed capacity under our securitization financings, subject to customary borrowing conditions, from private lenders under our securitization programs, and an aggregate of $0.5 billion of undrawn committed capacity under our unsecured revolving credit facility with private lenders.

NOTE 9. FAIR VALUE MEASUREMENTS

For a description of how we estimate fair value, see Note 2. Basis of Presentation and Summary of Significant Accounting Policies in our 2018 annual consolidated financial statements in our 2018 Form 10-K.

The following tables present our assets and liabilities measured at fair value on a recurring basis.

Recurring Fair Value Measurements



At September 30, 2019 ($ in millions)	Level 1		Level 2		Level 3		Total^(a)

Assets
Debt securities
U.S. Government and Federal Agency	$	—	$	1,196	$	—	$	1,196
State and municipal	—		—		46		46
Residential mortgage-backed	—		1,102		—		1,102
Asset-backed	—		2,240		—		2,240
Other assets^(b)	15		—		17		32
Total	$	15	$	4,538	$	63	$	4,616

Liabilities
Contingent consideration	—		—		19		19
Total	$	—	$	—	$	19	$	19

At December 31, 2018 ($ in millions)

Assets
Debt securities
U.S. Government and Federal Agency	$	—	$	2,888	$	—	$	2,888
State and municipal	—		—		48		48
Residential mortgage-backed	—		1,139		—		1,139
Asset-backed	—		1,985		—		1,985
U.S. corporate debt	—		—		2		2
Other assets^(b)	15		—		13		28
Total	$	15	$	6,012	$	63	$	6,090

Liabilities
Contingent consideration	—		—		26		26
Total	$	—	$	—	$	26	$	26

_______________________


(a)	For the three and nine months ended September 30, 2019 and 2018, there were no fair value measurements transferred between levels.


(b)	Other assets primarily relate to equity investments measured at fair value.

Level 3 Fair Value Measurements

Our Level 3 recurring fair value measurements primarily relate to state and municipal debt instruments, which are valued using non-binding broker quotes or other third-party sources, CRA investments, which are valued using net asset values, as well as contingent consideration obligations. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 9. Fair Value Measurements in our 2018 annual consolidated financial statements in our 2018 Form 10-K for a description of our process to evaluate third-party pricing servicers and a description of our contingent consideration and compensation arrangements, respectively. Our state and municipal debt securities are classified as available-for-sale with changes in fair value included in accumulated other comprehensive income.

The changes in our Level 3 assets and liabilities that are measured on a recurring basis for the three and nine months ended September 30, 2019 and 2018 were not material.

Financial Assets and Financial Liabilities Carried at Other Than Fair Value



	Carrying		Corresponding fair value amount
At September 30, 2019 ($ in millions)	value		Total		Level 1		Level 2		Level 3
Financial Assets
Financial assets for which carrying values equal or approximate fair value:
Cash and equivalents^(a)	$	11,461	$	11,461	$	8,727	$	2,734	$	—
Other assets^(a)(b)	$	260	$	260	$	260	$	—	$	—
Financial assets carried at other than fair value:
Loan receivables, net^(c)	$	77,600	$	86,753	$	—	$	—	$	86,753
Loan receivables held for sale^(c)	$	8,182	$	8,182	$	—	$	—	$	8,182

Financial Liabilities
Financial liabilities carried at other than fair value:
Deposits	$	65,972	$	66,358	$	—	$	66,358	$	—
Borrowings of consolidated securitization entities	$	10,912	$	11,026	$	—	$	7,627	$	3,399
Senior unsecured notes	$	9,451	$	9,835	$	—	$	9,835	$	—

	Carrying		Corresponding fair value amount
At December 31, 2018 ($ in millions)	value		Total		Level 1		Level 2		Level 3
Financial Assets
Financial assets for which carrying values equal or approximate fair value:
Cash and equivalents^(a)	$	9,396	$	9,396	$	9,396	$	—	$	—
Other assets^(a)(b)	$	980	$	980	$	980	$	—	$	—
Financial assets carried at other than fair value:
Loan receivables, net^(c)	$	86,712	$	95,305	$	—	$	—	$	95,305

