Loan Receivables and Allowance for Credit Losses |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loan Receivables and Allowance for Credit Losses | LOAN RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
_______________________ (a)Total loan receivables include $19.3 billion and $19.8 billion of restricted loans of consolidated securitization entities at June 30, 2023 and December 31, 2022, respectively. See Note 5. Variable Interest Entities for further information on these restricted loans. (b)At June 30, 2023 and December 31, 2022, loan receivables included deferred costs, net of deferred income, of $209 million and $237 million, respectively. Allowance for Credit Losses(a)(b)
_______________________ (a)The allowance for credit losses at June 30, 2023 and 2022 reflects our estimate of expected credit losses for the life of the loan receivables on our Condensed Consolidated Statements of Financial Position at June 30, 2023 and 2022 which include the consideration of current and expected macroeconomic conditions that existed at those dates. (b)Comparative information is presented in accordance with the applicable accounting standards in effect prior to the adoption of ASU 2022-02. The reasonable and supportable forecast period used in our estimate of credit losses at June 30, 2023 was 12 months, consistent with the forecast period utilized since the adoption of CECL. Beyond the reasonable and supportable forecast period, we revert to historical loss information at the loan receivables segment level over a 6-month period, gradually increasing the weight of historical losses by an equal amount each month during the reversion period, and utilize historical loss information thereafter for the remaining life of the portfolio. The reversion period and methodology remain unchanged since the adoption of CECL. Losses on loan receivables, including those which are modified for borrowers experiencing financial difficulty, are estimated and recognized upon origination of the loan, based on expected credit losses for the life of the loan balance at June 30, 2023. Expected credit loss estimates are developed using both quantitative models and qualitative adjustments, and incorporates a macroeconomic forecast, as described within the 2022 Form 10-K. The current and forecasted economic conditions at the balance sheet date influenced our current estimate of expected credit losses, and reflect an uncertain macroeconomic environment. While customer payment behavior remains elevated compared to historical averages, we continue to experience a decrease in payment rates and increases in both delinquencies and net charge-offs which are expected to continue as these credit metrics trend towards our historical averages. These conditions are reflected in our current estimate of expected credit losses, which remain generally consistent with the prior quarter. Our allowance for credit losses increased to $9.8 billion during the six months ended June 30, 2023, primarily due to growth in loan receivables, partially offset by the reserve reduction associated with the adoption of ASU 2022-02. See Note 2. Basis of Presentation and Summary of Significant Accounting Policies for additional information on our significant accounting policies related to our allowance for credit losses. Delinquent and Non-accrual Loans The following table provides information on our delinquent and non-accrual loans:
Consumer Installment Loans by Origination Year
Delinquency trends are the primary credit quality indicator for our consumer installment loans, which we use to monitor credit quality and risk within the portfolio. Loan Modifications to Borrowers Experiencing Financial Difficulty We use certain loan modification programs for borrowers experiencing financial difficulties. We primarily use long-term modification programs for borrowers experiencing financial difficulty as a loss mitigation strategy to improve long-term collectability of the loans. The long-term programs involve changing the structure of the loan to a fixed payment loan with a maturity no longer than 60 months, reducing the interest rate on the loan, and stopping the assessment of penalty fees. We also make long-term loan modifications for customers who request financial assistance through external sources, such as through consumer credit counseling service agencies. Long-term loan modification programs do not normally include the forgiveness of unpaid principal, interest or fees. We may also provide certain borrowers with a short-term loan modification program (generally up to 3 months) that can include the forgiveness of unpaid principal balance, interest and/or fees. We generally do not convert revolving loans to term loans, outside of loan modification programs for borrowers experiencing financial difficulties. Three and six months ended June 30, 2023 The Company adopted ASU 2022-02 as of January 1, 2023 on a modified retrospective basis through a cumulative adjustment to retained earnings. The new guidance is applicable for all loans modified to borrowers experiencing financial difficulties as of the beginning of 2023. The following table provides information on our loan modifications to borrowers experiencing financial difficulty during the period presented, which do not include loans that are classified as loan receivables held for sale:
