x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Delaware | 36-2517428 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
2500 Lake Cook Road, Riverwoods, Illinois 60015 | (224) 405-0900 | |
(Address of principal executive offices, including zip code) | (Registrant’s telephone number, including area code) |
Large accelerated filer x | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Part I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements |
September 30, 2016 | December 31, 2015 | ||||||
(unaudited) (dollars in millions, except share amounts) | |||||||
Assets | |||||||
Cash and cash equivalents | $ | 12,076 | $ | 9,572 | |||
Restricted cash | 947 | 99 | |||||
Other short-term investments | 850 | — | |||||
Investment securities (includes $1,697 and $2,963 at fair value at September 30, 2016 and December 31, 2015, respectively) | 1,855 | 3,084 | |||||
Loan receivables | |||||||
Loan receivables | 73,551 | 72,385 | |||||
Allowance for loan losses | (2,024 | ) | (1,869 | ) | |||
Net loan receivables | 71,527 | 70,516 | |||||
Premises and equipment, net | 722 | 693 | |||||
Goodwill | 255 | 255 | |||||
Intangible assets, net | 166 | 168 | |||||
Other assets | 2,143 | 2,412 | |||||
Total assets | $ | 90,541 | $ | 86,799 | |||
Liabilities and Stockholders’ Equity | |||||||
Deposits | |||||||
Interest-bearing deposit accounts | $ | 48,785 | $ | 47,094 | |||
Non-interest bearing deposit accounts | 460 | 437 | |||||
Total deposits | 49,245 | 47,531 | |||||
Long-term borrowings | 26,830 | 24,650 | |||||
Accrued expenses and other liabilities | 3,119 | 3,343 | |||||
Total liabilities | 79,194 | 75,524 | |||||
Commitments, contingencies and guarantees (Notes 9, 12 and 13) | |||||||
Stockholders’ Equity: | |||||||
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 562,391,470 and 560,679,352 shares issued at September 30, 2016 and December 31, 2015, respectively | 5 | 5 | |||||
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 575,000 shares issued and outstanding and aggregate liquidation preference of $575 at September 30, 2016 and December 31, 2015 | 560 | 560 | |||||
Additional paid-in capital | 3,946 | 3,885 | |||||
Retained earnings | 14,696 | 13,250 | |||||
Accumulated other comprehensive loss | (165 | ) | (160 | ) | |||
Treasury stock, at cost; 165,954,687 and 139,000,423 shares at September 30, 2016 and December 31, 2015, respectively | (7,695 | ) | (6,265 | ) | |||
Total stockholders’ equity | 11,347 | 11,275 | |||||
Total liabilities and stockholders’ equity | $ | 90,541 | $ | 86,799 | |||
September 30, 2016 | December 31, 2015 | ||||||
(unaudited) (dollars in millions) | |||||||
Assets | |||||||
Restricted cash | $ | 947 | $ | 99 | |||
Loan receivables | $ | 31,837 | $ | 30,551 | |||
Allowance for loan losses allocated to securitized loan receivables | $ | (904 | ) | $ | (811 | ) | |
Other assets | $ | 5 | $ | 5 | |||
Liabilities | |||||||
Long-term borrowings | $ | 17,780 | $ | 16,735 | |||
Accrued expenses and other liabilities | $ | 14 | $ | 12 | |||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(unaudited) (dollars in millions, except per share amounts) | |||||||||||||||
Interest income | |||||||||||||||
Credit card loans | $ | 1,812 | $ | 1,676 | $ | 5,279 | $ | 4,902 | |||||||
Other loans | 347 | 314 | 1,004 | 926 | |||||||||||
Investment securities | 9 | 11 | 30 | 36 | |||||||||||
Other interest income | 16 | 7 | 45 | 20 | |||||||||||
Total interest income | 2,184 | 2,008 | 6,358 | 5,884 | |||||||||||
Interest expense | |||||||||||||||
Deposits | 178 | 157 | 506 | 464 | |||||||||||
Short-term borrowings | — | — | — | 1 | |||||||||||
Long-term borrowings | 181 | 166 | 526 | 469 | |||||||||||
