# Synchrony Financial (SYF) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Synchrony Financial's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1601712/000160171224000047/syf-20231231.htm
Accession: 0001601712-24-000047
Filing date: 2024-02-08
Report date: 2023-12-31
Extracted from a later financial-section MD&A body after the formal Item 7 span was a short reference.
Confidence: high

Company profile: /company/SYF/
All MD&A years: /company/SYF/mda/
Previous year: /company/SYF/mda/fy2022/ (FY 2022)
Next year: /company/SYF/mda/fy2024/ (FY 2024)

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 consolidated financial statements and related notes included elsewhere in this report. For a discussion and analysis of our financial condition and results of operations comparing 2022 vs. 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 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.”

Results of Operations for the Three Years Ended December 31, 2023

____________________________________________________________________________________________

Key Earnings Metrics

[[GREPCENT_TABLE]]
[["Net earnings$ in millions","","Net interest income$ in millions"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Net interest margin% of average interest-earning assets","","Efficiency ratio\u201cOther expense\u201d as a % of \u201cNII, after RSA\u201d plus \u201cOther income\u201d"]]
[[/GREPCENT_TABLE]]

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Growth Metrics

[[GREPCENT_TABLE]]
[["Purchase volume$ in billions","","Loan receivables$ in billions"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Average active accountsin millions","","Interest and fees on loans$ in millions"]]
[[/GREPCENT_TABLE]]

Asset Quality Metrics

[[GREPCENT_TABLE]]
[["30+ days past due% of period-end loan receivables","","Net charge-offs% of average loan receivables including held for sale"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["90+ days past due% of period-end loan receivables","","Allowance for credit losses% of period-end loan receivables"]]
[[/GREPCENT_TABLE]]

Capital and Liquidity

[[GREPCENT_TABLE]]
[["Capital ratios(a)Common equity Tier 1 - Basel III","","LiquidityLiquid assets and undrawn credit facilities$ in billions"]]
[[/GREPCENT_TABLE]]

_____________________

(a)Prior period amounts have been recast to reflect the change in presentation. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements for additional information.

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Highlights for the Year Ended December 31, 2023

Below are highlights of our performance for the year ended December 31, 2023 compared to the year ended December 31, 2022, as applicable, except as otherwise noted.

•Net earnings decreased 25.8% to $2.2 billion for the year ended December 31, 2023, primarily driven by increases in provision for credit losses and higher interest expense, partially offset by higher interest income and lower retailer share arrangements.

•Loan receivables increased 11.4% to $103.0 billion at December 31, 2023 compared to December 31, 2022, driven by lower customer payment rates and purchase volume growth.

•Net interest income increased 8.8% to $17.0 billion for the year ended December 31, 2023. Interest and fees on loans increased 17.9%, primarily driven by growth in average loan receivables and higher benchmark rates. Interest expense increased 144.0%, due to higher benchmark rates and higher funding liabilities.

•Retailer share arrangements decreased 15.5% to $3.7 billion for the year ended December 31, 2023, primarily due to higher net charge-offs as well as the impact of portfolios sold in the second quarter of 2022, partially offset by higher net interest income.

•Over-30 day loan delinquencies as a percentage of period-end loan receivables increased 109 basis points to 4.74% at December 31, 2023 from 3.65% at December 31, 2022. The net charge-off rate increased 187 basis points to 4.87% for the year ended December 31, 2023.

•Provision for credit losses increased by $2.6 billion to $6.0 billion, for the year ended December 31, 2023, primarily driven by higher net charge-offs and a higher reserve build in the current year. The increase in reserves for credit losses was $1.3 billion for the year ended December 31, 2023 primarily driven by growth in loan receivables. Our allowance coverage ratio (allowance for credit losses as a percentage of period-end loan receivables) decreased to 10.26% at December 31, 2023, as compared to 10.30% at December 31, 2022.

•Other expense increased by $421 million, or 9.7%, for the year ended December 31, 2023, primarily driven by increases in both employee and information processing costs, as well as higher operational losses.

•At December 31, 2023, deposits represented 84% of our total funding sources. Total deposits increased 13.1% to $81.2 billion at December 31, 2023, compared to December 31, 2022.

•During the year ended December 31, 2023, we declared and paid cash dividends on our Series A 5.625% non-cumulative preferred stock of $56.24 per share, or $42 million.

•During the year ended December 31, 2023, we repurchased $1.1 billion of our outstanding common stock, and declared and paid cash dividends of $0.96 per common share, or $406 million. In April 2023, we announced that our Board approved an incremental share repurchase authorization of $1.0 billion through June 2024 and increased our quarterly dividend to $0.25 per common share commencing in the third quarter of 2023. At December 31, 2023, we had a total share repurchase authorization of $600 million remaining. For more information, see “Capital—Dividend and Share Repurchases.”

•In November 2023, we entered into an agreement for the sale of Pets Best for consideration comprising a combination of cash and an equity interest in Independence Pet Holdings, Inc. The transaction is expected to close in the first quarter of 2024, subject to regulatory approval and other customary closing conditions, and is estimated to result in the recognition of a gain on sale, net of tax, of approximately $750 million. The gain amount to be recognized is subject to change based upon the carrying amount of net assets of Pets Best and the final valuation of consideration to be received at closing.

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•In January 2024, we announced our agreement to acquire Ally Financial Inc.'s point of sale financing business, Ally Lending. The assets of Ally Lending at December 31, 2023 included approximately $2.2 billion of loan receivables. The transaction is expected to close in the first quarter of 2024, subject to the completion of customary closing conditions.

2023 Partner Agreements

During the year ended December 31, 2023, we continued to expand and diversify our portfolios with the addition or renewal of more than 60 partners, which included the following:

[[GREPCENT_TABLE]]
[["Home & Auto:"],["New partnerships:","\u2022 Big Brand Tire & Service","\u2022 LG Air Conditioning"],["\u2022 GreatWater 360 Auto Care","\u2022 Roto Rooter"],["\u2022 Installation Made Easy"],["Program extensions:","\u2022 CCA Global Partners","\u2022 Living Spaces"],["\u2022 CertainPath","\u2022 LoveSac"],["\u2022 Conn's","\u2022 Morris Furniture Company"],["\u2022 Haverty's Furniture","\u2022 Rheem"],["\u2022 Haynes","\u2022 York"],["\u2022 Horizon"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Diversified & Value:"],["Program extensions:","\u2022 Belk"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Health & Wellness:"],["New partnerships:","\u2022 Albertsons Companies","\u2022 Marquee Dental Partners"],["\u2022 AmeriVet Veterinary Partners","\u2022 O'Brien Vet Group"],["\u2022 Destination Pet","\u2022 Sonova"],["\u2022 Hand & Stone","\u2022 Specialty 1 Partners"],["\u2022 Heart and Paw","\u2022 Valley Veterinary"],["Extensions:","\u2022 American Dental Association","\u2022 The Good Feet Store"],["\u2022 Academy of General Dentistry","\u2022 NVA"],["\u2022 The Aspen Group","\u2022 PetVet Care Centers"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Lifestyle:"],["New partnerships:","\u2022 J.Crew"],["Program extensions:","\u2022 Club Champion","\u2022 Robbins Brothers"],["\u2022 Handi Quilter","\u2022 The Alliance of Independent Music Merchants"],["\u2022 JTV","\u2022 The Container Store"],["\u2022 Park West Gallery","\u2022 Vanderhall Motorworks"],["\u2022 Piaggio"]]
[[/GREPCENT_TABLE]]

