Allowance for Loans and Lease Losses |
| | NOTE 5—ALLOWANCE FOR LOAN AND LEASE LOSSES |
Our allowance for loan and lease losses represents management’s best estimate of incurred loan and lease losses inherent in our loans held for investment portfolio as of each balance sheet date. In addition to the allowance for loan and lease losses, we also estimate probable losses related to unfunded lending commitments, such as letters of credit, financial guarantees, and binding unfunded loan commitments. The provision for unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets. See “Note 1—Summary of Significant Accounting Policies” of our 2014 Form 10-K for further discussion on the methodology and policy for determining our allowance for loan and lease losses for each of our loan portfolio segments. Allowance for Loan and Lease Losses Activity The allowance for loan and lease losses is increased through the provision for credit losses and reduced by net charge-offs. The provision for credit losses, which is recorded in earnings, reflects credit losses we believe have been incurred and will eventually be reflected over time in our net charge-offs. Charge-offs of uncollectible amounts are deducted from the allowance for loan and lease losses and subsequent recoveries are included. The table below summarizes changes in the allowance for loan and lease losses, by portfolio segment, for the three and nine months ended September 30, 2015 and 2014. Table 5.1: Allowance for Loan and Lease Losses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, 2015 | | | Credit Card | | Consumer Banking | | Commercial Banking | | Other(1) | | Total Allowance | | Unfunded Lending Commitments Reserve | | Combined Allowance & Unfunded Reserve | (Dollars in millions) | | Auto | | Home Loan | | Retail Banking | | Total Consumer Banking | | Balance as of June30, 2015 | | $ | 3,324 |
| | $ | 744 |
| | $ | 65 |
| | $ | 66 |
| | $ | 875 |
| | $ | 472 |
| | $ | 5 |
| | $ | 4,676 |
| | $ | 135 |
| | $ | 4,811 |
| Provision (benefit) for credit losses | | 831 |
| | 178 |
| | (4 | ) | | 14 |
| | 188 |
| | 60 |
| | (2 | ) | | 1,077 |
| | 15 |
| | 1,092 |
| Charge-offs | | (930 | ) | | (264 | ) | | (5 | ) | | (17 | ) | | (286 | ) | | (47 | ) | | 0 |
| | (1,263 | ) | | 0 |
| | (1,263 | ) | Recoveries | | 275 |
| | 76 |
| | 4 |
| | 3 |
| | 83 |
| | 14 |
| | 1 |
| | 373 |
| | 0 |
| | 373 |
| Net charge-offs | | (655 | ) | | (188 | ) | | (1 | ) | | (14 | ) | | (203 | ) | | (33 | ) | | 1 |
| | (890 | ) | | 0 |
| | (890 | ) | Other changes(2) | | (16 | ) | | 0 |
| | 0 |
| | 0 |
| | 0 |
| | 0 |
| | 0 |
| | (16 | ) | | 0 |
| | (16 | ) | Balance as of September 30, 2015 | | $ | 3,484 |
| | $ | 734 |
| | $ | 60 |
| | $ | 66 |
| | $ | 860 |
| | $ | 499 |
| | $ | 4 |
| | $ | 4,847 |
| | $ | 150 |
| | $ | 4,997 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, 2015 | | | Credit Card | | Consumer Banking | | Commercial Banking | | Other(1) | | Total Allowance | | Unfunded Lending Commitments Reserve | | Combined Allowance & Unfunded Reserve | (Dollars in millions) | | Auto | | Home Loan | | Retail Banking | | Total Consumer Banking | | Balance as of December 31, 2014 | | $ | 3,204 |