Total interest expense | 359 | 323 | 1,032 | 934 | |||||||||||
Net interest income | 1,825 | 1,685 | 5,326 | 4,950 | |||||||||||
Provision for loan losses | 445 | 332 | 1,281 | 1,028 | |||||||||||
Net interest income after provision for loan losses | 1,380 | 1,353 | 4,045 | 3,922 | |||||||||||
Other income | |||||||||||||||
Discount and interchange revenue, net | 263 | 288 | 801 | 854 | |||||||||||
Protection products revenue | 60 | 62 | 180 | 201 | |||||||||||
Loan fee income | 91 | 87 | 250 | 248 | |||||||||||
Transaction processing revenue | 40 | 39 | 115 | 121 | |||||||||||
Gain on investments | — | — | — | 8 | |||||||||||
Gain on origination and sale of mortgage loans | — | 2 | — | 68 | |||||||||||
Other income | 22 | 25 | 69 | 84 | |||||||||||
Total other income | 476 | 503 | 1,415 | 1,584 | |||||||||||
Other expense | |||||||||||||||
Employee compensation and benefits | 342 | 337 | 1,027 | 994 | |||||||||||
Marketing and business development | 195 | 168 | 555 | 549 | |||||||||||
Information processing and communications | 81 | 84 | 258 | 262 | |||||||||||
Professional fees | 143 | 160 | 453 | 440 | |||||||||||
Premises and equipment | 25 | 24 | 72 | 71 | |||||||||||
Other expense | 109 | 109 | 322 | 366 | |||||||||||
Total other expense | 895 | 882 | 2,687 | 2,682 | |||||||||||
Income before income tax expense | 961 | 974 | 2,773 | 2,824 | |||||||||||
Income tax expense | 322 | 362 | 943 | 1,027 | |||||||||||
Net income | $ | 639 | $ | 612 | $ | 1,830 | $ | 1,797 | |||||||
Net income allocated to common stockholders | $ | 625 | $ | 599 | $ | 1,789 | $ | 1,758 | |||||||
Basic earnings per common share | $ | 1.56 | $ | 1.38 | $ | 4.37 | $ | 3.99 | |||||||
Diluted earnings per common share | $ | 1.56 | $ | 1.38 | $ | 4.36 | $ | 3.98 | |||||||
Dividends declared per common share | $ | 0.30 | $ | 0.28 | $ | 0.88 | $ | 0.80 | |||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(unaudited) (dollars in millions) | |||||||||||||||
Net income | $ | 639 | $ | 612 | $ | 1,830 | $ | 1,797 | |||||||
Other comprehensive income (loss), net of taxes | |||||||||||||||
Unrealized (loss) gain on available-for-sale investment securities, net of tax | (4 | ) | 3 | 14 | (7 | ) | |||||||||
Unrealized gain (loss) on cash flow hedges, net of tax | 13 | (22 | ) | (19 | ) | (34 | ) | ||||||||
Foreign currency translation adjustments, net of tax | — | (1 | ) | — | (1 | ) | |||||||||
Other comprehensive income (loss) | 9 | (20 | ) | (5 | ) | (42 | ) | ||||||||
Comprehensive income | $ | 648 | $ | 592 | $ | 1,825 | $ | 1,755 | |||||||
Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Treasury Stock | Total Stockholders’ Equity | |||||||||||||||||||||||||||||
Preferred Stock | Common Stock | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||
(unaudited) (dollars in millions, shares in thousands) | |||||||||||||||||||||||||||||||||
Balance at December 31, 2014 | 575 | $ | 560 | 558,194 | $ | 5 | $ | 3,790 | $ | 11,467 | $ | (138 | ) | $ | (4,550 | ) | $ | 11,134 | |||||||||||||||
Net income | — | — | — | — | — | 1,797 | — | — | 1,797 | ||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | (42 | ) | — | (42 | ) | ||||||||||||||||||||||
Purchases of treasury stock | — | — | — | — | — | — | — | (1,280 | ) | (1,280 | ) | ||||||||||||||||||||||
Common stock issued under employee benefit plans | — | — | 61 | — | 3 | — | — | — | 3 | ||||||||||||||||||||||||
Common stock issued and stock-based compensation expense | — | — | 2,382 | — | 75 | — | — | — | 75 | ||||||||||||||||||||||||
Dividends — common stock | — | — | — | — | — | (356 | ) | — | — | (356 | ) | ||||||||||||||||||||||
Dividends — preferred stock | — | — | — | — | — | (28 | ) | — | — | (28 | ) | ||||||||||||||||||||||