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Summary Earnings

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

[[GREPCENT_TABLE]]
[["","Years ended December 31,"],["($ in millions)","2023","","2022","","2021"],["Interest income","$","20,710","","","$","17,146","","","$","15,271"],["Interest expense","3,711","","","1,521","","","1,032"],["Net interest income","16,999","","","15,625","","","14,239"],["Retailer share arrangements","(3,661)","","","(4,331)","","","(4,528)"],["Provision for credit losses","5,965","","","3,375","","","726"],["Net interest income, after retailer share arrangements and provision for credit losses","7,373","","","7,919","","","8,985"],["Other income","289","","","380","","","481"],["Other expense","4,758","","","4,337","","","3,963"],["Earnings before provision for income taxes","2,904","","","3,962","","","5,503"],["Provision for income taxes","666","","","946","","","1,282"],["Net earnings","$","2,238","","","$","3,016","","","$","4,221"],["Net earnings available to common stockholders","$","2,196","","","$","2,974","","","$","4,179"]]
[[/GREPCENT_TABLE]]

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Other Financial and Statistical Data

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

[[GREPCENT_TABLE]]
[["At and for the years ended December 31 ($ in millions)","2023","","2022","","2021"],["Financial Position Data (Average):"],["Loan receivables, including held for sale","$","94,832","","","$","84,672","","","$","78,928"],["Total assets","$","109,819","","","$","98,152","","","$","94,114"],["Deposits","$","75,889","","","$","66,006","","","$","61,302"],["Borrowings","$","14,918","","","$","13,783","","","$","14,421"],["Total equity","$","13,669","","","$","13,372","","","$","13,723"],["Selected Performance Metrics:"],["Purchase volume(1)(2)","$","185,178","","","$","180,187","","","$","165,854"],["Home & Auto","$","47,410","","","$","47,288","","","$","42,848"],["Digital","$","55,051","","","$","51,394","","","$","44,701"],["Diversified & Value","$","61,227","","","$","56,666","","","$","46,998"],["Health & Wellness","$","15,565","","","$","13,569","","","$","11,715"],["Lifestyle","$","5,922","","","$","5,498","","","$","5,319"],["Corp, Other","$","3","","","$","5,772","","","$","14,273"],["Average active accounts (in thousands)(2)(3)","70,337","","","68,627","","","67,334"],["Net interest margin(4)","15.15","%","","15.63","%","","14.74","%"],["Net charge-offs","$","4,620","","","$","2,536","","","$","2,304"],["Net charge-offs as a % of average loan receivables, including held for sale","4.87","%","","3.00","%","","2.92","%"],["Allowance coverage ratio(5)","10.26","%","","10.30","%","","10.76","%"],["Return on assets(6)","2.0","%","","3.1","%","","4.5","%"],["Return on equity(7)","16.4","%","","22.6","%","","30.8","%"],["Equity to assets(8)","12.45","%","","13.62","%","","14.58","%"],["Other expense as a % of average loan receivables, including held for sale","5.02","%","","5.12","%","","5.02","%"],["Efficiency ratio(9)","34.9","%","","37.2","%","","38.9","%"],["Effective income tax rate","22.9","%","","23.9","%","","23.3","%"],["Selected Period End Data:"],["Loan receivables","$","102,988","","","$","92,470","","","$","80,740"],["Allowance for credit losses","$","10,571","","","$","9,527","","","$","8,688"],["30+ days past due as a % of period-end loan receivables(10)","4.74","%","","3.65","%","","2.62","%"],["90+ days past due as a % of period-end loan receivables(10)","2.28","%","","1.69","%","","1.17","%"],["Total active accounts (in thousands)(2)(3)","73,484","","","70,763","","","72,420"]]
[[/GREPCENT_TABLE]]

__________________

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

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

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

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

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

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

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

(8)Equity to assets represents average 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.

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Average Balance Sheet

The following table sets 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.

[[GREPCENT_TABLE]]
[["","2023","","2022","2021"],["Years ended December 31 ($ in millions)","Average Balance","","Interest Income / Expense","","AverageYield /Rate(1)","","Average Balance","","Interest Income/ Expense","","AverageYield /Rate(1)","","Average Balance","","Interest Income/ Expense","","AverageYield /Rate(1)"],["Assets"],["Interest-earning assets:"],["Interest-earning cash and equivalents(2)","$","13,272","","","$","678","","","5.11","%","","$","10,215","","","$","194","","","1.90","%","","$","11,673","","","$","15","","","0.13","%"],["Securities available for sale","4,077","","","130","","","3.19","%","","5,108","","","71","","","1.39","%","","5,975","","","28","","","0.47","%"],["Loan receivables, including held for sale(3):"],["Credit cards","89,383","","","19,341","","","21.64","%","","80,119","","","16,471","","","20.56","%","","75,052","","","14,880","","","19.83","%"],["Consumer installment loans","3,501","","","401","","","11.45","%","","2,834","","","287","","","10.13","%","","2,460","","","241","","","9.80","%"],["Commercial credit products","1,826","","","150","","","8.21","%","","1,642","","","117","","","7.13","%","","1,359","","","103","","","7.58","%"],["Other","122","","","10","","","8.20","%","","77","","","6","","","7.79","%","","57","","","4","","","7.02","%"],["Total loan receivables, including held for sale","94,832","","","19,902","","","20.99","%","","84,672","","","16,881","","","19.94","%","","78,928","","","15,228","","","19.29","%"],["Total interest-earning assets","112,181","","","20,710","","","18.46","%","","99,995","","","17,146","","","17.15","%","","96,576","","","15,271","","","15.81","%"],["Non-interest-earning assets:"],["Cash and due from banks","962","","","","","","","1,472","","","","","","","1,597"],["Allowance for credit losses","(9,726)","","","","","","","(8,844)","","","","","","","(9,402)"],["Other assets","6,402","","","","","","","5,529","","","","","","","5,343"],["Total non-interest-earning assets","(2,362)","","","","","","","(1,843)","","","","","","","(2,462)"],["Total assets","$","109,819","","","","","","","$","98,152","","","","","","","$","94,114"],["Liabilities"],["Interest-bearing liabilities:"],["Interest-bearing deposit accounts","$","75,487","","","$","2,952","","","3.91","%","","$","65,624","","","$","1,008","","","1.54","%","","$","60,953","","","$","566","","","0.93","%"],["Borrowings of consolidated securitization entities","6,274","","","340","","","5.42","%","","6,468","","","196","","","3.03","%","","7,248","","","169","","","2.33","%"],["Senior and subordinated unsecured notes","8,644","","","419","","","4.85","%","","7,315","","","317","","","4.33","%","","7,173","","","297","","","4.14","%"],["Total interest-bearing liabilities","90,405","","","3,711","","","4.10","%","","79,407","","","1,521","","","1.92","%","","75,374","","","1,032","","","1.37","%"],["Non-interest-bearing liabilities:"],["Non-interest-bearing deposit accounts","402","","","","","","","382","","","","","","","349"],["Other liabilities","5,343","","","","","","","4,991","","","","","","","4,668"],["Total non-interest-bearing liabilities","5,745","","","","","","","5,373","","","","","","","5,017"],["Total liabilities","96,150","","","","","","","84,780","","","","","","","80,391"],["Equity"],["Total equity","13,669","","","","","","","13,372","","","","","","","13,723"],["Total liabilities and equity","$","109,819","","","","","","","$","98,152","","","","","","","$","94,114"],["Interest rate spread(4)","","","","","14.36","%","","","","","","15.23","%","","","","","","14.44","%"],["Net interest income","","","$","16,999","","","","","","","$","15,625","","","","","","","$","14,239"],["Net interest margin(5)","","","","","15.15","%","","","","","","15.63","%","","","","","","14.74","%"]]
[[/GREPCENT_TABLE]]

____________________

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

(2)Includes average restricted cash balances of $279 million, $558 million and $459 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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(3)Interest income on loan receivables includes fees on loans, which primarily consist of late fees on our credit products, of $2.7 billion, $2.7 billion and $2.3 billion for the years ended December 31, 2023, 2022 and 2021, 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.

