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Loan Receivables

6 Months Ended

Jun. 30, 2020

The Company has two loan portfolio segments: credit card loans and other loans.

The Company's classes of receivables within the two portfolio segments are depicted in the following table (dollars in millions):

	June 30, 2020			December 31, 2019
Credit card loans⁽¹⁾⁽²⁾	$	70,201		$	77,181
Other loans⁽³⁾
Private student loans⁽⁴⁾	9,730			9,653
Personal loans	7,316			7,687
Other	1,680			1,373
Total other loans	18,726			18,713
Total loan receivables	88,927			95,894
Allowance for credit losses⁽⁵⁾	(8,184		)	(3,383		)
Net loan receivables	$	80,743		$	92,511


(1)	Amounts include carrying values of $16.6 billion and $18.9 billion underlying investors' interest in trust debt at June 30, 2020 and December 31, 2019, respectively, and $11.0 billion and $12.7 billion in seller's interest at June 30, 2020 and December 31, 2019, respectively. See Note 4: Credit Card and Student Loan Securitization Activities for additional information.


(2)	Unbilled accrued interest receivable on credit card loans, which is presented as part of other assets in the Company's condensed consolidated statements of financial condition, was $379 million and $471 million at June 30, 2020 and December 31, 2019, respectively.


(3)	Accrued interest receivable on private student, personal and other loans, which is presented as part of other assets in the Company's condensed consolidated statements of financial condition, was $494 million, $48 million and $6 million, respectively, at June 30, 2020 and $461 million, $53 million and $4 million, respectively, at December 31, 2019.


(4)	Amounts include carrying values of $274 million and $292 million in loans pledged as collateral against the note issued from a student loan securitization trust at June 30, 2020 and December 31, 2019, respectively. See Note 4: Credit Card and Student Loan Securitization Activities for additional information.


(5)	Prior to adoption of ASU No. 2016-13 on January 1, 2020, credit losses were estimated using the incurred loss approach.

Credit Quality Indicators

As part of credit risk management activities, on an ongoing basis, the Company reviews information related to the performance of a customer's account with the Company as well as information from credit bureaus, such as FICO or other credit scores, relating to the customer's broader credit performance. Key credit quality indicators that are actively monitored for credit card, private student and personal loans include FICO scores and delinquency status. These indicators are important to understand the overall credit performance of the Company's customers and their ability to repay.

FICO scores are generally obtained at origination of the account and are refreshed monthly or quarterly thereafter to assist in predicting customer behavior. Historically, the Company has noted that accounts with FICO scores below 660 have larger delinquencies and credit losses than those with higher credit scores.

The following table provides the distribution of the most recent FICO scores available for the Company's customers by the amortized cost basis (excluding accrued interest receivable presented in other assets) for credit card, private student and personal loan receivables (dollars in millions):

	Credit Risk Profile by FICO Score
	June 30, 2020								December 31, 2019
	660 and Above				Less than 660 or No Score				660 and Above				Less than 660 or No Score
	$		%		$		%		$		%		$		%
Credit card loans⁽¹⁾	$	56,772	81	%	$	13,429	19	%	$	61,997	80	%	$	15,184	20	%
Private student loans by origination year⁽²⁾⁽³⁾
2020	$	321	98	%	$	8	2	%
2019	1,714		96	%	72		4	%	$	1,176	93	%	$	92	7	%
2018	1,437		95	%	72		5	%	1,518		95	%	79		5	%
2017	1,114		94	%	67		6	%	1,198		95	%	69		5	%
2016	850		94	%	57		6	%	934		94	%	58		6	%
Prior	3,749		93	%	269		7	%	4,229		93	%	300		7	%
Total private student loans	$	9,185	94	%	$	545	6	%	$	9,055	94	%	$	598	6	%
Personal loans by origination year
2020	$	1,454	99	%	$	9	1	%
2019	2,840		97	%	91		3	%	$	3,529	98	%	$	62	2	%
2018	1,440		92	%	120		8	%	1,941		93	%	140		7	%
2017	821		89	%	98		11	%	1,167		90	%	136		10	%
2016	307		88	%	43		12	%	475		88	%	65		12	%
Prior	77		83	%	16		17	%	145		84	%	27		16	%
Total personal loans	$	6,939	95	%	$	377	5	%	$	7,257	94	%	$	430	6	%


(1)	Amounts include $1.0 billion and $956 million of revolving line-of-credit arrangements that were converted to term loans as a result of a TDR program as of June 30, 2020 and December 31, 2019, respectively.


