Quarterly report pursuant to Section 13 or 15(d)

Outstanding Loans and Leases

v2.4.0.8
Outstanding Loans and Leases
6 Months Ended
Jun. 30, 2014
Loans and Leases Receivable Disclosure [Abstract]  
Outstanding Loans and Leases
NOTE 4 – 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 June 30, 2014 and December 31, 2013.

 
June 30, 2014
(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
$
1,822

$
659

$
6,392

$
8,873

$
165,693

 
 
$
174,566

Home equity
206

114

692

1,012

51,949

 
 
52,961

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
 
Residential mortgage (5)
2,261

1,153

13,830

17,244

27,989

$
17,337

 
62,570

Home equity
331

197

1,191

1,719

28,752

6,067

 
36,538

Credit card and other consumer
 
 
 
 
 
 
 
 
U.S. credit card
485

345

868

1,698

87,322

 
 
89,020

Non-U.S. credit card
57

46

122

225

11,774

 
 
11,999

Direct/Indirect consumer (6)
319

141

334

794

81,792

 
 
82,586

Other consumer (7)
22

7

16

45

2,034

 
 
2,079

Total consumer
5,503

2,662

23,445

31,610

457,305

23,404

 
512,319

Consumer loans accounted for under the fair value option (8)
 
 
 
 
 
 
$
2,154

2,154

Total consumer loans and leases
5,503

2,662

23,445

31,610

457,305

23,404

2,154

514,473

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
266

115

329

710

217,327

 
 
218,037

Commercial real estate (9)
30

35

196

261

46,554

 
 
46,815

Commercial lease financing
36

34

21

91

24,474

 
 
24,565

Non-U.S. commercial
15

4

1

20

85,657

 
 
85,677

U.S. small business commercial
72

46

113

231

13,354

 
 
13,585

Total commercial
419

234

660

1,313

387,366

 
 
388,679

Commercial loans accounted for under the fair value option (8)
 
 
 
 
 
 
8,747

8,747

Total commercial loans and leases
419

234

660

1,313

387,366

 
8,747

397,426

Total loans and leases
$
5,922

$
2,896

$
24,105

$
32,923

$
844,671

$
23,404

$
10,901

$
911,899

Percentage of outstandings
0.65
%
0.32
%
2.64
%
3.61
%
92.63
%
2.57
%
1.19
%
100.00
%
(1) 
Home loans 30-59 days past due includes fully-insured loans of $2.2 billion and nonperforming loans of $531 million. Home loans 60-89 days past due includes fully-insured loans of $1.1 billion and nonperforming loans of $457 million.
(2) 
Home loans includes fully-insured loans of $14.1 billion.
(3) 
Home loans includes $4.6 billion and direct/indirect consumer includes $29 million of nonperforming loans.
(4) 
PCI loan amounts are shown gross of the valuation allowance.
(5) 
Total outstandings includes pay option loans of $3.7 billion. The Corporation no longer originates this product.
(6) 
Total outstandings includes dealer financial services loans of $37.7 billion, unsecured consumer lending loans of $2.0 billion, U.S. securities-based lending loans of $33.8 billion, non-U.S. consumer loans of $4.4 billion, student loans of $3.8 billion and other consumer loans of $937 million.
(7) 
Total outstandings includes consumer finance loans of $1.1 billion, consumer leases of $819 million, consumer overdrafts of $170 million and other non-U.S. consumer loans of $3 million.
(8) 
Consumer loans accounted for under the fair value option were residential mortgage loans of $2.0 billion and home equity loans of $170 million. Commercial loans accounted for under the fair value option were U.S. commercial loans of $1.3 billion and non-U.S. commercial loans of $7.4 billion. For additional information, see Note 14 – Fair Value Measurements and Note 15 – Fair Value Option.
(9) 
Total outstandings includes U.S. commercial real estate loans of $45.5 billion and non-U.S. commercial real estate loans of $1.3 billion.
 
December 31, 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
$
2,151

$
754

$
7,188

$
10,093

$
167,243

 
 
$
177,336

Home equity
243

113

693

1,049

53,450

 
 
54,499

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
 
Residential mortgage (5)
2,758

1,412

16,746

20,916

31,142

$
18,672

 
70,730

Home equity
444

221

1,292

1,957

30,623

6,593

 
39,173

Credit card and other consumer
 
 
 
 
 
 
 
 
U.S. credit card
598

422

1,053

2,073

90,265

 
 
92,338

Non-U.S. credit card
63

54

131

248

11,293

 
 
11,541

Direct/Indirect consumer (6)
431

175

410

1,016

81,176

 
 
82,192

Other consumer (7)
24

8

20

52

1,925

 
 
1,977

Total consumer
6,712

3,159

27,533

37,404

467,117

25,265

 
529,786

Consumer loans accounted for under the fair value option (8)
 
 
 
 
 
 
$
2,164

2,164

Total consumer loans and leases
6,712

3,159

27,533

37,404

467,117

25,265

2,164

531,950

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
363

151

309

823

211,734

 
 
212,557

Commercial real estate (9)
30

29

243

302

47,591

 
 
