Quarterly report pursuant to Section 13 or 15(d)

Outstanding Loans and Leases

v2.4.0.8
Outstanding Loans and Leases
9 Months Ended
Sep. 30, 2013
Loans and Leases Receivable Disclosure [Abstract]  
Outstanding Loans and Leases
NOTE 5 – Outstanding Loans and Leases

The following tables present total outstanding loans and leases and an aging analysis for the Corporation's Home Loans, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at September 30, 2013 and December 31, 2012.

 
September 30, 2013
(Dollars in millions)
30-59 Days
Past Due
(1)
60-89 Days
Past Due
(1)
90 Days or
More Past Due
(2)
Total
Past Due
30 Days
or More
Total Current
or Less Than 30
Days Past Due
(3)
Purchased
Credit -
impaired
(4)
Loans
Accounted for
Under the Fair
Value Option
Total
Outstandings
Home loans
 
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
 
Residential mortgage (5)
$
2,182

$
766

$
7,452

$
10,400

$
167,108

 
 
$
177,508

Home equity
230

118

654

1,002

54,714

 
 
55,716

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
 
Residential mortgage (6)
2,952

1,485

18,793

23,230

32,694

$
20,064

 
75,988

Home equity
439

234

1,289

1,962

31,871

7,104

 
40,937

Credit card and other consumer
 
 
 
 
 
 
 
 
U.S. credit card
609

454

1,049

2,112

88,168

 
 
90,280

Non-U.S. credit card
67

55

142

264

10,819

 
 
11,083

Direct/Indirect consumer (7)
398

188

456

1,042

82,993

 
 
84,035

Other consumer (8)
24

9

19

52

1,861

 
 
1,913

Total consumer loans
6,901

3,309

29,854

40,064

470,228

27,168

 
537,460

Consumer loans accounted for under the fair value option (9)
 
 
 
 
 
 
$
2,186

2,186

Total consumer
6,901

3,309

29,854

40,064

470,228

27,168

2,186

539,646

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
187

124

445

756

210,358

 
 
211,114

Commercial real estate (10)
44

108

440

592

44,348

 
 
44,940

Commercial lease financing
29

53

72

154

24,435

 
 
24,589

Non-U.S. commercial
286

1

3

290

92,655

 
 
92,945

U.S. small business commercial
71

58

128

257

12,891

 
 
13,148

Total commercial loans
617

344

1,088

2,049

384,687

 
 
386,736

Commercial loans accounted for under the fair value option (9)
 
 
 
 
 
 
8,010

8,010

Total commercial
617

344

1,088

2,049

384,687

 
8,010

394,746

Total loans and leases
$
7,518

$
3,653

$
30,942

$
42,113

$
854,915

$
27,168

$
10,196

$
934,392

Percentage of outstandings
0.81
%
0.39
%
3.31
%
4.51
%
91.49
%
2.91
%
1.09
%
 
(1) 
Home loans 30-59 days past due includes fully-insured loans of $2.6 billion and nonperforming loans of $736 million. Home loans 60-89 days past due includes fully-insured loans of $1.2 billion and nonperforming loans of $494 million.
(2) 
Home loans includes fully-insured loans of $18.0 billion.
(3) 
Home loans includes $6.2 billion and direct/indirect consumer includes $39 million of nonperforming loans.
(4) 
PCI loan amounts are shown gross of the valuation allowance.
(5) 
Total outstandings includes non-U.S. residential mortgage loans of $87 million.
(6) 
Total outstandings includes pay option loans of $5.2 billion. The Corporation no longer originates this product.
(7) 
Total outstandings includes dealer financial services loans of $39.5 billion, consumer lending loans of $3.1 billion, U.S. securities-based lending loans of $30.4 billion, non-U.S. consumer loans of $5.7 billion, student loans of $4.3 billion and other consumer loans of $1.0 billion.
(8) 
Total outstandings includes consumer finance loans of $1.2 billion, consumer leases of $492 million, consumer overdrafts of $175 million and other non-U.S. consumer loans of $5 million.
(9) 
Consumer loans accounted for under the fair value option were residential mortgage loans of $2.2 billion. Commercial loans accounted for under the fair value option were U.S. commercial loans of $1.8 billion and non-U.S. commercial loans of $6.2 billion. For additional information, see Note 16 – Fair Value Measurements and Note 17 – Fair Value Option.
(10) 
Total outstandings includes U.S. commercial real estate loans of $43.5 billion and non-U.S. commercial real estate loans of $1.4 billion.
 
December 31, 2012
(Dollars in millions)
30-59 Days
Past Due
(1)
60-89 Days
Past Due
(1)
90 Days or
More Past Due
(2)
Total
Past Due
30 Days
or More
Total Current
or Less Than 30
Days Past Due
(3)
Purchased
Credit -
impaired
(4)
Loans
Accounted for
Under the Fair
Value Option
Total
Outstandings
Home loans
 
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
 
Residential mortgage (5)
$
2,274

$
806

$
6,227

$
9,307

$
160,809

 
 
$
170,116

Home equity
273

146

591

1,010

59,841

 
 
60,851

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
 
Residential mortgage (6)
2,938

1,714

26,728

31,380

33,982

$
17,451

 
82,813

Home equity
608

357

1,444

2,409

36,213

8,667

 
47,289

Credit card and other consumer
 
 
 
 
 
 
 
 
U.S. credit card
729

582

1,437

2,748

92,087

 
 
94,835

Non-U.S. credit card
106

85

212

403

11,294

 
 
11,697

Direct/Indirect consumer (7)
569

239

573

1,381

81,824

 
 
83,205

Other consumer (8)
48

19

4

71

1,557

 
 
1,628

Total consumer loans
7,545

3,948

37,216

48,709

477,607

26,118

 
552,434

Consumer loans accounted for under the fair value option (9)
 
 
 
 
 
 
$
1,005

1,005

Total consumer
7,545

3,948

37,216

48,709

477,607

26,118

1,005

553,439

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
323

133

639

1,095

196,031

 
 
197,126

Commercial real estate (10)
79

144

983

1,206

37,431

 
 
38,637

Commercial lease financing
84

79

30

193

23,650

 
 
23,843

Non-U.S. commercial
2



2

74,182

 
 
74,184

U.S. small business commercial
101

75

168

344

12,249

 
 
12,593

Total commercial loans
589

431

1,820

2,840

343,543

 
 
346,383

Commercial loans accounted for under the fair value option (9)
 
 
 
 
 
 
7,997

7,997

Total commercial
589

431

1,820

2,840

343,543

 
7,997

354,380

Total loans and leases
$
8,134

$
4,379

$
39,036

$
51,549

$
821,150

$
26,118

$
9,002

$
907,819

Percentage of outstandings
0.90
%
0.48
%
4.30
%
5.68
%
90.45
%
2.88
%
0.99
%
 
(1) 
Home loans 30-59 days past due includes fully-insured loans of $2.3 billion and nonperforming loans of $702 million. Home loans 60-89 days past due includes fully-insured loans of $1.3 billion and nonperforming loans of $558 million.
(2) 
Home loans includes fully-insured loans of $22.2 billion.
(3) 
Home loans includes $5.5 billion and direct/indirect consumer includes $63 million of nonperforming loans.
(4) 
PCI loan amounts are shown gross of the valuation allowance.
(5) 
Total outstandings includes non-U.S. residential mortgage loans of $93 million.
(6) 
Total outstandings includes pay option loans of $6.7 billion. The Corporation no longer originates this product.
(7) 
Total outstandings includes dealer financial services loans of $35.9 billion, consumer lending loans of $4.7 billion, U.S. securities-based lending loans of $28.3 billion, non-U.S. consumer loans of $8.3 billion, student loans of $4.8 billion and other consumer loans of $1.2 billion.
(8) 
Total outstandings includes consumer finance loans of $1.4 billion, consumer leases of $34 million, consumer overdrafts of $177 million and other non-U.S. consumer loans of $5 million.
(9) 
Consumer loans accounted for under the fair value option were residential mortgage loans of $1.0 billion. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.3 billion and non-U.S. commercial loans of $5.7 billion. For additional information, see Note 16 – Fair Value Measurements and Note 17 – Fair Value Option.
(10) 
Total outstandings includes U.S. commercial real estate loans of $37.2 billion and non-U.S. commercial real estate loans of $1.5 billion.