Balance at September 30, 2015 | 575 | $ | 560 | 560,637 | $ | 5 | $ | 3,868 | $ | 12,880 | $ | (180 | ) | $ | (5,830 | ) | $ | 11,303 | |||||||||||||||
Balance at December 31, 2015 | 575 | $ | 560 | 560,679 | $ | 5 | $ | 3,885 | $ | 13,250 | $ | (160 | ) | $ | (6,265 | ) | $ | 11,275 | |||||||||||||||
Net income | — | — | — | — | — | 1,830 | — | — | 1,830 | ||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | (5 | ) | — | (5 | ) | ||||||||||||||||||||||
Purchases of treasury stock | — | — | — | — | — | — | (1,430 | ) | (1,430 | ) | |||||||||||||||||||||||
Common stock issued under employee benefit plans | — | — | 66 | — | 3 | — | — | — | 3 | ||||||||||||||||||||||||
Common stock issued and stock-based compensation expense | — | — | 1,646 | — | 58 | — | — | — | 58 | ||||||||||||||||||||||||
Dividends — common stock | — | — | — | — | — | (356 | ) | — | — | (356 | ) | ||||||||||||||||||||||
Dividends — preferred stock | — | — | — | — | — | (28 | ) | — | — | (28 | ) | ||||||||||||||||||||||
Balance at September 30, 2016 | 575 | $ | 560 | 562,391 | $ | 5 | $ | 3,946 | $ | 14,696 | $ | (165 | ) | $ | (7,695 | ) | $ | 11,347 | |||||||||||||||
For the Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
(unaudited) (dollars in millions) | |||||||
Cash flows from operating activities | |||||||
Net income | $ | 1,830 | $ | 1,797 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Provision for loan losses | 1,281 | 1,028 | |||||
Depreciation and amortization | 262 | 291 | |||||
Amortization of deferred revenues and accretion of accretable yield on acquired loans | (298 | ) | (329 | ) | |||
Net loss (gain) on origination and sale of loans, investments and other assets | 40 | (39 | ) | ||||
Proceeds from sale of mortgage loans originated for sale | — | 2,713 | |||||
Net principal disbursed on mortgage loans originated for sale | — | (2,519 | ) | ||||
Other, net | 119 | 18 | |||||
Changes in assets and liabilities: | |||||||
Decrease (increase) in other assets | 104 | (145 | ) | ||||
Decrease in accrued expenses and other liabilities | (205 | ) | (5 | ) | |||
Net cash provided by operating activities | 3,133 | 2,810 | |||||
Cash flows from investing activities | |||||||
Maturities of other short-term investments | 200 | — | |||||
Purchases of other short-term investments | (1,050 | ) | — | ||||
Maturities and sales of available-for-sale investment securities | 1,279 | 1,330 | |||||
Maturities of held-to-maturity investment securities | 17 | 13 | |||||
Purchases of held-to-maturity investment securities | (56 | ) | (36 | ) | |||
Net principal disbursed on loans originated for investment | (1,990 | ) | (953 | ) | |||
Purchases of other investments | (23 | ) | (32 | ) | |||
(Increase) decrease in restricted cash | (848 | ) | 8 | ||||
Proceeds from sale of premises and equipment | — | 1 | |||||
Purchases of premises and equipment | (132 | ) | (119 | ) | |||
Net cash (used for) provided by investing activities | (2,603 | ) | 212 | ||||
Cash flows from financing activities | |||||||
Net decrease in short-term borrowings | — | (113 | ) | ||||
Proceeds from issuance of securitized debt | 3,026 | 1,750 | |||||
Maturities and repayment of securitized debt | (2,043 | ) | (3,303 | ) | |||
Proceeds from issuance of other long-term borrowings | 1,100 | 2,759 | |||||
Proceeds from issuance of common stock | 5 | 3 | |||||
Purchases of treasury stock | (1,430 | ) | (1,280 | ) | |||
Net increase in deposits | 1,702 | 513 | |||||
Dividends paid on common and preferred stock | (386 | ) | (385 | ) | |||
Net cash provided by (used for) financing activities | 1,974 | (56 | ) | ||||
Net increase in cash and cash equivalents | 2,504 | 2,966 | |||||
