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Allowance for Credit Losses and Reserve for Unfunded Lending Commitments
 6 Months Ended
Jun. 30, 2021
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
Allowance for Credit Losses and Reserve for Unfunded Lending Commitment
NOTE 4—ALLOWANCE FOR CREDIT LOSSES AND RESERVE FOR UNFUNDED LENDING COMMITMENTS
Our allowance for credit losses represents management’s current estimate of expected credit losses over the contractual terms of our loans held for investment as of each balance sheet date. Expected recoveries of amounts previously charged off or expected to be charged off are recognized within the allowance. When developing an estimate of expected credit losses, we use both quantitative and qualitative methods in considering all available information relevant to assessing collectability. This may include internal information, external information or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. Management will consider and may qualitatively adjust for conditions, changes and trends in loan portfolios that may not be captured in modeled results. These adjustments are referred to as qualitative factors and represent management’s judgment of the imprecision and risks inherent in the processes and assumptions used in establishing the allowance for credit losses. Significant judgment is applied in our estimation of lifetime credit losses.
We have unfunded lending commitments in our Commercial Banking business that are not unconditionally cancellable by us and for which we estimate expected credit losses in establishing a reserve. This reserve is measured using the same measurement objectives as the allowance for loans held for investment. We build or release the reserve for unfunded lending commitments through 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 2020 Form 10-K for further discussion of the methodology and policy for determining our allowance for credit losses for each of our loan portfolio segments, as well as information on our reserve for unfunded lending commitments.
Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity
The table below summarizes changes in the allowance for credit losses and reserve for unfunded lending commitments by portfolio segment for the three and six months ended June 30, 2021 and 2020. Our allowance for credit losses decreased by $3.2 billion to $12.3 billion as of June 30, 2021 from December 31, 2020, primarily driven by strong credit performance and an improved economic outlook.
Table 4.1: Allowance for Credit Losses and Reserve for Unfunded Lending Commitments Activity
Three Months Ended June 30, 2021
(Dollars in millions)Credit CardConsumer BankingCommercial BankingTotal
Allowance for credit losses:
Balance as of March 31, 2021$10,072 $2,498 $1,447 $14,017 
Charge-offs
(967)(260)(8)(1,235)
Recoveries(1)
396 271 27 694 
Net recoveries (charge-offs)(571)11 19 (541)
Provision (benefit) for credit losses(635)(306)(196)(1,137)
Allowance build (release) for credit losses(1,206)(295)(177)(1,678)
Other changes(2)
7 0 0 7 
Balance as of June 30, 20218,873 2,203 1,270 12,346 
Reserve for unfunded lending commitments:
Balance as of March 31, 20210 0 187 187 
Provision (benefit) for losses on unfunded lending commitments0 0 (23)(23)
Balance as of June 30, 20210 0 164 164 
Combined allowance and reserve as of June 30, 2021$8,873 $2,203 $1,434 $12,510 
Six Months Ended June 30, 2021
(Dollars in millions)Credit CardConsumer BankingCommercial BankingTotal
Allowance for credit losses:
Balance as of December 31, 2020$11,191 $2,715 $1,658 $15,564 
Charge-offs
(1,960)(602)(27)(2,589)
Recoveries(1)
756 522 30 1,308 
Net recoveries (charge-offs)(1,204)(80)3 (1,281)
Provision (benefit) for credit losses(1,127)(432)(391)(1,950)
Allowance build (release) for credit losses(2,331)(512)(388)(3,231)
Other changes(2)
13 0 0 13 
Balance as of June 30, 20218,873 2,203 1,270 12,346 
Reserve for unfunded lending commitments:
Balance as of December 31, 20200 0 195 195 
Provision (benefit) for losses on unfunded lending commitments0 0 (31)(31)
Balance as of June 30, 20210 0 164 164 
Combined allowance and reserve as of June 30, 2021$8,873 $2,203 $1,434 $12,510 
Three Months Ended June 30, 2020
(Dollars in millions)Credit CardConsumer BankingCommercial BankingTotal
Allowance for credit losses:
Balance as of March 31, 2020$10,346 $2,154 $1,573 $14,073 
Charge-offs
(1,612)(416)(103)(2,131)
Recoveries(1)
401 224 1 626 
Net charge-offs(1,211)(192)(102)(1,505)
Provision (benefit) for credit losses2,944 876 432 4,252 
Allowance build (release) for credit losses1,733 684 330 2,747 
Other changes(2)
12 0 0 12 
Balance as of June 30, 202012,091 2,838 1,903 16,832 
Reserve for unfunded lending commitments:
Balance as of March 31, 20200 0 223 223 
Provision (benefit) for losses on unfunded lending commitments0 0 (5)(5)
Balance as of June 30, 20200 0 218 218 
Combined allowance and reserve as of June 30, 2020$12,091 $2,838 $2,121 $17,050 
Six Months Ended June 30, 2020
(Dollars in millions)Credit CardConsumer BankingCommercial BankingTotal
Allowance for credit losses:
Balance as of December 31, 2019$5,395 $1,038 $775 $7,208 
Cumulative effects from adoption of the CECL standard2,241 502 102 2,845 
Finance charge and fee reserve reclassification(3)
462 0 0 462 
Balance as of January 1, 20208,098 1,540 877 10,515 
Charge-offs
(3,461)(912)(215)(4,588)
Recoveries(1)
814 474 4 1,292 
Net charge-offs(2,647)(438)(211)(3,296)
Provision (benefit) for credit losses6,646 1,736 1,237 9,619 
Allowance build (release) for credit losses3,999 1,298 1,026 6,323 
Other changes(2)
(6)0 0 (6)
Balance as of June 30, 202012,091 2,838 1,903 16,832 
Reserve for unfunded lending commitments:
Balance as of December 31, 20190 5 130 135 
Cumulative effects from adoption of the CECL standard0 (5)42 37 
Balance as of January 1, 20200 0 172 172 
Provision (benefit) for losses on unfunded lending commitments0 0 46 46 
Balance as of June 30, 20200 0 218 218 
Combined allowance and reserve as of June 30, 2020$12,091 $2,838 $2,121 $17,050 
__________
(1)The amount and timing of recoveries are 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.
(3)Concurrent with our adoption of the CECL standard in the first quarter of 2020, we reclassified our finance charge and fee reserve to our allowance for credit losses, with a corresponding increase to credit card loans held for investment.
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 are netted against our allowance for credit losses. Our methodology for estimating reimbursements is consistent with the methodology we use to estimate the allowance for credit losses on our credit card loan receivables. These expected reimbursements result in reductions to net charge-offs and the provision for credit losses. See “Note 1—Summary of Significant Accounting Policies” in our 2020 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 six months ended June 30, 2021 and 2020.
Table 4.2: Summary of Credit Card Partnership Loss Sharing Arrangements Impacts
Three Months Ended June 30,
(Dollars in millions)20212020
Estimated reimbursements from partners, beginning of period$2,005 $2,653 
Amounts due from partners which reduced net charge-offs(128)(293)
Amounts estimated to be charged (from) to partners which reduced provision for credit losses(166)73 
Estimated reimbursements from partners, end of period$1,711 $2,433 
Six Months Ended June 30,
(Dollars in millions)20212020
Estimated reimbursements from partners, beginning of period$2,159 $2,166 
Amounts due from partners which reduced net charge-offs(269)(595)
Amounts estimated to be charged (from) to partners which reduced provision for credit losses(179)862 
Estimated reimbursements from partners, end of period$1,711 $2,433