Allowance for Credit Losses and Reserve for Unfunded Lending Commitments

9 Months Ended

Sep. 30, 2025

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.

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 “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2024 Form 10-K 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 three and nine months ended September 30, 2025 and 2024. Our allowance for credit losses increased by $6.8 billion to $23.1 billion as of September 30, 2025 from December 31, 2024.

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



	Three Months Ended September 30, 2025
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total




























Allowance for credit losses:
Balance as of June 30, 2025	$	20,474	$	1,864	$	1,535	$	23,873


Charge-offs	(4,211)		(669)		(61)		(4,941)
Recoveries(1)	1,110		343		15		1,468
Net charge-offs	(3,101)		(326)		(46)		(3,473)


Provision for credit losses	2,364		340		9		2,713
Allowance build (release) for credit losses	(737)		14		(37)		(760)
Other changes(2)	(10)		0		0		(10)
Balance as of September 30, 2025	19,727		1,878		1,498		23,103
Reserve for unfunded lending commitments:
Balance as of June 30, 2025	0		0		135		135
Provision for losses on unfunded lending commitments	0		0		0		0
Balance as of September 30, 2025	0		0		135		135
Combined allowance and reserve as of September 30, 2025	$	19,727	$	1,878	$	1,633	$	23,238


	Nine Months Ended September 30, 2025
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total
Allowance for credit losses:































Balance as of December 31, 2024	$	12,974	$	1,884	$	1,400	$	16,258


Charge-offs(3)	(10,779)		(1,957)		(180)		(12,916)
Recoveries(1)	2,551		1,058		38		3,647
Net charge-offs	(8,228)		(899)		(142)		(9,269)
Initial allowance for purchased credit deteriorated loans	2,870		0		0		2,870
Benefit from expected recoveries of charged off loans(4)	(3,305)		0		0		(3,305)
Provision for credit losses(5)	15,388		893		240		16,521
Allowance build (release) for credit losses	6,725		(6)		98		6,817
Other changes(2)	28		0		0		28
Balance as of September 30, 2025	19,727		1,878		1,498		23,103
Reserve for unfunded lending commitments:
Balance as of December 31, 2024	0		0		143		143
Provision (benefit) for losses on unfunded lending commitments	0		0		(8)		(8)
Balance as of September 30, 2025	0		0		135		135
Combined allowance and reserve as of September 30, 2025	$	19,727	$	1,878	$	1,633	$	23,238


	Three Months Ended September 30, 2024
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total




























Allowance for credit losses:
Balance as of June 30, 2024	$	13,040	$	2,065	$	1,544	$	16,649


Charge-offs	(2,632)		(707)		(88)		(3,427)
Recoveries(1)	478		306		39		823
Net charge-offs	(2,154)		(401)		(49)		(2,604)
Provision for credit losses	2,084		351		35		2,470
Allowance release for credit losses	(70)		(50)		(14)		(134)
Other changes(2)	19		0		0		19
Balance as of September 30, 2024	12,989		2,015		1,530		16,534
Reserve for unfunded lending commitments:
Balance as of June 30, 2024	0		0		129		129
Provision for losses on unfunded lending commitments	0		0		13		13
Balance as of September 30, 2024	0		0		142		142
Combined allowance and reserve as of September 30, 2024	$	12,989	$	2,015	$	1,672	$	16,676


	Nine Months Ended September 30, 2024
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Total




























Allowance for credit losses:
Balance as of December 31, 2023	$	11,709	$	2,042	$	1,545	$	15,296


Charge-offs	(7,892)		(2,003)		(166)		(10,061)
Recoveries(1)	1,273		869		55		2,197
Net charge-offs	(6,619)		(1,134)		(111)		(7,864)
Provision for credit losses	7,888		1,107		96		9,091
Allowance build (release) for credit losses	1,269		(27)		(15)		1,227
Other changes(2)	11		0		0		11
Balance as of September 30, 2024	12,989		2,015		1,530		16,534
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		(16)		(16)
Balance as of September 30, 2024	0		0		142		142
Combined allowance and reserve as of September 30, 2024	$	12,989	$	2,015	$	1,672	$	16,676

__________

(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.

(3)Charge-offs exclude $19.4 billion of Discover loans acquired in the second quarter of 2025 that were fully charged-off, with expected recoveries of $3.3 billion included as a benefit to the allowance for credit losses.

(4)Represents contractual rights to collect on recoveries of acquired Discover loans that are charged off.

(5)The provision for credit losses includes the initial allowance for credit losses of $8.8 billion for non-PCD loans acquired in the Transaction.

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 “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2024 Form 10-K.

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 nine months ended September 30, 2025.

Table 5.2: Gross Charge-Offs by Vintage Year


	Nine Months Ended September 30, 2025
	Term Loans by Vintage Year
(Dollars in millions)	2025		2024		2023		2022		2021		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		$	10,019	$	180	$	10,199
Personal loans	$	6	$	58	$	66	$	33	$	10	$	4	$	177	N/A		N/A		177
International card business	N/A		N/A		N/A		N/A		N/A		N/A		N/A		393		10		403
Total credit card	6		58		66		33		10		4		177		10,412		190		10,779
Consumer Banking
Auto	91		518		463		431		265		132		1,900		0		0		1,900

Retail banking	0		0		0		0		0		1		1		56		0		57
Total consumer banking	91		518		463		431		265		133		1,901		56		0		1,957
Commercial Banking
Commercial and multifamily real estate	0		0		0		2		2		24		28		0		0		28
Commercial and industrial	0		0		0		50		17		37		104		48		0		152
Total commercial banking	0		0		0		52		19		61		132		48		0		180
Total	$	97	$	576	$	529	$	516	$	294	$	198	$	2,210	$	10,516	$	190	$	12,916

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 “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies” in our 2024 Form 10-K for further discussion of our credit card partnership agreements.

The table below summarizes the changes in the estimated reimbursements from these partners for the three and nine months ended September 30, 2025 and 2024.

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



	Three Months Ended September 30,
(Dollars in millions)	2025		2024
Estimated reimbursements from partners, beginning of period	$	1,191	$	1,210
Amounts due from partners for charged off loans	(154)		(157)
Change in estimated partner reimbursements that decreased provision for credit losses	95		102
Estimated reimbursements from partners, end of period	$	1,132	$	1,155


	Nine Months Ended September 30,
(Dollars in millions)	2025		2024
Estimated reimbursements from partners, beginning of period	$	1,010	$	2,014
Amounts due from partners for charged off loans	(491)		(734)
Change in estimated partner reimbursements that (increased) decreased provision for credit losses	613		(125)
Estimated reimbursements from partners, end of period	$	1,132	$	1,155