versus other account activity. This allocation is made using an approach that incorporates the payment application requirements of the Credit Card Accountability Responsibility and Disclosure Act of 2009, generally paying down the highest interest rate balances first.

The estimate of expected credit losses includes expected recoveries of amounts previously charged off or expected to be charged off, even if such recoveries result in a negative allowance.

Collective and Individual Assessments

When calculating the allowance for loan losses and the allowance for lending-related commitments, the Firm assesses whether exposures share similar risk characteristics. If similar risk characteristics exist, the Firm estimates expected credit losses collectively, considering the risk associated with a particular pool and the probability that the exposures within the pool will deteriorate or default. The assessment of risk characteristics is subject to significant management judgment. Emphasizing one characteristic over another or considering additional characteristics could affect the allowance.

•Relevant risk characteristics for the consumer portfolio include product type, delinquency status, current FICO scores, geographic distribution, and, for collateralized loans, current LTV ratios.

•Relevant risk characteristics for the wholesale portfolio include risk rating, delinquency status, tenor, level and type of collateral, LOB, geography, industry, credit enhancement, product type, facility purpose, and payment terms.

The majority of the Firm’s credit exposures share risk characteristics with other similar exposures, and as a result are collectively assessed for impairment (“portfolio-based component”). The portfolio-based component covers consumer loans, performing risk-rated loans and certain lending-related commitments.

If an exposure does not share risk characteristics with other exposures, the Firm generally estimates expected credit losses on an individual basis, considering expected repayment and conditions impacting that individual exposure (“asset-specific component”). The asset-specific component covers modified PCD loans, loans modified or reasonably expected to be modified in a TDR, collateral-dependent loans, as well as, risk-rated loans that have been placed on nonaccrual status.

Portfolio-based component

The portfolio-based component begins with a quantitative calculation that considers the likelihood of the borrower changing delinquency status or moving from one risk rating to another. The quantitative calculation covers expected credit losses over an instrument’s expected life and is estimated by applying credit loss factors to the Firm’s estimated exposure at default. The credit loss factors incorporate the probability of borrower default as well as loss severity in the event of default. They are derived using

a weighted average of five internally developed macroeconomic scenarios over an eight-quarter forecast period, followed by a single year straight-line interpolation to revert to long run historical information for periods beyond the eight-quarter forecast period. The five macroeconomic scenarios consist of a central, relative adverse, extreme adverse, relative upside and extreme upside scenario, and are updated by the Firm’s central forecasting team. The scenarios take into consideration the Firm’s macroeconomic outlook, internal perspectives from subject matter experts across the Firm, and market consensus and involve a governed process that incorporates feedback from senior management across LOBs, Corporate Finance and Risk Management.

The quantitative calculation is adjusted to take into consideration model imprecision, emerging risk assessments, trends and other subjective factors that are not yet reflected in the calculation. These adjustments are accomplished in part by analyzing the historical loss experience, including during stressed periods, for each major product or model. Management applies judgment in making this adjustment, including taking into account uncertainties associated with the economic and political conditions, quality of underwriting standards, borrower behavior, credit concentrations or deterioration within an industry, product or portfolio, as well as other relevant internal and external factors affecting the credit quality of the portfolio. In certain instances, the interrelationships between these factors create further uncertainties.

The application of different inputs into the quantitative calculation, and the assumptions used by management to adjust the quantitative calculation, are subject to significant management judgment, and emphasizing one input or assumption over another, or considering other inputs or assumptions, could affect the estimate of the allowance for loan losses and the allowance for lending-related commitments.

Asset-specific component

To determine the asset-specific component of the allowance, collateral-dependent loans (including those loans for which foreclosure is probable) and larger, nonaccrual risk-rated loans in the wholesale portfolio segment are generally evaluated individually, while smaller loans (both scored and risk-rated) are aggregated for evaluation using factors relevant for the respective class of assets.

The Firm generally measures the asset-specific allowance as the difference between the amortized cost of the loan and the present value of the cash flows expected to be collected, discounted at the loan’s original effective interest rate. Subsequent changes in impairment are generally recognized as an adjustment to the allowance for loan losses. For collateral-dependent loans, the fair value of collateral less estimated costs to sell is used to determine the charge-off amount for declines in value (to reduce the amortized cost of the loan to the fair value of collateral) or the amount of negative allowance that should be

recognized (for recoveries of prior charge-offs associated with improvements in the fair value of collateral).

The asset-specific component of the allowance for loans that have been or are expected to be modified in TDRs incorporates the effect of the modification on the loan’s expected cash flows (including forgone interest, principal forgiveness, as well as other concessions), and also the potential for redefault. For residential real estate loans modified in or expected to be modified in TDRs, the Firm develops product-specific probability of default estimates, which are applied at a loan level to compute expected losses. In developing these probabilities of default, the Firm considers the relationship between the credit quality characteristics of the underlying loans and certain assumptions about housing prices and unemployment, based upon industry-wide data. The Firm also considers its own historical loss experience to-date based on actual redefaulted modified loans. For credit card loans modified in or expected to be modified in TDRs, expected losses incorporate projected delinquencies and charge-offs based on the Firm’s historical experience by type of modification program. For wholesale loans modified or expected to be modified in TDRs, expected losses incorporate management’s expectation of the borrower’s ability to repay under the modified terms.