The following table sets forth the amount of changes in interest income and interest expense due to changes in average volume and average yield/rate. Variances due to changes in both average volume and average yield/rate have been allocated between the average volume and average yield/rate variances on a consistent basis based upon the respective percentage changes in average volume and average yield/rate.

[[GREPCENT_TABLE]]
[["","2023 vs. 2022","","2022 vs. 2021"],["","Increase (decrease) due to change in:","","Increase (decrease) due to change in:"],["($ in millions)","Average Volume","","Average Yield / Rate","","Net Change","","Average Volume","","Average Yield / Rate","","Net Change"],["Interest-earning assets:"],["Interest-earning cash and equivalents","$","73","","","$","411","","","$","484","","","$","(2)","","","$","181","","","$","179"],["Securities available for sale","(17)","","","76","","","59","","","(5)","","","48","","","43"],["Loan receivables, including held for sale:"],["Credit cards","1,974","","","896","","","2,870","","","1,030","","","561","","","1,591"],["Consumer installment loans","73","","","41","","","114","","","38","","","8","","","46"],["Commercial credit products","14","","","19","","","33","","","20","","","(6)","","","14"],["Other","4","","","\u2014","","","4","","","2","","","\u2014","","","2"],["Total loan receivables, including held for sale","2,065","","","956","","","3,021","","","1,090","","","563","","","1,653"],["Change in interest income from total interest-earning assets","$","2,121","","","$","1,443","","","$","3,564","","","$","1,083","","","$","792","","","$","1,875"],["Interest-bearing liabilities:"],["Interest-bearing deposit accounts","$","173","","","$","1,771","","","$","1,944","","","$","46","","","$","396","","","$","442"],["Borrowings of consolidated securitization entities","(6)","","","150","","","144","","","(20)","","","47","","","27"],["Senior and subordinated unsecured notes","62","","","40","","","102","","","6","","","14","","","20"],["Change in interest expense from total interest-bearing liabilities","229","","","1,961","","","2,190","","","32","","","457","","","489"],["Total change in net interest income","$","1,892","","","$","(518)","","","$","1,374","","","$","1,051","","","$","335","","","$","1,386"]]
[[/GREPCENT_TABLE]]

34

Business Trends and Conditions

We believe our business and results of operations will be impacted in the future by various trends and conditions, including the following:

•CFPB final rule on credit card late fees. In February 2023, the CFPB issued a notice of proposed rulemaking which, if adopted as proposed, would amend regulations to lower the safe harbor dollar amount for credit card late payment fees from the current $30 (adjusted to $41 for each subsequent late payment within the next six billing cycles) to $8 and to cap late fees at 25% of the minimum payment due. The proposed rule, if adopted and not successfully challenged through litigation, would result in a significant reduction of credit card late fees assessed by credit card issuers who utilize the safe harbor, including Synchrony. For the year ended December 31, 2023, interest income on loan receivables included fees on loans of $2.7 billion, which primarily consist of late fees on our credit products, net of reversals. To the extent that a final rule is issued with a compliance deadline in 2024, and if any legal challenges to the rule are unsuccessful, we would expect this to significantly reduce our interest income on loan receivables in 2024. While we cannot provide any assurance as to the precise timing and content of a final rule or the outcome of any litigation challenging the rule, we have identified a number of strategies that we have begun to implement or will look to implement to mitigate the effects of a significant reduction in our late fee income. In addition, the combined net effects of a rule issuance and our mitigating strategies would result in a decrease in payments to partners pursuant to our retailer share arrangements. While we believe that the alternate strategies we have identified would mitigate a decline in late fee income over time, we do expect the final rule, once effective, to have an adverse effect on our results of operations in 2024. The magnitude of the effects in 2024 from the final rule will be dependent upon the timing of issuance and content of the final rule, the outcome of any legal challenges to the rule and our ability to successfully implement the mitigating strategies we have identified. For a discussion of risks related to a CFPB final late fee rule, please see “—Risk Factors Relating to our Business—The CFPB’s proposed rule on credit card late fees, if adopted, could materially adversely affect our business and results of operations.”

•Growth in loan receivables and interest income. During 2023 we experienced purchase volume growth that reflected the continued strength of the consumer. Purchase volume for the year ended December 31, 2023 increased 2.8%. In addition, customer payments as a percentage of beginning-of-period loan receivables remain elevated compared to historical averages. However, we have continued to experience moderation in payment rates during 2023 that, in addition to the purchase volume growth discussed above, have contributed to increases in both loan receivables and interest income for the year ended December 31, 2023. We expect interest income and loan receivables to increase in 2024, primarily reflecting both the continued moderation of customer payment behavior and the impact of higher benchmark interest rates, as well as from purchase volume growth. The amount of the increases, however, will be dependent on various factors. These factors include the timing and extent of continued payment rate moderation and changes in benchmark interest rates. In addition, on January 19, 2024 we announced our agreement to acquire Ally Lending, whose assets at December 31, 2023 included approximately $2.2 billion of loan receivables. We expect to close this transaction, subject to customary closing conditions, in the first quarter of 2024. See above for potential additional impacts from the CFPB final rule on credit card late fees.

•Asset quality. As a result of the continued moderation of customer payment behavior, our delinquencies and net charge-offs have increased in 2023 compared to the prior year. Our over-30 day loan delinquencies as a percentage of period-end loan receivables increased to 4.74% at December 31, 2023 from 3.65% at December 31, 2022. Our net charge-off rate for the year ended December 31, 2023 increased by 187 basis points to 4.87%. We anticipate that the effects of moderating customer payment behavior will continue to impact our credit metrics in 2024, most notably in an increase in net charge-offs as they continue to trend towards our target underwriting range of 5.5%-6.0%. We have also experienced increases to both our allowance for credit losses and provision for credit losses during the year ended December 31, 2023 primarily attributable to the higher net charge-offs and growth in our loan receivables. Our allowance coverage ratio at December 31, 2023 was 10.26%. We anticipate that our allowance for credit losses and provision for credit losses in 2024 will be higher than the current year period primarily due to the anticipated increase in net charge-offs and growth in loan receivables.

35

•Funding costs. During 2023 benchmark interest rates increased significantly and our average funding liabilities have also increased to support the growth in our loan receivables. As a result, interest expense for the year ended December 31, 2023 increased by $2.2 billion or 144.0%, compared to the prior year, and our cost of funds increased by 218 basis points to 4.10%. While we expect there to be some benchmark interest rate cuts in 2024, we expect interest expense and our cost of funds to continue to increase, reflecting both the continuing impact of higher benchmark rates as our fixed rate funding reprices, as well as growth in our funding liabilities to support the expected growth in loan receivables. The amount of the increases however will be dependent on further benchmark rate changes, competition for our deposit product offerings and the extent of the growth in our loan receivables.

•Retailer share arrangement payments under our program agreements. Retailer share arrangements decreased 15.5% to $3.7 billion for the year ended December 31, 2023, primarily reflecting the impact of higher net charge-offs and the impact of portfolios sold in the second quarter of 2022, partially offset by higher net interest income. We believe that the payments we make to our partners under our retailer share arrangements, in the aggregate, in 2024 are likely to remain flat compared to the year ended December 31, 2023, primarily as a result of the impact of the expected credit trends discussed above offset by growth of the programs for which we have retailer share arrangements. The expected trend in retailer share arrangements will be dependent in part on the precise timing and extent of the anticipated credit trends discussed above. See Management’s Discussion and Analysis—Retailer Share Arrangements for additional information on these agreements. See above for potential additional impacts from the CFPB final rule on credit card late fees.