| | $ | 661 |
| | $ | 62 |
| | $ | 56 |
| | $ | 779 |
| | $ | 395 |
| | $ | 5 |
| | $ | 4,383 |
| | $ | 113 |
| | $ | 4,496 |
| Provision (benefit) for credit losses | | 2,395 |
| | 530 |
| | 4 |
| | 45 |
| | 579 |
| | 147 |
| | (2 | ) | | 3,119 |
| | 37 |
| | 3,156 |
| Charge-offs | | (2,940 | ) | | (700 | ) | | (14 | ) | | (47 | ) | | (761 | ) | | (67 | ) | | (5 | ) | | (3,773 | ) | | 0 |
| | (3,773 | ) | Recoveries | | 863 |
| | 243 |
| | 8 |
| | 12 |
| | 263 |
| | 24 |
| | 6 |
| | 1,156 |
| | 0 |
| | 1,156 |
| Net charge-offs | | (2,077 | ) | | (457 | ) | | (6 | ) | | (35 | ) | | (498 | ) | | (43 | ) | | 1 |
| | (2,617 | ) | | 0 |
| | (2,617 | ) | Other changes(2) | | (38 | ) | | 0 |
| | 0 |
| | 0 |
| | 0 |
| | 0 |
| | 0 |
| | (38 | ) | | 0 |
| | (38 | ) | Balance as of September 30, 2015 | | $ | 3,484 |
| | $ | 734 |
| | $ | 60 |
| | $ | 66 |
| | $ | 860 |
| | $ | 499 |
| | $ | 4 |
| | $ | 4,847 |
| | $ | 150 |
| | $ | 4,997 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, 2014 | | | Credit Card | | Consumer Banking | | Commercial Banking | | Other(1) | | Total Allowance | | Unfunded Lending Commitments Reserve | | Combined Allowance & Unfunded Reserve | (Dollars in millions) | | Auto | | Home Loan | | Retail Banking | | Total Consumer Banking | | Balance as of June 30, 2014 | | $ | 2,858 |
| | $ | 642 |
| | $ | 67 |
| | $ | 56 |
| | $ | 765 |
| | $ | 368 |
| | $ | 7 |
| | $ | 3,998 |
| | $ | 102 |
| | $ | 4,100 |
| Provision (benefit) for credit losses | | 787 |
| | 194 |
| | (9 | ) | | 13 |
| | 198 |
| | 4 |
| | (1 | ) | | 988 |
| | 5 |
| | 993 |
| Charge-offs | | (885 | ) | | (245 | ) | | (4 | ) | | (15 | ) | | (264 | ) | | (4 | ) | | (2 | ) | | (1,155 | ) | | 0 |
| | (1,155 | ) | Recoveries | | 313 |
| | 69 |
| | 2 |
| | 3 |
| | 74 |
| | 10 |
| | 2 |
| | 399 |
| | 0 |
| | 399 |
| Net charge-offs | | (572 | ) | | (176 | ) | | (2 | ) | | (12 | ) | | (190 | ) | | 6 |
| | 0 |
| | (756 | ) | | 0 |
| | (756 | ) | Other changes(2) | | (16 | ) | | 0 |
| | (1 | ) | | 0 |
| | (1 | ) | | 0 |
| | (1 | ) | | (18 | ) | | 0 |
| | (18 | ) | Balance as of September 30, 2014 | | $ | 3,057 |
| | $ | 660 |
| | $ | 55 |
| | $ | 57 |
| | $ | 772 |
| | $ | 378 |
| | $ | 5 |
| | $ | 4,212 |
| | $ | 107 |
| | $ | 4,319 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, 2014 | | | Credit Card | | Consumer Banking | | Commercial Banking | | Other(1) | | Total Allowance | | Unfunded Lending Commitments Reserve | | Combined Allowance & Unfunded Reserve | (Dollars in millions) | | Auto | | Home Loan | | Retail Banking | | Total Consumer Banking | | Balance as of December 31, 2013 | | $ | 3,214 |
| | $ | 606 |
| | $ | 83 |
| | $ | 63 |
| | $ | 752 |
| | $ | 338 |
| | $ | 11 |
| | $ | 4,315 |
| | $ | 87 |
| | $ | 4,402 |
| Provision (benefit) for credit losses | | 1,894 |
| | 475 |
| | (15 | ) | | 21 |
| | 481 |
| | 41 |
| | (4 | ) | | 2,412 |
| | 20 |
| | 2,432 |
| Charge-offs | | (2,975 | ) | | (633 | ) | | (23 | ) | | (44 | ) | | (700 | ) | | (19 | ) | | (8 | ) | | (3,702 | ) | | 0 |
| | (3,702 | ) | Recoveries | | 938 |
| | 212 |
| | 11 |
| | 17 |
| | 240 |
| | 18 |
| | 7 |
| | 1,203 |
| | 0 |
| | 1,203 |