The Corporation mitigates a portion of its credit risk on the residential mortgage portfolio through the use of synthetic securitization vehicles. These vehicles issue long-term notes to investors, the proceeds of which are held as cash collateral. The Corporation pays a premium to the vehicles to purchase mezzanine loss protection on a portfolio of residential mortgage loans owned by the Corporation. Cash held in the vehicles is used to reimburse the Corporation in the event that losses on the mortgage portfolio exceed 10 basis points (bps) of the original pool balance, up to the remaining amount of purchased loss protection of $376 million and $500 million at September 30, 2013 and December 31, 2012. The vehicles from which the Corporation purchases credit protection are VIEs. The Corporation does not have a variable interest in these vehicles, and accordingly, these vehicles are not consolidated by the Corporation. Amounts due from the vehicles are recorded in other income (loss) in the Consolidated Statement of Income when the Corporation recognizes a reimbursable loss, as described above. Amounts are collected when reimbursable losses are realized through the sale of the underlying collateral. At September 30, 2013 and December 31, 2012, the Corporation had a receivable of $206 million and $305 million from these vehicles for reimbursement of losses, and principal of $13.5 billion and $17.6 billion of residential mortgage loans was referenced under these agreements. The Corporation records an allowance for credit losses on these loans without regard to the existence of the purchased loss protection as the protection does not represent a guarantee of individual loans.

In addition, the Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $27.6 billion and $24.3 billion at September 30, 2013 and December 31, 2012, providing full protection on residential mortgage loans that become severely delinquent. All of these loans are individually insured and therefore the Corporation does not record an allowance for credit losses related to these loans. For additional information, see Note 8 – Representations and Warranties Obligations and Corporate Guarantees.

Nonperforming Loans and Leases

In accordance with bank regulatory interagency guidance, the Corporation classifies junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At September 30, 2013 and December 31, 2012, $1.3 billion and $1.5 billion of such loans were included in nonperforming loans.

In accordance with regulatory guidance, the Corporation classifies consumer real estate loans that have been discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower as troubled debt restructurings (TDRs), irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified. The Corporation continues to have a lien on the underlying collateral. At September 30, 2013, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms at the time of discharge were $1.9 billion of which $1.0 billion were current on their contractual payments while $742 million were 90 days or more past due. Of the contractually current nonperforming loans, more than 70 percent were discharged in Chapter 7 bankruptcy more than 12 months ago, and nearly 50 percent were discharged 24 months or more ago. As subsequent cash payments are received, the interest component of the payments is generally recorded as interest income on a cash basis and the principal component is recorded as a reduction in the carrying value of the loan.
The table below presents the Corporation's nonperforming loans and leases including nonperforming TDRs, and loans accruing past due 90 days or more at September 30, 2013 and December 31, 2012. Nonperforming loans held-for-sale (LHFS) are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For more information on the criteria for classification as nonperforming, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2012 Annual Report on Form 10-K.

Credit Quality
 
 
 
 
 
 
 
 
Nonperforming Loans and Leases (1)
 
Accruing Past Due 90 Days or More
(Dollars in millions)
September 30
2013
 
December 31
2012
 
September 30
2013
 
December 31
2012
Home loans
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
Residential mortgage (2)
$
3,479

 
$
3,193

 
$
5,207

 
$
3,984

Home equity
1,417

 
1,265

 

 

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
Residential mortgage (2)
9,849

 
11,862

 
12,753

 
18,173

Home equity
2,759

 
3,017

 

 

Credit card and other consumer
 
 
 
 
 
 
 
U.S. credit card
n/a

 
n/a

 
1,049

 
1,437

Non-U.S. credit card
n/a

 
n/a

 
142

 
212

Direct/Indirect consumer
59

 
92

 
437

 
545

Other consumer
18

 
2

 
1

 
2

Total consumer
17,581

 
19,431

 
19,589

 
24,353

Commercial
 
 
 
 
 
 
 
U.S. commercial
1,059

 
1,484

 
57

 
65

Commercial real estate
488

 
1,513

 
76

 
29

Commercial lease financing
49

 
44

 
66

 
15

Non-U.S. commercial
86

 
68

 
3

 

U.S. small business commercial
103

 
115

 
83

 
120

Total commercial
1,785

 
3,224

 
285

 
229

Total loans and leases
$
19,366

 
$
22,655

 
$
19,874

 
$
24,582

(1) 
Nonperforming loan balances did not include nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of $356 million and $521 million at September 30, 2013 and December 31, 2012.
(2) 
Residential mortgage loans in the Core and Legacy Assets & Servicing portfolios accruing past due 90 days or more are fully-insured loans. At September 30, 2013 and December 31, 2012, residential mortgage includes $13.9 billion and $17.8 billion of loans on which interest has been curtailed by the FHA, and therefore are no longer accruing interest, although principal is still insured, and $4.1 billion and $4.4 billion of loans on which interest is still accruing.
n/a = not applicable

Credit Quality Indicators

The Corporation monitors credit quality within its Home Loans, Credit Card and Other Consumer, and Commercial portfolio segments based on primary credit quality indicators. For more information on the portfolio segments, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2012 Annual Report on Form 10-K. Within the Home Loans portfolio segment, the primary credit quality indicators are refreshed LTV and refreshed FICO score. Refreshed LTV measures the carrying value of the loan as a percentage of the value of property securing the loan, refreshed quarterly. Home equity loans are evaluated using combined loan-to-value (CLTV) which measures the carrying value of the combined loans that have liens against the property and the available line of credit as a percentage of the appraised value of the property securing the loan, refreshed quarterly. FICO score measures the creditworthiness of the borrower based on the financial obligations of the borrower and the borrower's credit history. At a minimum, FICO scores are refreshed quarterly, and in many cases, more frequently. FICO scores are also a primary credit quality indicator for the Credit Card and Other Consumer portfolio segment and the business card portfolio within U.S. small business commercial. Within the Commercial portfolio segment, loans are evaluated using the internal classifications of pass rated or reservable criticized as the primary credit quality indicators. The term reservable criticized refers to those commercial loans that are internally classified or listed by the Corporation as Special Mention, Substandard or Doubtful, which are asset categories defined by regulatory authorities. These assets have an elevated level of risk and may have a high probability of default or total loss. Pass rated refers to all loans not considered reservable criticized. In addition to these primary credit quality indicators, the Corporation uses other credit quality indicators for certain types of loans.
The following tables present certain credit quality indicators for the Corporation's Home Loans, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at September 30, 2013 and December 31, 2012.

