Credit Loss Reserves

The following table summarizes the changes in credit loss reserves by product/class and the related receivable balance by product during the years ended December 31, 2013, 2012 and 2011:



	Real Estate Secured						Personal Non- Credit Card			Other		Total
	First Lien			Second Lien			Personal Non- Credit Card			Other		Total
	(in millions)
Year Ended December 31, 2013:
Credit loss reserve balance at beginning of period	$	3,867		$	740		$	—		$	—	$	4,607
Provision for credit losses	(24		)	53			(50		)	—		(21		)
Net charge-offs:
Charge-offs⁽⁴⁾	(1,186		)	(335		)	—			—		(1,521		)
Recoveries	112			38			50			—		200
Total net charge-offs	(1,074		)	(297		)	50			—		(1,321		)
Other	8			—			—					8
Reserves on receivables transferred to held for sale	—			—			—			—		—
Credit loss reserve balance at end of period	$	2,777		$	496		$	—		$	—	$	3,273
Reserve components:
Collectively evaluated for impairment	$	469		$	135		$	—		$	—	$	604
Individually evaluated for impairment⁽¹⁾	2,256			360			—			—		2,616
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	51			1			—			—		52
Receivables acquired with deteriorated credit quality	1			—			—			—		1
Total credit loss reserves	$	2,777		$	496		$	—		$	—	$	3,273
Receivables:
Collectively evaluated for impairment	$	12,656		$	1,961		$	—		$	—	$	14,617
Individually evaluated for impairment⁽¹⁾	10,073			1,003			—			—		11,076
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	830			49			—			—		879
Receivables acquired with deteriorated credit quality	9			3			—			—		12
Total receivables	$	23,568		$	3,016		$	—		$	—	$	26,584
Year ended December 31, 2012:
Credit loss reserve balance at beginning of period	$	4,089		$	823		$	1,040		$	—	$	5,952
Provision for credit losses⁽²⁾	1,812			397			15			—		2,224
Net charge-offs:
Charge-offs⁽⁴⁾	(2,094		)	(538		)	(389		)	—		(3,021		)
Recoveries	60			58			299			—		417
Total net charge-offs	(2,034		)	(480		)	(90		)	—		(2,604		)
Reserves on receivables transferred to held for sale	—			—			(965		)	—		(965		)
Credit loss reserve balance at end of period	$	3,867		$	740		$	—		$	—	$	4,607
Reserve components:
Collectively evaluated for impairment	$	722		$	215		$	—		$	—	$	937
Individually evaluated for impairment⁽¹⁾	3,010			523			—			—		3,533
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	131			1			—			—		132
Receivables acquired with deteriorated credit quality	4			1			—			—		5
Total credit loss reserves	$	3,867		$	740		$	—		$	—	$	4,607



	Real Estate Secured						Personal Non- Credit Card			Other		Total
	First Lien			Second Lien			Personal Non- Credit Card			Other		Total
	(in millions)
Receivables:
Collectively evaluated for impairment	$	16,012		$	2,414		$	—		$	—	$	18,426
Individually evaluated for impairment⁽¹⁾	11,233			1,155			—			—		12,388
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	2,043			66			—			—		2,109
Receivables acquired with deteriorated credit quality	13			3			—			—		16
Total receivables	$	29,301		$	3,638		$	—		$	—	$	32,939
Year ended December 31, 2011:
Credit loss reserve balance at beginning of period	$	3,355		$	832		$	1,325		$	—	$	5,512
Provision for credit losses⁽³⁾	3,227			758			433			—		4,418
Net charge-offs:
Charge-offs	(2,527		)	(827		)	(1,127		)	—		(4,481		)
Recoveries	34			60			409			—		503
Total net charge-offs	(2,493		)	(767		)	(718		)	—		(3,978		)
Credit loss reserve balance at end of period	$	4,089		$	823		$	1,040		$	—	$	5,952
Reserve components:
Collectively evaluated for impairment	$	632		$	286		$	334		$	—	$	1,252
Individually evaluated for impairment⁽¹⁾	3,026			534			706			—		4,266
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	423			2			—			—		425
Receivables acquired with deteriorated credit quality	8			1			—			—		9
Total credit loss reserves	$	4,089		$	823		$	1,040		$	—	$	5,952
Receivables:
Collectively evaluated for impairment	$	21,660		$	3,358		$	3,855		$	3	$	28,876
Individually evaluated for impairment⁽¹⁾	10,693			1,024			1,341			—		13,058
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell	5,847			90			—			—		5,937
Receivables acquired with deteriorated credit quality	35			6			—			—		41
Total receivables	$	38,235		$	4,478		$	5,196		$	3	$	47,912