(2)	A majority of student loans originations occur in the third quarter and disbursements can span across multiple calendar years.


(3)	FICO score represents the higher credit score of the cosigner or borrower.

Delinquencies are an indicator of credit quality at a point in time. A loan balance is considered delinquent when contractual payments on the loan become 30 days past due.

The amortized cost basis (excluding accrued interest receivable presented in other assets) of delinquent loans in the Company's loan portfolio is shown below for credit card, private student and personal loan receivables (dollars in millions):

	June 30, 2020						December 31, 2019
	30-89 Days Delinquent		90 or More Days Delinquent		Total Past Due		30-89 Days Delinquent		90 or More Days Delinquent		Total Past Due
Credit card loans	$	677	$	846	$	1,523	$	999	$	1,020	$	2,019
Private student loans by origination year⁽¹⁾⁽²⁾
2020	$	—	$	—	$	—
2019	1		—		1		$	1	$	—	$	1
2018	9		4		13		4		1		5
2017	12		5		17		11		2		13
2016	13		5		18		14		5		19
Prior	78		26		104		106		37		143
Total private student loans	$	113	$	40	$	153	$	136	$	45	$	181
Personal loans by origination year
2020	$	2	$	—	$	2
2019	14		7		21		$	11	$	3	$	14
2018	17		9		26		27		11		38
2017	12		7		19		22		10		32
2016	5		3		8		10		5		15
Prior	2		1		3		4		2		6
Total personal loans	$	52	$	27	$	79	$	74	$	31	$	105


(1)	Student loans may include a deferment period, during which customers are not required to make payments while enrolled in school at least half time as determined by the school. During a deferment period, these loans do not advance into delinquency.


(2)	Includes PCD loans for all periods presented.

In response to the economic impact of COVID-19, the Company employed skip-a-pay programs as short-term offerings, which allow customers on a monthly or other periodic basis to request approval to skip their payment(s) for that month or period. Current accounts enrolled in these programs do not advance to delinquency, and delinquent accounts enrolled in these programs do not advance to the next delinquency cycle, or to charge-off.

In addition to the skip-a-pay programs, the Company has other modification programs that customers have utilized during the period. Due to provisions in the CARES Act or interagency guidance, some accounts in these programs do not constitute TDRs.

Allowance for Credit Losses

A detailed description of the Company's allowance for credit losses policy can be found under the sub-heading "— Significant Loan Receivables Accounting Policies — Allowance for Credit Losses" below.

The following tables provide changes in the Company's allowance for credit losses (dollars in millions):

	For the Three Months Ended June 30, 2020
	Credit Card			Student Loans			Personal Loans			Other		Total
Balance at March 31, 2020	$	5,306		$	765		$	807		$	35	$	6,913
Additions
Provision for credit losses⁽¹⁾	1,873			49			114			2		2,038
Deductions
Charge-offs	(852		)	(20		)	(78		)	—		(950		)
Recoveries	164			5			14			—		183
Net charge-offs	(688		)	(15		)	(64		)	—		(767		)
Balance at June 30, 2020	$	6,491		$	799		$	857		$	37	$	8,184

	For the Three Months Ended June 30, 2019
	Credit Card			Student Loans			Personal Loans			Other		Total
Balance at March 31, 2019⁽²⁾	$	2,622		$	168		$	338		$	6	$	3,134
Additions
Provision for credit losses⁽²⁾	692			15			80			—		787
Deductions
Charge-offs	(789		)	(18		)	(91		)	—		(898		)
Recoveries	166			3			11			—		180
Net charge-offs⁽³⁾	(623		)	(15		)	(80		)	—		(718		)
Other⁽⁴⁾	—			(1		)	—			—		(1		)
Balance at June 30, 2019⁽²⁾	$	2,691		$	167		$	338		$	6	$	3,202

The following tables provide changes in the Company's allowance for credit losses (dollars in millions):