Cash and cash equivalents, at beginning of period | 9,572 | 7,284 | |||||
Cash and cash equivalents, at end of period | $ | 12,076 | $ | 10,250 | |||
1. | Background and Basis of Presentation |
2. | Business Dispositions |
3. | Investments |
The Company’s other short-term investments and investment securities consist of the following (dollars in millions): | |||||||
September 30, 2016 | December 31, 2015 | ||||||
Certificates of deposit(1) | $ | 850 | $ | — | |||
Total other short-term investments | $ | 850 | $ | — | |||
U.S. Treasury securities(2) | $ | 678 | $ | 1,273 | |||
U.S. government agency securities | — | 494 | |||||
States and political subdivisions of states | 2 | 7 | |||||
Residential mortgage-backed securities - Agency(3) | 1,175 | 1,310 | |||||
Total investment securities | $ | 1,855 | $ | 3,084 | |||
(1) | Includes certificates of deposit with maturity dates greater than 90 days but less than one year at the time of acquisition. |
(2) | Includes $86 million and $7 million of U.S. Treasury securities pledged as swap collateral in lieu of cash as of September 30, 2016 and December 31, 2015, respectively. |
(3) | Consists of residential mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. |
The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale and held-to-maturity investment securities are as follows (dollars in millions): | |||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
At September 30, 2016 | |||||||||||||||
Available-for-Sale Investment Securities(1) | |||||||||||||||
U.S. Treasury securities | $ | 676 | $ | 2 | $ | — | $ | 678 | |||||||
Residential mortgage-backed securities - Agency | 998 | 21 | — | 1,019 | |||||||||||
Total available-for-sale investment securities | $ | 1,674 | $ | 23 | $ | — | $ | 1,697 | |||||||
Held-to-Maturity Investment Securities(2) | |||||||||||||||
States and political subdivisions of states | $ | 2 | $ | — | $ | — | $ | 2 | |||||||
Residential mortgage-backed securities - Agency(3) | 156 | 4 | — | 160 | |||||||||||
Total held-to-maturity investment securities | $ | 158 | $ | 4 | $ | — | $ | 162 | |||||||
At December 31, 2015 | |||||||||||||||
Available-for-Sale Investment Securities(1) | |||||||||||||||
U.S. Treasury securities | $ | 1,277 | $ | 1 | $ | (6 | ) | $ | 1,272 | ||||||
U.S. government agency securities | 492 | 2 | — | 494 | |||||||||||
Residential mortgage-backed securities - Agency | 1,195 | 6 | (4 | ) | 1,197 | ||||||||||
Total available-for-sale investment securities | $ | 2,964 | $ | 9 | $ | (10 | ) | $ | 2,963 | ||||||
Held-to-Maturity Investment Securities(2) | |||||||||||||||
U.S. Treasury securities(4) | $ | 1 | $ | — | $ | — | $ | 1 | |||||||
States and political subdivisions of states | 7 | — | — | 7 | |||||||||||
Residential mortgage-backed securities - Agency(3) | 113 | 1 | — | 114 | |||||||||||
Total held-to-maturity investment securities | $ | 121 | $ | 1 | $ | — | $ | 122 | |||||||
(1) | Available-for-sale investment securities are reported at fair value. |
(2) | Held-to-maturity investment securities are reported at amortized cost. |
(3) | Amounts represent residential mortgage-backed securities that were classified as held-to-maturity as they were entered into as a part of the Company's community reinvestment initiatives. |
(4) | At December 31, 2015, amount represents securities pledged as collateral to a government-related merchant for which transaction settlement occurs beyond the normal 24-hour period. Beginning in the third quarter of 2016, collateral is no longer required. |
The following table provides information about investment securities with aggregate gross unrealized losses and the length of time that individual investment securities have been in a continuous unrealized loss position (dollars in millions): | ||||||||||||||||||