•Extended duration of our credit card program agreements. Our credit card program agreements typically have contract terms ranging from approximately five to ten years, and the length of our relationship with each of our five largest partners is over 16 years, and in the case of Lowe's, 44 years. We expect to continue to benefit from these and our other programs on a long-term basis.

The current expiration dates of our program agreements with our five largest partners range from 2026 through 2033. In addition, a total of 18 of our 25 largest program agreements have an expiration date in 2026 or beyond. These program agreements represented, in the aggregate, 94% of our interest and fees on loans for the year ended December 31, 2023 and 92% of our loan receivables at December 31, 2023 attributable to our 25 largest programs.

•Growth in interchange revenues and loyalty program costs. We believe that as a result of the overall growth in Dual Card and general purpose co-branded credit card transactions occurring outside of our credit card partners’ locations, interchange revenues will continue to increase. The expected growth in these transactions is driven, in part, by both existing and new loyalty programs with our credit card partners. In addition, we continue to offer and add new loyalty programs for our private label credit cards, for which we typically do not receive interchange fees. The growth in these existing and new loyalty programs will result in an increase in costs associated with these programs. For the year ended December 31, 2023, our loyalty program costs were partially offset by our interchange revenues, although the increase in loyalty program costs exceeded the increase in interchange revenues. Overall, we expect these trends for our loyalty program costs and interchange revenues to continue in 2024. These changes have been contemplated in our program agreements with our partners and are a component of the calculation of our payments due under our retailer share arrangements.

36

•Capital and liquidity levels. We continue to expect to maintain sufficient capital and liquidity resources to support our daily operations, our business growth, and our credit ratings as well as regulatory and compliance requirements in a cost effective and prudent manner through expected and unexpected market environments. During the year ended December 31, 2023, we declared and paid common stock dividends of $406 million and repurchased $1.1 billion of our outstanding common stock. We plan to continue to deploy capital through both dividends and share repurchases, subject to regulatory restrictions, as well as to support business growth. At December 31, 2023 we had $600 million remaining in share repurchase authorization. We continue to expect to maintain capital ratios well in excess of minimum regulatory requirements. At December 31, 2023, the Company had a Basel III common equity Tier 1 ratio of 12.2%, which reflects our election to defer the impact of CECL on our regulatory capital and the current year phase-in of 25% of the impact. The effects of CECL are being phased-in over a three-year transitional period through December 31, 2024 and will be fully phased-in beginning in the first quarter of 2025. As a result of the third year of the phase-in, our common equity Tier 1 ratio will be reduced by approximately 50 additional basis points in 2024. In addition, in the first quarter of 2024, we expect to close both the sale of Pets Best and the acquisition of Ally Lending. The net impact of these transactions to our regulatory capital will result in an increase to our common equity Tier 1 ratio.

We expect that our liquidity portfolio will continue to be sufficient to support all of our business objectives and to meet all regulatory requirements for the foreseeable future. At December 31, 2023 our liquid assets were $16.8 billion, an increase of 18% compared to the prior year, primarily as a result of deposit growth, and retention of excess cash flows from operations, partially offset by loan receivables growth and share repurchase activity.

Seasonality

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 typically occurring over the first and second quarters of the following year as customers pay their balances down.

The seasonal impact to transaction volumes and the loan receivables balance typically results in fluctuations in our results of operations, delinquency metrics and the allowance for credit losses as a percentage of total loan receivables between quarterly periods. These fluctuations are generally most evident between the fourth quarter and the first quarter of the following year.

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

However, in addition to these seasonal trends, the elevated customer payment behavior we have experienced in recent years and more recently the subsequent moderation from these elevated levels, has also significantly impacted our key financial metrics and the fluctuations experienced between quarterly periods. The effects from these changes in customer payment behavior have resulted in either partial, or in some instances full, offset to the impact from the ongoing seasonal trends discussed above.

37

Interest Income

Interest income is comprised of interest and fees on loans, which includes merchant discounts provided by partners to compensate us in almost all cases for all or part of the promotional financing provided to their customers, and interest on cash and equivalents and investment securities. We include in interest and fees on loans any past due interest and fees deemed to be collectible. Direct loan origination costs on credit card loans are deferred and amortized on a straight-line basis over a one-year period and recorded in interest and fees on loans. For non-credit card receivables, direct loan origination costs are deferred and amortized over the life of the loan and recorded in interest and fees on loans.

We analyze interest income as a function of two principal components: average interest-earning assets and yield on average interest-earning assets. Key drivers of average interest-earning assets include:

•purchase volumes, which are influenced by a number of factors including macroeconomic conditions and consumer confidence generally, our partners’ sales and our ability to increase our share of those sales;

•payment rates, reflecting the extent to which customers maintain a credit balance;

•charge-offs, reflecting the receivables that are deemed not to be collectible;

•the size of our liquidity portfolio; and

•portfolio acquisitions when we enter into new partner relationships.

Key drivers of yield on average interest-earning assets include:

•pricing (contractual rates of interest, movement in prime rates, late fees and merchant discount rates);

•changes to our mix of loans (e.g., the number of loans bearing promotional rates as compared to standard rates);

•frequency of late fees incurred when account holders fail to make their minimum payment by the required due date;

•credit performance and accrual status of our loans, including reversals of interest and fees; and

•yield earned on our liquidity portfolio.

Interest income increased by $3.6 billion, or 20.8%, for the year ended December 31, 2023, primarily driven by the increase in interest and fees on loans of 17.9%. The increase in interest and fees on loans were primarily driven by growth in average loan receivables and higher benchmark rates, partially offset by the impact of portfolios sold in the second quarter of 2022.

Average interest-earning assets

[[GREPCENT_TABLE]]
[["Years ended December 31 ($ in millions)","2023","","2022"],["Loan receivables, including held for sale","$","94,832","","","$","84,672"],["Liquidity portfolio and other","17,349","","","15,323"],["Total average interest-earning assets","$","112,181","","","$","99,995"]]
[[/GREPCENT_TABLE]]

Average loan receivables, including held for sale, increased 12.0% for the year ended December 31, 2023, primarily driven by moderation in customer payment rates and growth in purchase volume growth, partially offset by the impacts from portfolios sold in the second quarter of 2022. Purchase volume increased 2.8% for the year ended December 31, 2023.

38

Yield on average interest-earning assets

The yield on average interest-earning assets increased for the year ended December 31, 2023 primarily due to increases in the yield on average loan receivables. The increase in average loan receivables yield was 105 basis points to 20.99% for the year ended December 31, 2023.

Interest Expense

Interest expense is incurred on our interest-bearing liabilities, which consists of interest-bearing deposit accounts, borrowings of consolidated securitization entities and senior and subordinated unsecured notes.

Key drivers of interest expense include:

•the amounts outstanding of our deposits and borrowings;

•the interest rate environment and its effect on interest rates paid on our funding sources; and

•the changing mix in our funding sources.

Interest expense increased by $2.2 billion, or 144.0%, for the year ended December 31, 2023, primarily attributed to higher benchmark interest rates and higher funding liabilities. Our cost of funds increased to 4.10% for the year ended December 31, 2023 compared to 1.92% for the year ended December 31, 2022.

Average interest-bearing liabilities

[[GREPCENT_TABLE]]
[["Years ended December 31 ($ in millions)","2023","","2022"],["Interest-bearing deposit accounts","$","75,487","","","$","65,624"],["Borrowings of consolidated securitization entities","6,274","","","6,468"],["Senior and subordinated unsecured notes","8,644","","","7,315"],["Total average interest-bearing liabilities","$","90,405","","","$","79,407"]]
[[/GREPCENT_TABLE]]

Net Interest Income

Net interest income represents the difference between interest income and interest expense.