	For the Six Months Ended June 30, 2020
	Credit Card			Student Loans			Personal Loans			Other		Total
Balance at December 31, 2019⁽²⁾	$	2,883		$	148		$	348		$	4	$	3,383
Cumulative effect of ASU No. 2016-13 adoption⁽⁵⁾	1,667			505			265			24		2,461
Balance at January 1, 2020	4,550			653			613			28		5,844
Additions
Provision for credit losses⁽¹⁾	3,312			178			377			9		3,876
Deductions
Charge-offs	(1,721		)	(42		)	(162		)	—		(1,925		)
Recoveries	350			10			29			—		389
Net charge-offs	(1,371		)	(32		)	(133		)	—		(1,536		)
Balance at June 30, 2020	$	6,491		$	799		$	857		$	37	$	8,184

	For the Six Months Ended June 30, 2019
	Credit Card			Student Loans			Personal Loans			Other		Total
Balance at December 31, 2018⁽²⁾	$	2,528		$	169		$	338		$	6	$	3,041
Additions
Provision for credit losses⁽²⁾	1,402			30			164			—		1,596
Deductions
Charge-offs	(1,563		)	(37		)	(185		)	—		(1,785		)
Recoveries	324			7			21			—		352
Net charge-offs⁽³⁾	(1,239		)	(30		)	(164		)	—		(1,433		)
Other⁽⁴⁾	—			(2		)	—			—		(2		)
Balance at June 30, 2019⁽²⁾	$	2,691		$	167		$	338		$	6	$	3,202


(1)	Excludes an $8 million build and $23 million release of the liability for expected credit losses on unfunded commitments for the three months and six months ended June 30, 2020, respectively, as the liability is recorded in accrued expenses and other liabilities in the Company's condensed consolidated statements of financial condition.


(2)	Prior to adoption of ASU No. 2016-13 on January 1, 2020, credit losses were estimated using the incurred loss approach.


(3)	Prior to adoption of ASU No. 2016-13 on January 1, 2020, net charge-offs on PCD loans generally did not result in a charge to earnings.


(4)	Net change in reserves on PCD pools having no remaining non-accretable difference (prior to adoption of ASU No. 2016-13 on January 1, 2020).


(5)	Represents the adjustment to allowance for credit losses as a result of adoption of ASU No. 2016-13 on January 1, 2020.

The allowance for credit losses was $8.2 billion at June 30, 2020, which reflects a $1.3 billion build over the amount of the allowance for credit losses at March 31, 2020. The allowance build across all loan products primarily reflects an economic outlook with updated assumptions about the impact of the COVID-19 pandemic. In estimating the allowance at June 30, 2020, the Company used a macroeconomic forecast that assumes a peak unemployment rate of 16%, recovering to just under 11% at the end of 2020 with slow recovery over the next few years, and an annualized real Gross Domestic Product decline of approximately 30% quarter-over-quarter or down approximately 10% on a year-over-year basis. The estimate also contemplated the impact of government stimulus programs and company-initiated loan modification programs on borrower payment behavior. The impact of COVID-19 on the economy has led to uncertainty in assumptions surrounding factors such as the length and depth of economic stresses and borrower behavior, which required significant management judgment in estimating the allowance for credit losses.

Company-initiated loan modification programs include those offered specifically in response to COVID-19 as well as existing programs offered to customers experiencing difficulty making their payments. In addition to skip-a-pay programs, the Company has other modification programs that customers have utilized during the period related to the pandemic. The accounts using these modifications are generally excluded from TDR status either because the concessions are insignificant or they qualify for exemption pursuant to the CARES Act or interagency guidance. All modifications are considered as part of the process for determining the allowance for credit losses.

The allowance for credit losses was $8.2 billion at June 30, 2020, which reflects a $4.8 billion build over the amount of the allowance for credit losses at December 31, 2019. The allowance build across all loan products was due to (I) a

$2.5 billion cumulative-effect adjustment for the adoption of CECL on January 1, 2020, and (II) a $2.3 billion build that primarily reflects an economic outlook that included the COVID-19 pandemic and resulting economic stress.