| Net charge-offs | | (2,037 | ) | | (421 | ) | | (12 | ) | | (27 | ) | | (460 | ) | | (1 | ) | | (1 | ) | | (2,499 | ) | | 0 |
| | (2,499 | ) | Other changes(2) | | (14 | ) | | 0 |
| | (1 | ) | | 0 |
| | (1 | ) | | 0 |
| | (1 | ) | | (16 | ) | | 0 |
| | (16 | ) | Balance as of September 30, 2014 | | $ | 3,057 |
| | $ | 660 |
| | $ | 55 |
| | $ | 57 |
| | $ | 772 |
| | $ | 378 |
| | $ | 5 |
| | $ | 4,212 |
| | $ | 107 |
| | $ | 4,319 |
|
_________ | | (1) | Other primarily consists of our discontinued GreenPoint mortgage operations loan portfolio. |
| | (2) | Represents foreign currency translation adjustments and the net impact of loan transfers and sales. |
Components of Allowance for Loan and Lease Losses by Impairment Methodology The table below presents the components of our allowance for loan and lease losses, by portfolio segment and impairment methodology, and the recorded investment of the related loans as of September 30, 2015 and December 31, 2014. Table 5.2: Components of Allowance for Loan and Lease Losses by Impairment Methodology | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2015 | | | | | Consumer Banking | | | | | | | (Dollars in millions) | | Credit Card | | Auto | | Home Loan | | Retail Banking | | Total Consumer Banking | | Commercial Banking | | Other | | Total | Allowance for loan and lease losses: | Collectively evaluated(1) | | $ | 3,276 |
| | $ | 712 |
| | $ | 17 |
| | $ | 54 |
| | $ | 783 |
| | $ | 457 |
| | $ | 4 |
| | $ | 4,520 |
| Asset-specific(2) | | 208 |
| | 22 |
| | 16 |
| | 12 |
| | 50 |
| | 41 |
| | 0 |
| | 299 |
| Acquired Loans(3) | | 0 |
| | 0 |
| | 27 |
| | 0 |
| | 27 |
| | 1 |
| | 0 |
| | 28 |
| Total allowance for loan and lease losses | | $ | 3,484 |
| | $ | 734 |
| | $ | 60 |
| | $ | 66 |
| | $ | 860 |
| | $ | 499 |
| | $ | 4 |
| | $ | 4,847 |
| Loans held for investment: | Collectively evaluated(1) | | $ | 89,469 |
| | $ | 40,788 |
| | $ | 6,407 |
| | $ | 3,503 |
| | $ | 50,698 |
| | $ | 51,340 |
| | $ | 92 |
| | $ | 191,599 |
| Asset-specific(2) | | 666 |
| | 264 |
| | 357 |
| | 59 |
| | 680 |
| | 641 |
| | 0 |
| | 1,987 |
| Acquired Loans(3) | | 0 |
| | 0 |
| | 19,576 |
| | 36 |
| | 19,612 |
| | 131 |
| | 0 |
| | 19,743 |
| Total loans held for investment | | $ | 90,135 |
| | $ | 41,052 |
| | $ | 26,340 |
| | $ | 3,598 |
| | $ | 70,990 |
| | $ | 52,112 |
| | $ | 92 |
| | $ | 213,329 |
| Allowance as a percentage of period-end loans held for investment | | 3.86% |
| | 1.79% |
| | 0.23% |
| | 1.86% |
| | 1.21% |
| | 0.96% |
| | 4.71% |
| | 2.27% |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2014 | | | | | Consumer Banking | | | | | | | (Dollars in millions) | | Credit Card | | Auto | | Home Loan | | Retail Banking | | Total Consumer Banking | | Commercial Banking | | Other | | Total | Allowance for loan and lease losses: | | | | | | | | | | | | | | | | | Collectively evaluated(1) | | $ | 2,985 |
| | $ | 642 |
| | $ | 18 |
| | $ | 50 |
| | $ | 710 |
| | $ | 356 |
| | $ | 5 |
| | $ | 4,056 |
| Asset-specific(2) | | 219 |
| | 19 |
| | 17 |
| | 6 |
| | 42 |
| | 39 |
| | 0 |
| | 300 |
| Acquired Loans(3) | | 0 |
| | 0 |
| | 27 |
| | 0 |
| | 27 |
| | 0 |
| | 0 |
| | 27 |