Net interest income increased by $1.4 billion, or 8.8%, for the year ended December 31, 2023, resulting from the changes in interest income and interest expense discussed above.

39

Retailer Share Arrangements

Most of our program agreements with large retail and certain other partners contain retailer share arrangements that provide for payments to our partners if the economic performance of the program exceeds a contractually defined threshold. We also provide other economic benefits to our partners such as royalties on purchase volume or payments for new accounts, in some cases instead of retailer share arrangements (for example, on our co-branded credit cards). All of these arrangements are designed to align our interests and provide an additional incentive to our partners to promote our credit products. Although the retailer share arrangements vary by partner, these arrangements are generally structured to measure the economic performance of the program, based typically on agreed upon program revenues (including interest income and certain other income) less agreed upon program expenses (including interest expense, provision for credit losses, retailer payments and operating expenses), and share portions of this amount above a negotiated threshold. The threshold and economic performance of a program that are used to calculate payments to our partners may be based on, among other things, agreed upon measures of program expenses rather than our actual expenses, and therefore increases in our actual expenses (such as funding costs, higher provision for credit losses or operating expenses) may not necessarily result in reduced payments under our retailer share arrangements. These arrangements are typically designed to permit us to achieve an economic return before we are required to make payments to our partners based on the agreed contractually defined threshold. Our payments to partners pursuant to these retailer share arrangements are dependent upon the growth and performance, including credit trends, of the programs in which we have retailer share arrangements, as well as changes to the terms of certain program agreements that have been renegotiated in the past few years. See above in Business Trends and Conditions, for a discussion of our expected trends in retailer share arrangements for 2024.

We believe that our retailer share arrangements have been effective in helping us to grow our business by aligning our partners’ interests with ours. We also believe that the changes to the terms of certain program agreements in recent years will help us to grow our business by providing an additional incentive to the relevant partners to promote our credit products going forward. Payments to partners pursuant to these retailer share arrangements would generally decrease, and mitigate the impact on our profitability, in the event of declines in the performance of the programs or the occurrence of other unfavorable developments that impact the calculation of payments to our partners pursuant to our retailer share arrangements.

Retailer share arrangements decreased by $670 million, or 15.5%, for the year ended December 31, 2023, primarily due to higher net charge-offs and the impact of portfolios sold in the second quarter of 2022, partially offset by higher net interest income.

Provision for Credit Losses

Provision for credit losses is the expense related to maintaining the allowance for credit losses at an appropriate level to absorb the expected credit losses for the life of the loan balance as of the period end date. Provision for credit losses in each period is a function of net charge-offs (gross charge-offs net of recoveries) and the required level of the allowance for credit losses. Our process to determine our allowance for credit losses is based upon our estimate of expected credit losses for the life of the loan balance as of the period end date. See “Critical Accounting Estimates - Allowance for Credit Losses” and Note 2. Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements for additional information on our allowance for credit loss methodology.

Provision for credit losses increased by $2.6 billion to $6.0 billion, for the year ended December 31, 2023, primarily driven by higher net charge-offs and a higher reserve build in the current year. The increase in reserves for credit losses of $1.3 billion was primarily driven by growth in loan receivables, as compared to the prior year increase of $839 million.

Other Income

[[GREPCENT_TABLE]]
[["Years ended December 31 ($ in millions)","2023","","2022"],["Interchange revenue","$","1,031","","","$","982"],["Protection product revenue","510","","","387"],["Loyalty programs","(1,370)","","","(1,257)"],["Other","118","","","268"],["Total other income","$","289","","","$","380"]]
[[/GREPCENT_TABLE]]

40

Interchange revenue

We earn interchange fees on Dual Card and other co-branded credit card transactions outside of our partners’ sales channels, generally based on a flat fee plus a percentage of the purchase amount. Interchange revenue has been, and is expected to continue to be, driven primarily by growth in our Dual Card and general purpose co-branded credit card products.

Interchange revenue increased by $49 million, or 5.0%, for the year ended December 31, 2023, driven by an increase in purchase volume outside of our retail partners' sales channels, partially offset by the impacts of portfolios sold in the second quarter of 2022.

Protection product revenue

We offer our Payment Security program, which is a debt cancellation product, to our credit card customers via online, mobile and, on a limited basis, direct mail. For customers who choose to purchase these products, we earn a monthly fee based on their account balance. In return, we will cancel all or a portion of a customer’s credit card balance in the event of certain qualifying life events.

Protection product revenue increased by $123 million, or 31.8%, for the year ended December 31, 2023, primarily as a result of increases in customer enrollment and higher average balances on enrolled accounts.

Loyalty programs

We operate a number of loyalty programs that are designed to generate incremental purchase volume per customer, while reinforcing the value of the card and strengthening cardholder loyalty. These programs typically provide cardholders with statement credit or cash back rewards. Other programs include rewards points, which are redeemable for a variety of products or awards, or merchandise discounts that are earned by achieving a pre-set spending level on their private label credit card, Dual Card or general purpose co-branded credit card. Growth in loyalty program payments has been, and is expected to continue to be, driven by growth in purchase volume related to existing loyalty programs and the rollout of new loyalty programs.

Loyalty programs cost increased by $113 million, or 9.0%, for the year ended December 31, 2023, primarily as a result of growth in purchase volume associated with existing loyalty programs.

Other

Other includes a variety of items including ancillary fees, commission fees related to Pets Best, changes in the fair value of equity investments and realized gains or losses associated with the sale of investments, loan receivables or other assets.

Other decreased by $150 million, or 56.0%, for the year ended December 31, 2023 primarily due to the recognition in the prior year of the gain on sale of $120 million from portfolio sales in the second quarter of 2022.

Other Expense

[[GREPCENT_TABLE]]
[["Years ended December 31 ($ in millions)","2023","","2022"],["Employee costs","$","1,884","","","$","1,681"],["Professional fees","842","","","832"],["Marketing and business development","527","","","487"],["Information processing","712","","","623"],["Other","793","","","714"],["Total other expense","$","4,758","","","$","4,337"]]
[[/GREPCENT_TABLE]]

Employee costs

Employee costs primarily consist of employee compensation and benefit costs.

41

Employee costs increased by $203 million, or 12.1%, for the year ended December 31, 2023, primarily attributable to an increase in headcount driven by business growth, higher benefit costs and $43 million of restructuring costs related to a voluntary early retirement program.

Professional fees

Professional fees consist primarily of outsourced provider fees (e.g., collection agencies and call centers), legal, accounting, consulting, and recruiting expenses.

Professional fees increased by $10 million, or 1.2%, for the year ended December 31, 2023, primarily due to increased technology investments.

Marketing and business development

Marketing and business development costs consist primarily of our contractual and discretionary marketing and business development spend, as well as amortization expense associated with contract costs related to our retail partner agreements.

Marketing and business development increased by $40 million, or 8.2%, for the year ended December 31, 2023, due to higher marketing investments in the current year to support business growth.

Information processing

Information processing costs primarily consist of fees related to outsourced information processing providers, credit card associations and software licensing agreements, as well as amortization of capitalized software expenditures.

Information processing costs increased by $89 million, or 14.3%, for the year ended December 31, 2023, primarily driven by increased technology investments and purchase volume growth.

Other

Other primarily consists of postage, fraud-related operational losses, litigation and regulatory matters expense and various other corporate overhead items such as facilities' costs and telephone charges. Postage is driven primarily by the number of our active accounts and the percentage of customers that utilize our electronic billing option. Fraud-related operational losses are driven primarily by the number of our active Dual Card and general purpose co-branded credit card accounts.

