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Allowance for Credit Losses and Reserve for Unfunded Lending Commitments
 12 Months Ended
Dec. 31, 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.
For credit card loans, finance charges and fees are charged off simultaneously with the charge-off of other components of amortized cost basis as a reduction of revenue. Total net revenue was reduced by $3.3 billion, $2.6 billion and $1.9 billion in 2025, 2024 and 2023, 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, 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 segment for the years ended December 31, 2025, 2024 and 2023. Our allowance for credit losses increased by $7.2 billion to $23.4 billion as of December 31, 2025 from 2024.
Table 5.1: Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity
(Dollars in millions)Credit CardConsumer BankingCommercial BankingTotal
Allowance for credit losses:
Balance as of December 31, 2022$9,545 $2,237 $1,458 $13,240 
Cumulative effects of accounting standards adoption(1)
(63)0 0 (63)
Balance as of January 1, 20239,482 2,237 1,458 13,177 
Charge-offs(7,787)(2,327)(588)(10,702)
     Recoveries(2)
1,315 963 10 2,288 
Net charge-offs(6,472)(1,364)(578)(8,414)
Provision for credit losses8,651 1,169 665 10,485 
Allowance build (release) for credit losses
2,179 (195)87 2,071 
Other changes(3)
48 0 0 48 
Balance as of December 31, 202311,709 2,042 1,545 15,296 
Reserve for unfunded lending commitments:
Balance as of December 31, 20220 0 218 218 
Provision (benefit) for losses on unfunded lending commitments0 0 (60)(60)
Balance as of December 31, 20230 0 158 158 
(Dollars in millions)Credit CardConsumer BankingCommercial BankingTotal
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(2)
1,770 1,165 66 3,001 
Net charge-offs(8,987)(1,593)(168)(10,748)
Provision for credit losses10,272 1,435 23 11,730 
Allowance build (release) for credit losses
1,285 (158)(145)982 
Other changes(3)
(20)0 0 (20)
Balance as of December 31, 202412,974 1,884 1,400 16,258 
Reserve for unfunded lending commitments:
Balance as of December 31, 20230 0 158 158 
Provision (benefit) for losses on unfunded lending commitments0 0 (15)(15)
Balance as of December 31, 20240 0 143 143 
Combined allowance and reserve as of December 31, 2024$12,974 $1,884 $1,543 $16,401 
Allowance for credit losses:
Balance as of December 31, 2024$12,974 $1,884 $1,400 $16,258 
Charge-offs(4)
(15,216)(2,662)(288)(18,166)
Recoveries(2)
3,645 1,368 51 5,064 
Net charge-offs(11,571)(1,294)(237)(13,102)
Initial allowance for purchased credit deteriorated loans2,870 0 0 2,870 
Benefit from expected recoveries of charged off loans(5)
(3,305)0 0 (3,305)
Provision for credit losses(6)
19,066 1,302 288 20,656 
Allowance build for credit losses7,060 8 51 7,119 
Other changes(3)
32 0 0 32 
Balance as of December 31, 202520,066 1,892 1,451 23,409 
Reserve for unfunded lending commitments:
Balance as of December 31, 20240 0 143 143 
Provision (benefit) for losses on unfunded lending commitments0 0 (1)(1)
Balance as of December 31, 20250 0 142 142 
Combined allowance and reserve as of December 31, 2025$20,066 $1,892 $1,593 $23,551 
_________
(1)Impact from the adoption of ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): TDR and Vintage Disclosures as of January 1, 2023.
(2)Third-party collection expenses of $730 million, $366 million and $353 million for the years ended December 31, 2025, 2024 and 2023, respectively, are included in other non-interest expense.
(3)Primarily represents foreign currency translation adjustments for the year ended December 31, 2025 and 2024. Primarily represents foreign currency translation adjustments and the initial allowance for PCD loans for the year ended December 31, 2023. The initial allowance of PCD loans was $32 million for the year ended December 31, 2023.
(4)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.
(5)Represents contractual rights to collect on recoveries of acquired Discover loans that are charged off.
(6)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 “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, 2025.
Table 5.2: Gross Charge-Offs by Vintage Year
Year Ended December 31, 2025
Term Loans by Vintage Year
(Dollars in millions)20252024202320222021PriorTotal Term LoansRevolving LoansRevolving Loans Converted to TermTotal
Credit Card
Domestic credit cardN/AN/AN/AN/AN/AN/AN/A$14,084 $282 $14,366 
Personal loans
$20 $102 $110 $52 $17 $4 $305 N/AN/A305 
International card businessN/AN/AN/AN/AN/AN/AN/A529 16 545 
Total credit card20 102 110 52 17 4 305 14,613 298 15,216 
Consumer Banking
Auto229 714 600 550 330 159 2,582 0 0 2,582 
Retail banking0 0 0 0 0 1 1 79 0 80 
Total consumer banking229 714 600 550 330 160 2,583 79 0 2,662 
Commercial Banking
Commercial and multifamily real estate0 0 0 2 2 26 30 0 0 30 
Commercial and industrial0 0 0 130 26 42 198 60 0 258 
Total commercial banking0 0 0 132 28 68 228 60 0 288 
Total$249 $816 $710 $734 $375 $232 $3,116 $14,752 $298 $18,166 
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, 2025, 2024 and 2023.
Table 5.3: Summary of Credit Card Partnership Loss Sharing Arrangements Impacts
Year Ended December 31,
(Dollars in millions)2025
2024
2023
Estimated reimbursements from partners, beginning of period$1,010 $2,014 $1,558 
Amounts due from partners for charged off loans(657)(904)(980)
Change in estimated partner reimbursements that (increased) decreased provision for credit losses
750 (100)1,436 
Estimated reimbursements from partners, end of period$1,103 $1,010 $2,014