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Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments
 12 Months Ended
Dec. 31, 2019
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
Allowance for Loans and Lease Losses
NOTE 4—ALLOWANCE FOR LOAN AND LEASE LOSSES AND RESERVE FOR UNFUNDED LENDING COMMITMENTS
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 as of each balance sheet date. In addition to the allowance for loan and lease losses, we also estimate probable losses related to contractually binding unfunded lending commitments. The provision for losses on 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” for further discussion of our methodology and policy for determining our allowance for loan and lease losses for each of our loan portfolio segments, as well as information on our reserve for unfunded lending commitments.
Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity
The table below summarizes changes in the allowance for loan and lease losses and reserve for unfunded lending commitments by portfolio segment for the years ended December 31, 2019, 2018 and 2017.
Table 4.1: Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity
(Dollars in millions)
 
Credit
Card
 
Consumer
Banking
 
Commercial
Banking
 
Other(1)
 
Total
Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2016
 
$
4,606

 
$
1,102

 
$
793

 
$
2

 
$
6,503

Charge-offs
 
(6,321
)
 
(1,677
)
 
(481
)
 
(34
)
 
(8,513
)
Recoveries(2)
 
1,267

 
639

 
16

 
29

 
1,951

Net charge-offs
 
(5,054
)
 
(1,038
)
 
(465
)
 
(5
)
 
(6,562
)
Provision for loan and lease losses
 
6,066

 
1,180

 
313

 
4

 
7,563

Allowance build (release) for loan and lease losses
 
1,012

 
142

 
(152
)
 
(1
)
 
1,001

Other changes(3)
 
30

 
(2
)
 
(30
)
 
0

 
(2
)
Balance as of December 31, 2017
 
5,648

 
1,242

 
611

 
1

 
7,502

Reserve for unfunded lending commitments:
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2016
 
0

 
7

 
129

 
0

 
136

Benefit for losses on unfunded lending commitments
 
0

 
0

 
(12
)
 
0

 
(12
)
Balance as of December 31, 2017
 
0

 
7

 
117

 
0

 
124

Combined allowance and reserve as of December 31, 2017
 
$
5,648

 
$
1,249

 
$
728

 
$
1

 
$
7,626

Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
 
$
5,648

 
$
1,242

 
$
611

 
$
1

 
$
7,502

Charge-offs
 
(6,657
)
 
(1,832
)
 
(119
)
 
(7
)
 
(8,615
)
Recoveries(2)
 
1,588

 
851

 
63

 
1

 
2,503

Net charge-offs
 
(5,069
)
 
(981
)
 
(56
)
 
(6
)
 
(6,112
)
Provision (benefit) for loan and lease losses
 
4,984

 
841

 
82

 
(49
)
 
5,858

Allowance build (release) for loan and lease losses
 
(85
)
 
(140
)
 
26

 
(55
)
 
(254
)
Other changes(1)(3)
 
(28
)
 
(54
)
 
0

 
54

 
(28
)
Balance as of December 31, 2018
 
5,535

 
1,048

 
637

 
0

 
7,220

Reserve for unfunded lending commitments:
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
 
0

 
7

 
117

 
0

 
124

Provision (benefit) for losses on unfunded lending commitments
 
0

 
(3
)
 
1

 
0

 
(2
)
Balance as of December 31, 2018
 
0

 
4

 
118

 
0

 
122

Combined allowance and reserve as of December 31, 2018
 
$
5,535

 
$
1,052

 
$
755

 
$
0

 
$
7,342

(Dollars in millions)
 
Credit
Card
 
Consumer
Banking
 
Commercial
Banking
 
Total
Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
 
$
5,535

 
$
1,048

 
$
637

 
$
7,220

Charge-offs
 
(6,711
)
 
(1,917
)
 
(181
)
 
(8,809
)
Recoveries(2)
 
1,562

 
970

 
25

 
2,557

Net charge-offs
 
(5,149
)
 
(947
)
 
(156
)
 
(6,252
)
Provision for loan and lease losses
 
4,992

 
937

 
294

 
6,223

Allowance build (release) for loan and lease losses
 
(157
)
 
(10
)
 
138

 
(29
)
Other changes(3)
 
17

 
0

 
0

 
17

Balance as of December 31, 2019
 
5,395

 
1,038

 
775

 
7,208

Reserve for unfunded lending commitments:
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
 