Number of Securities in a Loss Position | Less than 12 months | More than 12 months | ||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||
At December 31, 2015 | ||||||||||||||||||
Available-for-Sale Investment Securities | ||||||||||||||||||
U.S. Treasury securities | 1 | $ | 670 | $ | (6 | ) | $ | — | $ | — | ||||||||
Residential mortgage-backed securities - Agency | 15 | $ | 486 | $ | (4 | ) | $ | — | $ | — | ||||||||
The following table provides information about proceeds from sales, recognized gains and losses and net unrealized gains and losses on available-for-sale securities (dollars in millions): | |||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Proceeds from the sales of available-for-sale investment securities | $ | — | $ | — | $ | — | $ | 899 | |||||||
Gain on sales of available-for-sale investment securities | $ | — | $ | — | $ | — | $ | 8 | |||||||
Net unrealized (loss) gain recorded in other comprehensive income, before-tax | $ | (6 | ) | $ | 4 | $ | 23 | $ | (12 | ) | |||||
Net unrealized (loss) gain recorded in other comprehensive income, after-tax | $ | (4 | ) | $ | 3 | $ | 14 | $ | (7 | ) | |||||
Maturities of available-for-sale debt securities and held-to-maturity debt securities are provided in the table below (dollars in millions): | |||||||||||||||||||
One Year or Less | After One Year Through Five Years | After Five Years Through Ten Years | After Ten Years | Total | |||||||||||||||
At September 30, 2016 | |||||||||||||||||||
Available-for-Sale Investment Securities—Amortized Cost | |||||||||||||||||||
U.S. Treasury securities | $ | — | $ | 676 | $ | — | $ | — | $ | 676 | |||||||||
Residential mortgage-backed securities - Agency | — | — | 309 | 689 | 998 | ||||||||||||||
Total available-for-sale investment securities | $ | — | $ | 676 | $ | 309 | $ | 689 | $ | 1,674 | |||||||||
Held-to-Maturity Investment Securities—Amortized Cost | |||||||||||||||||||
State and political subdivisions of states | $ | — | $ | — | $ | — | $ | 2 | $ | 2 | |||||||||
Residential mortgage-backed securities - Agency | — | — | — | 156 | 156 | ||||||||||||||
Total held-to-maturity investment securities | $ | — | $ | — | $ | — | $ | 158 | $ | 158 | |||||||||
Available-for-Sale Investment Securities—Fair Values | |||||||||||||||||||
U.S. Treasury securities | $ | — | $ | 678 | $ | — | $ | — | $ | 678 | |||||||||
Residential mortgage-backed securities - Agency | — | — | 315 | 704 | 1,019 | ||||||||||||||
Total available-for-sale investment securities | $ | — | $ | 678 | $ | 315 | $ | 704 | $ | 1,697 | |||||||||
Held-to-Maturity Investment Securities—Fair Values | |||||||||||||||||||
State and political subdivisions of states | $ | — | $ | — | $ | — | $ | 2 | $ | 2 | |||||||||
Residential mortgage-backed securities - Agency | — | — | — | 160 | 160 | ||||||||||||||
Total held-to-maturity investment securities | $ | — | $ | — | $ | — | $ | 162 | $ | 162 | |||||||||
4. | Loan Receivables |
The Company's classes of receivables within the three portfolio segments are depicted in the table below (dollars in millions): | |||||||
September 30, 2016 | December 31, 2015 | ||||||
Loan receivables | |||||||
Credit card loans(1) | $ | 58,006 | $ | 57,896 | |||
Other loans | |||||||
Personal loans | 6,273 | 5,490 | |||||
Private student loans | 6,287 | 5,647 | |||||
Other | 277 | 236 | |||||
Total other loans | 12,837 | 11,373 | |||||
Purchased credit-impaired loans(2) | 2,708 | 3,116 | |||||
Total loan receivables | 73,551 | 72,385 | |||||
Allowance for loan losses | (2,024 | ) | (1,869 | ) | |||
Net loan receivables | $ | 71,527 | $ | 70,516 | |||
