Allowance for Credit Losses and Reserve for Unfunded Lending Commitments

12 Months Ended

Dec. 31, 2024

Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]

Allowance for Credit Losses and Reserve for Unfunded Lending Commitments


NOTE 5—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 collectibility. 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, finance charges and fees are charged off simultaneously with the charge-off of other components of amortized cost as a reduction of revenue. Total net revenue was reduced by $2.6 billion, $1.9 billion and $946 million in 2024, 2023 and 2022, respectively, for finance charges 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. 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 policies 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, 2024, 2023 and 2022.

Table 5.1: Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity


	Year Ended December 31, 2024
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total
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(1)	1,314		760		17		2,091
Net charge-offs	(3,048)		(854)		(71)		(3,973)
Provision for credit losses	4,265		1,173		362		5,800
Allowance build for credit losses	1,217		319		291		1,827
Other changes(2)	(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


	Year Ended December 31, 2024
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total
Allowance for credit losses:
Balance as of December 31, 2022	$	9,545	$	2,237	$	1,458	$	13,240
Cumulative effects of accounting standards adoption(3)	(63)		0		0		(63)
Balance as of January 1, 2023	9,482		2,237		1,458		13,177
Charge-offs	(7,787)		(2,327)		(588)		(10,702)
Recoveries(1)	1,315		963		10		2,288
Net charge-offs	(6,472)		(1,364)		(578)		(8,414)
Provision for credit losses	8,651		1,169		665		10,485
Allowance build for credit losses	2,179		(195)		87		2,071
Other changes(2)	48		0		0		48
Balance as of December 31, 2023	11,709		2,042		1,545		15,296
Reserve for unfunded lending commitments:
Balance as of December 31, 2022	0		0		218		218
Provision (benefit) for losses on unfunded lending commitments	0		0		(60)		(60)
Balance as of December 31, 2023	0		0		158		158
Combined allowance and reserve as of December 31, 2023	$	11,709	$	2,042	$	1,703	$	15,454
Allowance for credit losses:
Balance as of December 31, 2023	$	11,709	$	2,042	$	1,545	$	15,296


Charge-offs	(10,757)		(2,758)		(234)		(13,749)
Recoveries(1)	1,770		1,165		66		3,001
Net charge-offs	(8,987)		(1,593)		(168)		(10,748)
Provision for credit losses	10,272		1,435		23		11,730
Allowance build (release) for credit losses(4)	1,285		(158)		(145)		982
Other changes(2)	(20)		0		0		(20)
Balance as of December 31, 2024	12,974		1,884		1,400		16,258
Reserve for unfunded lending commitments:
Balance as of December 31, 2023	0		0		158		158
Provision (benefit) for losses on unfunded lending commitments	0		0		(15)		(15)
Balance as of December 31, 2024	0		0		143		143
Combined allowance and reserve as of December 31, 2024	$	12,974	$	1,884	$	1,543	$	16,401

________

(1)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.

(2)Primarily represents foreign currency translation adjustments for the year ended December 31, 2024. Primarily represents foreign currency translation adjustments and the initial allowance for PCD loans for the years ended December 31, 2023 and 2022. The initial allowance of PCD loans was $32 million and $10 million for the years ended December 31, 2023 and 2022, respectively.

(3)Impact from the adoption of ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): TDR and Vintage Disclosures as of January 1, 2023.

(4)The termination of our Walmart program agreement, effective May 21, 2024 (“Walmart Program Termination”), resulted in an allowance for credit losses build in Domestic Card of $826 million in the second quarter of 2024.

We charge off loans when we determine that the loan is uncollectible. The amortized cost basis, excluding accrued interest, is charged off as a reduction to the allowance for credit losses in accordance with our accounting policies. For more information, see “Note 1—Summary of Significant Accounting Policies.”

Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance, with a corresponding reduction to our provision for credit losses.

The table below presents gross charge-offs for loans held for investment by vintage year during the year ended December 31, 2024.

Table 5.2: Gross Charge-Offs by Vintage Year


	Year Ended December 31, 2024
	Term Loans by Vintage Year
(Dollars in millions)	2024		2023		2022		2021		2020		Prior		Total Term Loans		Revolving Loans		Revolving Loans Converted to Term		Total
Credit Card
Domestic credit card	N/A		N/A		N/A		N/A		N/A		N/A		N/A		$	10,132	$	114	$	10,246
International card business	N/A		N/A		N/A		N/A		N/A		N/A		N/A		497		14		511
Total credit card	N/A		N/A		N/A		N/A		N/A		N/A		N/A		10,629		128		10,757
Consumer Banking
Auto	$	179	$	666	$	837	$	599	$	237	$	156	$	2,674	0		0		2,674
Retail banking	1		0		0		0		1		2		4		79		1		84
Total consumer banking	180		666		837		599		238		158		2,678		79		1		2,758
Commercial Banking
Commercial and multifamily real estate	0		0		4		31		9		82		126		0		0		126
Commercial and industrial	0		0		58		6		17		16		97		11		0		108
Total commercial banking	0		0		62		37		26		98		223		11		0		234
Total	$	180	$	666	$	899	$	636	$	264	$	256	$	2,901	$	10,719	$	129	$	13,749

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 in 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, 2024, 2023 and 2022.

Table 5.3: Summary of Credit Card Partnership Loss Sharing Arrangements Impacts


	Year Ended December 31,
(Dollars in millions)	2024(1)		2023		2022
Estimated reimbursements from partners, beginning of period	$	2,014	$	1,558	$	1,450
Amounts due from partners for charged off loans	(904)		(980)		(515)
Change in estimated partner reimbursements that (increased) decreased provision for credit losses	(100)		1,436		623
Estimated reimbursements from partners, end of period	$	1,010	$	2,014	$	1,558

________

(1) The Walmart Program Termination resulted in an allowance for credit losses build of $826 million in the second quarter of 2024.