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Allowance for Credit Losses and Reserve for Unfunded Lending Commitments | 12 Months Ended
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Dec. 31, 2022
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract] |
Allowance for Credit Losses and Reserve for Unfunded Lending Commitment |
NOTE 4—ALLOWANCE FOR CREDIT LOSSES AND RESERVE FOR UNFUNDED LENDING COMMITMENTS
Our allowance for credit losses represents management’s current estimate of expected credit losses over the contractual terms of our loans held for investment as of each balance sheet date. Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance. Significant judgment is applied in our estimation of lifetime credit losses. When developing an estimate of expected credit losses, we use both quantitative and qualitative methods in considering all available information relevant to assessing collectability. This may include internal information, external information or a combination of both relating to past events, current conditions and reasonable and supportable forecasts. Our estimate of expected credit losses includes a reasonable and supportable forecast period of one year and then reverts over a one-year period to historical losses at each relevant loss component of the estimate. Management will consider and may qualitatively adjust for conditions, changes and trends in loan portfolios that may not be captured in modeled results. These adjustments are referred to as qualitative factors and represent management’s judgment of the imprecision and risks inherent in the processes and assumptions used in establishing the allowance for credit losses. For credit card loans, accrued interest is charged off simultaneously with the charge off of other components of amortized cost as a reduction of revenue. Total net revenue was reduced by $946 million, $629 million and $1.1 billion in 2022, 2021 and 2020, respectively, for finance charge and fees charged-off as uncollectible. We have unfunded lending commitments in our Commercial Banking business that are not unconditionally cancellable by us and for which we estimate expected credit losses in establishing a reserve. This reserve is measured using the same measurement objectives as the allowance for loans held for investment. We build or release the reserve for unfunded lending commitments through 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 the methodology and policy for determining our allowance for credit losses for each of our loan portfolio segments, as well as information on our reserve for unfunded lending commitments. Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity The table below summarizes changes in the allowance for credit losses and reserve for unfunded lending commitments by portfolio segment for the years ended December 31, 2022, 2021 and 2020. Our allowance for credit losses increased by $1.8 billion to $13.2 billion as of December 31, 2022 from 2021. Table 4.1: Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity
(Dollars in millions) |  | Credit Card |  | Consumer Banking |  | Commercial Banking |  |  |  | Total
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |
Balance as of December 31, 2019 |  | $ | 5,395 |  |  | $ | 1,038 |  |  | $ | 775 |  |  |  |  | $ | 7,208 |
Cumulative effects from adoption of the CECL standard |  | 2,241 |  |  | 502 |  |  | 102 |  |  |  |  | 2,845 |
Finance charge and fee reserve reclassification(1) |  | 462 |  |  | 0 |  |  | 0 |  |  |  |  | 462 |
Balance as of January 1, 2020 |  | 8,098 |  |  | 1,540 |  |  | 877 |  |  |  |  | 10,515 |
Charge-offs |  | (5,749) |  |  | (1,534) |  |  | (394) |  |  |  |  | (7,677) |
Recoveries(2) |  | 1,479 |  |  | 956 |  |  | 17 |  |  |  |  | 2,452 |
Net charge-offs |  | (4,270) |  |  | (578) |  |  | (377) |  |  |  |  | (5,225) |
Provision for credit losses |  | 7,327 |  |  | 1,753 |  |  | 1,158 |  |  |  |  | 10,238 |
Allowance build for credit losses(3) |  | 3,057 |  |  | 1,175 |  |  | 781 |  |  |  |  | 5,013 |
Other changes(4) |  | 36 |  |  | 0 |  |  | 0 |  |  |  |  | 36 |
Balance as of December 31, 2020 |  | $ | 11,191 |  |  | $ | 2,715 |  |  | $ | 1,658 |  |  |  |  | $ | 15,564 |
(Dollars in millions) |  | Credit Card |  | Consumer Banking |  | Commercial Banking |  |  |  | Total
Reserve for unfunded lending commitments: |  |  |  |  |  |  |  |  |  |
Balance as of December 31, 2019 |  | 0 |  |  | 5 |  |  | 130 |  |  |  |  | 135 |
Cumulative effects from adoption of the CECL standard |  | 0 |  |  | (5) |  |  | 42 |  |  |  |  | 37 |
Balance as of January 1, 2020 |  | 0 |  |  | 0 |  |  | 172 |  |  |  |  | 172 |