0

 
4

 
118

 
122

Provision for losses on unfunded lending commitments
 
0

 
1

 
12

 
13

Balance as of December 31, 2019
 
0

 
5

 
130

 
135

Combined allowance and reserve as of December 31, 2019
 
$
5,395

 
$
1,043

 
$
905

 
$
7,343

__________
(1) 
In 2018, we sold all of our consumer home loan portfolio and recognized a gain of approximately $499 million in the Other category, including a benefit for credit losses of $46 million.
(2) 
The amount and timing of recoveries is impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications, repossession of collateral, the periodic sale of charged-off loans as well as additional strategies, such as litigation.
(3) 
Represents foreign currency translation adjustments and the net impact of loan transfers and sales where applicable.
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 as of December 31, 2019 and 2018. See “Note 1—Summary of Significant Accounting Policies” for further discussion of allowance methodologies for each of the loan portfolios.
Table 4.2: Components of Allowance for Loan and Lease Losses by Impairment Methodology
 
 
December 31, 2019
(Dollars in millions)
 
Credit
Card
 
Consumer
Banking
 
Commercial
Banking
 
Total
Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
Collectively evaluated
 
$
5,185

 
$
1,010

 
$
659

 
$
6,854

Asset-specific
 
210

 
28

 
116

 
354

Total allowance for loan and lease losses
 
$
5,395

 
$
1,038

 
$
775

 
$
7,208

Loans held for investment:
 
 
 
 
 
 
 
 
Collectively evaluated
 
$
127,312

 
$
62,675

 
$
73,804

 
$
263,791

Asset-specific
 
831

 
388

 
673

 
1,892

PCI loans
 
93

 
2

 
31

 
126

Total loans held for investment
 
$
128,236

 
$
63,065

 
$
74,508

 
$
265,809

Allowance coverage ratio(1)
 
4.21
%
 
1.65
%
 
1.04
%
 
2.71
%
 
 
December 31, 2018
(Dollars in millions)
 
Credit
Card
 
Consumer
Banking
 
Commercial
Banking
 
Total
Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
Collectively evaluated
 
$
5,258

 
$
1,021

 
$
603

 
$
6,882

Asset-specific
 
277

 
27

 
34

 
338

Total allowance for loan and lease losses
 
$
5,535

 
$
1,048

 
$
637

 
$
7,220

Loans held for investment:
 
 
 
 
 
 
 
 
Collectively evaluated
 
$
115,505

 
$
58,808

 
$
69,607

 
$
243,920

Asset-specific
 
855

 
393

 
596

 
1,844

PCI loans
 
1

 
4

 
130

 
135

Total loans held for investment
 
$
116,361

 
$
59,205

 
$
70,333

 
$
245,899

Allowance coverage ratio(1)
 
4.76
%
 
1.77
%
 
0.91
%
 
2.94
%
__________
(1) 
Allowance coverage ratio is calculated by dividing the period-end allowance for loan and lease losses by period-end loans held for investment within the specified loan category.
Credit Card Partnership Loss Sharing Arrangements
We have certain credit card partnership agreements that are presented within our consolidated financial statements on a net basis, in which our partner agrees to share a portion of the credit losses on the underlying loan portfolio. The expected reimbursements from these partners, which are netted against our allowance for loan and lease losses, result in reductions to net charge-offs and provision for credit losses. See “Note 1—Summary of Significant Accounting Policies” for further discussion of our credit card partnership agreements.
The table below summarizes the changes in the estimated reimbursements from these partners for the years ended December 31, 2019, 2018 and 2017. The 2019 amounts below include the impacts of our loss sharing arrangement on the acquired Walmart portfolio.
Table 4.3: Summary of Credit Card Partnership Loss Sharing Arrangements Impacts
 
 
Year Ended December 31,
(Dollars in millions)
 
2019
 
2018
 
2017
Estimated reimbursements from partners, beginning of period
 
$
379

 
$
380

 
$
228

Amounts due from partners which reduced net charge-offs
 
(600
)
 
(382
)
 
(285
)
Amounts estimated to be charged to partners which reduced provision for credit losses
 
1,383

 
381

 
437

Estimated reimbursements from partners, end of period
 
$
1,162

 
$
379

 
$
380