Reserves for Losses

12 Months Ended

Dec. 31, 2019

RESERVES FOR LOSSES

Reserves for losses relating to Card Member loans and receivables represent management’s best estimate of the probable inherent losses in our outstanding portfolio of loans and receivables, as of the balance sheet date. Management’s evaluation process requires certain estimates and judgments.

Reserves for losses are primarily based upon statistical and analytical models that analyze portfolio performance and reflect management’s judgments regarding the quantitative components of the reserve. The models take into account several factors, including delinquency-based loss migration rates, loss emergence periods and average losses and recoveries over an appropriate historical period. Management considers whether to adjust the quantitative reserves for certain external and internal qualitative factors, which may increase or decrease the reserves for losses on Card Member loans and receivables. These external factors include employment, spend, sentiment, housing and credit, and changes in the legal and regulatory environment, while the internal factors include increased risk in certain portfolios, impact of risk management initiatives, changes in underwriting requirements and overall process stability. As part of this evaluation process, management also considers various reserve coverage metrics, such as reserves as a percentage of past due amounts, reserves as a percentage of Card Member loans or receivables, and net write-off coverage ratios.

Card Member loans and receivables balances are written off when management considers amounts to be uncollectible, which is generally determined by the number of days past due and is typically no later than 180 days past due, or 120 days past due for closed-end loans categorized as Other loans. Card Member loans and receivables and Other loans in bankruptcy or owed by deceased individuals are generally written off upon notification.

CHANGES IN CARD MEMBER LOANS RESERVE FOR LOSSES

The following table presents changes in the Card Member loans reserve for losses for the years ended December 31:


(Millions)	2019		2018		2017
Balance, January 1	$	2,134	$	1,706	$	1,223
Provisions^(a)	2,462		2,266		1,868
Net write-offs ^(b)
Principal	(1,860)		(1,539)		(1,181)
Interest and fees	(375)		(304)		(227)
Other^(c)	22		5		23
Balance, December 31	$	2,383	$	2,134	$	1,706

(a)Provisions for principal, interest and fee reserve components.

(b)Principal write-offs are presented less recoveries of $525 million, $444 million and $409 million for the years ended December 31, 2019, 2018 and 2017, respectively. Recoveries of interest and fees were not significant. Amounts include net (write-offs) recoveries from TDRs of $(79) million, $(33) million and $(30) million for the years ended December 31, 2019, 2018 and 2017, respectively.

(c)Includes foreign currency translation adjustments of $4 million, $(11) million and $8 million, and other adjustments of $18 million, $16 million and $15 million for the years ended December 31, 2019, 2018 and 2017, respectively.

CARD MEMBER LOANS EVALUATED INDIVIDUALLY AND COLLECTIVELY FOR IMPAIRMENT

The following table presents Card Member loans evaluated individually and collectively for impairment and related reserves as of December 31:


(Millions)	2019		2018		2017
Card Member loans evaluated individually for impairment ^(a)	$	810	$	532	$	367
Related reserves^(a)	$	159	$	94	$	57
Card Member loans evaluated collectively for impairment ^(b)	$	86,571	$	81,322	$	73,032
Related reserves^(b)	$	2,224	$	2,040	$	1,649

(a)Represents loans modified as a TDR and related reserves.

(b)Represents current loans and loans less than 90 days past due, loans over 90 days past due and accruing interest, and non-accrual loans. The reserves include the quantitative results of analytical models that are specific to individual pools of loans, and reserves for internal and external qualitative risk factors that apply to loans that are collectively evaluated for impairment.

CHANGES IN CARD MEMBER RECEIVABLES RESERVE FOR LOSSES

The following table presents changes in the Card Member receivables reserve for losses for the years ended December 31:


(Millions)	2019		2018		2017
Balance, January 1	$	573	$	521	$	467
Provisions^(a)	963		937		795
Net write-offs^(b)	(900)		(859)		(736)
Other^(c)	(17)		(26)		(5)
Balance, December 31	$	619	$	573	$	521

(a)Provisions for principal and fee reserve components.

(b)Net write-offs are presented less recoveries of $374 million, $367 million and $366 million for the years ended December 31, 2019, 2018 and 2017, respectively. Amounts include net recoveries (write-offs) from TDRs of $(16) million, nil and $2 million, for the years ended December 31, 2019, 2018 and 2017, respectively.

(c)Includes foreign currency translation adjustments of nil, $(6) million and $12 million, and other adjustments of $(17) million, $(20) million and $(17) million for the years ended December 31, 2019, 2018 and 2017, respectively.

CARD MEMBER RECEIVABLES EVALUATED INDIVIDUALLY AND COLLECTIVELY FOR IMPAIRMENT

The following table presents Card Member receivables evaluated individually and collectively for impairment and related reserves as of December 31:


(Millions)	2019		2018		2017
Card Member receivables evaluated individually for impairment^(a)	$	211	$	128	$	80
Related reserves^(a)	$	9	$	7	$	3
Card Member receivables evaluated collectively for impairment	$	57,202	$	55,765	$	53,967
Related reserves^(b)	$	610	$	566	$	518

(a)Represents receivables modified as a TDR and related reserves.

(b)The reserves include the quantitative results of analytical models that are specific to individual pools of receivables, and reserves for internal and external qualitative risk factors that apply to receivables that are collectively evaluated for impairment.