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Allowance for Loan and Lease Losses
 9 Months Ended
Sep. 30, 2019
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
Allowance for Loans and Lease Losses
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 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” in our 2018 Form 10-K for further discussion of 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 and nine months ended September 30, 2019 and 2018.
Table 5.1: Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity
 
 
Three Months Ended September 30, 2019
(Dollars in millions)
 
Credit Card
 
Consumer
Banking
 
Commercial Banking
 
Total
Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
Balance as of June 30, 2019
 
$
5,342

 
$
1,055

 
$
736

 
$
7,133

Charge-offs
 
(1,531
)
 
(489
)
 
(66
)
 
(2,086
)
Recoveries(1)
 
380

 
238

 
6

 
624

Net charge-offs
 
(1,151
)
 
(251
)
 
(60
)
 
(1,462
)
Provision for loan and lease losses
 
1,087

 
203

 
84

 
1,374

Allowance build (release) for loan and lease losses
 
(64
)
 
(48
)
 
24

 
(88
)
Other changes(2)
 
(8
)
 
0

 
0

 
(8
)
Balance as of September 30, 2019
 
5,270

 
1,007

 
760

 
7,037

Reserve for unfunded lending commitments:
 
 
 
 
 
 
 
 
Balance as of June 30, 2019
 
0

 
4

 
140

 
144

Provision for losses on unfunded lending commitments
 
0

 
0

 
9

 
9

Balance as of September 30, 2019
 
0

 
4

 
149

 
153

Combined allowance and reserve as of September 30, 2019
 
$
5,270

 
$
1,011

 
$
909

 
$
7,190

 
 
Nine Months Ended September 30, 2019
(Dollars in millions)
 
Credit Card
 
Consumer
Banking
 
Commercial Banking
 
Total
Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
 
$
5,535

 
$
1,048

 
$
637

 
$
7,220

Charge-offs
 
(5,024
)
 
(1,383
)
 
(109
)
 
(6,516
)
Recoveries(1)
 
1,189

 
739

 
19

 
1,947

Net charge-offs
 
(3,835
)
 
(644
)
 
(90
)
 
(4,569
)
Provision for loan and lease losses
 
3,571

 
603

 
213

 
4,387

Allowance build (release) for loan and lease losses
 
(264
)
 
(41
)
 
123

 
(182
)
Other changes(2)
 
(1
)
 
0

 
0

 
(1
)
Balance as of September 30, 2019
 
5,270

 
1,007

 
760

 
7,037

Reserve for unfunded lending commitments:
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
 
0

 
4

 
118

 
122

Provision for losses on unfunded lending commitments
 
0

 
0

 
31

 
31

Balance as of September 30, 2019
 
0

 
4

 
149

 
153

Combined allowance and reserve as of September 30, 2019
 
$
5,270

 
$
1,011

 
$
909

 
$
7,190

 
 
Three Months Ended September 30, 2018
(Dollars in millions)
 
Credit Card
 
Consumer
Banking
 
Commercial Banking
 
Other
 
Total
Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2018
 
$
5,624

 
$
1,120

 
$
624

 
$
0

 
$
7,368

Charge-offs
 
(1,528
)
 
(469
)
 
(48
)
 
1

 
(2,044
)
Recoveries(1)
 
391

 
207

 
21

 
0

 
619

Net charge-offs
 
(1,137
)
 
(262
)
 
(27
)
 
1

 
(1,425
)
Provision (benefit) for loan and lease losses
 
1,031

 
185

 
60

 
(1
)
 
1,275

Allowance build (release) for loan and lease losses
 
(106
)
 
(77
)
 
33

 
0

 
(150
)
Other changes(2)
 
2

 
0

 
(1
)
 
0

 
1

Balance as of September 30, 2018
 
5,520

 
1,043

 
656

 
0

 
7,219

Reserve for unfunded lending commitments:
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2018
 
0

 
5

 
112

 
0

 
117

Benefit for losses on unfunded lending commitments
 
0

 
(1
)
 
(6
)
 
0

 
(7
)
Balance as of September 30, 2018
 
0

 
4

 
106

 
0

 
110

Combined allowance and reserve as of September 30, 2018
 
$
5,520

 
$
1,047

 
$
762

 
$
0

 
$
7,329

 
 
Nine Months Ended September 30, 2018
(Dollars in millions)
 
Credit Card
 
Consumer
Banking(3)
 
Commercial Banking
 
Other(3)
 
Total
Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
 
$
5,648

 
$
1,242

 
$
611

 
$
1

 
$
7,502

Charge-offs
 
(5,032
)
 
(1,314
)
 
(76
)
 
(7
)
 
(6,429
)
Recoveries(1)
 
1,258

 
631

 
37

 
1

 
1,927

Net charge-offs
 
(3,774
)
 
(683
)
 
(39
)
 
(6
)
 
(4,502
)
Provision (benefit) for loan and lease losses
 
3,658

 
538

 
85

 
(49
)
 
