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Credit Loss Reserves

6 Months Ended

Jun. 30, 2012

Receivables and Credit Loss Reserves [Abstract]

5. Credit Loss Reserves

An analysis of credit loss reserves was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
	(in millions)
Credit loss reserves at beginning of period	$	5,865		$	4,944		$	5,952		$	5,512
Provision for credit losses		738	⁽¹⁾		583			1,529	⁽¹⁾		1,291
Net charge-offs:
Charge-offs		(799	)		(1,078	)		(1,778	)		(2,495	)
Recoveries		102			141			203			282

Total net charge-offs		(697	)		(937	)		(1,575	)		(2,213	)
Reserves on receivables transferred to held for sale⁽¹⁾		(1,298	)		-			(1,298	)		-

Credit loss reserves at end of period	$	4,608		$	4,590		$	4,608		$	4,590

⁽¹⁾

Includes $112 million during the three and six months ended June 30, 2012 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 6, “Receivables Held for Sale,” for additional information. This amount was recorded as a provision for credit losses and included in the total of reserves on receivables transferred to held for sale. There was no lower of cost or fair value adjustment allocated to credit for the real estate secured receivables as these receivables were previously carried at the lower of amortized cost or fair value of the collateral less cost to sell prior to the transfer of the loans to held for sale.

During the third quarter of 2011, we adopted an Accounting Standards Update which provided additional guidance to determine whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring for purposes of the identification and disclosure of TDR Loans as well as for recording impairment. This new accounting guidance continues to impact our provision for credit loss in periods post-adoption, as loans which otherwise would not have qualified for such reporting in the past are now meeting the criteria under the new accounting guidance to be reported and reserved for as TDR Loans which will continue in future periods. Therefore, credit loss reserves at June 30, 2012 and the provision for credit losses during the three and six months ended June 30, 2012 are not comparable to the three and six months ended June 30, 2011.

As discussed above, credit loss reserves at June 30, 2012 have also been impacted by the transfer of our entire portfolio of personal non-credit card receivables and certain real estate secured receivables to held for sale. See Note 6, “Receivables Held for Sale,” for additional information.

The following table summarizes the changes in credit loss reserves by product/class and the related receivable balance by product during the three and six months ended June 30, 2012 and 2011:


	Real Estate Secured						Personal Non- Credit Card			Other		Total
	First Lien			Second Lien			Personal Non- Credit Card			Other		Total

	(in millions)
Three Months Ended June 30, 2012:
*Credit loss reserve analysis:*
Credit loss reserve balances at beginning of period	$	4,171		$	779		$	915		$	-	$	5,865
Provision for credit losses		508			90			140	⁽²⁾		-		738
Net charge-offs:
Charge-offs		(497	)		(134	)		(168	)		-		(799	)
Recoveries		9			15			78			-		102

Net charge-offs		(488	)		(119	)		(90	)		-		(697	)
Reserves on receivables transferred to held for sale		(333	)		-			(965	)		-		(1,298	)

Credit loss reserve balance at end of period	$	3,858		$	750		$	-		$	-	$	4,608

*Reserve components:*
Collectively evaluated for impairment	$	625		$	187		$	-		$	-	$	812
Individually evaluated for impairment⁽¹⁾		3,144			561			-			-		3,705
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell		82			1			-			-		83
Loans acquired with deteriorated credit quality		7			1			-			-		8

Total credit loss reserves	$	3,858		$	750		$	-		$	-	$	4,608

*Receivables:*
Collectively evaluated for impairment	$	18,614		$	2,790		$	-		$	-	$	21,404
Individually evaluated for impairment⁽¹⁾		10,918			1,153			-			-		12,071
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell		1,373			68			-			-		1,441
Receivables acquired with deteriorated credit quality		35			5			-			-		40

Total receivables	$	30,940		$	4,016		$	-		$	-	$	34,956

Three Months Ended June 30, 2011:
*Credit loss reserve analysis:*
Credit loss reserve balances at beginning of period	$	3,167		$	694		$	1,083		$	-	$	4,944
Provision for credit losses		406			133			44			-		583
Net charge-offs:
Charge-offs		(580	)		(208	)		(290	)		-		(1,078	)
Recoveries		9			16			116			-		141

Net charge-offs		(571	)		(192	)		(174	)		-		(937	)

Credit loss reserve balance at end of period	$	3,002		$	635		$	953		$	-	$	4,590

*Reserve components:*
Collectively evaluated for impairment	$	1,182		$	413		$	953		$	-	$	2,548
Individually evaluated for impairment⁽¹⁾		1,694			218			-			-		1,912
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell		113			2			-			-		115
Loans acquired with deteriorated credit quality		13			2			-			-		15

Total credit loss reserves	$	3,002		$	635		$	953		$	-	$	4,590

*Receivables:*
Collectively evaluated for impairment	$	28,579		$	4,262		$	5,397		$	3	$	38,241
Individually evaluated for impairment⁽¹⁾		6,775			568			615			-		7,958
Receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell		5,283			83			-			-		5,366
Receivables acquired with deteriorated credit quality		35			6			-			-		41

Total receivables	$	40,672		$	4,919		$	6,012		$	3	$	51,606


	Real Estate Secured						Personal Non- Credit Card			Other		Total
	First Lien			Second Lien			Personal Non- Credit Card			Other		Total

	(in millions)
Six Months Ended June 30, 2012:
*Credit loss reserve analysis:*
Credit loss reserve balances at beginning of period	$	4,089		$	823		$	1,040		$	-	$	5,952
Provision for credit losses		1,150			221			158	⁽²⁾		-		1,529
Net charge-offs:
Charge-offs		(1,065	)		(324	)		(389	)		-		(1,778	)
Recoveries		17			30			156			-		203

Net charge-offs		(1,048	)		(294	)		(233	)		-		(1,575	)
Reserves on receivables transferred to held for sale		(333	)		-			(965	)		-		(1,298	)

Credit loss reserve balance at end of period	$	3,858		$	750		$	-		$	-	$	4,608

Six Months Ended June 30, 2011:
*Credit loss reserve analysis:*
Credit loss reserve balances at beginning of period	$	3,355		$	832		$	1,325		$	-	$	5,512
Provision for credit losses		991			238			62			-		1,291
Net charge-offs:
Charge-offs		(1,363	)		(468	)		(664	)		-		(2,495	)
Recoveries		19			33			230			-		282

Net charge-offs		(1,344	)		(435	)		(434	)		-		(2,213	)

Credit loss reserve balance at end of period	$	3,002		$	635		$	953		$	-	$	4,590

⁽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 $671 million and $1.7 billion at June 30, 2012 and 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 $41 million and $36 million at June 30, 2012 and 2011, respectively.

⁽²⁾