NOTE 6—ALLOWANCE FOR LOAN AND LEASE LOSSES

We maintain an allowance for loan and lease losses ("the allowance") that represents management's best estimate of incurred loan and lease credit losses inherent in our held for investment portfolio as of each balance sheet date. We do not maintain an allowance for held for sale loans or purchased credit-impaired loans that are performing in accordance with or better than our expectations as of the date of acquisition, as the fair values of these loans already reflect a credit component. The allowance for loan and lease losses is increased through the provision for loan and lease losses and reduced by net charge-offs. The provision for loan and lease losses, which is charged to earnings, reflects credit losses we believe have been incurred and will eventually be reflected over time in our charge-offs. Charge-offs of uncollectible amounts are deducted from the allowance and subsequent recoveries are added.

In determining the allowance for loan and lease losses, we disaggregate loans in our portfolio with similar credit risk characteristics into portfolio segments. Management performs quarterly analysis of these portfolios to determine if impairment has occurred and to assess the adequacy of the allowance based on historical and current trends and other factors affecting credit losses. We apply documented systematic methodologies to separately calculate the allowance for our consumer loan and commercial loan portfolio and for loans within each of these portfolios that we identify as individually impaired. Our allowance for loan and lease losses consists of three components that are allocated to cover the estimated probable losses in each loan portfolio based on the results of our detailed review and loan impairment assessment process: (1) a formula-based component for loans collectively evaluated for impairment; (2) an asset-specific component for individually impaired loans; and (3) a component related to purchased credit-impaired loans that have experienced significant decreases in expected cash flows subsequent to acquisition. See "Note 1—Summary of Significant Accounting Policies" of our 2010 Form 10-K for a description of the methodologies and policies for determining our allowance for loan and lease losses for each of our loan portfolio segments.

Allowance for Loan and Lease Losses Activity

The allowance for loan and lease losses is increased through the provision for loan and lease losses and reduced by net charge-offs. The provision for loan and lease losses, which is charged to earnings, reflects credit losses we believe have been incurred and will eventually be reflected over time in our charge-offs. Charge-offs of uncollectible amounts are deducted from the allowance and subsequent recoveries are included. The table below summarizes changes in the allowance for loan and lease losses, by portfolio segment, and our unfunded lending commitment reserve during the three and six months ended June 30, 2011:


	Three Months Ended June 30, 2011
				Consumer																					Unfunded Lending Reserve			Combined Allowance & Unfunded Reserve
(Dollars in millions)	Credit Card			Auto			Home Loan			Retail Banking			Total Consumer			Commercial			Other⁽¹⁾			Total Allowance			Unfunded Lending Reserve			Combined Allowance & Unfunded Reserve
Balance as of March 31, 2011	$	3,576		$	318		$	119		$	204		$	641		$	782		$	68		$	5,067		$	71		$	5,138
Provision for loan and lease losses(2)		309			56			(12	)		1			45			(14	)		10			350			(7	)		343
Charge-offs(2)		(1,110	)		(102	)		(22	)		(25	)		(149	)		(50	)		(13	)		(1,322	)		0			(1,322	)
Recoveries		317			50			5			6			61			12			1			391			0			391

Net charge-offs		(793	)		(52	)		(17	)		(19	)		(88	)		(38	)		(12	)		(931	)		0			(931	)
Other changes⁽³⁾		1			0			0			0			0			0			1			2			0			2

Balance as of June 30, 2011	$	3,093		$	322		$	90		$	186		$	598		$	730		$	67		$	4,488		$	64		$	4,552


	Six Months Ended June 30, 2011
				Consumer																					Unfunded Lending Reserve			Combined Allowance & Unfunded Reserve
(Dollars in millions)	Credit Card			Auto			Home Loan			Retail Banking			Total Consumer			Commercial			Other⁽¹⁾			Total Allowance			Unfunded Lending Reserve			Combined Allowance & Unfunded Reserve
Balance as of December 31, 2010	$	4,041		$	353		$	112		$	210		$	675		$	826		$	86		$	5,628		$	107		$	5,735
Provision for loan and lease losses(2)		759			110			16			18			144			1			16			920			(43	)		877
Charge-offs(2)		(2,395	)		(243	)		(54	)		(55	)		(352	)		(117	)		(38	)		(2,902	)		0			(2,902	)
Recoveries		673			102			16			13			131			20			2			826			0			826