| Total allowance for loan and lease losses | | $ | 3,204 |
| | $ | 661 |
| | $ | 62 |
| | $ | 56 |
| | $ | 779 |
| | $ | 395 |
| | $ | 5 |
| | $ | 4,383 |
| Loans held for investment: | | | | | | | | | | | | | | | | | Collectively evaluated(1) | | $ | 85,161 |
| | $ | 37,594 |
| | $ | 6,427 |
| | $ | 3,486 |
| | $ | 47,507 |
| | $ | 50,328 |
| | $ | 111 |
| | $ | 183,107 |
| Asset-specific(2) | | 692 |
| | 230 |
| | 367 |
| | 50 |
| | 647 |
| | 370 |
| | 0 |
| | 1,709 |
| Acquired Loans(3) | | 23 |
| | 0 |
| | 23,241 |
| | 44 |
| | 23,285 |
| | 192 |
| | 0 |
| | 23,500 |
| Total loans held for investment | | $ | 85,876 |
| | $ | 37,824 |
| | $ | 30,035 |
| | $ | 3,580 |
| | $ | 71,439 |
| | $ | 50,890 |
| | $ | 111 |
| | $ | 208,316 |
| Allowance as a percentage of period-end loans held for investment | | 3.73% |
| | 1.75% |
| | 0.21% |
| | 1.58% |
| | 1.09% |
| | 0.78% |
| | 4.68% |
| | 2.10% |
|
__________ | | (1) | The component of the allowance for loan and lease losses for credit card and other consumer loans that we collectively evaluate for impairment is based on a statistical calculation supplemented by management judgment and interpretation. The component of the allowance for loan and lease losses for commercial loans, which we collectively evaluate for impairment, is based on historical loss experience for loans with similar characteristics and consideration of credit quality supplemented by management judgment and interpretation. |
| | (2) | The asset-specific component of the allowance for loan and lease losses for smaller-balance impaired loans is calculated on a pool basis using historical loss experience for the respective class of assets. The asset-specific component of the allowance for loan and lease losses for larger-balance commercial loans is individually calculated for each loan. |
| | (3) | The Acquired Loans component of the allowance for loan and lease losses is accounted for based on expected cash flows. See “Note 1—Summary of Significant Accounting Policies” in our 2014 Form 10-K for details on these loans. |
We have certain credit card partnership arrangements in which our partner agrees to share in a portion of the credit losses associated with the partnership. The loss sharing amounts due from these partners result in reductions in reported charge-offs and provision for loan and lease losses. The table below summarizes these impact for the three and nine months ended September 30, 2015 and 2014. Table 5.3: Summary of Loss Sharing Arrangements Impact | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | (Dollars in millions) | | 2015 | | 2014 | | 2015 | | 2014 | Reduction in charge-offs | | $ | 47 |
| | $ | 40 |
| | $ | 136 |
| | $ | 121 |
| Reduction in provision for loan and lease losses | | 64 |
| | 48 |
| | 183 |
| | 130 |
|
The expected reimbursement from these partners, which is netted against our allowance for loan and lease losses, was approximately $190 million and $143 million as of September 30, 2015 and December 31, 2014, respectively. See “Note 1—Summary of Significant Accounting Policies” of our 2014 Form 10-K for further discussion on our card partnership agreements.
|