Financial Liabilities
Financial liabilities carried at other than fair value:
Deposits	$	64,019	$	63,942	$	—	$	63,942	$	—
Borrowings of consolidated securitization entities	$	14,439	$	14,400	$	—	$	8,626	$	5,774
Senior unsecured notes	$	9,557	$	9,062	$	—	$	9,062	$	—

_______________________


(a)	For cash and equivalents and restricted cash and equivalents, carrying value approximates fair value due to the liquid nature and short maturity of these instruments. Cash equivalents classified as Level 2 represent U.S. Government and Federal Agency debt securities with original maturities or of three months or less or acquired within 3 months or less of their maturity.


(b)	This balance relates to restricted cash and equivalents, which is included in other assets.


(c)	Under certain retail partner program agreements, the expected sales proceeds related to the sale of their credit card portfolio may be limited to the amounts owed by our customers, which may be less than the fair value indicated above.

NOTE 10. REGULATORY AND CAPITAL ADEQUACY

As a savings and loan holding company and a financial holding company, we are subject to regulation, supervision and examination by the Federal Reserve Board and subject to the capital requirements as prescribed by Basel III capital rules and the requirements of the Dodd-Frank Act. The Bank is a federally chartered savings association. As such, the Bank is subject to regulation, supervision and examination by the Office of the Comptroller of the Currency of the U.S. Treasury (the “OCC”), which is its primary regulator, and by the Consumer Financial Protection Bureau (“CFPB”). In addition, the Bank, as an insured depository institution, is supervised by the Federal Deposit Insurance Corporation.

Failure to meet minimum capital requirements can initiate 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 consolidated financial statements. Under capital adequacy guidelines, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require us and the Bank to maintain minimum amounts and ratios (set forth in the tables below) of Total, Tier 1 and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined).

For Synchrony Financial to be a well-capitalized savings and loan holding company, the 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.

At September 30, 2019 and December 31, 2018, Synchrony Financial met all applicable requirements to be deemed well-capitalized pursuant to Federal Reserve Board regulations. At September 30, 2019 and December 31, 2018, the Bank also met all applicable requirements to be deemed well-capitalized pursuant to OCC regulations and for purposes of the Federal Deposit Insurance Act. There are no conditions or events subsequent to September 30, 2019 that management believes have changed the Company's or the Bank’s capital category.

The actual capital amounts, ratios and the applicable required minimums of the Company and the Bank are as follows:

Synchrony Financial



At September 30, 2019 ($ in millions)	Actual				Minimum for capital adequacy purposes
	Amount		Ratio^(a)		Amount		Ratio^(b)

Total risk-based capital	$	14,345	15.8	%	$	7,262	8.0	%
Tier 1 risk-based capital	$	13,155	14.5	%	$	5,446	6.0	%
Tier 1 leverage	$	13,155	12.6	%	$	4,178	4.0	%
Common equity Tier 1 Capital	$	13,155	14.5	%	$	4,085	4.5	%



At December 31, 2018 ($ in millions)	Actual				Minimum for capital adequacy purposes
	Amount		Ratio^(a)		Amount		Ratio^(b)

Total risk-based capital	$	14,013	15.3	%	$	7,339	8.0	%
Tier 1 risk-based capital	$	12,801	14.0	%	$	5,505	6.0	%
Tier 1 leverage	$	12,801	12.3	%	$	4,157	4.0	%
Common equity Tier 1 Capital	$	12,801	14.0	%	$	4,128	4.5	%

Synchrony Bank



At September 30, 2019 ($ in millions)	Actual				Minimum for capital adequacy purposes				Minimum to be well-capitalized under prompt corrective action provisions
	Amount		Ratio^(a)		Amount		Ratio^(b)		Amount		Ratio

