NOTE 5
Reserves for Losses
Reserves for losses relating to Card Member loans and receivables represent management's best estimate of the probable inherent losses in the Company's outstanding portfolio of loans and receivables, as of the balance sheet date. Management's evaluation process requires certain estimates and judgments.
Reserves for losses are primarily based upon statistical and analytical models that analyze portfolio performance and reflect management's judgment regarding the quantitative components of the reserve. The models take into account several factors, including delinquency based loss migration rates, loss emergence periods and average losses and recoveries over an appropriate historical period. Management considers whether to adjust the models for specific qualitative factors such as increased risk in certain portfolios, impact of risk management initiatives on portfolio performance and concentration of credit risk based on factors such as vintage, industry or geographic regions. In addition, management may increase or decrease the reserves for losses on Card Member loans for other external environmental qualitative factors, including various indicators related to employment, spend, sentiment, housing and credit, as well as the legal and regulatory environment. Generally, due to the short-term nature of Card Member receivables, the impact of additional external qualitative factors on the probable losses inherent within the Card Member receivables portfolio is not significant. As part of this evaluation process, management also considers various reserve coverage metrics, such as reserves as a percentage of past due amounts, reserves as a percentage of Card Member receivables or loans and net write-off coverage.
Card Member loans and receivables balances are written off when management considers amounts to be uncollectible, which is generally determined by the number of days past due and is typically no later than 180 days past due. Card Member loans and receivables in bankruptcy or owed by deceased individuals are generally written off upon notification, and recoveries are recognized as they are collected.
Changes in Card Member Receivables Reserve for Losses
The following table presents changes in the Card Member receivables reserve for losses for the years ended December 31:
(Millions) | 2013 | 2012 | 2011 | ||||||||
Balance, January 1 | $ | 428 | $ | 438 | $ | 386 | |||||
Additions: | |||||||||||
Provisions(a) | 647 | 601 | 603 | ||||||||
Other(b) | 142 | 141 | 167 | ||||||||
Total provision | 789 | 742 | 770 | ||||||||
Deductions: | |||||||||||
Net write-offs(c) | (669) | (640) | (560) | ||||||||
Other(d) | (162) | (112) | (158) | ||||||||
Balance, December 31 | $ | 386 | $ | 428 | $ | 438 |
Card Member Receivables Evaluated Individually and Collectively for Impairment
The following table presents Card Member receivables evaluated individually and collectively for impairment and related reserves as of December 31:
(Millions) | 2013 | 2012 | 2011 | |||||||
Card Member receivables evaluated | ||||||||||
individually for impairment(a) | $ | 50 | $ | 117 | $ | 174 | ||||
Related reserves(a) | $ | 38 | $ | 91 | $ | 118 | ||||
Card Member receivables evaluated | ||||||||||
collectively for impairment | $ | 44,113 | $ | 42,649 | $ | 40,716 | ||||
Related reserves | $ | 348 | $ | 337 | $ | 320 |
Changes in Card Member Loans Reserve for Losses
The following table presents changes in the Card Member loans reserve for losses for the years ended December 31:
(Millions) | 2013 | 2012 | 2011 | ||||||||
Balance, January 1 | $ | 1,471 | $ | 1,874 | $ | 3,646 | |||||
Additions: | |||||||||||
Provisions(a) | 1,114 | 1,031 | 145 | ||||||||
Other(b) | 115 | 118 | 108 | ||||||||
Total provision | 1,229 | 1,149 | 253 | ||||||||
Deductions: | |||||||||||
Net write-offs | |||||||||||
Principal(c) | (1,141) | (1,280) | (1,720) | ||||||||
Interest and fees(c) | (150) | (157) | (201) | ||||||||
Other(d) | (148) | (115) | (104) | ||||||||
Balance, December 31 | $ | 1,261 | $ | 1,471 | $ | 1,874 |
Card Member Loans Evaluated Individually and Collectively for Impairment
The following table presents Card Member loans evaluated individually and collectively for impairment and related reserves as of December 31:
(Millions) | 2013 | 2012 | 2011 | |||||||
Card Member loans evaluated | ||||||||||
individually for impairment(a) | $ | 378 | $ | 633 | $ | 744 | ||||
Related reserves(a) | $ | 84 | $ | 153 | $ | 176 | ||||
Card Member loans evaluated | ||||||||||
collectively for impairment(b) | $ | 66,860 | $ | 64,596 | $ | 61,877 | ||||
Related reserves(b) | $ | 1,177 | $ | 1,318 | $ | 1,698 |