The “other” component increased by $79 million, or 11.1%, for the year ended December 31, 2023, primarily due to higher operational losses, partially offset by lower charitable contributions.

Provision for Income Taxes

[[GREPCENT_TABLE]]
[["Years ended December 31 ($ in millions)","2023","","2022"],["Effective tax rate","22.9","%","","23.9","%"],["Provision for income taxes","$","666","","","$","946"]]
[[/GREPCENT_TABLE]]

The effective tax rate for the year ended December 31, 2023, decreased compared to the prior year primarily due to the impact of higher research and development credits and low income housing tax credits recorded in the current year. The impact of all effective tax rate drivers is larger in the current year due to a decline of pre-tax income. The effective tax rate differs from the U.S. federal statutory tax rate primarily due to state income taxes.

Platform Analysis

As discussed above under “Our Business—Our Sales Platforms,” we offer our credit products through five sales platforms (Home & Auto, Digital, Diversified & Value, Health & Wellness and Lifestyle), which management measures based on their revenue-generating activities. The following is a discussion of certain supplemental information for the years ended December 31, 2023 and 2022, for each of our five sales platforms and Corp, Other.

42

Home & Auto

[[GREPCENT_TABLE]]
[["Years ended December 31 ($ in millions)","2023","","2022"],["Purchase volume","$","47,410","","","$","47,288"],["Period-end loan receivables","$","31,969","","","$","29,978"],["Average loan receivables, including held for sale","$","30,722","","","$","27,835"],["Average active accounts (in thousands)","18,967","","","18,080"],["Interest and fees on loans","$","5,270","","","$","4,670"],["Other income","$","106","","","$","87"]]
[[/GREPCENT_TABLE]]

Home & Auto interest and fees on loans increased by $600 million, or 12.8%, for the year ended December 31, 2023, primarily driven by growth in average loan receivables of 10.4% and higher benchmark rates. The growth in average loan receivables reflected the impact of lower customer payment rates and average active account growth of 4.9%. Purchase volume was flat, as growth in commercial, Home Specialty and Auto were offset by lower retail traffic in Furniture and Electronics and the impact of lower gas and lumber prices.

Other income increased by $19 million, or 21.8%, for the year ended December 31, 2023 primarily driven by higher payment protection revenue.

Digital

[[GREPCENT_TABLE]]
[["Years ended December 31 ($ in millions)","2023","","2022"],["Purchase volume","$","55,051","","","$","51,394"],["Period-end loan receivables","$","28,925","","","$","25,522"],["Average loan receivables, including held for sale","$","26,005","","","$","22,185"],["Average active accounts (in thousands)","20,793","","","19,421"],["Interest and fees on loans","$","5,894","","","$","4,599"],["Other income","$","(14)","","","$","(61)"]]
[[/GREPCENT_TABLE]]

Digital interest and fees on loans increased by $1.3 billion, or 28.2%, for the year ended December 31, 2023, primarily driven by growth in average loan receivables of 17.2%, higher benchmark rates and the maturation of newer programs. The growth in average loan receivables reflected lower customer payment rates, purchase volume growth of 7.1%, and average active account growth of 7.1%.

Other income increased by $47 million for the year ended December 31, 2023, primarily driven by increases in interchange and protection product revenue, partially offset by higher program loyalty costs associated with the increases in purchase volume.

Diversified & Value

[[GREPCENT_TABLE]]
[["Years ended December 31 ($ in millions)","2023","","2022"],["Purchase volume","$","61,227","","","$","56,666"],["Period-end loan receivables","$","20,666","","","$","18,617"],["Average loan receivables, including held for sale","$","18,414","","","$","16,042"],["Average active accounts (in thousands)","20,738","","","19,594"],["Interest and fees on loans","$","4,533","","","$","3,610"],["Other income","$","(93)","","","$","(105)"]]
[[/GREPCENT_TABLE]]

Diversified & Value interest and fees on loans increased by $923 million, or 25.6%, for the year ended December 31, 2023, primarily driven by growth in average loan receivables of 14.8%, and higher benchmark rates. The growth in average loan receivables reflected lower customer payment rates and purchase volume growth of 8.0%, reflecting higher out-of-partner spend, strong retailer performance and average active account growth of 5.8%.

43

Other income increased by $12 million for the year ended December 31, 2023 primarily driven by higher interchange and protection product revenue, partially offset by higher program loyalty costs associated with the increase in purchase volume.

Health & Wellness

[[GREPCENT_TABLE]]
[["Years ended December 31 ($ in millions)","2023","","2022"],["Purchase volume","$","15,565","","","$","13,569"],["Period-end loan receivables","$","14,521","","","$","12,179"],["Average loan receivables, including held for sale","$","13,261","","","$","10,975"],["Average active accounts (in thousands)","7,169","","","6,326"],["Interest and fees on loans","$","3,231","","","$","2,710"],["Other income","$","271","","","$","217"]]
[[/GREPCENT_TABLE]]

Health & Wellness interest and fees on loans increased by $521 million, or 19.2%. for the year ended December 31, 2023, primarily driven by growth in average loan receivables of 20.8%. The growth in average loan receivables reflected continued higher promotional purchase volume and lower customer payment rates. Purchase volume increased 14.7%, and average active accounts increased 13.3%, reflecting broad-based growth led by Dental, Pet and Cosmetic.

Other income increased by $54 million for the year ended December 31, 2023, primarily due to higher protection product revenue.

Lifestyle

[[GREPCENT_TABLE]]
[["Years ended December 31 ($ in millions)","2023","","2022"],["Purchase volume","$","5,922","","","$","5,498"],["Period-end loan receivables","$","6,744","","","$","5,970"],["Average loan receivables, including held for sale","$","6,246","","","$","5,552"],["Average active accounts (in thousands)","2,587","","","2,559"],["Interest and fees on loans","$","959","","","$","814"],["Other income","$","29","","","$","28"]]
[[/GREPCENT_TABLE]]

Lifestyle interest and fees on loans increased by $145 million, or 17.8%, for the year ended December 31, 2023, primarily driven by growth in average loan receivables of 12.5% and higher benchmark rates. The growth in average loan receivables reflected lower customer payment rates and purchase volume growth of 7.7%, which was primarily driven by higher transaction values in Outdoor and Luxury.

Other income remained flat for the year ended December 31, 2023, as higher protection product revenue was offset by higher program loyalty costs.

Corp, Other

[[GREPCENT_TABLE]]
[["Years ended December 31 ($ in millions)","2023","","2022"],["Purchase volume","$","3","","","$","5,772"],["Period-end loan receivables","$","163","","","$","204"],["Average loan receivables, including held for sale","$","184","","","$","2,083"],["Average active accounts (in thousands)","83","","","2,647"],["Interest and fees on loans","$","15","","","$","478"],["Other income","$","(10)","","","$","214"]]
[[/GREPCENT_TABLE]]

44

The decreases shown above for the year ended December 31, 2023 for Corp, Other compared to the prior year reflect the effects of the sale of the BP and Gap Inc. portfolios in May 2022 and June 2022, respectively.

Loan Receivables

____________________________________________________________________________________________

Loan receivables are our largest category of assets and represent our primary source of revenue. The following discussion provides supplemental information regarding our loan receivables portfolio. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 5. Loan Receivables and Allowance for Credit Losses to our consolidated financial statements for additional information related to our loan receivables.

The following table sets forth the composition of our loan receivables portfolio by product type at the dates indicated.