⁽¹⁾

These amounts represent TDR Loans for which we evaluate reserves using a discounted cash flow methodology. Each loan is individually identified as a TDR Loan and then grouped together with other TDR Loans with similar characteristics. The discounted cash flow impairment analysis is then applied to these groups of TDR Loans. The receivable balance above excludes TDR Loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell which totaled $604 million, $1,488 million and $2,526 million at December 31, 2013, December 31, 2012 and December 31, 2011, respectively. The reserve component above excludes credit loss reserves for TDR Loans that are carried at the lower of amortized cost or fair value of the collateral less cost to sell which totaled $38 million, $94 million and $143 million at December 31, 2013, December 31, 2012 and December 31, 2011, respectively. These credit loss reserves are reflected within receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell in the table above.


⁽²⁾	Provision for credit losses during 2012 includes $112 million related to the lower of amortized cost or fair value attributable to credit for personal non-credit card receivables transferred to held for sale at June 30, 2012. See Note 7, "Receivables Held for Sale," for additional information.


⁽³⁾	Provision for credit losses for 2011 includes $925 million related to the adoption of new accounting guidance for TDR Loans in the third quarter of 2011 as discussed more fully in Note 5, "Receivables."

⁽⁴⁾

For collateral dependent receivables that are transferred to held for sale, existing credit loss reserves at the time of transfer are recognized as a charge-off. We transferred to held for sale certain real estate secured receivables during 2013 and 2012 that were carried at the lower of amortized cost or fair value of the collateral less cost to sell and recognized the existing credit loss reserves on these receivables as additional charge-off totaling $164 million during 2013 and $333 million during 2012.

We historically have estimated probable losses for real estate secured receivables collectively evaluated for impairment which do not qualify as a troubled debt restructure using a roll rate migration analysis that estimates the likelihood that a loan will progress through the various stages of delinquency and ultimately charge-off. This has historically resulted in the identification of a loss emergence period for these real estate secured receivables collectively evaluated for impairment using a roll rate migration analysis which results in approximately 7 months of losses in our credit loss reserves. A loss coverage of 12 months using a roll rate migration analysis would be more aligned with U.S. bank industry practice. As previously disclosed in 2012, our regulators indicated they would like us to more closely align our loss coverage period implicit within the roll rate methodology with U.S. bank industry practice. During 2012, we extended our loss emergence period to 12 months for U.S. GAAP. As a result, during 2012, we increased credit loss reserves by approximately $350 million for these loans. We will perform an annual review of our portfolio going forward to assess the period of time utilized in our roll rate migration period.

During 2011, we reviewed our existing models for determining credit loss reserves. As part of this process, we considered recent environmental activity including the impact of foreclosure delays, unique characteristics of our run-off portfolio and changes in how loans are ultimately running off. As a result, we made certain enhancements to our credit loss reserve estimation process during 2011. These changes in estimation were necessary because previous estimation techniques no longer represented the composition of the run-off portfolio or the current environment. These changes involved enhancements to the process for determining loss severity associated with real estate loans; revisions to our estimate of projected cash flows for TDR Loans; and increased segmentation of the loan portfolio based on the risk characteristics of the underlying loans.