At adoption of CECL and at June 30, 2020, the forecast period management deemed to be reasonable and supportable was 18 months. This period decreased to 12 months at March 31, 2020 due to the uncertainty caused by the rapidly changing economic environment due to the COVID-19 pandemic. In the second quarter, the reasonable and supportable period was 18 months based on the view that the present macroeconomic conditions will last for a longer period than previously expected. For both quarters, the reversion period was 12 months. Since adoption of CECL, a straight-line method was used to revert to appropriate historical information. During the quarter ended June 30, 2020, the high degree of economic stress led the Company to apply a weighted reversion method for credit card loans that puts more emphasis on the loss forecast model rather than lower historical losses. At June 30, 2020, the reversion method remained straight-line for all other products.

The increase in net charge-offs on credit card loans for the three and six months ended June 30, 2020 when compared to the same periods in 2019 was due to seasoning of recent years' loan growth.

Net charge-offs of principal are recorded against the allowance for credit losses, as shown in the preceding table. Information regarding net charge-offs of interest and fee revenues on credit card and other loans is as follows (dollars in millions):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019
Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income)	$	136	$	128	$	279	$	255
Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income)	$	33	$	30	$	68	$	61

Delinquent and Non-Accruing Loans

The amortized cost basis (excluding accrued interest receivable presented in other assets) of delinquent and non-accruing loans in the Company's loan portfolio is shown below by each class of loan receivables (dollars in millions):

	30-89 Days Delinquent		90 or More Days Delinquent		Total Past Due		90 or More Days Delinquent and Accruing		Total Non-accruing⁽¹⁾
At June 30, 2020
Credit card loans	$	677	$	846	$	1,523	$	782	$	221
Other loans
Private student loans⁽²⁾	113		40		153		39		13
Personal loans	52		27		79		25		9
Other	5		3		8		—		10
Total other loans	170		70		240		64		32
Total loan receivables	$	847	$	916	$	1,763	$	846	$	253

At December 31, 2019
Credit card loans	$	999	$	1,020	$	2,019	$	940	$	237
Other loans
Private student loans⁽²⁾	136		45		181		45		11
Personal loans	74		31		105		29		12
Other	5		2		7		—		6
Total other loans	215		78		293		74		29
Total loan receivables	$	1,214	$	1,098	$	2,312	$	1,014	$	266

(1)

The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of non-accruing credit card loans was $8 million and $11 million for the three months ended June 30, 2020 and 2019, respectively, and $18 million and $23 million for the six months ended June 30, 2020 and 2019, respectively. The Company does not separately track the amount of gross interest income that would have been recorded in accordance with the original terms of loans. This amount was estimated based on customers' current balances and most recent interest rates.


(2)	Includes PCD loans for all periods presented.

Troubled Debt Restructurings

The Company has internal loan modification programs that provide relief to credit card, student and personal loan borrowers who may be experiencing financial hardship. The Company considers a modified loan in which a concession has been granted to the borrower to be a TDR based on the cumulative length of the concession period and credit quality of the borrower. New programs are continually evaluated to determine which of them meet the definition of a TDR, including programs provided to customers for temporary relief due to the economic impacts of the COVID-19 outbreak that may be subject to regulatory exclusion from TDR status. The internal loan modification programs include both temporary and permanent programs, which vary by product. External loan modification programs are also available for credit card and personal loans. For all temporary modification programs, including those created specifically in response to COVID-19, the accounts are reviewed for exclusion from being reported as a TDR in accordance with the CARES Act or interagency guidance. To the extent the accounts do not meet the requirements for exclusion, temporary and permanent modifications on credit card and personal loans, as well as temporary modifications on student loans and certain grants of student loan forbearance, result in the loans being classified as TDRs. In addition, loans that defaulted (see table on loans that defaulted from a TDR program that follows) or graduated from modification programs or forbearance continue to be classified as TDRs, except as noted below.

For credit card customers, the Company offers both temporary and permanent hardship programs. The temporary hardship programs consist of an interest rate reduction and in some cases a reduced minimum payment, both lasting for a period no longer than 12 months. Charging privileges on these loans are generally suspended while in the program and if certain criteria are met, may be reinstated following completion of the program. Beginning in 2020, credit card accounts of borrowers that have previously participated in a temporary interest rate reduction program and that have both demonstrated financial stability and had their charging privileges reinstated at a market-based interest rate, are excluded from the balance of TDRs.

