Reserves for Losses

12 Months Ended

Dec. 31, 2018

Reserves for Losses [Abstract]

Reserves for Losses

Note 3–Reserves for Losses

Reserves for losses relating to Card Member receivables and Card Memberloans 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 Card Memberloans 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 andCard Memberloans in bankruptcy or owed by deceased individuals are generally written off upon notification.

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)		2018		2017			2016
Balance, January 1		$	145	$	110	$	114
	Provisions		243		238		145
	Other credits(a)		53		58		20
	Net write-offs(b)		(238)		(198)		(146)
	Other debits(c)		(36)		(63)		(23)
Balance, December 31		$	167	$	145	$	110

• Primarily reserve balances related to new groups of, and participation interests in,Card Member receivables purchased from affiliates, totaling$9.8 billion, $9.4 billion and $5.4 billion for the years ended December 31, 2018, 2017 and 2016, respectively.
• Net of recoveries of $119 million, $95 million and $91 million for the years ended December 31, 2018, 2017 and 2016, respectively.
• Primarily reserve balances related to participation interests in Card Member receivables sold to an affiliate. Participation interests in Card Member receivables sold totaled $6.2 billion, $9.4 billion and $5.7 billion for the years ended December 31, 2018, 2017 and 2016, respectively.

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)		2018		2017		2016
Balance, January 1		$	5	$	5	$	4
	Provisions		6		6		6
	Net write-offs(a)		(6)		(6)		(5)
Balance, December 31		$	5	$	5	$	5

Net of recoveries of $1.8 million for the year ended December 31, 2018, and $1.0 million for both the years ended December 31, 2017 and 2016