Financial Effects of Loan Modifications to Borrowers Experiencing Financial Difficulty As part of our loan modifications to borrowers experiencing financial difficulty, we may provide multiple concessions to minimize our economic loss and improve long-term loan performance and collectability. For long-term modifications made in the three and six months ended June 30, 2023, the financial effect of these modifications reduced the weighted-average interest rates by 96% and 97%, respectively. For short-term modifications made in the three and six months ended June 30, 2023, unpaid balances of $10 million and $67 million, respectively, were forgiven. Performance of Loans Modified to Borrowers Experiencing Financial Difficulty The following table provides information on the performance of loans modified to borrowers experiencing financial difficulty which have been modified subsequent to January 1, 2023 and remain in a modification program at June 30, 2023:
(a) Once a loan has been modified, it only returns to current status (re-aged) after three consecutive monthly program payments are received post the modification date. Payment Defaults The following table presents the type, number and amount of loans to borrowers experiencing financial difficulty that enrolled in a long-term modification program between January 1, 2023 and June 30, 2023 and experienced a payment default and charged-off during the period presented:
Of the loans modified to borrowers experiencing financial difficulty that enrolled in a short-term modification program between January 1, 2023 and June 30, 2023, 43% have fully completed all required payments and successfully exited the program during the six months ended June 30, 2023. Three and six months ended June 30, 2022 Troubled Debt Restructurings Under our modified retrospective adoption of ASU 2022-02, the following information on loan modifications for periods prior to January 1, 2023 are presented in accordance with the applicable accounting standards in effect at that time. The following table provides information on our TDR loan modifications during the prior year period presented:
Prior to January 1, 2023, our allowance for credit losses on TDRs was generally measured based on the difference between the recorded loan receivable and the present value of the expected future cash flows, discounted at the original effective interest rate of the loan. Interest income from loans accounted for as TDRs was accounted for in the same manner as other accruing loans. The following table provides information about loans classified as TDRs and specific reserves at December 31, 2022. We do not evaluate credit card loans on an individual basis but instead estimate an allowance for credit losses on a collective basis.
Financial Effects of TDRs The following table presents the types and financial effects of loans modified and accounted for as TDRs during the prior year period presented:
Payment Defaults The following table presents the type, number and amount of loans accounted for as TDRs that enrolled in a modification program within the previous 12 months from June 30, 2022 and experienced a payment default and charged-off during the prior year period presented:
Credit Quality Indicators Our loan receivables portfolio includes both secured and unsecured loans. Secured loan receivables are largely comprised of consumer installment loans secured by equipment. Unsecured loan receivables are largely comprised of our open-ended consumer and commercial revolving credit card loans. As part of our credit risk management activities, on an ongoing basis, we assess overall credit quality by reviewing information related to the performance of a customer’s account with us, including delinquency information, as well as information from credit bureaus relating to the customer’s broader credit performance. We utilize VantageScore credit scores to assist in our assessment of credit quality. VantageScore credit scores are obtained at origination of the account and are refreshed, at a minimum quarterly, but could be as often as weekly, to assist in predicting customer behavior. We categorize these credit scores into the following three credit score categories: (i) 651 or higher, which are considered the strongest credits; (ii) 591 to 650, considered moderate credit risk; and (iii) 590 or less, which are considered weaker credits. There are certain customer accounts for which a VantageScore score is not available where we use alternative sources to assess their credit and predict behavior. The following table provides the most recent VantageScore scores available for our customers at June 30, 2023, December 31, 2022 and June 30, 2022, respectively, as a percentage of each class of loan receivable. The table below excludes 0.4% of our total loan receivables balance at each of June 30, 2023, December 31, 2022 and June 30, 2022, respectively, which represents those customer accounts for which a VantageScore score is not available.
Unfunded Lending Commitments We manage the potential risk in credit commitments by limiting the total amount of credit, both by individual customer and in total, by monitoring the size and maturity of our portfolios and by applying the same credit standards for all of our credit products. Unused credit card lines available to our customers totaled approximately $425 billion and $417 billion at June 30, 2023 and December 31, 2022, respectively. While these amounts represented the total available unused credit card lines, we have not experienced and do not anticipate that all of our customers will access their entire available line at any given point in time. Interest Income by Product The following table provides additional information about our interest and fees on loans, including merchant discounts, from our loan receivables, including held for sale:
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