[[GREPCENT_TABLE]]
[["($ in millions)","At December 31, 2023","","(%)","","At December 31, 2022","","(%)"],["Loans"],["Credit cards","$","97,043","","","94.2","%","","$","87,630","","","94.8","%"],["Consumer installment loans","3,977","","","3.9","%","","3,056","","","3.3"],["Commercial credit products","1,839","","","1.8","%","","1,682","","","1.8"],["Other","129","","","0.1","%","","102","","","0.1"],["Total loans","$","102,988","","","100.0","%","","$","92,470","","","100.0","%"]]
[[/GREPCENT_TABLE]]

Loan receivables increased 11.4% to $103.0 billion at December 31, 2023 compared to December 31, 2022, primarily driven by lower customer payment rates and purchase volume growth.

Our loan receivables portfolio, excluding held for sale, had the following maturity distribution at December 31, 2023.

[[GREPCENT_TABLE]]
[["($ in millions)","Within 1Year(1)","","1-5 Years(2)","","5-15 Years","","After 15 Years","","Total"],["Loans"],["Credit cards","$","95,851","","","$","1,192","","","$","\u2014","","","$","\u2014","","","$","97,043"],["Consumer installment loans(3)","1,350","","","2,586","","","41","","","\u2014","","","3,977"],["Commercial credit products","1,830","","","9","","","\u2014","","","\u2014","","","1,839"],["Other","65","","","46","","","12","","","6","","","129"],["Total loans","$","99,096","","","$","3,833","","","$","53","","","$","6","","","$","102,988"],["Loans due after one year at fixed interest rates","N/A","","$","3,833","","","$","53","","","$","6","","","$","3,892"],["Loans due after one year at variable interest rates","N/A","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Total loans due after one year","N/A","","$","3,833","","","$","53","","","$","6","","","$","3,892"]]
[[/GREPCENT_TABLE]]

______________________

(1)Credit card loans have minimum payment requirements but no stated maturity and therefore are included in the due within one year category. However, many of our credit card holders will revolve their balances, which may extend their repayment period beyond one year for balances at December 31, 2023.

(2)Credit card and commercial loans due after one year relate to loans modified to borrowers experiencing financial difficulty.

(3)Reflects scheduled repayments up to the final contractual maturity of our installment loans.

Our loan receivables portfolio had the following geographic concentration at December 31, 2023.

[[GREPCENT_TABLE]]
[["($ in millions)","","Loan Receivables Outstanding","","% of Total Loan Receivables Outstanding"],["State"],["Texas","","$","11,314","","","11.0","%"],["California","","$","10,753","","","10.4","%"],["Florida","","$","9,574","","","9.3","%"],["New York","","$","5,006","","","4.9","%"],["North Carolina","","$","4,248","","","4.1","%"]]
[[/GREPCENT_TABLE]]

45

Delinquencies

Over-30 day loan delinquencies as a percentage of period-end loan receivables increased to 4.74% at December 31, 2023, as compared to 3.65% at December 31, 2022. The 109 basis point increase in 2023 was primarily driven by lower customer payment rates.

Net Charge-Offs

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

The table below sets forth net charge-offs and the ratio of net charge-offs to average loan receivables, including held for sale, (“net charge-off rate”) for the periods indicated.

[[GREPCENT_TABLE]]
[["Years ended December 31","2023","","2022","","2021"],["($ in millions)","Amount","","Rate","","Amount","","Rate","","Amount","","Rate"],["Credit cards","$","4,311","","","4.82","%","","$","2,392","","","2.99","%","","$","2,235","","","2.98","%"],["Consumer installment loans","189","","","5.40","%","","80","","","2.82","%","","38","","","1.54","%"],["Commercial credit products","119","","","6.52","%","","63","","","3.84","%","","30","","","2.28","%"],["Other","1","","","0.80","%","","1","","","1.30","%","","1","","","1.75","%"],["Total net charge-offs","$","4,620","","","4.87","%","","$","2,536","","","3.00","%","","$","2,304","","","2.92","%"]]
[[/GREPCENT_TABLE]]

Allowance for Credit Losses

The allowance for credit losses totaled $10.6 billion at December 31, 2023, compared to $9.5 billion at December 31, 2022, and reflects our estimate of expected credit losses for the life of the loan receivables on our Consolidated Statements of Financial Position. Our allowance for credit losses as a percentage of total loan receivables decreased to 10.26% at December 31, 2023, from 10.30% at December 31, 2022.

The increase in the allowance for credit losses was primarily due to growth in loan receivables, partially offset by a $294 million reduction related to the adoption of ASU 2022-02 on January 1, 2023 which eliminated the separate recognition and measurement guidance for troubled debt restructurings (“TDRs”). See Note 2. Basis of Presentation and Summary of Significant Accounting Policies and Note 5. Loan Receivables and Allowance for Credit Losses to our consolidated financial statements for additional information on the effects of adoption of the new accounting guidance.

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 and subordinated unsecured notes.

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

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Years ended December 31 ($ in millions)","Average Balance","","%","","Average Rate","","Average Balance","","%","","Average Rate","","Average Balance","","%","","Average Rate"],["Deposits(1)","$","75,487","","","83.5","%","","3.9","%","","$","65,624","","","82.6","%","","1.5","%","","$","60,953","","","80.9","%","","0.9","%"],["Securitized financings","6,274","","","6.9","","","5.4","","","6,468","","","8.2","","","3.0","","","7,248","","","9.6","","","2.3"],["Senior and subordinated unsecured notes","8,644","","","9.6","","","4.8","","","7,315","","","9.2","","","4.3","","","7,173","","","9.5","","","4.1"],["Total","$","90,405","","","100.0","%","","4.1","%","","$","79,407","","","100.0","%","","1.9","%","","$","75,374","","","100.0","%","","1.4","%"]]
[[/GREPCENT_TABLE]]

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(1)Excludes $402 million, $382 million and $349 million average balance of non-interest-bearing deposits for the years ended December 31, 2023, 2022 and 2021, respectively. Non-interest-bearing deposits comprise less than 10% of total deposits for the years ended December 31, 2023, 2022 and 2021.

Deposits

We obtain deposits directly from retail, affinity relationships and commercial customers (“direct deposits”) or through third-party brokerage firms that offer our deposits to their customers (“brokered deposits”). At December 31, 2023, we had $67.0 billion in direct deposits and $14.2 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 utilize our direct deposit base as a source of stable and diversified low-cost funding.

Our direct deposits are primarily from retail customers and include a range of FDIC-insured deposit products, including certificates of deposit, IRAs, money market accounts, savings accounts, sweep and affinity deposits.

Brokered deposits are primarily from retail customers of large brokerage firms. We have relationships with 10 brokers that offer our deposits through their networks. Our brokered deposits consist primarily of certificates of deposit that bear interest at a fixed rate. 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, including 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:

[[GREPCENT_TABLE]]
[["Years ended December 31 ($ in millions)","2023","","2022","","2021"],["Average Balance","","%","","Average Rate","","Average Balance","","%","","Average Rate","","Average Balance","","%","","Average Rate"],["Direct deposits:"],["Certificates of deposit (including IRA certificates of deposit)","$","33,104","","","43.9","%","","3.8","%","","$","22,405","","","34.1","%","","1.3","%","","$","22,129","","","36.3","%","","1.3","%"],["Savings accounts, money market and demand accounts","29,073","","","38.5","%","","4.1","","","30,915","","","47.1","","","1.5","","","28,408","","","46.6","","","0.5"],["Brokered deposits","13,310","","","17.6","%","","3.9","","","12,304","","","18.8","","","2.1","","","10,416","","","17.1","","","1.4"],["Total interest-bearing deposits","$","75,487","","","100.0","%","","3.9","%","","$","65,624","","","100.0","%","","1.5","%","","$","60,953","","","100.0","%","","0.9","%"]]
[[/GREPCENT_TABLE]]

Our deposit liabilities provide funding with maturities ranging from one day to ten years. At December 31, 2023, the weighted average maturity of our interest-bearing time deposits was 1.0 years. See Note 8. Deposits to our consolidated financial statements for more information on the maturities of our time deposits.