Provision for losses on unfunded lending commitments |  | 0 |  |  | 0 |  |  | 23 |  |  |  |  | 23 |
Balance as of December 31, 2020 |  | 0 |  |  | 0 |  |  | 195 |  |  |  |  | 195 |
Combined allowance and reserve as of December 31, 2020 |  | $ | 11,191 |  |  | $ | 2,715 |  |  | $ | 1,853 |  |  |  |  | $ | 15,759 |
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |
Balance as of December 31, 2020 |  | $ | 11,191 |  |  | $ | 2,715 |  |  | $ | 1,658 |  |  |  |  | $ | 15,564 |
Charge-offs |  | (3,481) |  |  | (1,211) |  |  | (48) |  |  |  |  | (4,740) |
Recoveries(2) |  | 1,525 |  |  | 935 |  |  | 46 |  |  |  |  | 2,506 |
Net charge-offs |  | (1,956) |  |  | (276) |  |  | (2) |  |  |  |  | (2,234) |
Benefit for credit losses |  | (902) |  |  | (521) |  |  | (489) |  |  |  |  | (1,912) |
Allowance release for credit losses |  | (2,858) |  |  | (797) |  |  | (491) |  |  |  |  | (4,146) |
Other changes(4) |  | 12 |  |  | 0 |  |  | 0 |  |  |  |  | 12 |
Balance as of December 31, 2021 |  | 8,345 |  |  | 1,918 |  |  | 1,167 |  |  |  |  | 11,430 |
Reserve for unfunded lending commitments: |  |  |  |  |  |  |  |  |  |
Balance as of December 31, 2020 |  | 0 |  |  | 0 |  |  | 195 |  |  |  |  | 195 |
Provision (benefit) for losses on unfunded lending commitments |  | 0 |  |  | 0 |  |  | (30) |  |  |  |  | (30) |
Balance as of December 31, 2021 |  | 0 |  |  | 0 |  |  | 165 |  |  |  |  | 165 |
Combined allowance and reserve as of December 31, 2021 |  | $ | 8,345 |  |  | $ | 1,918 |  |  | $ | 1,332 |  |  |  |  | $ | 11,595 |
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |
Balance as of December 31, 2021 |  | $ | 8,345 |  |  | $ | 1,918 |  |  | $ | 1,167 |  |  |  |  | $ | 11,430 |
Charge-offs |  | (4,362) |  |  | (1,614) |  |  | (88) |  |  |  |  | (6,064) |
Recoveries(2) |  | 1,314 |  |  | 760 |  |  | 17 |  |  |  |  | 2,091 |
Net charge-offs |  | (3,048) |  |  | (854) |  |  | (71) |  |  |  |  | (3,973) |
Provision (benefit) for credit losses |  | 4,265 |  |  | 1,173 |  |  | 362 |  |  |  |  | 5,800 |
Allowance build for credit losses |  | 1,217 |  |  | 319 |  |  | 291 |  |  |  |  | 1,827 |
Other changes(4) |  | (17) |  |  | 0 |  |  | 0 |  |  |  |  | (17) |
Balance as of December 31, 2022 |  | 9,545 |  |  | 2,237 |  |  | 1,458 |  |  |  |  | 13,240 |
Reserve for unfunded lending commitments: |  |  |  |  |  |  |  |  |  |
Balance as of December 31, 2021 |  | 0 |  |  | 0 |  |  | 165 |  |  |  |  | 165 |
Provision for losses on unfunded lending commitments |  | 0 |  |  | 0 |  |  | 53 |  |  |  |  | 53 |
Balance as of December 31, 2022 |  | 0 |  |  | 0 |  |  | 218 |  |  |  |  | 218 |
Combined allowance and reserve as of December 31, 2022 |  | $ | 9,545 |  |  | $ | 2,237 |  |  | $ | 1,676 |  |  |  |  | $ | 13,458 |
__________ (1)Concurrent with our adoption of the current expected credit losses (“CECL”) standard in the first quarter of 2020, we reclassified our finance charge and fee reserve to our allowance for credit losses, with a corresponding increase to credit card loans held for investment. (2)The amount and timing of recoveries are 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)Includes an allowance release of $327 million for a partnership credit card loan portfolio transferred to held for sale in the third quarter of 2020. (4)Primarily represents foreign currency translation adjustments and, in periods of acquisition, initial allowance builds for purchase credit-deteriorated loans. 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 are netted against our allowance for credit losses. Our methodology for estimating reimbursements is consistent with the methodology we use to estimate the allowance for credit losses on our credit card loan receivables. These expected reimbursements result in reductions to net charge-offs and the 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, 2022, 2021 and 2020. Table 4.2: Summary of Credit Card Partnership Loss Sharing Arrangements Impacts
|  | Year Ended December 31,
(Dollars in millions) |  | 2022 |  | 2021 |  | 2020
Estimated reimbursements from partners, beginning of period(1) |  | $ | 1,450 |  |  | $ | 2,159 |  |  | $ | 2,166 |
Amounts due from partners which reduced net charge-offs |  | (515) |  |  | (438) |  |  | (959) |
Amounts expected to become due from (to) partners which reduced (increased) provision for credit losses |  | 623 |  |  | (271) |  |  | 952 |
Estimated reimbursements from partners, end of period |  | $ | 1,558 |  |  | $ | 1,450 |  |  | $ | 2,159 |
__________ (1)Includes effects from adoption of the CECL standard in the first quarter of 2020.

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