(1) | Amounts include $22.2 billion and $21.6 billion underlying investors’ interest in trust debt at September 30, 2016 and December 31, 2015, respectively, and $8.2 billion and $7.2 billion in seller's interest at September 30, 2016 and December 31, 2015, respectively. The increase in the seller's interest from December 31, 2015 to September 30, 2016 is due in part to the addition of randomly-selected accounts to the credit card loan receivables restricted for securitization investors in order to increase excess seller's interest and related securitization capacity. See Note 5: Credit Card and Student Loan Securitization Activities for further information. |
(2) | Amounts include $1.5 billion and $1.7 billion of loans pledged as collateral against the notes issued from the Student Loan Corporation ("SLC") securitization trusts at September 30, 2016 and December 31, 2015, respectively. See Note 5: Credit Card and Student Loan Securitization Activities for additional information. |
Information related to the delinquent and non-accruing loans in the Company’s loan portfolio is shown below by each class of loan receivables except for PCI student loans, which is shown under the heading “— Purchased Credit-Impaired Loans” (dollars in millions): | |||||||||||||||||||
30-89 Days Delinquent | 90 or More Days Delinquent | Total Past Due | 90 or More Days Delinquent and Accruing | Total Non-accruing(1) | |||||||||||||||
At September 30, 2016 | |||||||||||||||||||
Credit card loans(2) | $ | 586 | $ | 500 | $ | 1,086 | $ | 452 | $ | 181 | |||||||||
Other loans | |||||||||||||||||||
Personal loans(3) | 46 | 16 | 62 | 15 | 8 | ||||||||||||||
Private student loans (excluding PCI)(4) | 89 | 28 | 117 | 28 | — | ||||||||||||||
Other | 3 | 1 | 4 | — | 21 | ||||||||||||||
Total other loans (excluding PCI) | 138 | 45 | 183 | 43 | 29 | ||||||||||||||
Total loan receivables (excluding PCI) | $ | 724 | $ | 545 | $ | 1,269 | $ | 495 | $ | 210 | |||||||||
At December 31, 2015 | |||||||||||||||||||
Credit card loans(2) | $ | 505 | $ | 490 | $ | 995 | $ | 422 | $ | 198 | |||||||||
Other loans | |||||||||||||||||||
Personal loans(3) | 34 | 15 | 49 | 13 | 6 | ||||||||||||||
Private student loans (excluding PCI)(4) | 84 | 24 | 108 | 25 | — | ||||||||||||||
Other | — | 1 | 1 | — | 20 | ||||||||||||||
Total other loans (excluding PCI) | 118 | 40 | 158 | 38 | 26 | ||||||||||||||
Total loan receivables (excluding PCI) | $ | 623 | $ | 530 | $ | 1,153 | $ | 460 | $ | 224 | |||||||||
(1) | The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of non-accruing credit card loans was $8 million for both the three months ended September 30, 2016 and 2015, and $23 million and $21 million for the nine months ended September 30, 2016 and 2015, respectively. The Company does not separately track the amount of gross interest income that would have been recorded in accordance with the original terms of loans. This amount was estimated based on customers' current balances and most recent interest rates. |
(2) | Credit card loans that are 90 or more days delinquent and accruing interest include $47 million and $42 million of loans accounted for as troubled debt restructurings at September 30, 2016 and December 31, 2015, respectively. |
(3) | Personal loans that are 90 or more days delinquent and accruing interest include $2 million and $4 million of loans accounted for as troubled debt restructurings at September 30, 2016 and December 31, 2015, respectively. |
(4) | Private student loans that are 90 or more days delinquent and accruing interest include $3 million of loans accounted for as troubled debt restructurings at September 30, 2016 and December 31, 2015. |