Estimating the timing and amounts of future cash flows is highly judgmental as these cash flow projections rely upon estimates such as loss severities, asset valuations, default rates (including redefault rates on modified loans), the amounts and timing of interest or principal payments (including any expected prepayments) or other factors that are reflective of current and expected market conditions. These estimates are, in turn, dependent on factors such as the duration of current overall economic conditions, industry, portfolio, or borrower-specific factors, the expected outcome of insolvency proceedings as well as, in certain circumstances, other economic factors. All of these estimates and assumptions require significant management judgment and certain assumptions are highly subjective.

Allowance for credit losses and related information

The table below summarizes information about the allowances for credit losses, and includes a breakdown of loans and lending-related commitments by impairment methodology. Refer to Note 10 for further information on the allowance for credit losses on investment securities.


(Table continued on next page)
	2022
Year ended December 31, (in millions)	Consumer, excluding credit card		Credit card		Wholesale		Total
Allowance for loan losses
Beginning balance at January 1,	$	1,765	$	10,250	$	4,371	$	16,386
Cumulative effect of a change in accounting principle(a)	NA		NA		NA		NA
Gross charge-offs	812		3,192		322		4,326
Gross recoveries collected	(543)		(789)		(141)		(1,473)
Net charge-offs	269		2,403		181		2,853
Provision for loan losses	543		3,353		2,293		6,189
Other	1		—		3		4
Ending balance at December 31,	$	2,040	$	11,200	$	6,486	$	19,726

Allowance for lending-related commitments
Beginning balance at January 1,	$	113	$	—	$	2,148	$	2,261
Cumulative effect of a change in accounting principle(a)	NA		NA		NA		NA
Provision for lending-related commitments	(37)		—		157		120
Other	—		—		1		1
Ending balance at December 31,	$	76	$	—	$	2,306	$	2,382
Total allowance for investment securities	NA		NA		NA		$	96
Total allowance for credit losses(b)	$	2,116	$	11,200	$	8,792	$	22,204

Allowance for loan losses by impairment methodology
Asset-specific(c)	$	(624)	$	223	$	467	$	66
Portfolio-based	2,664		10,977		6,019		19,660
Total allowance for loan losses	$	2,040	$	11,200	$	6,486	$	19,726

Loans by impairment methodology
Asset-specific(c)	$	11,978	$	796	$	2,189	$	14,963
Portfolio-based	288,775		184,379		601,481		1,074,635
Total retained loans	$	300,753	$	185,175	$	603,670	$	1,089,598

Collateral-dependent loans
Net charge-offs	$	(33)	$	—	$	16	$	(17)
Loans measured at fair value of collateral less cost to sell	3,585		—		464		4,049

Allowance for lending-related commitments by impairment methodology
Asset-specific	$	—	$	—	$	90	$	90
Portfolio-based	76		—		2,216		2,292
Total allowance for lending-related commitments(d)	$	76	$	—	$	2,306	$	2,382

Lending-related commitments by impairment methodology
Asset-specific	$	—	$	—	$	455	$	455
Portfolio-based(e)	20,423		—		461,688		482,111
Total lending-related commitments	$	20,423	$	—	$	462,143	$	482,566

(a)Represents the impact to allowance for credit losses upon the adoption of CECL on January 1, 2020. Refer to Note 1 for further information.

(b)At December 31, 2022 excludes an allowance for credit losses associated with certain accounts receivable in CIB of $21 million.

(c)Includes collateral dependent loans, including those considered TDRs and those for which foreclosure is deemed probable, modified PCD loans and non-collateral dependent loans that have been modified or are reasonably expected to be modified in a TDR. Also includes risk-rated loans that have been placed on nonaccrual status for the wholesale portfolio segment. The asset-specific credit card allowance for loans modified, or reasonably expected to be modified, in a TDR is calculated based on the loans’ original contractual interest rates and does not consider any incremental penalty rates.

(d)The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.

(e)At December 31, 2022, 2021 and 2020, lending-related commitments excluded $13.1 billion, $15.7 billion and $19.5 billion, respectively, for the consumer, excluding credit card portfolio segment; $821.3 billion, $730.5 billion and $658.5 billion, respectively, for the credit card portfolio segment; and $9.8 billion, $32.1 billion and $25.3 billion, respectively, for the wholesale portfolio segment, which were not subject to the allowance for lending-

related commitments. Prior-period amount for wholesale lending-related commitments, including the amount not subject to allowance, has been revised to conform with the current presentation.