Home Loans – Credit Quality Indicators (1)
 
 
 
 
 
 
 
September 30, 2013
(Dollars in millions)
Core Portfolio Residential Mortgage (2)
Legacy Assets & Servicing Residential Mortgage (2)
Residential
Mortgage PCI
(3)
Core Portfolio Home Equity (2)
Legacy Assets & Servicing Home Equity (2)
Home
Equity PCI
Refreshed LTV (4)
 
 
 
 
 
 
Less than or equal to 90 percent
$
92,172

$
22,199

$
10,760

$
44,827

$
15,827

$
1,963

Greater than 90 percent but less than or equal to 100 percent
6,983

4,526

3,011

4,374

4,290

668

Greater than 100 percent
8,212

10,466

6,293

6,515

13,716

4,473

Fully-insured loans (5)
70,141

18,733





Total home loans
$
177,508

$
55,924

$
20,064

$
55,716

$
33,833

$
7,104

 
 
 
 
 
 
 
Refreshed FICO score
 
 
 
 
 
 
Less than 620
$
6,032

$
11,770

$
10,871

$
2,413

$
4,478

$
1,296

Greater than or equal to 620 and less than 680
7,955

5,919

3,363

4,187

5,240

1,272

Greater than or equal to 680 and less than 740
25,097

8,133

3,056

11,840

9,414

2,018

Greater than or equal to 740
68,283

11,369

2,774

37,276

14,701

2,518

Fully-insured loans (5)
70,141

18,733





Total home loans
$
177,508

$
55,924

$
20,064

$
55,716

$
33,833

$
7,104

(1) 
Excludes $2.2 billion of loans accounted for under the fair value option.
(2) 
Excludes PCI loans.
(3) 
Includes $4.7 billion of pay option loans. The Corporation no longer originates this product.
(4) 
Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance.
(5) 
Credit quality indicators are not reported for fully-insured loans as principal repayment is insured.

Credit Card and Other Consumer – Credit Quality Indicators
 
September 30, 2013
(Dollars in millions)
U.S. Credit
Card
 
Non-U.S.
Credit Card
 
Direct/Indirect
Consumer
 
Other
Consumer
(1)
Refreshed FICO score
 
 
 
 
 
 
 
Less than 620
$
5,112

 
$

 
$
1,293

 
$
571

Greater than or equal to 620 and less than 680
13,106

 

 
3,264

 
273

Greater than or equal to 680 and less than 740
36,054

 

 
10,087

 
205

Greater than or equal to 740
36,008

 

 
27,419

 
193

Other internal credit metrics (2, 3, 4)

 
11,083

 
41,972

 
671

Total credit card and other consumer
$
90,280

 
$
11,083

 
$
84,035

 
$
1,913

(1) 
65 percent of the other consumer portfolio is associated with portfolios from certain consumer finance businesses that the Corporation previously exited.
(2) 
Other internal credit metrics may include delinquency status, geography or other factors.
(3) 
Direct/indirect consumer includes $36.0 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $4.3 billion of loans the Corporation no longer originates.
(4) 
Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At September 30, 2013, 98 percent of this portfolio was current or less than 30 days past due, one percent was 30-89 days past due and one percent was 90 days or more past due.

Commercial – Credit Quality Indicators (1)
 
September 30, 2013
(Dollars in millions)
U.S.
Commercial
 
Commercial
Real Estate
 
Commercial
Lease
Financing
 
Non-U.S.
Commercial
 
U.S. Small
Business
Commercial
(2)
Risk ratings
 
 
 
 
 
 
 
 
 
Pass rated
$
203,620

 
$
43,135

 
$
23,500

 
$
91,399

 
$
1,313

Reservable criticized
7,494

 
1,805

 
1,089

 
1,546

 
391

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
235

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
548

Greater than or equal to 680 and less than 740
 
 
 
 
 
 
 
 
1,594

Greater than or equal to 740
 
 
 
 
 
 
 
 
2,820

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
6,247

Total commercial
$
211,114

 
$
44,940

 
$
24,589

 
$
92,945

 
$
13,148

(1) 
Excludes $8.0 billion of loans accounted for under the fair value option.
(2) 
U.S. small business commercial includes $295 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At September 30, 2013, 99 percent of the balances where internal credit metrics are used was current or less than 30 days past due.
(3) 
Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio.
(4) 
Other internal credit metrics may include delinquency status, application scores, geography or other factors.
Home Loans – Credit Quality Indicators (1)
 
 
 
 
 
 
 
December 31, 2012
(Dollars in millions)
Core Portfolio
Residential
Mortgage
(2)
Legacy Assets & Servicing
Residential Mortgage
(2)
Residential
Mortgage PCI
(3)
Core Portfolio Home Equity (2)
Legacy Assets & Servicing Home
Equity
(2)
Home
Equity PCI
Refreshed LTV (4)
 
 
 
 
 
 
Less than or equal to 90 percent
$
80,585

$
20,613

$
8,581

$
44,971

$
15,922

$
2,074

Greater than 90 percent but less than or equal to 100 percent
8,891

5,097

2,368

5,825

4,507

805

Greater than 100 percent
12,984

16,454

6,502

10,055

18,193

5,788

Fully-insured loans (5)
67,656

23,198





Total home loans
$
170,116

$
65,362

$
17,451

$
60,851

$
38,622

$
8,667

 
 
 
 
 
 
 
Refreshed FICO score
 
 
 
 
 
 
Less than 620
$
6,366

$
14,320

$
8,647

$
2,586

$
5,411

$
1,989

Greater than or equal to 620 and less than 680
8,561

6,157

2,712

4,500

5,921

1,529

Greater than or equal to 680 and less than 740
25,141

8,611

2,976

12,625

10,395

2,299

Greater than or equal to 740
62,392

13,076

3,116

41,140

16,895

2,850

Fully-insured loans (5)
67,656

23,198





Total home loans
$
170,116

$
65,362

$
17,451

$
60,851

$
38,622

$
8,667

(1) 
Excludes $1.0 billion of loans accounted for under the fair value option.
(2) 
Excludes PCI loans.
(3) 
Includes $6.1 billion of pay option loans. The Corporation no longer originates this product.
(4) 
Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance.
(5) 
Credit quality indicators are not reported for fully-insured loans as principal repayment is insured.

Credit Card and Other Consumer – Credit Quality Indicators
 
December 31, 2012
(Dollars in millions)
U.S. Credit
Card
 
Non-U.S.
Credit Card
 
Direct/Indirect
Consumer
 
Other
Consumer
(1)
Refreshed FICO score
 
 
 
 
 
 
 
Less than 620
$
6,188

 
$

 
$
1,896

 
$
668

Greater than or equal to 620 and less than 680
13,947

 

 
3,367

 
301

Greater than or equal to 680 and less than 740
37,167

 

 
9,592

 
232

Greater than or equal to 740
37,533

 

 
25,164

 
212

Other internal credit metrics (2, 3, 4)

 
11,697

 
43,186

 
215

Total credit card and other consumer
$
94,835

 
$
11,697

 
$
83,205

 
$
1,628


(1) 
87 percent of the other consumer portfolio is associated with portfolios from certain consumer finance businesses that the Corporation previously exited.
(2) 
Other internal credit metrics may include delinquency status, geography or other factors.
(3) 
Direct/indirect consumer includes $36.5 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $4.8 billion of loans the Corporation no longer originates.
(4) 
Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At December 31, 2012, 97 percent of this portfolio was current or less than 30 days past due, one percent was 30-89 days past due and two percent was 90 days or more past due.