Information related to the net charge-offs in the Company's loan portfolio is shown below by each class of loan receivables except for PCI student loans, which is shown under the heading "— Purchased Credit-Impaired Loans" (dollars in millions): | |||||||||||||
For the Three Months Ended September 30, | |||||||||||||
2016 | 2015 | ||||||||||||
Net Charge-off Dollars | Net Charge-off Rate(1) | Net Charge-off Dollars | Net Charge-off Rate(1) | ||||||||||
Credit card loans | $ | 314 | 2.17 | % | $ | 285 | 2.04 | % | |||||
Other loans | |||||||||||||
Personal loans | 41 | 2.63 | % | 26 | 1.99 | % | |||||||
Private student loans (excluding PCI) | 15 | 1.02 | % | 13 | 0.94 | % | |||||||
Total other loans | 56 | 1.79 | % | 39 | 1.44 | % | |||||||
Net charge-offs (excluding PCI) | $ | 370 | 2.10 | % | $ | 324 | 1.94 | % | |||||
Net charge-offs (including PCI) | $ | 370 | 2.02 | % | $ | 324 | 1.85 | % | |||||
For the Nine Months Ended September 30, | |||||||||||||
2016 | 2015 | ||||||||||||
Net Charge-off Dollars | Net Charge-off Rate(1) | Net Charge-off Dollars | Net Charge-off Rate(1) | ||||||||||
Credit card loans | $ | 974 | 2.30 | % | $ | 911 | 2.24 | % | |||||
Other loans | |||||||||||||
Personal loans | 108 | 2.49 | % | 81 | 2.10 | % | |||||||
Private student loans (excluding PCI) | 44 | 0.99 | % | 39 | 0.99 | % | |||||||
Total other loans | 152 | 1.69 | % | 120 | 1.51 | % | |||||||
Net charge-offs (excluding PCI) | $ | 1,126 | 2.19 | % | $ | 1,031 | 2.12 | % | |||||
Net charge-offs (including PCI) | $ | 1,126 | 2.10 | % | $ | 1,031 | 2.01 | % | |||||
(1) | Net charge-off rate represents net charge-off dollars (annualized) divided by average loans for the reporting period. |
The following table provides the most recent FICO scores available for the Company’s customers as a percentage of each class of loan receivables: | |||||
Credit Risk Profile by FICO Score | |||||
660 and Above | Less than 660 or No Score | ||||
At September 30, 2016 | |||||
Credit card loans | 82 | % | 18 | % | |
Personal loans | 96 | % | 4 | % | |
Private student loans (excluding PCI)(1) | 96 | % | 4 | % | |
At December 31, 2015 | |||||
Credit card loans | 83 | % | 17 | % | |
Personal loans | 96 | % | 4 | % | |
Private student loans (excluding PCI)(1) | 96 | % | 4 | % | |
(1) | PCI loans are discussed under the heading "— Purchased Credit-Impaired Loans." |
The following tables provide changes in the Company’s allowance for loan losses (dollars in millions): | |||||||||||||||||||
For the Three Months Ended September 30, 2016 | |||||||||||||||||||
Credit Card | Personal Loans | Student Loans(1) | Other | Total | |||||||||||||||
Balance at beginning of period | $ | 1,603 | $ | 176 | $ | 151 | $ | 19 | $ | 1,949 | |||||||||
Additions | |||||||||||||||||||
Provision for loan losses | 372 | 51 | 21 | 1 | 445 | ||||||||||||||
Deductions | |||||||||||||||||||
Charge-offs | (425 | ) | (46 | ) | (17 | ) | — | (488 | ) | ||||||||||
Recoveries | 111 | 5 | 2 | — | 118 | ||||||||||||||
Net charge-offs | (314 | ) | (41 | ) | (15 | ) | — | (370 | ) | ||||||||||
Balance at end of period | $ | 1,661 | $ | 186 | $ | 157 | $ | 20 | $ | 2,024 | |||||||||
For the Three Months Ended September 30, 2015 | |||||||||||||||||||
Credit Card | Personal Loans | Student Loans(1) | Other | Total | |||||||||||||||
Balance at beginning of period | $ | 1,441 | $ | 131 | $ | 143 | $ | 20 | $ | 1,735 | |||||||||
Additions | |||||||||||||||||||
Provision for loan losses | 303 | 30 | — | (1 | ) | 332 | |||||||||||||
Deductions | |||||||||||||||||||
Charge-offs | (394 | ) | (31 | ) | (15 | ) | — | (440 | ) | ||||||||||
Recoveries | 109 | 5 | 2 | — | 116 | ||||||||||||||
Net charge-offs | (285 | ) | (26 | ) | (13 | ) | — | (324 | ) | ||||||||||
