Reserves for Losses

12 Months Ended

Dec. 31, 2015

NOTE 4

Reserves for Losses

Reserves for losses relating to Card Member receivables and loans represent management’s best estimate of the probable inherent losses in the Company’s 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 judgment 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 receivables and loans. 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 receivables or loans, and net write-off coverage ratios.

Card Member receivables and loans 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. Card Member receivables and loans in bankruptcy or owed by deceased individuals are generally written off upon notification, and recoveries are recognized as they are collected.

This Note is presented excluding amounts associated with the Card Member loans and receivables HFS as of December 31, 2015.

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)			2015		2014		2013
Balance, January 1		$	465	$	386	$	428
	Provisions^(a)		737		792		648
	Net write-offs^(b)		(713)		(683)		(669)
	Other^(c)		(27)		(30)		(21)
Balance, December 31		$	462	$	465	$	386

Provisions for principal and fee reserve components.
Consists of principal and fee components, less recoveries of $401 million, $358 million and $402 million, including net write-offs from TDRs of $60 million, $15 million and $12 million, for the years ended December 31, 2015, 2014 and 2013, respectively.
Includes foreign currency translation adjustments of $(16) million, $(15) million and $(4) million for the years ended December 31, 2015, 2014 and 2013, respectively; and other adjustments of $(11) million, $(8) million and $(17) million for the years ended December 31, 2015, 2014 and 2013, respectively. Additionally, 2015 includes the impact of the transfer of the HFS receivables portfolio, which was not significant, and 2014 includes an adjustment related to reserves for card-related fraud losses of $(7) million, which was reclassified to Other liabilities.

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)	2015		2014		2013
Card Member receivables evaluated individually for impairment^(a)	$	33	$	48	$	50
Related reserves^(a)	$	20	$	35	$	38
Card Member receivables evaluated collectively for impairment	$	44,100	$	44,803	$	44,113
Related reserves^(b)	$	442	$	430	$	348

Represents receivables modified as a TDR and related reserves.
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.

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)				2015		2014		2013
Balance, January 1			$	1,201	$	1,261	$	1,471
	Provisions^(a)			1,190		1,138		1,115
	Net write-offs
		Principal^(b)		(967)		(1,023)		(1,141)
		Interest and fees^(b)		(162)		(164)		(150)
	Transfer of reserves on HFS loan portfolios			(224)		―		―
	Other^(c)			(10)		(11)		(34)
Balance, December 31			$	1,028	$	1,201	$	1,261

Provisions for principal interest and fee reserve components.
Consists of principal write-offs, less recoveries of $418 million, $428 million and $452 million, including net write-offs/(recoveries) from TDRs of $41 million, $(10) million and $(1) million, for the years ended December 31, 2015, 2014 and 2013, respectively. Recoveries of interest and fees were de minimis.
Includes foreign currency translation adjustments of $(20) million, $(17) million and $(12) million for the years ended December 31, 2015, 2014 and 2013, respectively, and other adjustments of $10 million, $12 million and $(22) million for the years ended December 31, 2015, 2014 and 2013, respectively. Additionally, 2014 includes an adjustment related to reserves for card-related fraud losses of $(6) million, which were reclassified to Other liabilities.

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)	2015		2014		2013
Card Member loans evaluated individually for impairment ^(a)	$	279	$	286	$	356
Related reserves^(a)	$	53	$	67	$	78
Card Member loans evaluated collectively for impairment ^(b)	$	58,294	$	70,099	$	66,882
Related reserves^(b)	$	975	$	1,134	$	1,183

Represents loans modified as a TDR and related reserves.
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.