4,232

Allowance build (release) for loan and lease losses
 
(116
)
 
(145
)
 
46

 
(55
)
 
(270
)
Other changes(2)(3)
 
(12
)
 
(54
)
 
(1
)
 
54

 
(13
)
Balance as of September 30, 2018
 
5,520

 
1,043

 
656

 
0

 
7,219

Reserve for unfunded lending commitments:
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
 
0

 
7

 
117

 
0

 
124

Benefit for losses on unfunded lending commitments
 
0

 
(3
)
 
(11
)
 
0

 
(14
)
Balance as of September 30, 2018
 
0

 
4

 
106

 
0

 
110

Combined allowance and reserve as of September 30, 2018
 
$
5,520

 
$
1,047

 
$
762

 
$
0

 
$
7,329

__________
(1) 
The amount and timing of recoveries is impacted by our collection strategies, which are based on customer behavior and risk profile and include direct customer communications, repossession of collateral, the periodic sale of charged-off loans as well as additional strategies, such as litigation.
(2) 
Represents foreign currency translation adjustments and the net impact of loan transfers and sales where applicable.
(3) 
In 2018, we sold all of our consumer home loan portfolio.The impact included a benefit for credit losses of $46 million in the second quarter of 2018 which was reflected in the Other category.
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 as of September 30, 2019 and December 31, 2018. See “Note 1—Summary of Significant Accounting Policies” in our 2018 Form 10-K for further discussion of allowance methodologies for each of the loan portfolios.
Table 5.2: Components of Allowance for Loan and Lease Losses by Impairment Methodology
 
 
September 30, 2019
(Dollars in millions)
 
Credit
Card
 
Consumer Banking
 
Commercial Banking
 
Total
Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
Collectively evaluated
 
$
5,073

 
$
975

 
$
662

 
$
6,710

Asset-specific
 
197

 
32

 
98

 
327

Total allowance for loan and lease losses
 
$
5,270

 
$
1,007

 
$
760

 
$
7,037

Loans held for investment:
 
 
 
 
 
 
 
 
Collectively evaluated
 
$
112,866

 
$
61,631

 
$
72,902

 
$
247,399

Asset-specific
 
815

 
382

 
726

 
1,923

PCI loans
 
0

 
2

 
31

 
33

Total loans held for investment
 
$
113,681

 
$
62,015

 
$
73,659

 
$
249,355

Allowance coverage ratio(1)
 
4.64
%
 
1.62
%
 
1.03
%
 
2.82
%
 
 
December 31, 2018
(Dollars in millions)
 
Credit
Card
 
Consumer Banking
 
Commercial Banking
 
Total
Allowance for loan and lease losses:
 
 
 
 
 
 
 
 
Collectively evaluated
 
$
5,258

 
$
1,021

 
$
603

 
$
6,882

Asset-specific
 
277

 
27

 
34

 
338

Total allowance for loan and lease losses
 
$
5,535

 
$
1,048

 
$
637

 
$
7,220

Loans held for investment:
 
 
 
 
 
 
 
 
Collectively evaluated
 
$
115,505

 
$
58,808

 
$
69,607

 
$
243,920

Asset-specific
 
855

 
393

 
596

 
1,844

PCI loans
 
1

 
4

 
130

 
135

Total loans held for investment
 
$
116,361

 
$
59,205

 
$
70,333

 
$
245,899

Allowance coverage ratio(1)
 
4.76
%
 
1.77
%
 
0.91
%
 
2.94
%
__________
(1) 
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.
Credit Card Partnership Loss Sharing Arrangements
We have certain credit card partnership agreements that are presented within our consolidated financial statements on a net basis, in which our partner agrees to share a portion of the credit losses on the underlying loan portfolio. The expected reimbursements from these partners, which are netted against our allowance for loan and lease losses, result in reductions to net charge-offs and provision for credit losses. See “Note 1—Summary of Significant Accounting Policies” in our 2018 Form 10-K for further discussion of our credit card partnership agreements.
The table below summarizes the changes in the estimated reimbursements from these partners for the three and nine months ended September 30, 2019 and 2018.
Table 5.3: Summary of Credit Card Partnership Loss Sharing Arrangements Impacts
 
 
Three Months Ended September 30,
(Dollars in millions)
 
2019
 
2018
Estimated reimbursements from partners, beginning of period
 
$
414

 
$
392

Amounts due from partners which reduced net charge-offs
 
(100
)
 
(97
)
Amounts estimated to be charged to partners which reduced provision for credit losses
 
86

 
81

Estimated reimbursements from partners, end of period
 
$
400

 
$
376

 
 
Nine Months Ended September 30,
(Dollars in millions)
 
2019
 
2018
Estimated reimbursements from partners, beginning of period
 
$
379

 
$
380

Amounts due from partners which reduced net charge-offs
 
(313
)
 
(286
)
Amounts estimated to be charged to partners which reduced provision for credit losses
 
334

 
282

Estimated reimbursements from partners, end of period
 
$
400

 
$
376