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The following table summarizes deposits by contractual maturity at December 31, 2023.

[[GREPCENT_TABLE]]
[["($ in millions)","3 Months or Less","","Over 3 Months but within 6 Months","","Over 6 Months but within 12 Months","","Over 12 Months","","Total"],["U.S. deposits (less than FDIC insurance limit)(1)(2)","$","34,234","","","$","8,061","","","$","9,824","","","$","12,924","","","$","65,043"],["U.S. deposits (in excess of FDIC insurance limit)(2)"],["Direct deposits:"],["Certificates of deposit (including IRA certificates of deposit)","2,582","","","2,455","","","2,512","","","2,401","","","9,950"],["Savings, money market, and demand accounts","6,160","","","\u2014","","","\u2014","","","\u2014","","","6,160"],["Total","$","42,976","","","$","10,516","","","$","12,336","","","$","15,325","","","$","81,153"]]
[[/GREPCENT_TABLE]]

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(1)Includes brokered certificates of deposit for which underlying individual deposit balances are assumed to be less than $250,000.

(2)The standard deposit insurance amount is $250,000 per depositor, for each account ownership category. Deposits in excess of FDIC insurance limit presented above include partially insured accounts. Our estimate of the uninsured portion of these deposit balances at December 31, 2023 was approximately $5.4 billion.

Securitized Financings

We access the asset-backed securitization market using the Synchrony Card Issuance Trust (“SYNIT”) through which we may 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 Credit Card Master Note Trust (“SYNCT”) and the Synchrony Sales Finance Master Trust (“SFT”).

At December 31, 2023, we had $3.9 billion of outstanding private asset-backed securities and $3.4 billion of outstanding public asset-backed securities, in each case held by unrelated third parties.

The following table summarizes expected contractual maturities of the investors’ interests in securitized financings, excluding debt premiums, discounts and issuance costs at December 31, 2023.

[[GREPCENT_TABLE]]
[["($ in millions)","Less Than One Year","","One Year Through Three Years","","Four Years Through Five Years","","After Five Years","","Total"],["Scheduled maturities of long-term borrowings\u2014owed to securitization investors:"],["SYNCT","$","1,600","","","$","700","","","$","\u2014","","","$","\u2014","","","$","2,300"],["SFT","775","","","775","","","\u2014","","","\u2014","","","1,550"],["SYNIT(1)","\u2014","","","3,425","","","\u2014","","","\u2014","","","3,425"],["Total long-term borrowings\u2014owed to securitization investors","$","2,375","","","$","4,900","","","$","\u2014","","","$","\u2014","","","$","7,275"]]
[[/GREPCENT_TABLE]]

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(1)Excludes any subordinated classes of SYNIT notes that we owned at December 31, 2023.

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 that 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 SYNIT, any subordinated classes of notes that we own.

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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 December 31, 2023.

[[GREPCENT_TABLE]]
[["","Note Principal Balance ($ in millions)","","# of Series Outstanding","","Three-Month RollingAverage ExcessSpread(1)"],["SYNCT","$","2,300","","","4","","","~ 14.3% to 15.1%"],["SFT","$","1,550","","","6","","","11.8","%"],["SYNIT","$","3,425","","","1","","","17.2","%"]]
[[/GREPCENT_TABLE]]

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(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, a range of the excess spreads relating to the particular series issued within such trust or, in the case of SYNIT, the excess spread relating to the one outstanding series issued within such trust, in all cases omitting any series that have not been outstanding for at least three full monthly periods and calculated in accordance with the applicable trust or series documentation, for the three securitization monthly periods ended December 31, 2023.

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Senior and Subordinated Unsecured Notes

The following table provides a summary of our outstanding fixed rate senior and subordinated unsecured notes at December 31, 2023, which includes $750 million of subordinated unsecured notes issued by Synchrony Financial in February 2023.

[[GREPCENT_TABLE]]
[["Issuance Date","","Interest Rate(1)","","Maturity","","Principal Amount Outstanding(2)"],["($ in millions)"],["Fixed rate senior unsecured notes:"],["Synchrony Financial"],["August 2014","","4.250%","","August 2024","","1,250"],["July 2015","","4.500%","","July 2025","","1,000"],["August 2016","","3.700%","","August 2026","","500"],["December 2017","","3.950%","","December 2027","","1,000"],["March 2019","","4.375%","","March 2024","","600"],["March 2019","","5.150%","","March 2029","","650"],["October 2021","","2.875%","","October 2031","","750"],["June 2022","","4.875%","","June 2025","","750"],["Synchrony Bank"],["August 2022","","5.400%","","August 2025","","900"],["August 2022","","5.625%","","August 2027","","600"],["Fixed rate subordinated unsecured notes:"],["Synchrony Financial"],["February 2023","","7.250%","","February 2033","","750"],["Total fixed rate senior and subordinated unsecured notes","","","","","","$","8,750"]]
[[/GREPCENT_TABLE]]

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(1)Weighted average interest rate of all senior and subordinated unsecured notes at December 31, 2023 was 4.69%.

(2)The amounts shown exclude unamortized debt discounts, premiums and issuance costs.

Short-Term Borrowings

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

Covenants

The indenture pursuant to which our senior and subordinated unsecured notes have been issued includes various covenants, including covenants that restrict (subject to certain exceptions) Synchrony’s ability to dispose of, or incur liens on, any of the voting stock of the Bank or otherwise permit the Bank to be merged, consolidated, leased or sold in a manner that results in the Bank being less than 80% controlled by us.

If we do not satisfy any of these covenants discussed above, the maturity of amounts outstanding thereunder may be accelerated and become payable. We were in compliance with all of these covenants at December 31, 2023.

At December 31, 2023, we were not in default under any of our credit facilities.

Credit Ratings

Our borrowing costs and capacity in certain funding markets, including securitizations and senior and subordinated debt, may be affected by the credit ratings of the Company, the Bank and the ratings of our asset-backed securities.

The table below reflects our current credit ratings and outlooks:

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[[GREPCENT_TABLE]]
[["","","S&P","","Fitch Ratings"],["Synchrony Financial"],["Senior unsecured debt","","BBB-","","BBB-"],["Subordinated unsecured debt","","BB+","","BB+"],["Preferred stock","","BB-","","B+"],["Outlook for Synchrony Financial","","Stable","","Positive"],["Synchrony Bank"],["Senior unsecured debt","","BBB","","BBB-"],["Outlook for Synchrony Bank","","Stable","","Positive"]]
[[/GREPCENT_TABLE]]

In addition, certain of the asset-backed securities issued by 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

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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 management committee under the oversight of the Risk Committee of our Board of Directors. We employ a variety of metrics to monitor and manage liquidity. We perform regular liquidity stress testing and contingency planning as part of our liquidity management process. We evaluate a range of stress scenarios including Company specific and systemic events that could impact funding sources and our ability to meet liquidity needs.

We maintain a liquidity portfolio, which at December 31, 2023 had $16.8 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 $14.2 billion of liquid assets at December 31, 2022. The increase in liquid assets was primarily due to deposit growth and the issuance of secured and unsecured notes, partially offset by loan receivables growth. We believe our liquidity position at December 31, 2023 remains strong as we continue to operate in a period of uncertain economic conditions and we will continue to closely monitor our liquidity as economic conditions change.

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 also have access to several additional sources of liquidity beyond our liquidity portfolio. At December 31, 2023, we had an aggregate of $10.4 billion of available borrowing capacity through the Federal Reserve's discount window, $2.5 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. In addition, we have other 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.

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—Savings Association Regulation—Dividends and Stock Repurchases.”

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