47,893

Commercial lease financing
110

37

48

195

25,004

 
 
25,199

Non-U.S. commercial
103

8

17

128

89,334

 
 
89,462

U.S. small business commercial
87

55

113

255

13,039

 
 
13,294

Total commercial
693

280

730

1,703

386,702

 
 
388,405

Commercial loans accounted for under the fair value option (8)
 
 
 
 
 
 
7,878

7,878

Total commercial loans and leases
693

280

730

1,703

386,702

 
7,878

396,283

Total loans and leases
$
7,405

$
3,439

$
28,263

$
39,107

$
853,819

$
25,265

$
10,042

$
928,233

Percentage of outstandings
0.80
%
0.37
%
3.04
%
4.21
%
91.99
%
2.72
%
1.08
%
100.00
%
(1) 
Home loans 30-59 days past due includes fully-insured loans of $2.5 billion and nonperforming loans of $623 million. Home loans 60-89 days past due includes fully-insured loans of $1.2 billion and nonperforming loans of $410 million.
(2) 
Home loans includes fully-insured loans of $17.0 billion.
(3) 
Home loans includes $5.9 billion and direct/indirect consumer includes $33 million of nonperforming loans.
(4) 
PCI loan amounts are shown gross of the valuation allowance.
(5) 
Total outstandings includes pay option loans of $4.4 billion. The Corporation no longer originates this product.
(6) 
Total outstandings includes dealer financial services loans of $38.5 billion, unsecured consumer lending loans of $2.7 billion, U.S. securities-based lending loans of $31.2 billion, non-U.S. consumer loans of $4.7 billion, student loans of $4.1 billion and other consumer loans of $1.0 billion.
(7) 
Total outstandings includes consumer finance loans of $1.2 billion, consumer leases of $606 million, consumer overdrafts of $176 million and other non-U.S. consumer loans of $5 million.
(8) 
Consumer loans accounted for under the fair value option were residential mortgage loans of $2.0 billion and home equity loans of $147 million. Commercial loans accounted for under the fair value option were U.S. commercial loans of $1.5 billion and non-U.S. commercial loans of $6.4 billion. For additional information, see Note 14 – Fair Value Measurements and Note 15 – Fair Value Option.
(9) 
Total outstandings includes U.S. commercial real estate loans of $46.3 billion and non-U.S. commercial real estate loans of $1.6 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 $294 million and $339 million at June 30, 2014 and December 31, 2013. 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 June 30, 2014 and December 31, 2013, the Corporation had a receivable of $184 million and $198 million from these vehicles for reimbursement of losses, and principal of $7.9 billion and $12.5 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 $27.7 billion and $28.2 billion at June 30, 2014 and December 31, 2013, 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 7 – Representations and Warranties Obligations and Corporate Guarantees.

Nonperforming Loans and Leases

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 both June 30, 2014 and December 31, 2013, $1.2 billion of such junior-lien home equity loans were included in nonperforming loans.

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 June 30, 2014, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms at the time of discharge were $1.6 billion of which $940 million were current on their contractual payments while $564 million were 90 days or more past due. Of the contractually current nonperforming loans, more than 80 percent were discharged in Chapter 7 bankruptcy more than 12 months ago, and more than 50 percent were discharged 24 months or more ago. As subsequent cash payments are received on the loans that are contractually current, 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 June 30, 2014 and December 31, 2013. 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 2013 Annual Report on Form 10-K.

Credit Quality
 
 
 
 
 
 
 
 
Nonperforming Loans and Leases (1)
 
Accruing Past Due 90 Days or More
(Dollars in millions)
June 30
2014
 
December 31
2013
 
June 30
2014
 
December 31
2013
Home loans
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
Residential mortgage (2)
$
2,951

 
$
3,316

 
$
4,431

 
$
5,137

Home equity
1,533

 
1,431

 

 

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
Residential mortgage (2)
6,284

 
8,396

 
9,706

 
11,824

Home equity
2,648

 
2,644

 

 

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

 
n/a

 
868

 
1,053

Non-U.S. credit card
n/a

 
n/a

 
122

 
131

Direct/Indirect consumer
29

 
35

 
334

 
408

Other consumer
15

 
18

 
1

 
2

Total consumer
13,460

 
15,840

 
15,462

 
18,555

Commercial
 
 
 
 
 
 
 
U.S. commercial
849

 
819

 
86

 
47

Commercial real estate
252

 
322

 
8

 
21

Commercial lease financing
8

 
16

 
20

 
41

Non-U.S. commercial
7

 
64

 
1

 
17

U.S. small business commercial
100

 
88

 
73

 
78

Total commercial
1,216

 
1,309

 
188

 
204

Total loans and leases
$
14,676

 
$
17,149

 
$
15,650

 
$
18,759

(1) 
Nonperforming loan balances do not include nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of $140 million and $260 million at June 30, 2014 and December 31, 2013.
(2) 
Residential mortgage loans in the Core and Legacy Assets & Servicing portfolios accruing past due 90 days or more are fully-insured loans. At June 30, 2014 and December 31, 2013, residential mortgage includes $10.4 billion and $13.0 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 $3.7 billion and $4.0 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 2013 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 the 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 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 quality 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 June 30, 2014 and December 31, 2013.