Total risk-based capital	$	12,504	15.9	%	$	6,295	8.0	%	$	7,868	10.0	%
Tier 1 risk-based capital	$	11,470	14.6	%	$	4,721	6.0	%	$	6,295	8.0	%
Tier 1 leverage	$	11,470	12.7	%	$	3,604	4.0	%	$	4,505	5.0	%
Common equity Tier I capital	$	11,470	14.6	%	$	3,541	4.5	%	$	5,114	6.5	%



At December 31, 2018 ($ in millions)	Actual				Minimum for capital adequacy purposes				Minimum to be well-capitalized under prompt corrective action provisions
	Amount		Ratio^(a)		Amount		Ratio^(b)		Amount		Ratio

Total risk-based capital	$	12,258	15.4	%	$	6,348	8.0	%	$	7,934	10.0	%
Tier 1 risk-based capital	$	11,207	14.1	%	$	4,761	6.0	%	$	6,348	8.0	%
Tier 1 leverage	$	11,207	12.4	%	$	3,612	4.0	%	$	4,515	5.0	%
Common equity Tier I capital	$	11,207	14.1	%	$	3,570	4.5	%	$	5,157	6.5	%

_______________________


(a)	Capital ratios are calculated based on the Basel III Standardized Approach rules.

(b)

At September 30, 2019 and at December 31, 2018, Synchrony Financial and the Bank also must maintain a capital conservation buffer of common equity Tier 1 capital in excess of minimum risk-based capital ratios by at least 2.5 percentage points and 1.875 percentage points, respectively, to avoid limits on capital distributions and certain discretionary bonus payments to executive officers and similar employees.

The Bank may pay dividends on its stock, with consent or non-objection from the OCC and the Federal Reserve Board, among other things, if its regulatory capital would not thereby be reduced below the applicable regulatory capital requirements.

NOTE 11. EARNINGS PER SHARE

Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the assumed conversion of all dilutive securities.

The following table presents the calculation of basic and diluted earnings per share:



	Three months ended September 30,				Nine months ended September 30,
(in millions, except per share data)	2019		2018		2019		2018

Net earnings	$	1,056	$	671	$	3,016	$	2,007

Weighted average common shares outstanding, basic	658.3		734.9		682.5		750.2
Effect of dilutive securities	3.4		3.9		3.1		5.5
Weighted average common shares outstanding, dilutive	661.7		738.8		685.6		755.7

Earnings per basic common share	$	1.60	$	0.91	$	4.42	$	2.68
Earnings per diluted common share	$	1.60	$	0.91	$	4.40	$	2.66

We have issued certain stock-based awards under the Synchrony Financial 2014 Long-Term Incentive Plan. A total of 3 million and 5 million shares for the three months ended September 30, 2019 and 2018, respectively, and 4 million and 3 million shares for the nine months ended September 30, 2019 and 2018, respectively, related to these awards, were considered anti-dilutive and therefore were excluded from the computation of diluted earnings per share.

NOTE 12. INCOME TAXES

Unrecognized Tax Benefits



($ in millions)	September 30, 2019		December 31, 2018
Unrecognized tax benefits, excluding related interest expense and penalties^(a)	$	270	$	251
Portion that, if recognized, would reduce tax expense and effective tax rate^(b)	$	193	$	164

____________________


(a)	Interest and penalties related to unrecognized tax benefits were not material for all periods presented.


(b)	Includes gross state and local unrecognized tax benefits net of the effects of associated U.S. federal income taxes. Excludes amounts attributable to any related valuation allowances resulting from associated increases in deferred tax assets.

We establish a liability that represents the difference between a tax position taken (or expected to be taken) on an income tax return and the amount of taxes recognized in our financial statements. The liability associated with the unrecognized tax benefits is adjusted periodically when new information becomes available. The amount of unrecognized tax benefits that is reasonably possible to be resolved in the next twelve months is expected to be $70 million, of which $27 million, if recognized, would reduce the Company's tax expense and effective tax rate.

