Reserves for Losses

12 Months Ended

Dec. 31, 2016

Note 3 – Reserves for Losses

Reserves for losses relating to Card Member receivables and loans represent management’s best estimate of the probable inherent losses in Credco’s outstanding portfolio of receivables and loans, as of the balance sheet date. Management’s evaluation process requires certain estimates and judgments.

Reserves for losses are primarily based upon statistical and analytical models that analyze portfolio performance and reflect management’s judgment regarding the quantitative components of the reserve. The models take into account several factors, including delinquency-based loss migration rates, loss emergence periods and average losses and recoveries over an appropriate historical period. Management considers whether to adjust the quantitative reserves for certain external and internal qualitative factors, which may increase or decrease the reserves for losses on Card Member receivables and loans. These external factors include employment, spend, sentiment, housing and credit, and changes in the legal and regulatory environment, while the internal factors include increased risk in certain portfolios, impact of risk management initiatives, changes in underwriting requirements and overall process stability. As part of this evaluation process, management also considers various reserve coverage metrics, such as reserves as a percentage of past due amounts, reserves as a percentage of Card Member receivables or loans and net write-off coverage ratios.

Card Member receivables and loans balances are written off when management considers amounts to be uncollectible, which is generally determined by the number of days past due and is typically no later than 180 days past due. Card Member receivables and loans in bankruptcy or owed by deceased individuals are generally written off upon notification, and recoveries are recognized as they are collected.

This Note is presented excluding amounts associated with the Card Member receivables HFS as of December 31, 2015; Credco did not have any Card Member receivables HFS as of December 31, 2016 or 2014.

Changes in Card Member Receivables Reserve for Losses

The following table presents changes in the Card Member receivables reserve for losses for the years ended December 31:

(Millions)		2016		2015			2014
Balance, January 1		$	114	$	94	$	76
	Provisions		145		160		194
	Other credits^(a)		20		32		15
	Net write-offs^(b)		(146)		(157)		(166)
	Other debits^(c)(d)		(23)		(15)		(25)
Balance, December 31		$	110	$	114	$	94

Primarily reserve balances applicable to new groups of Card Member receivables purchased from TRS and certain of its subsidiaries and participation interests from affiliates. New groups of Card Member receivables purchased totaled $5.4 billion, $5.8 billion and $3.4 billion for the years ended December 31, 2016, 2015 and 2014, respectively.
Net of recoveries of $91 million, $100 million and $98 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Primarily reserve balances applicable to participation interests in Card Member receivables sold to an affiliate and, for 2014, reserves applicable to Card Member receivables sold to the joint ventures that issue American Express cards in certain countries (American Express joint ventures) following the termination of the agreements to purchase Card Member receivables in the third quarter of 2014. Sales of these participation interests and Card Member receivables totaled $5.7 billion, $2.6 billion and $3.2 billion for the years ended December 31, 2016, 2015 and 2014, respectively.
2015 includes the impact of the transfer of reserves relating to the HFS portfolio, which was not significant.

Changes in Card Member Loans Reserve for Losses

The following table presents changes in the Card Member loans reserve for losses for the years ended December 31:

(Millions)		2016		2015		2014
Balance, January 1		$	4	$	3	$	4
	Provisions		6		5		8
	Net write-offs^(a)		(5)		(4)		(4)
	Other debits^(b)		―		―		(5)
Balance, December 31		$	5	$	4	$	3

Net of recoveries of $1 million for both the years ended December 31, 2016 and 2015, and $4 million for the year ended December 31, 2014.
Primarily reserve balances applicable to sales of Card Member loans to the American Express joint ventures following the termination of the agreements to purchase Card Member loans in the third quarter of 2014. Card Member loans sold totaled nil for both the years ended December 31, 2016 and 2015, and $0.2 billion for the year ended December 31, 2014.