Net charge-offs		(1,722	)		(141	)		(38	)		(42	)		(221	)		(97	)		(36	)		(2,076	)		0			(2,076	)
Other changes⁽³⁾		15			0			0			0			0			0			1			16			0			16

Balance as of June 30, 2011	$	3,093		$	322		$	90		$	186		$	598		$	730		$	67		$	4,488		$	64		$	4,552

⁽¹⁾	Other consists of our discontinued GreenPoint mortgage operations loan portfolio and our community redevelopment loan portfolio.

⁽²⁾

The reduction in the provision for loan and lease losses attributable to Kohl's was $212 million in the second quarter and first six months of 2011. Loss sharing amounts attributable to Kohl's reduced charge-offs by $42 million in the second quarter and first six months of 2011. The expected reimbursement from Kohl's netted in our allowance for loan and lease losses was approximately $170 million as of June 30, 2011.

⁽³⁾	Includes foreign exchange translation adjustments of $2 million and $16 million for the three and six months ended June 30, 2011, respectively.

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 loan category and impairment methodology, and the recorded investment of the related loans as of June 30, 2011 and December 31, 2010:


	June 30, 2011
				Consumer
(Dollars in millions)	Credit Card			Auto			Home Loan			Retail Banking			Total Consumer			Commercial			Other			Total
Allowance for loan and lease losses by impairment methodology:
Collectively evaluated for impairment	$	2,711		$	320		$	72		$	184		$	576		$	684		$	67		$	4,038
Individually evaluated for impairment		382			2			9			1			12			43			0			437
Purchased credit-impaired loans		0			0			9			1			10			3			0			13

Total allowance for loan and lease losses	$	3,093		$	322		$	90		$	186		$	598		$	730		$	67		$	4,488

Held for investment loans by impairment methodology:
Collectively evaluated for impairment	$	61,776		$	19,136		$	6,675		$	4,005		$	29,816		$	30,115		$	465		$	122,172
Individually evaluated for impairment		929			20			71			38			129			590			0			1,648
Purchased credit-impaired loans		0			67			4,577			3			4,647			498			0			5,145

Total held for investment loans	$	62,705		$	19,223		$	11,323		$	4,046		$	34,592		$	31,203		$	465		$	128,965

Allowance as a percentage of period end held for investment loans		4.93	%		1.68	%		0.79	%		4.60	%		1.73	%		2.34	%		14.41	%		3.48	%


	December 31, 2010
				Consumer
(Dollars in millions)	Credit Card			Auto			Home Loan			Retail Banking			Total Consumer			Commercial			Other			Total
Allowance for loan and lease losses by impairment methodology:
Collectively evaluated for impairment	$	3,655		$	353		$	81		$	209		$	643		$	808		$	86		$	5,192
Individually evaluated for impairment		386			0			1			1			2			15			0			403
Purchased credit-impaired loans		0			0			30			0			30			3			0			33

Total allowance for loan and lease losses	$	4,041		$	353		$	112		$	210		$	675		$	826		$	86		$	5,628

Held for investment loans by impairment methodology:
Collectively evaluated for impairment	$	60,458		$	17,867		$	7,154		$	4,271		$	29,292		$	28,682		$	451		$	118,883
Individually evaluated for impairment		913			0			57			40			97			500			0			1,510
Purchased credit impaired loans		0			0			4,892			102			4,994			560			0			5,554

Total held for investment loans	$	61,371		$	17,867		$	12,103		$	4,413		$	34,383		$	29,742		$	451		$	125,947

Allowance as a percentage of period end held for investment loans		6.58	%		1.98	%		0.93	%		4.76	%		1.96	%		2.78	%		19.07	%		4.47	%