For periods prior to separation from GE, we filed tax returns on a consolidated basis with GE and are under continuous examination by the Internal Revenue Service (“IRS”) and the tax authorities of various states as part of their audit of GE’s tax returns. The IRS is currently auditing GE's consolidated U.S. income tax returns for 2014 to 2015. In addition to the audits of GE's tax returns, we are under examination in various states going back to 2011. We believe that there are no issues or claims that are likely to significantly impact our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all income tax uncertainties that could result from such examinations.

NOTE 13. LEGAL PROCEEDINGS AND REGULATORY MATTERS

In the normal course of business, from time to time, we have been named as a defendant in various legal proceedings, including arbitrations, class actions and other litigation, arising in connection with our business activities. Certain of the legal actions include claims for substantial compensatory and/or punitive damages, or claims for indeterminate amounts of damages. We are also involved, from time to time, in reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding our business (collectively, “regulatory matters”), which could subject us to significant fines, penalties, obligations to change our business practices or other requirements resulting in increased expenses, diminished income and damage to our reputation. We contest liability and/or the amount of damages as appropriate in each pending matter. In accordance with applicable accounting guidance, we establish an accrued liability for legal and regulatory matters when those matters present loss contingencies which are both probable and reasonably estimable.

Legal proceedings and regulatory matters are subject to many uncertain factors that generally cannot be predicted with assurance, and we may be exposed to losses in excess of any amounts accrued.

For some matters, we are able to determine that an estimated loss, while not probable, is reasonably possible. For other matters, including those that have not yet progressed through discovery and/or where important factual information and legal issues are unresolved, we are unable to make such an estimate. We currently estimate that the reasonably possible losses for legal proceedings and regulatory matters, whether in excess of a related accrued liability or where there is no accrued liability, and for which we are able to estimate a possible loss, are immaterial. This represents management’s estimate of possible loss with respect to these matters and is based on currently available information. This estimate of possible loss does not represent our maximum loss exposure. The legal proceedings and regulatory matters underlying the estimate will change from time to time and actual results may vary significantly from current estimates.

Our estimate of reasonably possible losses involves significant judgment, given the varying stages of the proceedings, the existence of numerous yet to be resolved issues, the breadth of the claims (often spanning multiple years), unspecified damages and/or the novelty of the legal issues presented. Based on our current knowledge, we do not believe that we are a party to any pending legal proceeding or regulatory matters that would have a material adverse effect on our condensed consolidated financial condition or liquidity. However, in light of the uncertainties involved in such matters, the ultimate outcome of a particular matter could be material to our operating results for a particular period depending on, among other factors, the size of the loss or liability imposed and the level of our earnings for that period, and could adversely affect our business and reputation.

Below is a description of certain of our regulatory matters and legal proceedings.

Regulatory Matters

On October 30, 2014, the United States Trustee, which is part of the Department of Justice, filed an application in In re Nyree Belton, a Chapter 7 bankruptcy case pending in the U.S. Bankruptcy Court for the Southern District of New York for orders authorizing discovery of the Bank pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure, related to an investigation of the Bank’s credit reporting. The discovery, which is ongoing, concerns allegations made in Belton et al. v. GE Capital Consumer Lending, a putative class action adversary proceeding pending in the same Bankruptcy Court. In the Belton adversary proceeding, which was filed on April 30, 2014, plaintiff alleges that the Bank violates the discharge injunction under Section 524(a)(2) of the Bankruptcy Code by attempting to collect discharged debts and by failing to update and correct credit information to credit reporting agencies to show that such debts are no longer due and owing because they have been discharged in bankruptcy. Plaintiff seeks declaratory judgment, injunctive relief and an unspecified amount of damages. On December 15, 2014, the Bankruptcy Court entered an order staying the adversary proceeding pending an appeal to the District Court of the Bankruptcy Court’s order denying the Bank’s motion to compel arbitration. On October 14, 2015, the District Court reversed the Bankruptcy Court and on November 4, 2015, the Bankruptcy Court granted the Bank's motion to compel arbitration. On March 4, 2019, on plaintiff’s motion for reconsideration, the District Court vacated its decision reversing the Bankruptcy Court and affirmed the Bankruptcy Court’s decision denying the Bank’s motion to compel arbitration.