The permanent modification program involves closing the account, changing the structure of the loan to a fixed payment loan with a maturity no longer than 60 months and reducing the interest rate on the loan. The permanent modification program does not normally provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee assessments. The Company also makes permanent loan modifications for customers who request financial assistance through external sources, such as a consumer credit counseling agency program. These loans typically receive a reduced interest rate but continue to be subject to the original minimum payment terms and do not normally include waiver of unpaid principal, interest or fees. These loans remain in the population of TDRs until they are paid off or charged off.

At June 30, 2020 and December 31, 2019, there were $5.6 billion of private student loans in repayment and $21 million and $46 million, respectively, in forbearance. To assist student loan borrowers who are experiencing temporary financial difficulties but are willing to resume making payments, the Company may offer hardship forbearance or programs that include payment deferral, temporary payment reduction, temporary interest rate reduction or extended terms. A modified loan typically meets the definition of a TDR based on the cumulative length of the concession period and a determination of financial distress based on an evaluation of the credit quality of the borrower using FICO scores.

For personal loan customers, in certain situations the Company offers various payment programs, including temporary and permanent programs. The temporary programs normally consist of a reduction of the minimum payment for a period of no longer than 12 months with the option of a final balloon payment required at the end of the loan term or an extension of the maturity date with the total term not exceeding nine years. Further, in certain circumstances the interest rate on the loan is reduced. The permanent programs involve changing the terms of the loan in order to pay off the outstanding balance over a longer term and in certain circumstances reducing the interest rate on the loan. Similar to the temporary programs, the total term may not exceed nine years. The Company also allows permanent loan modifications for customers who request financial assistance through external sources, similar to the credit card customers discussed above. Payments are modified based on the new terms agreed upon with the credit counseling agency. Personal loans included in temporary and permanent programs are classified as TDRs.

Borrower performance after using payment programs or forbearance is monitored and the Company believes the programs are useful in assisting customers experiencing financial difficulties and allowing them to make timely payments. In addition to helping customers with their credit needs, these programs are designed to maximize collections and ultimately the Company’s profitability. The Company plans to continue to use payment programs and forbearance as a means to provide relief to customers experiencing temporary financial difficulties and, as a result, expects to have additional loans classified as TDRs in the future.

In order to evaluate the primary financial effects that resulted from credit card loans entering into a TDR program during the three and six months ended June 30, 2020 and 2019, the Company quantified the amount by which interest and fees were reduced during the periods. During the three months ended June 30, 2020 and 2019, the Company forgave approximately $18 million and $17 million, respectively, of interest and fees as a result of accounts entering into a credit card loan TDR program. During the six months ended June 30, 2020 and 2019, the Company forgave approximately $39 million and $34 million, respectively, of interest and fees as a result of accounts entering into a credit card loan TDR program. For all loan products, interest income on modified loans is recognized based on the modified contractual terms.

TDR program balances and number of accounts have been favorably impacted by customer usage of modifications that were subject to TDR exclusion in accordance with the CARES Act or interagency guidance and are lower than comparative periods as a result.

The following table provides information on loans that entered a TDR program during the period (dollars in millions):

	For the Three Months Ended June 30,
	2020			2019
	Number of Accounts	Balances		Number of Accounts	Balances
Accounts that entered a TDR program during the period
Credit card loans⁽¹⁾	27,966	$	191	84,568	$	551
Private student loans	62	$	1	1,710	$	30
Personal loans	1,332	$	17	2,670	$	36

	For the Six Months Ended June 30,
	2020			2019
	Number of Accounts	Balances		Number of Accounts	Balances
Accounts that entered a TDR program during the period
Credit card loans⁽¹⁾	120,702	$	800	176,924	$	1,143
Private student loans	1,780	$	33	3,286	$	61
Personal loans	3,880	$	51	5,270	$	71


(1)	Accounts that entered a credit card TDR program include $176 million and $173 million that were converted from revolving line-of-credit arrangements to term loans during the three months ended June 30, 2020 and 2019, respectively, and $386 million and $336 million for the six months ended June 30, 2020 and 2019, respectively.

