NOTE 6—ALLOWANCE FOR LOAN AND LEASE LOSSES

Our allowance for loan and lease losses represents management’s best estimate of incurred loan and lease losses inherent in our loans held for investment portfolio as of each balance sheet date. In addition to the allowance for loan and lease losses, we also estimate probable losses related to unfunded lending commitments, such as letters of credit, financial guarantees, and binding unfunded loan commitments. The provision for unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets. See “Note 1—Summary of Significant Accounting Policies” for further discussion on the methodology and policy for determining our allowance for loan and lease losses for each of our loan portfolio segments.

Allowance for Loan and Lease Losses Activity

The table below summarizes changes in the allowance for loan and lease losses and unfunded lending commitments, by portfolio segment, for the years ended December 31, 2015 and 2014.

Table 6.1: Allowance for Loan and Lease Losses and Unfunded Lending Commitments



(Dollars in millions)	Credit Card			Consumer Banking			Commercial Banking			Other⁽¹⁾			Total
Allowance for loan and lease losses:
Balance as of December 31, 2013	$	3,214		$	752		$	338		$	11		$	4,315
Provision (benefit) for credit losses	2,750			703			67			(5		)	3,515
Charge-offs	(3,963		)	(989		)	(34		)	(10		)	(4,996		)
Recoveries	1,235			314			24			9			1,582
Net charge-offs	(2,728		)	(675		)	(10		)	(1		)	(3,414		)
Other changes⁽²⁾	(32		)	(1		)	0			0			(33		)
Balance as of December 31, 2014	3,204			779			395			5			4,383
Unfunded lending commitments reserve:
Balance as of December 31, 2013	0			7			80			0			87
Provision for unfunded lending commitments	0			0			26			0			26
Balance as of December 31, 2014	0			7			106			0			113
Combined allowance and unfunded reserve as of December 31, 2014	$	3,204		$	786		$	501		$	5		$	4,496
Allowance for loan and lease losses:
Balance as of December 31, 2014	$	3,204		$	779		$	395		$	5		$	4,383
Provision (benefit) for credit losses⁽³⁾	3,417			819			256			(2		)	4,490
Charge-offs	(4,028		)	(1,082		)	(76		)	(7		)	(5,193		)
Recoveries	1,110			351			29			8			1,498
Net charge-offs	(2,918		)	(731		)	(47		)	1			(3,695		)
Other changes⁽²⁾	(49		)	1			0			0			(48		)
Balance as of December 31, 2015	3,654			868			604			4			5,130
Unfunded lending commitments reserve:
Balance as of December 31, 2014	0			7			106			0			113
Provision for unfunded lending commitments⁽³⁾	0			0			46			0			46
Other changes⁽²⁾	0			0			9			0			9
Balance as of December 31, 2015	0			7			161			0			168
Combined allowance and unfunded reserve as of December 31, 2015	$	3,654		$	875		$	765		$	4		$	5,298

__________


⁽¹⁾	Other primarily consists of our discontinued GreenPoint mortgage operations loan portfolio.


⁽²⁾	Represents foreign currency translation adjustments and the net impact of loan transfers and sales. At acquisition date we also recognized the fair value of the unfunded lending commitments reserve of the GE Healthcare acquisition. See “Note 2—Business Developments” for additional information about the GE Healthcare acquisition.


⁽³⁾	Includes a provision for credit losses of $49 million to establish an initial allowance and reserve related to the loans acquired in the GE Healthcare acquisition.

Components of Allowance for Loan and Lease Losses by Impairment Methodology

The table below presents the components of our allowance for loan and lease losses, by portfolio segment and impairment methodology, and the recorded investment of the related loans as of December 31, 2015 and 2014.

Table 6.2: Components of Allowance for Loan and Lease Losses by Impairment Methodology



	December 31, 2015
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Other		Total
Allowance for loan and lease losses:
Collectively evaluated⁽¹⁾	$	3,445	$	778	$	517	$	4	$	4,744
Asset-specific⁽²⁾⁽³⁾	209		54		86		0		349
Acquired Loans⁽⁴⁾	0		36		1		0		37
Total allowance for loan and lease losses⁽³⁾	$	3,654	$	868	$	604	$	4	$	5,130
Loans held for investment:
Collectively evaluated⁽¹⁾	$	95,459	$	51,113	$	61,424	$	88	$	208,084
Asset-specific⁽²⁾	666		699		884		0		2,249
Acquired Loans⁽⁴⁾	0		18,560		958		0		19,518
Total loans held for investment	$	96,125	$	70,372	$	63,266	$	88	$	229,851
Allowance as a percentage of period-end loans held for investment	3.80%		1.23%		0.95%		4.94%		2.23%



	December 31, 2014
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Other		Total
Allowance for loan and lease losses:
Collectively evaluated⁽¹⁾	$	2,985	$	710	$	356	$	5	$	4,056
Asset-specific⁽²⁾	219		42		39		0		300
Acquired Loans⁽⁴⁾	0		27		0		0		27
Total allowance for loan and lease losses	$	3,204	$	779	$	395	$	5	$	4,383
Loans held for investment:
Collectively evaluated⁽¹⁾	$	85,161	$	47,507	$	50,328	$	111	$	183,107
Asset-specific⁽²⁾	692		647		370		0		1,709
Acquired Loans⁽⁴⁾	23		23,285		192		0		23,500
Total loans held for investment	$	85,876	$	71,439	$	50,890	$	111	$	208,316
Allowance as a percentage of period-end loans held for investment	3.73%		1.09%		0.78%		4.68%		2.10%

__________

⁽¹⁾

The component of the allowance for loan and lease losses for credit card and other consumer loans that we collectively evaluate for impairment is based on a statistical calculation supplemented by management judgment and interpretation. The component of the allowance for loan and lease losses for commercial loans, which we collectively evaluate for impairment, is based on historical loss experience for loans with similar characteristics and consideration of credit quality supplemented by management judgment and interpretation.


⁽²⁾	The asset-specific component of the allowance for loan and lease losses for smaller-balance impaired loans is calculated on a pool basis using historical loss experience for the respective class of assets. The asset-specific component of the allowance for loan and lease losses for larger-balance commercial loans is individually calculated for each loan.


⁽³⁾	Includes an allowance build of $39 million related to loans purchased in the GE Healthcare acquisition.


⁽⁴⁾	The Acquired Loans component of the allowance for loan and lease losses is accounted for based on expected cash flows. See “Note 1—Summary of Significant Accounting Policies” for details on these loans.

We have certain credit card partnership arrangements in which our partner agrees to share in a portion of the credit losses associated with the partnership. The loss sharing amounts due from these partners result in reductions in reported net charge-offs and provision for loan and lease losses. The table below summarizes these impacts for the years ended December 31, 2015, 2014 and 2013.

Table 6.3: Summary of Loss Sharing Arrangements Impact



	Year Ended December 31,
(Dollars in millions)	2015		2014		2013
Reduction in net charge-offs	$	189	$	164	$	151
Reduction in provision for loan and lease losses	240		167		111

The expected reimbursement from these partners, which is netted against our allowance for loan and lease losses, was approximately $194 million, $143 million and $141 million as of December 31, 2015, 2014 and 2013 respectively. See “Note 1—Summary of Significant Accounting Policies” for further discussion on our credit card partnership agreements.