Commercial – Credit Quality Indicators (1)
 
December 31, 2012
(Dollars in millions)
U.S.
Commercial
 
Commercial Real Estate
 
Commercial
Lease
Financing
 
Non-U.S.
Commercial
 
U.S. Small
Business
Commercial
(2)
Risk ratings
 
 
 
 
 
 
 
 
 
Pass rated
$
189,602

 
$
34,968

 
$
22,874

 
$
72,688

 
$
1,690

Reservable criticized
7,524

 
3,669

 
969

 
1,496

 
573

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
400

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
580

Greater than or equal to 680 and less than 740
 
 
 
 
 
 
 
 
1,553

Greater than or equal to 740
 
 
 
 
 
 
 
 
2,496

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
5,301

Total commercial
$
197,126

 
$
38,637

 
$
23,843

 
$
74,184

 
$
12,593


(1) 
Excludes $8.0 billion of loans accounted for under the fair value option.
(2) 
U.S. small business commercial includes $366 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At December 31, 2012, 98 percent of the balances where internal credit metrics are used was current or less than 30 days past due.
(3) 
Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio.
(4) 
Other internal credit metrics may include delinquency status, application scores, geography or other factors.

Impaired Loans and Troubled Debt Restructurings


A loan is considered impaired when, based on current information, it is probable that the Corporation will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans and all consumer and commercial TDRs. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2012 Annual Report on Form 10-K. Impaired loans exclude nonperforming consumer loans and nonperforming commercial leases unless they are classified as TDRs. Loans accounted for under the fair value option are also excluded. Purchased credit-impaired (PCI) loans are excluded and reported separately on page 195.

Home Loans

Impaired home loans within the Home Loans portfolio segment consist entirely of TDRs. Excluding PCI loans, most modifications of home loans meet the definition of TDRs when a binding offer is extended to a borrower. Modifications of home loans are done in accordance with the government's Making Home Affordable Program (modifications under government programs) or the Corporation's proprietary programs (modifications under proprietary programs). These modifications are considered to be TDRs if concessions have been granted to borrowers experiencing financial difficulties. Concessions may include reductions in interest rates, capitalization of past due amounts, principal and/or interest forbearance, payment extensions, principal and/or interest forgiveness, or combinations thereof. During 2012, the Corporation implemented a borrower assistance program that provides forgiveness of principal balances in connection with the settlement agreement among the Corporation and certain of its affiliates and subsidiaries, together with the U.S. Department of Justice (DOJ), the U.S. Department of Housing and Urban Development (HUD) and other federal agencies, and 49 state Attorneys General concerning the terms of a global settlement resolving investigations into certain origination, servicing and foreclosure practices (National Mortgage Settlement). In addition, the Corporation also provides interest rate modifications to qualified borrowers pursuant to the National Mortgage Settlement and these interest rate modifications are not considered to be TDRs.

Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers under both government and proprietary programs, including the borrower assistance program pursuant to the National Mortgage Settlement. Trial modifications generally represent a three- to four-month period during which the borrower makes monthly payments under the anticipated modified payment terms. Upon successful completion of the trial period, the Corporation and the borrower enter into a permanent modification. Binding trial modifications are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification.

In accordance with regulatory guidance addressing certain home loans that have been discharged in Chapter 7 bankruptcy, $3.7 billion of home loans that have been discharged in Chapter 7 bankruptcy with no change in repayment terms at the time of discharge were included in TDRs at September 30, 2013, of which $1.9 billion were classified as nonperforming and $1.8 billion were loans fully-insured by the Federal Housing Administration (FHA). Of the $3.7 billion of home loan TDRs, approximately 21 percent, 33 percent and 46 percent were discharged in Chapter 7 bankruptcy in the nine months ended September 30, 2013, in the year ended December 31, 2012 and in years prior to 2012, respectively. For more information on the regulatory guidance on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.

In accordance with applicable accounting guidance, a home loan, excluding PCI loans which are reported separately, is not classified as impaired unless it is a TDR. Once such a loan has been designated as a TDR, it is then individually assessed for impairment. Home loan TDRs are measured primarily based on the net present value of the estimated cash flows discounted at the loan's original effective interest rate, as discussed in the following paragraph. If the carrying value of a TDR exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses. Alternatively, home loan TDRs that are considered to be dependent solely on the collateral for repayment (e.g., due to the lack of income verification or as a result of being discharged in Chapter 7 bankruptcy) are measured based on the estimated fair value of the collateral and a charge-off is recorded if the carrying value exceeds the fair value of the collateral. Home loans that reached 180 days past due prior to modification had been charged off to their net realizable value before they were modified as TDRs in accordance with established policy. Therefore, modifications of home loans that are 180 or more days past due as TDRs do not have an impact on the allowance for loan and lease losses nor are additional charge-offs required at the time of modification. Subsequent declines in the fair value of the collateral after a loan has reached 180 days past due are recorded as charge-offs. Fully-insured loans are protected against principal loss, and therefore, the Corporation does not record an allowance for loan and lease losses on the outstanding principal balance, even after they have been modified in a TDR.

The net present value of the estimated cash flows is based on model-driven estimates of projected payments, prepayments, defaults and loss-given-default (LGD). Using statistical modeling methodologies, the Corporation estimates the probability that a loan will default prior to maturity based on the attributes of each loan. The factors that are most relevant to the probability of default are the refreshed LTV, or in the case of a subordinated lien, refreshed CLTV, borrower credit score, months since origination (i.e., vintage) and geography. Each of these factors is further broken down by present collection status (whether the loan is current, delinquent, in default or in bankruptcy). Severity (or LGD) is estimated based on the refreshed LTV for first mortgages or CLTV for subordinated liens. The estimates are based on the Corporation's historical experience as adjusted to reflect an assessment of environmental factors that may not be reflected in the historical data, such as changes in real estate values, local and national economies, underwriting standards and the regulatory environment. The probability of default models also incorporate recent experience with modification programs including redefaults subsequent to modification, a loan's default history prior to modification and the change in borrower payments post-modification.

At September 30, 2013 and December 31, 2012, remaining commitments to lend additional funds to debtors whose terms have been modified in a home loan TDR were immaterial. Home loan foreclosed properties totaled $546 million and $650 million at September 30, 2013 and December 31, 2012.

The table below presents impaired loans in the Corporation's Home Loans portfolio segment at September 30, 2013 and December 31, 2012, and for the three and nine months ended September 30, 2013 and 2012, and includes primarily loans managed by Legacy Assets & Servicing. Certain impaired home loans do not have a related allowance as the current valuation of these impaired loans exceeded the carrying value.

Impaired Loans – Home Loans
 
 
 
 
 
September 30, 2013
 
December 31, 2012
(Dollars in millions)
 
 
 
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
22,528

 
$
17,165

 
n/a

 
$
20,226

 
$
14,967

 
n/a

Home equity
 
 
 
 
3,002

 
1,328

 
n/a

 
2,624

 
1,103

 
n/a

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
13,793

 
$
13,227

 
$
1,141

 
$
14,223

 
$
13,158

 
$
1,252

Home equity
 
 
 
 
1,069

 
886

 
343

 
1,256

 
1,022

 
448

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
36,321

 
$
30,392

 
$
1,141

 
$
34,449

 
$
28,125

 
$
1,252

Home equity
 
 
 
 
4,071

 
2,214

 
343

 
3,880

 
2,125

 
448

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2013
 
2012
 
2013
 
2012
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
16,984

 
$
152

 
$
11,606

 
$
88

 
$
16,563

 
$
436

 
$
9,734

 
$
239

Home equity
1,286

 
19

 
819

 
13

 
1,208

 
55

 
603

 
32

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
14,027

 
$
173

 
$
11,435

 
$
97

 
$
14,221

 
$
451

 
$
11,361

 
$
305

Home equity
902

 
9

 
1,095

 
12

 
942

 
31

 
1,186

 
34

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
31,011

 
$
325

 
$
23,041

 
$
185

 
$
30,784

 
$
887

 
$
21,095

 
$
544

Home equity
2,188

 
28

 
1,914

 
25

 
2,150

 
86

 
1,789

 
66

(1) 
Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible.
n/a = not applicable
The table below presents the September 30, 2013 and 2012 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of home loans that were modified in TDRs during the three and nine months ended September 30, 2013 and 2012, and net charge-offs that were recorded during the period in which the modification occurred. The following Home Loans portfolio segment tables include loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period. These TDRs are managed by Legacy Assets & Servicing.