The following table presents the carrying value of loans that experienced a payment default during the period that had been modified in a TDR during the 15 months preceding the end of each period (dollars in millions):

	For the Three Months Ended June 30,
	2020			2019
	Number of Accounts	Aggregated Outstanding Balances Upon Default		Number of Accounts	Aggregated Outstanding Balances Upon Default
TDRs that subsequently defaulted
Credit card loans⁽¹⁾⁽²⁾	11,841	$	66	16,220	$	95
Private student loans⁽³⁾	246	$	5	290	$	6
Personal loans⁽²⁾	622	$	9	946	$	14

	For the Six Months Ended June 30,
	2020			2019
	Number of Accounts	Aggregated Outstanding Balances Upon Default		Number of Accounts	Aggregated Outstanding Balances Upon Default
TDRs that subsequently defaulted
Credit card loans⁽¹⁾⁽²⁾	32,326	$	183	31,872	$	185
Private student loans⁽³⁾	604	$	12	570	$	11
Personal loans⁽²⁾	1,822	$	27	1,794	$	27


(1)	Terms revert back to the pre-modification terms for customers who default from a temporary program and charging privileges remain suspended in most cases.


(2)	For credit card loans and personal loans, a customer defaults from a TDR program after two consecutive missed payments. The outstanding balance upon default is generally the loan balance at the end of the month prior to default.


(3)	For student loans, defaults have been defined as loans that are 60 or more days delinquent. The outstanding balance upon default is generally the loan balance at the end of the month prior to default.

Of the account balances that defaulted as shown above for the three months ended June 30, 2020 and 2019, approximately 61% and 39%, respectively, and for the six months ended June 30, 2020 and 2019, approximately 48% and 39%, respectively, of the total balances were charged off at the end of the month in which they defaulted from a TDR program.

Significant Loan Receivables Accounting Policies

With the adoption of ASU No. 2016-13 on January 1, 2020, certain significant accounting policies have changed since disclosed in Note 2: Summary of Significant Accounting Policies to the consolidated financial statements of the Company's annual report on Form 10-K for the year ended December 31, 2019. Refer to Note 1: Background and Basis of Presentation for details on adoption of the standard. Impacts on all significant loan receivables accounting policies are summarized as follows:


•	The loan receivables policy was updated to reflect the removal of PCI loans as a separate loan portfolio segment.


•	The relevance of the PCI loan policy was eliminated by CECL and therefore it was removed as a significant accounting policy.


•	The delinquent loans and charge-offs policy did not change.


•	The allowance for credit losses policy was updated to reflect the CECL approach for estimating credit losses.


•	The loan interest and fee income policy, which includes certain accounting policy elections related to accrued interest, did not materially change.

The policies below represent those with significant updates resulting from adoption of ASU 2016-13 and are reflective of those updates. Policies that did not materially change can be found at Note 2: Summary of Significant Accounting Policies to the consolidated financial statements of the Company's annual report on Form 10-K for the year ended December 31, 2019.

Loan Receivables

Loan receivables consist of credit card receivables and other loans. Loan receivables also include unamortized net deferred loan origination fees and costs. Credit card loan receivables are reported at their principal amounts outstanding and include uncollected billed interest and fees and are reduced for unearned revenue related to balance transfer fees. Other loans consist of student loans, personal loans and other loans and are reported at their principal amounts outstanding. For student loans, principal amounts outstanding also include accrued interest that has been capitalized. The Company's loan receivables are deemed to be held for investment at origination or acquisition because management has the intent and ability to hold them for the foreseeable future. Cash flows associated with loans originated or acquired for investment are classified as cash flows from investing activities, regardless of a subsequent change in intent.

Allowance for Credit Losses

The Company maintains an allowance for credit losses at a level that is appropriate to absorb credit losses anticipated over the remaining expected life of loan receivables as of the balance sheet date. The estimate of expected credit losses considers uncollectible principal, interest and fees associated with the Company's loan receivables existing as of the balance sheet date. Additionally, the estimate includes expected recoveries of amounts that were either previously charged off or are expected to be charged off. The allowance is evaluated quarterly for appropriateness and is maintained through an adjustment to the provision for credit losses. Charge-offs of principal amounts of loans outstanding are deducted from the allowance and subsequent recoveries of such amounts increase the allowance. Charge-offs of loan balances representing unpaid interest and fees result in a reversal of interest and fee income, respectively, which is effectively a reclassification of the provision for credit losses.

