Reserves for Losses

12 Months Ended

Dec. 31, 2017

Reserves for Losses [Abstract]

Reserves for Losses

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 quantitativereserves 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, whichis generally determined by the number of days past due and is typically no later than 180 days past due.Card Member receivables andloans 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, 2017 or 2016.

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)		2017		2016			2015
Balance, January 1		$	110	$	114	$	94
	Provisions		238		145		160
	Other credits(a)		58		20		32
	Net write-offs(b)		(198)		(146)		(157)
	Other debits(c)(d)		(63)		(23)		(15)
Balance, December 31		$	145	$	110	$	114

• 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 $9.4 billion, $5.4 billion and $5.8 billion for the years ended December 31, 2017, 2016 and 2015, respectively.
• Net of recoveries of $95 million, $91 million and $100 million for the years ended December 31, 2017, 2016 and 2015, respectively.
• Primarily reserve balances related to participation interests in Card Member receivables sold to an affiliate. Participation interests in Card Member receivables sold totaled $9.4 billion, $5.7 billion and $2.6 billion for the years ended December 31, 2017, 2016 and 2015, 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)		2017		2016		2015
Balance, January 1		$	5	$	4	$	3
	Provisions		6		6		5
	Net write-offs(a)		(6)		(5)		(4)
Balance, December 31		$	5	$	5	$	4

Net of recoveries of $1 million foreach of the years ended December 31, 2017, 2016 and 2015.