On May 9, 2017, the Bank received a Civil Investigative Demand from the CFPB seeking information related to the marketing and servicing of deferred interest promotions.

Other Matters

The Bank or the Company is, or has been, defending a number of putative class actions alleging claims under the federal Telephone Consumer Protection Act (“TCPA”) as a result of phone calls made by the Bank. The complaints generally have alleged that the Bank or the Company placed calls to consumers by an automated telephone dialing system or using a pre-recorded message or automated voice without their consent and seek up to $1,500 for each violation, without specifying an aggregate amount. Campbell et al. v. Synchrony Bank was filed on January 25, 2017 in the U.S. District Court for the Northern District of New York. The original complaint named only J.C. Penney Company, Inc. and J.C. Penney Corporation, Inc. as the defendants but was amended on April 7, 2017 to replace those defendants with the Bank. Neal et al. v. Wal-Mart Stores, Inc. and Synchrony Bank, for which the Bank is indemnifying Wal-Mart, was filed on January 17, 2017 in the U.S. District Court for the Western District of North Carolina. The original complaint named only Wal-Mart Stores, Inc. as a defendant but was amended on March 30, 2017 to add Synchrony Bank as an additional defendant. Mott et al. v. Synchrony Bank was filed on February 2, 2018 in the U.S. District Court for the Middle District of Florida.

On November 2, 2018, a putative class action lawsuit, Retail Wholesale Department Store Union Local 338 Retirement Fund v. Synchrony Financial, et al., was filed in the U.S. District Court for the District of Connecticut, naming as defendants the Company and two of its officers. The lawsuit asserts violations of the Exchange Act for allegedly making materially misleading statements and/or omitting material information concerning the Company’s underwriting practices and private-label card business, and was filed on behalf of a putative class of persons who purchased or otherwise acquired the Company’s common stock between October 21, 2016 and November 1, 2018. The complaint seeks an award of unspecified compensatory damages, costs and expenses. On February 5, 2019, the court appointed Stichting Depositary APG Developed Markets Equity Pool as lead plaintiff for the putative class. On April 5, 2019, an amended complaint was filed, asserting a new claim for violations of the Securities Act in connection with statements in the offering materials for the Company’s December 1, 2017 note offering. The Securities Act claims are filed on behalf of persons who purchased or otherwise acquired Company bonds in or traceable to the December 1, 2017 note offering between December 1, 2017 and November 1, 2018. The amended complaint names as additional defendants two additional Company officers, the Company’s board of directors, and the underwriters of the December 1, 2017 note offering. The amended complaint is captioned Stichting Depositary APG Developed Markets Equity Pool and Stichting Depositary APG Fixed Income Credit Pool v. Synchrony Financial et al.

On January 28, 2019, a purported shareholder derivative action, Gilbert v. Keane, et al., was filed in the U.S. District Court for the District of Connecticut against the Company as a nominal defendant, and certain of the Company’s officers and directors. The lawsuit alleges breach of fiduciary duty claims based on the allegations raised by the plaintiff in the Stichting Depositar APG class action, unjust enrichment, waste of corporate assets, and that the defendants made materially misleading statements and/or omitted material information in violation of the Exchange Act. The complaint seeks a declaration that the defendants breached and/or aided and abetted the breach of their fiduciary duties to the Company, unspecified monetary damages with interest, restitution, a direction that the defendants take all necessary actions to reform and improve corporate governance and internal procedures, and attorneys’ and experts’ fees. On March 11, 2019, a second purported shareholder derivative action, Aldridge v. Keane, et al., was filed in the U.S. District Court for the District of Connecticut. The allegations in the Aldridge complaint are substantially similar to those in the Gilbert complaint.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk refers to the risk that a change in the level of one or more market prices, rates, indices, correlations or other market factors will result in losses for a position or portfolio. We are exposed to market risk primarily from changes in interest rates.