Home Loans – TDRs Entered into During the Three Months Ended September 30, 2013 and 2012 (1)
 
September 30, 2013
 
Three Months Ended September 30, 2013
(Dollars in millions)
Unpaid Principal Balance
 
Carrying
 Value
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
 
Net Charge-offs
Residential mortgage
$
3,275

 
$
2,947

 
5.22
%
 
4.52
%
 
$
64

Home equity
220

 
147

 
5.58

 
4.33

 
36

Total
$
3,495

 
$
3,094

 
5.22

 
4.51

 
$
100

 
 
 
 
 
 
 
 
 
 
 
September 30, 2012
 
Three Months Ended September 30, 2012
Residential mortgage
$
7,823

 
$
6,250

 
5.66
%
 
4.31
%
 
$
129

Home equity
1,570

 
689

 
4.69

 
4.54

 
479

Total
$
9,393

 
$
6,939

 
5.51

 
4.34

 
$
608

 
 
 
 
 
 
 
 
 
 
Home Loans – TDRs Entered into During the Nine Months Ended September 30, 2013 and 2012 (1)
 
September 30, 2013
 
Nine Months Ended September 30, 2013
Residential mortgage
$
10,295

 
$
9,153

 
5.34
%
 
4.34
%
 
$
169

Home equity
706

 
425

 
5.55

 
4.17

 
139

Total
$
11,001

 
$
9,578

 
5.35

 
4.34

 
$
308

 
 
 
 
 
 
 
 
 
 
 
September 30, 2012
 
Nine Months Ended September 30, 2012
Residential mortgage
$
10,064

 
$
8,179

 
5.62
%
 
4.29
%
 
$
277

Home equity
1,759

 
785

 
4.69

 
4.32

 
577

Total
$
11,823

 
$
8,964

 
5.48

 
4.30

 
$
854

(1) 
TDRs entered into during the three and nine months ended September 30, 2013 include residential mortgage modifications with principal forgiveness of $118 million and $462 million. TDRs entered into during the three and nine months ended September 30, 2012 include residential mortgage modifications with principal forgiveness of $294 million and $462 million and home equity mortgage modifications of $2 million and $5 million.
The following tables present the September 30, 2013 and 2012 carrying value for home loans that were modified in a TDR during the three and nine months ended September 30, 2013 and 2012 by type of modification.

Home Loans – Modification Programs
 
TDRs Entered into During the
Three Months Ended September 30, 2013
(Dollars in millions)
Residential Mortgage
 
Home
Equity
 
Total Carrying Value
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
393

 
$
3

 
$
396

Principal and/or interest forbearance
4

 
2

 
6

Other modifications (1)
18

 

 
18

Total modifications under government programs
415

 
5

 
420

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
764

 
13

 
777

Capitalization of past due amounts
26

 

 
26

Principal and/or interest forbearance
57

 
7

 
64

Other modifications (1)
10

 

 
10

Total modifications under proprietary programs
857

 
20

 
877

Trial modifications
1,395

 
51

 
1,446

Loans discharged in Chapter 7 bankruptcy (2)
280

 
71

 
351

Total modifications
$
2,947

 
$
147

 
$
3,094

 
 
 
 
 
 
 
TDRs Entered into During the
Three Months Ended September 30, 2012
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
83

 
$
21

 
$
104

Principal and/or interest forbearance
20

 
11

 
31

Other modifications (1)
2

 

 
2

Total modifications under government programs
105

 
32

 
137

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
1,153

 
15

 
1,168

Capitalization of past due amounts
58

 

 
58

Principal and/or interest forbearance
124

 
5

 
129

Other modifications (1)
28

 
6

 
34

Total modifications under proprietary programs
1,363

 
26

 
1,389

Trial modifications
1,905

 
43

 
1,948

Loans discharged in Chapter 7 bankruptcy (2)
2,877

 
588

 
3,465

Total modifications
$
6,250

 
$
689

 
$
6,939

(1) 
Includes other modifications such as term or payment extensions and repayment plans.
(2) 
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs in accordance with regulatory guidance implemented in the third quarter of 2012. The amount for the three months ended September 30, 2012 represents the cumulative impact upon adoption of the regulatory guidance. For the three months ended September 30, 2013, home loans of $196 million, or 56 percent of loans discharged in Chapter 7 bankruptcy, were current or less than 60 days past due.
Home Loans – Modification Programs
 
TDRs Entered into During the
Nine Months Ended September 30, 2013
(Dollars in millions)
Residential Mortgage
 
Home
Equity
 
Total Carrying Value
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
1,127

 
$
27

 
$
1,154

Principal and/or interest forbearance
32

 
14

 
46

Other modifications (1)
68

 

 
68

Total modifications under government programs
1,227

 
41

 
1,268

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
2,829

 
50

 
2,879

Capitalization of past due amounts
98

 

 
98

Principal and/or interest forbearance
435

 
17

 
452

Other modifications (1)
89

 
14

 
103

Total modifications under proprietary programs
3,451

 
81

 
3,532

Trial modifications
3,442

 
71

 
3,513

Loans discharged in Chapter 7 bankruptcy (2)
1,033

 
232

 
1,265

Total modifications
$
9,153

 
$
425

 
$
9,578

 
 
 
 
 
 
 
TDRs Entered into During the
Nine Months Ended September 30, 2012
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
157

 
$
61

 
$
218

Principal and/or interest forbearance
30

 
24

 
54

Other modifications (1)
18

 

 
18

Total modifications under government programs
205

 
85

 
290

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
2,054

 
28

 
2,082

Capitalization of past due amounts
95

 

 
95

Principal and/or interest forbearance
248

 
9

 
257

Other modifications (1)
62

 
13

 
75

Total modifications under proprietary programs
2,459

 
50

 
2,509

Trial modifications 
2,638

 
62

 
2,700

Loans discharged in Chapter 7 bankruptcy (2)
2,877

 
588

 
3,465

Total modifications
$
8,179

 
$
785

 
$
8,964


(1) 
Includes other modifications such as term or payment extensions and repayment plans.
(2) 
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs in accordance with regulatory guidance implemented in the third quarter of 2012. The amount for the nine months ended September 30, 2012 represents the cumulative impact upon adoption of the regulatory guidance. For the nine months ended September 30, 2013, home loans of $671 million, or 53 percent of loans discharged in Chapter 7 bankruptcy, were current or less than 60 days past due.

The table below presents the carrying value of loans that entered into payment default during the three and nine months ended September 30, 2013 and 2012 and that were modified in a TDR during the 12 months preceding payment default. A payment default for home loan TDRs is recognized when a borrower has missed three monthly payments (not necessarily consecutively) since modification. Payment default on a trial modification where the borrower has not yet met the terms of the agreement are included in the table below if the borrower is 90 days or more past due three months after the offer to modify is made.

