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” 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 years ended December 31, 2016, 2015 and 2014.

Table 5.1: Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity



(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 loan and lease 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
Reserve for unfunded lending commitments:
Balance as of December 31, 2013	0			7			80			0			87
Provision for losses on unfunded lending commitments	0			0			26			0			26
Balance as of December 31, 2014	0			7			106			0			113
Combined allowance and 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 loan and lease losses	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
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			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 reserve as of December 31, 2015	$	3,654		$	875		$	765		$	4		$	5,298



(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	4,926			1,055			515			(5		)	6,491
Charge-offs	(5,019		)	(1,226		)	(307		)	(3		)	(6,555		)
Recoveries	1,066			406			15			6			1,493
Net charge-offs	(3,953		)	(820		)	(292		)	3			(5,062		)
Other changes⁽²⁾	(21		)	(1		)	(34		)	0			(56		)
Balance as of December 31, 2016	4,606			1,102			793			2			6,503
Reserve for unfunded lending commitments:
Balance as of December 31, 2015	0			7			161			0			168
Provision (benefit) for losses on unfunded lending commitments	0			0			(32		)	0			(32		)
Other changes⁽²⁾	0			0			0			0			0
Balance as of December 31, 2016	0			7			129			0			136
Combined allowance and reserve as of December 31, 2016	$	4,606		$	1,109		$	922		$	2		$	6,639

__________


⁽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 December 31, 2016 and 2015.

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



	December 31, 2016
(Dollars in millions)	Credit Card		Consumer Banking		Commercial Banking		Other		Total
Allowance for loan and lease losses:
Collectively evaluated⁽¹⁾	$	4,367	$	1,016	$	622	$	2	$	6,007
Asset-specific⁽²⁾	239		57		169		0		465
PCI loans⁽³⁾	0		29		2		0		31
Total allowance for loan and lease losses	$	4,606	$	1,102	$	793	$	2	$	6,503
Loans held for investment:
Collectively evaluated⁽¹⁾	$	104,835	$	57,862	$	64,794	$	64	$	227,555
Asset-specific⁽²⁾	715		736		1,509		0		2,960
PCI loans⁽³⁾	2		14,456		613		0		15,071
Total loans held for investment	$	105,552	$	73,054	$	66,916	$	64	$	245,586
Allowance coverage ratio⁽⁴⁾	4.36%		1.51%		1.19%		3.13%		2.65%



	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 coverage ratio⁽⁴⁾	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” for details on these loans.


⁽⁴⁾	Allowance coverage ratio is calculated by dividing the period-end allowance for loan and lease losses by period-end loans held for investment within the specified loan category.

We have certain credit card partnership arrangements in which our partner agrees to share a portion of the credit losses associated with the partnership that qualify for net accounting treatment. The expected reimbursements from these partners, which are netted against our allowance for loan and lease losses, result in reductions to reported net charge-offs and provision for credit losses. See “Note 1—Summary of Significant Accounting Policies” for further discussion on our card partnership agreements.

The table below summarizes the changes in the expected reimbursements from these partners for the years ended December 31, 2016, 2015 and 2014.

Table 5.3: Summary of Loss Sharing Arrangements Impacts



	Year Ended December 31,
(Dollars in millions)	2016			2015			2014
Expected reimbursements from loss sharing partners:
Balance as of beginning of the period	$	194		$	143		$	140
Impact to net charge-offs	(229		)	(189		)	(164		)
Impact to provision for credit losses	263			240			167
Balance as of end of the period	$	228		$	194		$	143