Balance at end of period | $ | 1,459 | $ | 135 | $ | 130 | $ | 19 | $ | 1,743 | |||||||||
For the Nine Months Ended September 30, 2016 | |||||||||||||||||||
Credit Card | Personal Loans | Student Loans(1) | Other | Total | |||||||||||||||
Balance at beginning of period | $ | 1,554 | $ | 155 | $ | 143 | $ | 17 | $ | 1,869 | |||||||||
Additions | |||||||||||||||||||
Provision for loan losses | 1,081 | 139 | 58 | 3 | 1,281 | ||||||||||||||
Deductions | |||||||||||||||||||
Charge-offs | (1,312 | ) | (123 | ) | (51 | ) | — | (1,486 | ) | ||||||||||
Recoveries | 338 | 15 | 7 | — | 360 | ||||||||||||||
Net charge-offs | (974 | ) | (108 | ) | (44 | ) | — | (1,126 | ) | ||||||||||
Balance at end of period | $ | 1,661 | $ | 186 | $ | 157 | $ | 20 | $ | 2,024 | |||||||||
For the Nine Months Ended September 30, 2015 | |||||||||||||||||||
Credit Card | Personal Loans | Student Loans(1) | Other | Total | |||||||||||||||
Balance at beginning of period | $ | 1,474 | $ | 120 | $ | 135 | $ | 17 | $ | 1,746 | |||||||||
Additions | |||||||||||||||||||
Provision for loan losses | 896 | 96 | 34 | 2 | 1,028 | ||||||||||||||
Deductions | |||||||||||||||||||
Charge-offs | (1,245 | ) | (93 | ) | (45 | ) | — | (1,383 | ) | ||||||||||
Recoveries | 334 | 12 | 6 | — | 352 | ||||||||||||||
Net charge-offs | (911 | ) | (81 | ) | (39 | ) | — | (1,031 | ) | ||||||||||
Balance at end of period | $ | 1,459 | $ | 135 | $ | 130 | $ | 19 | $ | 1,743 | |||||||||
(1) | Includes both PCI and non-PCI private student loans. |
Net charge-offs of principal are recorded against the allowance for loan losses, as shown in the preceding table. Information regarding net charge-offs of interest and fee revenues on credit card and other loans is as follows (dollars in millions): | |||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income) | $ | 65 | $ | 65 | $ | 201 | $ | 210 | |||||||
Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income) | $ | 15 | $ | 16 | $ | 49 | $ | 53 | |||||||
The following tables provide additional detail of the Company’s allowance for loan losses and recorded investment in its loan portfolio by impairment methodology (dollars in millions): | |||||||||||||||||||
Credit Card | Personal Loans | Student Loans(1) | Other Loans | Total | |||||||||||||||
At September 30, 2016 | |||||||||||||||||||
Allowance for loans evaluated for impairment as | |||||||||||||||||||
Collectively evaluated for impairment in accordance with ASC 450-20 | $ | 1,502 | $ | 169 | $ | 103 | $ | 3 | $ | 1,777 | |||||||||
Evaluated for impairment in accordance with ASC 310-10-35(2)(3) | 159 | 17 | 18 | 17 | 211 | ||||||||||||||
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30 | — | — | 36 | — | 36 | ||||||||||||||
Total allowance for loan losses | $ | 1,661 | $ | 186 | $ | 157 | $ | 20 | $ | 2,024 | |||||||||
Recorded investment in loans evaluated for impairment as | |||||||||||||||||||
Collectively evaluated for impairment in accordance with ASC 450-20 | $ | 56,960 | $ | 6,197 | $ | 6,216 | $ | 219 | $ | 69,592 | |||||||||
Evaluated for impairment in accordance with ASC 310-10-35(2)(3) | 1,046 | 76 | 71 | 58 | 1,251 | ||||||||||||||
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30 | — | — | 2,708 | — | 2,708 | ||||||||||||||
Total recorded investment | $ | 58,006 | $ | 6,273 | $ | 8,995 | $ | 277 | $ | 73,551 | |||||||||
At December 31, 2015 | |||||||||||||||||||
Allowance for loans evaluated for impairment as | |||||||||||||||||||
Collectively evaluated for impairment in accordance with ASC 450-20 | $ | 1,394 | $ | 140 | $ | 92 | $ | 1 | $ | 1,627 | |||||||||
Evaluated for impairment in accordance with ASC 310-10-35(2)(3) | 160 | 15 | 15 |