Reserves for losses relating to cardmember receivables and loans represent management's best estimate of the losses inherent in Credco's outstanding portfolios. Credco's total provisions for losses were $43 million and $85 million for the nine months ended September 30, 2011 and 2010, respectively. Management's evaluation process requires certain estimates and judgments.

Reserves for these losses are primarily based upon models that analyze portfolio performance and reflect management's judgment regarding overall reserve adequacy. The analytic models take into account several factors, including average losses and recoveries over an appropriate historical period. Management considers whether to adjust the analytic models for specific factors such as increased risk in certain portfolios, impact of risk management initiatives on portfolio performance and concentration of credit risk based on factors such as tenure, industry or geographic regions. In addition, management adjusts the reserves for losses on cardmember loans for other external environmental factors including leading economic and market indicators, such as the unemployment rate, Gross Domestic Product (GDP), home price indices, non-farm payrolls, personal consumption expenditures index, consumer confidence index, purchasing managers index, bankruptcy filings and the legal and regulatory environment. Generally, due to the short-term nature of cardmember receivables, the impact of additional external factors on the inherent losses within the cardmember receivables portfolio is not significant. 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 cardmember receivables or loans and net write-off coverage.

Cardmember loans and receivables balances are written off when management deems amounts to be uncollectible and is generally determined by the number of days past due, which is generally no later than 180 days past due. Cardmember loans and receivables in bankruptcy or owed by deceased individuals are written off upon notification. Recoveries are recognized on a cash basis.

The following table presents changes in the cardmember receivables reserve for losses for the nine months ended September 30:

(Millions)		2011		2010
Balance, January 1		$	112	$	141
Additions:
	Cardmember receivables provisions^(a)		45		82
	Other credits^(b)		23		26
Deductions:
	Cardmember receivables net write-offs^(c)		(92)		(142)
	Other debits^(d)		(16)		(1)
Balance, September 30^(e)		$	72	$	106

(a) Represents loss provisions for cardmember receivables consisting of principal (resulting from authorized transactions) and fee reserve components.

(b) Primarily represents reserve balances applicable to participation interests in cardmember receivables purchased from an affiliate. Participation interests in cardmember receivables purchased from an affiliate totaled $2.7 billion and $2.6 billion for the nine months ended September 30, 2011 and 2010, respectively.

(c) Represents write-offs consisting of principal (resulting from authorized transactions) and fee components, less recoveries of $74 million and $83 million for the nine months ended September 30, 2011 and 2010, respectively.

(d) Primarily relates to reserves for losses attributable to participation interests in cardmember receivables sold to an affiliate. Participation interests in cardmember receivables sold to an affiliate totaled $2.2 billion and nil for the nine months ended September 30, 2011 and 2010, respectively.

(e) Volume of receivables purchased was $130 billion and $115 billion for the nine months ended September 30, 2011 and 2010, respectively.

The following table presents changes in the cardmember loans reserve for losses for the nine months ended September 30:

(Millions)		2011		2010
Balance, January 1		$	9	$	19
Additions:
	Cardmember loans provisions^(a)		(2)		3
Deductions:
	Cardmember loans net write-offs^(b)		(1)		(9)
	Other debits^(c)		0		(3)
Balance, September 30^(d)		$	6	$	10