Home Loans – TDRs Entering Payment Default That Were Modified During the Preceding 12 Months
 
Three Months Ended September 30, 2013
(Dollars in millions)
 Residential Mortgage
 
Home
Equity
 
Total Carrying Value
Modifications under government programs
$
86

 
$

 
$
86

Modifications under proprietary programs
185

 

 
185

Loans discharged in Chapter 7 bankruptcy (1)
205

 
3

 
208

Trial modifications
1,205

 
3

 
1,208

Total modifications
$
1,681

 
$
6

 
$
1,687

 
 
 
 
 
 
 
Three Months Ended September 30, 2012
Modifications under government programs
$
27

 
$
2

 
$
29

Modifications under proprietary programs
135

 
2

 
137

Trial modifications
671

 
7

 
678

Total modifications
$
833

 
$
11

 
$
844

 
 
 
 
 
 
 
Nine Months Ended September 30, 2013
Modifications under government programs
$
244

 
$
2

 
$
246

Modifications under proprietary programs
731

 
4

 
735

Loans discharged in Chapter 7 bankruptcy (1)
809

 
27

 
836

Trial modifications
3,142

 
8

 
3,150

Total modifications
$
4,926

 
$
41

 
$
4,967

 
 
 
 
 
 
 
Nine Months Ended September 30, 2012
Modifications under government programs
$
167

 
$
6

 
$
173

Modifications under proprietary programs
753

 
11

 
764

Trial modifications
963

 
16

 
979

Total modifications
$
1,883

 
$
33

 
$
1,916

(1) 
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs in accordance with regulatory guidance implemented in the third quarter of 2012.

Credit Card and Other Consumer

Impaired loans within the Credit Card and Other Consumer portfolio segment consist entirely of loans that have been modified in TDRs (the renegotiated credit card and other consumer TDR portfolio, collectively referred to as the renegotiated TDR portfolio). The Corporation seeks to assist customers that are experiencing financial difficulty by modifying loans while ensuring compliance with federal laws and guidelines. Credit card and other consumer loan modifications generally involve reducing the interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months, all of which are considered TDRs. In addition, non-U.S. credit card modifications may involve reducing the interest rate on the account without placing the customer on a fixed payment plan, and are also considered TDRs. In all cases, the customer's available line of credit is canceled. The Corporation makes loan modifications directly with borrowers for debt held only by the Corporation (internal programs). Additionally, the Corporation makes loan modifications for borrowers working with third-party renegotiation agencies that provide solutions to customers' entire unsecured debt structures (external programs).

In 2012, regulatory guidance was implemented addressing certain consumer real estate loans that have been discharged in Chapter 7 bankruptcy. The Corporation applies this guidance to other secured consumer loans that have been discharged in Chapter 7 bankruptcy, and such loans are classified as TDRs, written down to collateral value and placed on nonaccrual status no later than the time of discharge. For more information on the regulatory guidance on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.

All credit card and substantially all other consumer loans that have been modified in TDRs remain on accrual status until the loan is either paid in full or charged off, which occurs no later than the end of the month in which the loan becomes 180 days past due or generally at 120 days past due for a loan that was placed on a fixed payment plan after July 1, 2012.

The allowance for impaired credit card and substantially all other consumer loans is based on the present value of projected cash flows, which incorporates the Corporation's historical payment default and loss experience on modified loans, discounted using the portfolio's average contractual interest rate, excluding promotionally priced loans, in effect prior to restructuring. Prior to modification, credit card and other consumer loans are included in homogeneous pools which are collectively evaluated for impairment. For these portfolios, loss forecast models are utilized that consider a variety of factors including, but not limited to, historical loss experience, delinquency status, economic trends and credit scores.

The table below provides information on the Corporation's renegotiated TDR portfolio in the Credit Card and Other Consumer portfolio segment at September 30, 2013 and December 31, 2012, and for the three and nine months ended September 30, 2013 and 2012.

Impaired Loans – Credit Card and Other Consumer – Renegotiated TDRs
 
 
 
 
 
September 30, 2013
 
December 31, 2012
(Dollars in millions)
 
 
 
 
Unpaid
Principal
Balance
 
Carrying
Value
(1)
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
(1)
 
Related
Allowance
With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
 
 
 
 
$
1,706

 
$
1,716

 
$
370

 
$
2,856

 
$
2,871

 
$
719

Non-U.S. credit card
 
 
 
 
246

 
250

 
161

 
311

 
316

 
198

Direct/Indirect consumer
 
 
 
 
351

 
352

 
104

 
633

 
636

 
210

Other consumer
 
 
 
 
28

 
27

 
10

 
30

 
30

 
12

Without an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct/Indirect consumer
 
 
 
 
81

 
37

 

 
105

 
58

 

Other consumer
 
 
 
 
34

 
34

 

 
35

 
35

 

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
 
 
 
 
$
1,706

 
$
1,716

 
$
370

 
$
2,856

 
$
2,871

 
$
719

Non-U.S. credit card
 
 
 
 
246

 
250

 
161

 
311

 
316

 
198

Direct/Indirect consumer
 
 
 
 
432

 
389

 
104

 
738

 
694

 
210

Other consumer
 
 
 
 
62

 
61

 
10

 
65

 
65

 
12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2013
 
2012
 
2013
 
2012
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
1,926

 
$
30

 
$
3,727

 
$
58

 
$
2,310

 
$
108

 
$
4,380

 
$
204

Non-U.S. credit card
254

 
2

 
447

 
2

 
274

 
6

 
509

 
7

Direct/Indirect consumer
406

 
5

 
864

 
12

 
498

 
20

 
1,003

 
41

Other consumer
27

 
1

 
30

 

 
28

 
2

 
32

 
1

Without an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct/Indirect consumer
38

 

 

 

 
45

 

 

 

Other consumer
34

 

 
34

 
1

 
34

 
1

 
35

 
2

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
1,926

 
$
30

 
$
3,727

 
$
58

 
$
2,310

 
$
108

 
$
4,380

 
$
204

Non-U.S. credit card
254

 
2

 
447

 
2

 
274

 
6

 
509

 
7

Direct/Indirect consumer
444

 
5

 
864

 
12

 
543

 
20

 
1,003

 
41

Other consumer
61

 
1

 
64

 
1

 
62

 
3

 
67

 
3

(1) 
Includes accrued interest and fees.
(2) 
Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible.

The table below provides information on the Corporation's primary modification programs for the renegotiated TDR portfolio at September 30, 2013 and December 31, 2012.

Credit Card and Other Consumer – Renegotiated TDRs by Program Type
 
Internal Programs
 
External Programs
 
Other
 
Total
 
Percent of Balances Current or
Less Than 30 Days Past Due
(Dollars in millions)
September 30
2013
December 31
2012
 
September 30
2013
December 31
2012
 
September 30
2013
December 31
2012
 
September 30
2013
December 31
2012
 
September 30
2013
December 31
2012
U.S. credit card
$
1,016

$
1,887

 
$
681

$
953

 
$
19

$
31

 
$
1,716

$
2,871

 
83.74
%
81.48
%
Non-U.S. credit card
78

99

 
27

38

 
145

179

 
250

316

 
49.34

43.71

Direct/Indirect consumer
215

405

 
131

225

 
43

64

 
389

694

 
84.62

83.11

Other consumer
61

65

 


 


 
61

65

 
73.13

72.73

Total renegotiated TDRs
$
1,370

$
2,456

 
$
839

$
1,216

 
$
207

$
274

 
$
2,416

$
3,946

 
80.04

78.58



At September 30, 2013 and December 31, 2012, the Corporation had a renegotiated TDR portfolio of $2.4 billion and $3.9 billion of which $1.9 billion was current or less than 30 days past due under the modified terms at September 30, 2013.
The table below provides information on the Corporation's renegotiated TDR portfolio including the unpaid principal balance, carrying value and average pre- and post-modification interest rates of loans that were modified in TDRs during the three and nine months ended September 30, 2013 and 2012, and net charge-offs that were recorded during the period in which the modification occurred.

Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Three Months September 30, 2013 and 2012
 
September 30, 2013
 
Three Months Ended September 30, 2013
(Dollars in millions)
Unpaid Principal Balance
 
Carrying
Value (1)
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
 
Net Charge-offs
U.S. credit card
$
100

 
$
102

 
16.86
%
 
5.70
%
 
$
2

Non-U.S. credit card
61

 
64

 
26.09

 
0.67

 
2

Direct/Indirect consumer
16

 
12

 
10.89

 
4.68

 
4

Other consumer
2

 
2

 
9.10

 
6.01

 

Total
$
179

 
$
180

 
19.65

 
3.85

 
$
8

 
 
 
 
 
 
 
 
 
 
 
September 30, 2012
 
Three Months Ended September 30, 2012
U.S. credit card
$
102

 
$
105

 
17.37
%
 
6.32
%
 
$
2

Non-U.S. credit card
90

 
94

 
26.13

 
0.77

 
4

Direct/Indirect consumer
14

 
14

 
15.40

 
3.90

 
2

Other consumer
2

 
2

 
9.91

 
6.17

 

Total
$
208

 
$
215

 
21.00

 
3.73

 
$
8

 
 
 
 
 
 
 
 
 
 
Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Nine Months Ended September 30, 2013 and 2012
 
September 30, 2013
 
Nine Months Ended September 30, 2013
U.S. credit card
$
237

 
$
240

 
16.88
%
 
5.96
%
 
$
16

Non-U.S. credit card
138

 
143

 
26.04

 
0.87

 
78

Direct/Indirect consumer
41

 
31

 
11.17

 
4.90

 
12

Other consumer
4

 
5

 
9.35

 
5.40

 

Total
$
420

 
$
419

 
19.51

 
4.13

 
$
106

 
 
 
 
 
 
 
 
 
 
 
September 30, 2012
 
Nine Months Ended September 30, 2012
U.S. credit card
$
342

 
$
346

 
17.73
%
 
6.37
%
 
$
23

Non-U.S. credit card
194

 
204

 
26.18

 
1.05

 
111

Direct/Indirect consumer
50

 
51

 
15.40

 
4.14

 
3

Other consumer
8

 
8

 
10.01

 
6.62

 

Total
$
594

 
$
609

 
20.26

 
4.41

 
$
137

(1) 
Includes accrued interest and fees.

The table below provides information on the Corporation's primary modification programs for the renegotiated TDR portfolio for loans that were modified in TDRs during the three and nine months ended September 30, 2013 and 2012.

Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Period by Program Type
 
Three Months Ended September 30, 2013
(Dollars in millions)
Internal Programs
 
External Programs
 
Other
 
Total
U.S. credit card
$
62

 
$
40

 
$

 
$
102

Non-U.S. credit card
32

 
32

 

 
64

Direct/Indirect consumer
4

 
2

 
6

 
12

Other consumer
2

 

 

 
2

Total renegotiated TDRs
$
100

 
$
74

 
$
6

 
$
180

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2012
U.S. credit card
$
64

 
$
41

 
$

 
$
105

Non-U.S. credit card
51

 
43

 

 
94

Direct/Indirect consumer
9

 
5

 

 
14

Other consumer
2

 

 

 
2

Total renegotiated TDRs
$
126

 
$
89

 
$

 
$
215

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2013
U.S. credit card
$
132

 
$
108

 
$

 
$
240

Non-U.S. credit card
73

 
70

 

 
143

Direct/Indirect consumer
11

 
7

 
13

 
31

Other consumer
5

 

 

 
5

Total renegotiated TDRs
$
221

 
$
185

 
$
13

 
$
419

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2012
U.S. credit card
$
221

 
$
125

 
$

 
$
346

Non-U.S. credit card
109

 
95

 

 
204

Direct/Indirect consumer
34

 
17

 

 
51

Other consumer
8

 

 

 
8

Total renegotiated TDRs
$
372

 
$
237

 
$

 
$
609



Credit card and other consumer loans are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows in the calculation of the allowance for loan and lease losses for impaired credit card and other consumer loans. Based on historical experience, the Corporation estimates that 23 percent of new U.S. credit card TDRs, 69 percent of new non-U.S. credit card TDRs and 19 percent of new direct/indirect consumer TDRs may be in payment default within 12 months after modification. Loans that entered into payment default during the three and nine months ended September 30, 2013 that had been modified in a TDR during the preceding 12 months were $11 million and $49 million for U.S. credit card, $60 million and $181 million for non-U.S. credit card and $1 million and $4 million for direct/indirect consumer. During the three and nine months ended September 30, 2012, loans that entered into payment default that had been modified in a TDR during the preceding 12 months were $40 million and $173 million for U.S. credit card, $69 million and $228 million for non-U.S. credit card and $6 million and $31 million for direct/indirect consumer.
Commercial Loans

Impaired commercial loans, which include nonperforming loans and TDRs (both performing and nonperforming), are primarily measured based on the present value of payments expected to be received, discounted at the loan's original effective interest rate. Commercial impaired loans may also be measured based on observable market prices or, for loans that are solely dependent on the collateral for repayment, the estimated fair value of collateral less costs to sell. If the carrying value of a loan exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses.

Modifications of loans to commercial borrowers that are experiencing financial difficulty are designed to reduce the Corporation's loss exposure while providing the borrower with an opportunity to work through financial difficulties, often to avoid foreclosure or bankruptcy. Each modification is unique and reflects the individual circumstances of the borrower. Modifications that result in a TDR may include extensions of maturity at a concessionary (below market) rate of interest, payment forbearances or other actions designed to benefit the customer while mitigating the Corporation's risk exposure. Reductions in interest rates are rare. Instead, the interest rates are typically increased, although the increased rate may not represent a market rate of interest. Infrequently, concessions may also include principal forgiveness in connection with foreclosure, short sale or other settlement agreements leading to termination or sale of the loan.

At the time of restructuring, the loans are remeasured to reflect the impact, if any, on projected cash flows resulting from the modified terms. If there was no forgiveness of principal and the interest rate was not decreased, the modification may have little or no impact on the allowance established for the loan. If a portion of the loan is deemed to be uncollectible, a charge-off may be recorded at the time of restructuring. Alternatively, a charge-off may have already been recorded in a previous period such that no charge-off is required at the time of modification. For more information on modifications for the U.S. small business commercial portfolio, see Credit Card and Other Consumer in this Note.

At September 30, 2013 and December 31, 2012, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were immaterial. Commercial foreclosed properties totaled $116 million and $250 million at September 30, 2013 and December 31, 2012.

The table below presents impaired loans in the Corporation's Commercial loan portfolio segment at September 30, 2013 and December 31, 2012, and for the three and nine months ended September 30, 2013 and 2012. Certain impaired commercial loans do not have a related allowance as the valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs.

