NOTE 5—ALLOWANCE FOR LOAN AND LEASE LOSSES AND RESERVE FOR UNFUNDED LENDING COMMITMENTS

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 losses on 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” of our 2015 Form 10-K for further discussion on the methodology and policy for determining our allowance for loan and lease losses for each of our loan portfolio segments, as well as information on our reserve for unfunded lending commitments.

Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity

The table below summarizes changes in the allowance for loan and lease losses and reserve for unfunded lending commitments by portfolio segment for the three months ended March 31, 2016 and 2015.

Table 5.1: Allowance for Loan and Lease Losses and Reserve for 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, 2015	$	3,654		$	868		$	604		$	4		$	5,130
Provision (benefit) for loan and lease losses	1,071			229			171			(2		)	1,469
Charge-offs	(1,222		)	(291		)	(48		)	(1		)	(1,562		)
Recoveries	272			108			2			2			384
Net charge-offs	(950		)	(183		)	(46		)	1			(1,178		)
Other changes⁽²⁾	10			0			(15		)	0			(5		)
Balance as of March 31, 2016	3,785			914			714			3			5,416
Reserve for unfunded lending commitments:
Balance as of December 31, 2015	0			7			161			0			168
Provision for losses on unfunded lending commitments	0			1			57			0			58
Balance as of March 31, 2016	0			8			218			0			226
Combined allowance and reserve as of March 31, 2016	$	3,785		$	922		$	932		$	3		$	5,642



(Dollars in millions)	Credit Card			Consumer Banking			Commercial Banking			Other⁽¹⁾			Total
Allowance for loan and lease losses:
Balance as of December 31, 2014	$	3,204		$	779		$	395		$	5		$	4,383
Provision (benefit) for loan and lease losses	669			206			52			0			927
Charge-offs	(1,022		)	(250		)	(9		)	(3		)	(1,284		)
Recoveries	303			91			6			3			403
Net charge-offs	(719		)	(159		)	(3		)	0			(881		)
Other changes⁽²⁾	(24		)	0			0			0			(24		)
Balance as of March 31, 2015	3,130			826			444			5			4,405
Reserve for unfunded lending commitments:
Balance as of December 31, 2014	0			7			106			0			113
Provision for losses on unfunded lending commitments	0			0			8			0			8
Balance as of March 31, 2015	0			7			114			0			121
Combined allowance and reserve as of March 31, 2015	$	3,130		$	833		$	558		$	5		$	4,526

__________

⁽¹⁾ Primarily consists of the legacy loan portfolio of our discontinued GreenPoint mortgage operations.


⁽²⁾	Represents foreign currency translation adjustments and the net impact of loan transfers and sales.

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 with the recorded investment of the related loans as of March 31, 2016 and December 31, 2015.

Table 5.2: Components of Allowance for Loan and Lease Losses by Impairment Methodology



	March 31, 2016
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Other		Total
Allowance for loan and lease losses:
Collectively evaluated⁽¹⁾	$	3,572	$	829	$	520	$	3	$	4,924
Asset-specific⁽²⁾	213		51		193		0		457
PCI loans⁽³⁾	0		34		1		0		35
Total allowance for loan and lease losses	$	3,785	$	914	$	714	$	3	$	5,416
Loans held for investment:
Collectively evaluated⁽¹⁾	$	92,041	$	52,247	$	61,954	$	82	$	206,324
Asset-specific⁽²⁾	658		709		1,354		0		2,721
PCI loans⁽³⁾	0		17,635		933		0		18,568
Total loans held for investment	$	92,699	$	70,591	$	64,241	$	82	$	227,613
Allowance as a percentage of period-end loans held for investment	4.08%		1.29%		1.11%		4.15%		2.38%



	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⁾	209		54		86		0		349
PCI loans⁽³⁾	0		36		1		0		37
Total allowance for loan and lease losses	$	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
PCI loans⁽³⁾	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%

__________

⁽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 that 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⁾	The PCI 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” in our 2015 Form 10-K 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 to reported net charge-offs and provision for credit losses. The table below summarizes these impacts for the three months ended March 31, 2016 and 2015.

Table 5.3: Summary of Loss Sharing Arrangements Impact



	Three Months Ended March 31,
(Dollars in millions)	2016		2015
Reduction in net charge-offs	$	52	$	44
Reduction in provision for credit losses	55		57

The expected reimbursement from these partners, which is netted against our allowance for loan and lease losses, was approximately $197 million and $194 million as of March 31, 2016 and December 31, 2015, respectively. See “Note 1—Summary of Significant Accounting Policies” of our 2015 Form 10-K for further discussion on our credit card partnership agreements.