The Company calculates its allowance for credit losses by estimating expected credit losses separately for classes of the loan portfolio with similar risk characteristics, which results in segmenting the portfolio by loan product type. The allowance for credit losses for each loan product type is based on: 1) a reasonable and supportable forecast period, 2) a reversion period and 3) a post-reversion period based on historical information covering the remaining life of the loan, all of which is netted with expected recoveries. The lengths of the reasonable and supportable forecast and reversion periods can vary and are subject to a quarterly assessment that considers the economic outlook and level of variability among macroeconomic forecasts. Generally, a straight-line method is used to revert from the reasonable and supportable forecast period to the post-reversion period, but in certain stressed scenarios, a weighted approach may be deemed more appropriate.

Several analyses are used to help estimate credit losses anticipated over the remaining expected life of loan receivables as of the balance sheet date. The Company's estimation process includes models that predict customer losses based on risk characteristics and portfolio attributes, macroeconomic variables, and historical data and analysis. There is a significant amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the allowance.

For credit card loans, the Company uses a modeling framework that includes the following components for estimating expected credit losses:


•	Probability of default: this model estimates the probability of charge-off at different points in time over the life of each loan.


•	Exposure at default: this model estimates the portion of the balance sheet date balance remaining at any given time of charge-off for each loan. Given that there is no stated life of a receivable balance on a revolving credit card account, the Company applies a percentage of expected payments to estimate the portion of the balance that would remain at the time of charge-off.


•	Loss given default: this model estimates the percentage of exposure (i.e. net loss) at time of charge-off that cannot be recovered, with the offsetting forecast recoveries being the driver of this estimate.


•	Recoveries from previously charged-off accounts are estimated separately and are netted as part of the aggregation of all of the components of the card loss modeling framework.

For student loans and personal loans, the Company uses vintage-based models that estimate expected credit losses over the life of the loan, net of recovery estimates, impacted mainly by time elapsed since origination, credit quality of origination vintages and macroeconomic forecasts.

The models described above for credit card, student and personal loans are developed utilizing historical data and applicable macroeconomic variable inputs based on statistical analysis and behavioral relationships with credit performance. Expected recoveries from loans charged off as of the balance sheet date are modeled separately and included in the allowance estimate. The Company leverages these models and recent macroeconomic forecasts for the portion of the estimate associated with the reasonable and supportable forecast period. To estimate expected credit losses for the remainder of the life of the credit card loans, the Company reverts to historical experience of credit card loans with characteristics similar to those as of the balance sheet date and observed over various phases of a credit cycle. To estimate expected credit losses for the remainder of the life of student and personal loans, the Company reverts to use of average macroeconomic variables over an appropriate historical period.

The considerations in these models include past and current loan performance, loan growth and seasoning, risk management practices, account collection strategies, economic conditions, bankruptcy filings, policy changes and forecasting uncertainties. Consideration of past and current loan performance includes the post-modification performance of loans modified in a TDR. For the credit card loan portfolio, the Company estimates its credit losses on a loan-level basis, which includes loans that are delinquent and/or no longer accruing interest and/or loans that have been modified under a TDR. For the remainder of its portfolio, including student, personal and other loans, the Company estimates its credit losses on a pooled basis. For all loan types, recoveries are estimated at a pooled level based on estimates of future cash flows derived using historical experience.

Interest on credit card loans is included in the estimate of expected credit losses once billed to the customer (i.e., once the interest becomes part of the loan balance). An allowance for credit losses is measured for accrued interest on all other loans and is presented as part of allowance for credit losses in the consolidated statements of financial condition.

The Company records a liability for expected credit losses for unfunded commitments on all other loans, which is presented as part of accrued expenses and other liabilities in the consolidated statements of financial condition. This liability is evaluated quarterly for appropriateness and is maintained through an adjustment to the provision for credit losses. No liability for expected credit losses is required for unused lines of credit on the Company’s credit card loans because they are unconditionally cancellable.