Reserves for Losses

3 Months Ended

Mar. 31, 2013

Reserves for Losses [Abstract]

Reserves for Losses

4. Reserves for Losses

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

Reserves for losses are primarily based upon statistical models that analyze portfolio performance and reflect management's judgment regarding the qualitative components of the reserve adequacy. The models take into account several factors, including loss migration rates and average losses and recoveries over an appropriate historical period. Management considers whether to adjust the models for specific qualitative 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 vintage, industry or geographic regions. In addition, management may increase or decrease the reserves for losses on cardmember loans for other external environmental qualitative factors,includingvarious indicators related to employment, spend, sentiment, housingand credit, as well as the legal and regulatory environment. Generally, due to the short-term nature of cardmember receivables, the impact of additionalexternal qualitative factors on the probable losses inherent within the cardmemberreceivablesportfolio 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 receivablesbalances 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. Cardmember loans and receivables in bankruptcy or owed by deceased individuals are generally written off upon notification and recoveries are recognized as they are collected.

Changes in Cardmember Receivables Reserve for Losses

The following table presents changes in the cardmember receivables reserve for losses for the three months endedMarch 31:

(Millions)		2013		2012
Balance, January 1		$	83	$	71
Additions:
	Provisions(a)		41		23
	Other credits(b)		21		29
Deductions:
	Net write-offs(c)		(43)		(34)
	Other debits(d)		(5)		―
Balance, March 31		$	97	$	89

• Provisions resulting from authorized transactions.
• Primarily reserve balances applicable to participation interests in cardmember receivables purchased from an affiliate. Credco purchases cardmember receivables at fair value but due to system constraints records the gross receivable amount and the corresponding reserve balance, which are included in its fair value estimate. Specifically, Credco's systems do not have the ability to track multiple accounting bases for cardmember receivables.Participation interests in cardmember receivables purchased from an affiliate totaled $3.3 billionfor both the three months endedMarch 31,2013 and 2012.
• Net write-offs includerecoveries of $26 million and $23million for the three months endedMarch 31, 2013 and 2012, respectively.
• Primarily reserves for losses attributable to participation interests in cardmember receivables sold to an affiliate. Participation interests in cardmember receivables sold to an affiliate totaled $0.6billion and nil for the three months endedMarch 31, 2013 and 2012, respectively.

Changes in Cardmember Loans Reserve for Losses

The following table presents changes in the cardmember loans reserve for losses for the three months endedMarch 31:

(Millions)		2013		2012
Balance, January 1		$	5	$	5
Additions:
	Provisions(a)		1		―
Deductions:
	Net write-offs(b)		(1)		(1)
Balance, March 31		$	5	$	4

• Provisions resulting from authorized transactions.
• Net write-offs include recoveries of $2 million and $1 million forthethree months endedMarch 31, 2013 and 2012, respectively.