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Allowance for Loan and Lease Losses
9 Months Ended
Sep. 30, 2015
Loans and Leases Receivable, Allowance [Abstract]  
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.