(table continued from previous page)
2021								2020
Consumer, excluding credit card		Credit card		Wholesale		Total		Consumer, excluding credit card		Credit card		Wholesale		Total

$	3,636	$	17,800	$	6,892	$	28,328	$	2,538	$	5,683	$	4,902	$	13,123
NA		NA		NA		NA		297		5,517		(1,642)		4,172
630		3,651		283		4,564		805		5,077		954		6,836
(619)		(939)		(141)		(1,699)		(631)		(791)		(155)		(1,577)
11		2,712		142		2,865		174		4,286		799		5,259
(1,858)		(4,838)		(2,375)		(9,071)		974		10,886		4,431		16,291
(2)		—		(4)		(6)		1		—		—		1
$	1,765	$	10,250	$	4,371	$	16,386	$	3,636	$	17,800	$	6,892	$	28,328

$	187	$	—	$	2,222	$	2,409	$	12	$	—	$	1,179	$	1,191
NA		NA		NA		NA		133		—		(35)		98
(75)		—		(74)		(149)		42		—		1,079		1,121
1		—		—		1		—		—		(1)		(1)
$	113	$	—	$	2,148	$	2,261	$	187	$	—	$	2,222	$	2,409
NA		NA		NA		$	42	NA		NA		NA		$	78
$	1,878	$	10,250	$	6,519	$	18,689	$	3,823	$	17,800	$	9,114	$	30,815


$	(665)	$	313	$	263	$	(89)	$	(7)	$	633	$	682	$	1,308
2,430		9,937		4,108		16,475		3,643		17,167		6,210		27,020
$	1,765	$	10,250	$	4,371	$	16,386	$	3,636	$	17,800	$	6,892	$	28,328


$	13,919	$	987	$	2,255	$	17,161	$	16,648	$	1,375	$	3,606	$	21,629
281,637		153,309		558,099		993,045		285,479		142,057		511,341		938,877
$	295,556	$	154,296	$	560,354	$	1,010,206	$	302,127	$	143,432	$	514,947	$	960,506


$	33	$	—	$	38	$	71	$	133	$	—	$	76	$	209
4,472		—		617		5,089		4,956		—		188		5,144


$	—	$	—	$	167	$	167	$	—	$	—	$	114	$	114
113		—		1,981		2,094		187		—		2,108		2,295
$	113	$	—	$	2,148	$	2,261	$	187	$	—	$	2,222	$	2,409


$	—	$	—	$	764	$	764	$	—	$	—	$	577	$	577
29,588		—		453,571		483,159		37,783		—		423,993		461,776
$	29,588	$	—	$	454,335	$	483,923	$	37,783	$	—	$	424,570	$	462,353

Discussion of changes in the allowance

The allowance for credit losses as of December 31, 2022 was $22.2 billion, reflecting a net addition of $3.5 billion from December 31, 2021, consisting of:

•$2.3 billion in wholesale, driven by deterioration in the Firm’s macroeconomic outlook and loan growth, predominantly in CB and CIB, and

•$1.2 billion in consumer, predominantly driven by Card Services, reflecting higher outstanding balances and deterioration in the Firm’s macroeconomic outlook, partially offset by a reduction in the allowance related to a decrease in uncertainty associated with borrower behavior as the effects of the pandemic gradually recede.

Deterioration in the Firm’s macroeconomic outlook included both updates to the central scenario in the fourth quarter of 2022, which now reflects a mild recession, as well as the impact of the increased weight placed on the adverse scenarios beginning in the first quarter of 2022 due to the effects associated with higher inflation, changes in monetary policy, and geopolitical risks, including the war in Ukraine.

The Firm's allowance for credit losses is estimated using a weighted average of five internally developed macroeconomic scenarios. The adverse scenarios incorporate more punitive macroeconomic factors than the central case assumptions provided in the table below, resulting in a weighted average U.S. unemployment rate peaking at 5.6% in the second quarter of 2024, and a 1.2% lower U.S. real GDP exiting the second quarter of 2024.

The Firm’s central case assumptions reflected U.S. unemployment rates and U.S. real GDP as follows:


	Assumptions at December 31, 2022
	2Q23		4Q23		2Q24
U.S. unemployment rate(a)	3.8	%	4.3	%	5.0	%
YoY growth in U.S. real GDP(b)	1.5	%	0.4	%	—	%


	Assumptions at December 31, 2021
	2Q22		4Q22		2Q23
U.S. unemployment rate(a)	4.2	%	4.0	%	3.9	%
YoY growth in U.S. real GDP(b)	3.1	%	2.8	%	2.1	%

(a)Reflects quarterly average of forecasted U.S. unemployment rate.

(b)The year over year growth in U.S. real GDP in the forecast horizon of the central scenario is calculated as the percentage change in U.S. real GDP levels from the prior year.

Subsequent changes to this forecast and related estimates

will be reflected in the provision for credit losses in future

periods.

Refer to Critical Accounting Estimates Used by the Firm on pages 149-152 for further information on the allowance for credit losses and related management judgments.

Refer to Consumer Credit Portfolio on pages 110-115, Wholesale Credit Portfolio on pages 116-126 for additional information on the consumer and wholesale credit portfolios.