Impaired Loans – Commercial
 
 
 
 
 
September 30, 2013
 
December 31, 2012
(Dollars in millions)
 
 
 
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
$
1,036

 
$
960

 
n/a

 
$
1,220

 
$
1,109

 
n/a

Commercial real estate
 
 
 
 
525

 
503

 
n/a

 
1,003

 
902

 
n/a

Non-U.S. commercial
 
 
 
 
51

 
40

 
n/a

 
240

 
120

 
n/a

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
$
1,292

 
$
881

 
$
150

 
$
1,782

 
$
1,138

 
$
159

Commercial real estate
 
 
 
 
1,099

 
702

 
74

 
2,287

 
1,262

 
201

Non-U.S. commercial
 
 
 
 
235

 
57

 
17

 
280

 
33

 
18

U.S. small business commercial (1)
 
 
 
 
224

 
213

 
45

 
361

 
317

 
97

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
$
2,328

 
$
1,841

 
$
150

 
$
3,002

 
$
2,247

 
$
159

Commercial real estate
 
 
 
 
1,624

 
1,205

 
74

 
3,290

 
2,164

 
201

Non-U.S. commercial
 
 
 
 
286

 
97

 
17

 
520

 
153

 
18

U.S. small business commercial (1)
 
 
 
 
224

 
213

 
45

 
361

 
317

 
97

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
2013
 
2012
 
2013
 
2012
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
957

 
$
7

 
$
1,113

 
$
9

 
$
998

 
$
19

 
$
1,078

 
$
26

Commercial real estate
525

 
3

 
1,318

 
4

 
670

 
10

 
1,661

 
12

Non-U.S. commercial
65

 

 
140

 
1

 
102

 
3

 
130

 
1

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
928

 
$
5

 
$
1,457

 
$
7

 
$
1,051

 
$
20

 
$
1,727

 
$
25

Commercial real estate
661

 
5

 
1,552

 
3

 
880

 
14

 
1,865

 
13

Non-U.S. commercial
68

 

 
50

 
1

 
55

 
2

 
56

 
2

U.S. small business commercial (1)
218

 
1

 
392

 
3

 
253

 
5

 
433

 
10

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
1,885

 
$
12

 
$
2,570

 
$
16

 
$
2,049

 
$
39

 
$
2,805

 
$
51

Commercial real estate
1,186

 
8

 
2,870

 
7

 
1,550

 
24

 
3,526

 
25

Non-U.S. commercial
133

 

 
190

 
2

 
157

 
5

 
186

 
3

U.S. small business commercial (1)
218

 
1

 
392

 
3

 
253

 
5

 
433

 
10

(1) 
Includes U.S. small business commercial renegotiated TDR loans and related allowance.
(2) 
Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible.
n/a = not applicable
The table below presents the September 30, 2013 and 2012 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during the three and nine months ended September 30, 2013 and 2012, and net charge-offs that were recorded during the period in which the modification occurred. The table below includes loans that were initially classified as TDRs during the period and, beginning in the first quarter of 2013, also loans that had previously been classified as TDRs and were modified again during the period.

Commercial – TDRs Entered into During the Three Months Ended September 30, 2013 and 2012
 
September 30, 2013
 
Three Months Ended September 30, 2013
(Dollars in millions)
Unpaid Principal Balance
 
Carrying
Value
 
Net Charge-offs
U.S. commercial
$
361

 
$
357

 
$
27

Commercial real estate
305

 
284

 

Non-U.S. commercial

 

 

U.S. small business commercial (1)
2

 
3

 

Total
$
668

 
$
644

 
$
27

 
 
 
 
 
 
 
September 30, 2012
 
Three Months Ended September 30, 2012
U.S. commercial
$
152

 
$
143

 
$

Commercial real estate
373

 
350

 
5

Non-U.S. commercial
22

 
22

 

U.S. small business commercial (1)
5

 
6

 
1

Total
$
552

 
$
521

 
$
6

 
 
 
 
 
 
Commercial – TDRs Entered into During the Nine Months Ended September 30, 2013 and 2012
 
September 30, 2013
 
Nine Months Ended September 30, 2013
U.S. commercial
$
853

 
$
771

 
$
28

Commercial real estate
615

 
569

 
3

Non-U.S. commercial
21

 
7

 

U.S. small business commercial (1)
7

 
7

 
1

Total
$
1,496

 
$
1,354

 
$
32

 
 
 
 
 
 
 
September 30, 2012
 
Nine Months Ended September 30, 2012
U.S. commercial
$
558

 
$
534

 
$
15

Commercial real estate
737

 
695

 
12

Non-U.S. commercial
87

 
87

 

U.S. small business commercial (1)
20

 
20

 
3

Total
$
1,402

 
$
1,336

 
$
30

(1) 
U.S. small business commercial TDRs are comprised of renegotiated small business card loans.

A commercial TDR is generally deemed to be in payment default when the loan is 90 days or more past due, including delinquencies that were not resolved as part of the modification. U.S. small business commercial TDRs are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows, along with observable market prices or fair value of collateral when measuring the allowance for loan losses. TDRs that were in payment default at September 30, 2013 and 2012 had a carrying value of $128 million and $129 million for U.S. commercial, $269 million and $390 million for commercial real estate and $1 million and $28 million for U.S. small business commercial.

Purchased Credit-impaired Loans

PCI loans are acquired loans with evidence of credit quality deterioration since origination for which it is probable at purchase date that the Corporation will be unable to collect all contractually required payments. The following table provides details on PCI loans acquired in connection with the FNMA Settlement during the nine months ended September 30, 2013.

Purchased Loans at Acquisition Date
(Dollars in millions)
 
Contractually required payments including interest
$
8,274

Less: Nonaccretable difference
2,159

Cash flows expected to be collected (1)
6,115

Less: Accretable yield
1,125

Fair value of loans acquired
$
4,990

(1) 
Represents undiscounted expected principal and interest cash flows at acquisition.

The table below shows activity for the accretable yield on PCI loans, which primarily includes the Countrywide Financial Corporation (Countrywide) portfolio and loans repurchased in connection with the FNMA Settlement. For more information on the FNMA Settlement, see Note 8 – Representations and Warranties Obligations and Corporate Guarantees. The amount of accretable yield is affected by changes in credit outlooks, including metrics such as default rates and loss severities, prepayments speeds, which can change the amount and period of time over which interest payments are expected to be received, and the interest rates on variable rate loans. The reclassifications from nonaccretable difference during the three and nine months ended September 30, 2013 were due to increases in expected cash flows driven by improved home prices and lower expected defaults, along with a decrease in prepayment speeds as a result of rising interest rates. Changes in the prepayment assumption affect the expected remaining life of the portfolio which results in a change to the amount of future interest cash flows.

Rollforward of Accretable Yield
(Dollars in millions)
Three Months Ended September 30, 2013
Nine Months Ended September 30, 2013
Accretable yield, beginning of period
$
6,775

$
4,644

Accretion
(303
)
(901
)
Loans purchased

1,125

Disposals/transfers
(81
)
(219
)
Reclassifications from nonaccretable difference
292

2,034

Accretable yield, September 30, 2013
$
6,683

$
6,683



For more information on PCI loans, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2012 Annual Report on Form 10-K and Note 6 – Allowance for Credit Losses herein for the carrying value and valuation allowance for PCI loans.

Loans Held-for-sale

The Corporation had LHFS of $15.0 billion and $19.4 billion at September 30, 2013 and December 31, 2012. Proceeds, including cash and securities, from sales, securitizations and paydowns of LHFS were $65.5 billion and $39.5 billion for the nine months ended September 30, 2013 and 2012. Amounts used for originations and purchases of LHFS were $55.6 billion and $39.8 billion for the nine months ended September 30, 2013 and 2012.