We borrow money from a variety of depositors and institutions in order to provide loans to our customers. Changes in market interest rates cause our net interest income to increase or decrease, as some of our assets and liabilities carry interest rates that fluctuate with market benchmarks. The interest rate benchmark for our floating rate assets is generally the prime rate, and the interest rate benchmark for our floating rate liabilities is generally either LIBOR or the federal funds rate. The prime rate and the LIBOR or federal funds rate could reset at different times or could diverge, leading to mismatches in the interest rates on our floating rate assets and floating rate liabilities.

The following table presents the approximate net interest income impacts forecasted over the next twelve months from an immediate and parallel change in interest rates affecting all interest rate sensitive assets and liabilities at September 30, 2019.



Basis Point Change	At September 30, 2019
($ in millions)
-100 basis points	$	(159	)
+100 basis points	$	118

For a more detailed discussion of our exposure to market risk, refer to “Management's Discussion and Analysis—Quantitative and Qualitative Disclosures about Market Risk” in our 2018 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures, and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2019.

No change in internal control over financial reporting occurred during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of legal proceedings, see Note 13. Legal Proceedings and Regulatory Matters to our condensed consolidated financial statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors included in our 2018 Form 10-K under the heading “Risk Factors Relating to Our Business” and “Risk Factors Relating to Regulation”.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth information regarding purchases of our common stock primarily related to our share repurchase program that were made by us or on our behalf during the three months ended September 30, 2019.



($ in millions, except per share data)	Total Number of Shares Purchased^(a)	Average Price Paid Per Share^(b)		Total Number of Shares Purchased as Part of Publicly Announced Programs^(c)	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Programs^(b)

July 1 - 31, 2019	8,186,814	$	35.78	8,179,117	$	2,982.3
August 1 - 31, 2019	7,440,035	34.59		7,440,035	2,725.0
September 1 - 30, 2019	33,420	33.96		—	2,725.0
Total	15,660,269	$	35.21	15,619,152	$	2,725.0

_______________________


(a)	Includes 7,697 shares, 0 shares and 33,420 shares withheld in July, August and September, respectively, to offset tax withholding obligations that occur upon the delivery of outstanding shares underlying performance stock awards, restricted stock awards or upon the exercise of stock options.


(b)	Amounts exclude commission costs.


(c)	On May 9, 2019, the Board of Directors approved a share repurchase program of up to $4.0 billion through June 30, 2020 (the “2019 Share Repurchase Program”).

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

The Company’s Change in Control Severance Plan was amended to change the manner in which the bonus-related component of severance pay is determined. Previously, severance payments under the plan took into account an executive’s “target bonus.” Under the amendment, the bonus-related component of severance pay is based on an executive’s average cash bonus paid to the executive for the three years prior to his or her termination of employment; provided, however, that (i) if the executive has not been employed for three years, then the average

bonus will be determined based on the actual bonuses paid over the course of his or her employment, and (ii) if the executive has no bonus history, then the bonus-related component of severance for such executive will be based on his or her “target bonus,” adjusted based on the funding of the Company’s cash bonus pool during the three years preceding his or her termination of employment.

ITEM 6. EXHIBITS

EXHIBIT INDEX



Exhibit Number	Description
10.1*	Synchrony Financial Amended and Restated 2014 Long-Term Incentive Plan
10.2*	Synchrony Financial Amended and Restated Change in Control Severance Plan
10.3*	First Amendment to the Synchrony Financial Restoration Plan
31(a)*	Certification Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Amended
31(b)*	Certification Pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as Amended
32*	Certification Pursuant to 18 U.S.C. Section 1350
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104	The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL (included as Exhibit 101)

______________________


*	Filed electronically herewith.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Synchrony Financial

(Registrant)



October 24, 2019		/s/ Brian J. Wenzel Sr.
Date		Brian J. Wenzel Sr. Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)