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other considerations used in estimating amounts in our consolidated financial statements, the resulting changes could
have a material effect on our consolidated results of operations and, in certain cases, could have a material effect on
our consolidated financial condition. Management has identified the estimates related to our allowance for loan losses,
the evaluation of goodwill and other non-amortizable intangible assets for potential impairment, the accrual of income
taxes, and estimates of future cash flows associated with PCI loans as critical accounting estimates.
Allowance for Loan Losses
We base our allowance for loan losses on several analyses that help us estimate incurred losses as of the balance
sheet date. This estimate considers uncollectible principal, interest and fees reflected in the loan receivables. While our
estimation process includes historical data and analysis, there is a significant amount of judgment applied in selecting
inputs and analyzing the results produced to determine the allowance. We use a migration analysis to estimate the
likelihood that a loan will progress through the various stages of delinquency. Management also estimates loss
emergence by using other analyses to estimate losses incurred from non-delinquent accounts. The considerations in
these analyses include past and current loan performance, loan seasoning and growth, current risk management
practices, account collection strategies, economic conditions, bankruptcy filings, policy changes and forecasting
uncertainties. Given the same information, others may reach different reasonable estimates.
If management used different assumptions in estimating incurred net loan losses, the impact to the allowance for
loan losses could have a material effect on our consolidated financial condition and results of operations. For example,
a 10% change in management's estimate of incurred net loan losses could have resulted in a change of approximately
$187 million in the allowance for loan losses at December 31, 2015, with a corresponding change in the provision for
loan losses. See "— Loan Quality" and Note 2: Summary of Significant Accounting Policies to our consolidated
financial statements for further details about our allowance for loan losses.
Goodwill
We recognize goodwill when the purchase price of an acquired business exceeds the total of the fair values of
the acquired net assets. As required by GAAP, we test goodwill for impairment annually, or more often if indicators of
impairment exist. In evaluating goodwill for impairment, management must estimate the fair value of the reporting unit
(s) to which the goodwill relates. Because market data concerning acquisitions of comparable businesses typically are
not readily obtainable, other valuation techniques such as earnings multiples and cash flow models are used in
estimating the fair values of these reporting units. In applying these techniques, management considers historical results,
business forecasts, market and industry conditions and other factors. We may also consult independent valuation
experts where needed in applying these valuation techniques. The valuation methodologies we use involve assumptions
about business performance, revenue and expense growth, capital expenditures, discount rates and other assumptions
that are judgmental in nature.
During the fourth quarter of 2013, we changed the date of our annual goodwill impairment test from June 1 to
October 1. This goodwill impairment test date change was applied prospectively beginning on October 1, 2013 and
had no effect on the consolidated financial statements.
At December 31, 2015, we had goodwill of $255 million. If economic conditions deteriorate or other events
adversely impact the assumptions used by management in these valuations, we may be exposed to an impairment loss
that, when recognized, could have a material impact on our consolidated financial condition and results of operations.
At December 31, 2015, based on the annual impairment testing performed, there were no impairment charges
identified. See Note 8: Goodwill and Intangible Assets to our consolidated financial statements for further details about
goodwill and the related impairment charge.
Other Non-amortizable Intangible Assets
We recognized certain other non-amortizable intangible assets in our acquisition of the Diners Club business. As
required by GAAP, we test other non-amortizable intangible assets for impairment annually, or more often if indicators
of impairment exist. Because market data concerning acquisitions of intangible assets is not readily available,
management evaluates non-amortizable intangible assets for potential impairment by estimating their fair values using
discounted cash flow models. In applying these techniques, management considers historical results, business forecasts,
market and industry conditions and other factors. We may also consult independent valuation experts where needed in
applying these valuation techniques. The valuation methodologies we use involve assumptions about business
performance, revenue and expense growth, discount rates and other assumptions that are judgmental in nature.