Home Loans – Credit Quality Indicators (1)
 
 
 
 
 
 
 
June 30, 2014
(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
$
97,480

$
20,589

$
11,842

$
45,886

$
16,068

$
2,205

Greater than 90 percent but less than or equal to 100 percent
5,261

3,627

2,274

3,249

4,177

1,137

Greater than 100 percent
5,429

6,365

3,221

3,826

10,226

2,725

Fully-insured loans (5)
66,396

14,652





Total home loans
$
174,566

$
45,233

$
17,337

$
52,961

$
30,471

$
6,067

 
 
 
 
 
 
 
Refreshed FICO score
 
 
 
 
 
 
Less than 620
$
4,833

$
8,000

$
8,037

$
2,063

$
3,608

$
927

Greater than or equal to 620 and less than 680
6,617

4,595

3,207

3,810

4,834

1,063

Greater than or equal to 680 and less than 740
22,194

7,064

3,283

10,790

8,564

1,789

Greater than or equal to 740
74,526

10,922

2,810

36,298

13,465

2,288

Fully-insured loans (5)
66,396

14,652





Total home loans
$
174,566

$
45,233

$
17,337

$
52,961

$
30,471

$
6,067

(1) 
Excludes $2.2 billion of loans accounted for under the fair value option.
(2) 
Excludes PCI loans.
(3) 
Includes $3.3 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
 
June 30, 2014
(Dollars in millions)
U.S. Credit
Card
 
Non-U.S.
Credit Card
 
Direct/Indirect
Consumer
 
Other
Consumer
(1)
Refreshed FICO score
 
 
 
 
 
 
 
Less than 620
$
4,413

 
$

 
$
1,305

 
$
492

Greater than or equal to 620 and less than 680
12,025

 

 
3,538

 
296

Greater than or equal to 680 and less than 740
34,176

 

 
9,467

 
348

Greater than or equal to 740
38,406

 

 
25,422

 
770

Other internal credit metrics (2, 3, 4)

 
11,999

 
42,854

 
173

Total credit card and other consumer
$
89,020

 
$
11,999

 
$
82,586

 
$
2,079

(1) 
52 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 $38.1 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $3.8 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 June 30, 2014, 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)
 
June 30, 2014
(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
$
210,859

 
$
45,643

 
$
23,578

 
$
84,551

 
$
922

Reservable criticized
7,178

 
1,172

 
987

 
1,126

 
268

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
204

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
550

Greater than or equal to 680 and less than 740
 
 
 
 
 
 
 
 
1,609

Greater than or equal to 740
 
 
 
 
 
 
 
 
2,990

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
7,042

Total commercial
$
218,037

 
$
46,815

 
$
24,565

 
$
85,677

 
$
13,585

(1) 
Excludes $8.7 billion of loans accounted for under the fair value option.
(2) 
U.S. small business commercial includes $267 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 June 30, 2014, 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, 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
$
95,833

$
22,391

$
11,400

$
45,898

$
16,714

$
2,036

Greater than 90 percent but less than or equal to 100 percent
5,541

4,134

2,653

3,659

4,233

698

Greater than 100 percent
6,250

7,998

4,619

4,942

11,633

3,859

Fully-insured loans (5)
69,712

17,535





Total home loans
$
177,336

$
52,058

$
18,672

$
54,499

$
32,580

$
6,593

 
 
 
 
 
 
 
Refreshed FICO score
 
 
 
 
 
 
Less than 620
$
5,334

$
9,955

$
9,129

$
2,415

$
4,259

$
1,045

Greater than or equal to 620 and less than 680
7,164

5,276

3,349

4,211

5,133

1,172

Greater than or equal to 680 and less than 740
22,617

7,639

3,211

11,726

9,143

1,936

Greater than or equal to 740
72,509

11,653

2,983

36,147

14,045

2,440

Fully-insured loans (5)
69,712

17,535





Total home loans
$
177,336

$
52,058

$
18,672

$
54,499

$
32,580

$
6,593

(1) 
Excludes $2.2 billion of loans accounted for under the fair value option.
(2) 
Excludes PCI loans.
(3) 
Includes $4.0 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, 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
$
4,989

 
$

 
$
1,220

 
$
539

Greater than or equal to 620 and less than 680
12,753

 

 
3,345

 
264

Greater than or equal to 680 and less than 740
35,413

 

 
9,887

 
199

Greater than or equal to 740
39,183

 

 
26,220

 
188

Other internal credit metrics (2, 3, 4)

 
11,541

 
41,520

 
787

Total credit card and other consumer
$
92,338

 
$
11,541

 
$
82,192

 
$
1,977


(1) 
60 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 $35.8 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $4.1 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, 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)
 
December 31, 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
$
205,416

 
$
46,507

 
$
24,211

 
$
88,138

 
$
1,191

Reservable criticized
7,141

 
1,386

 
988

 
1,324

 
346

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
224

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
534

Greater than or equal to 680 and less than 740
 
 
 
 
 
 
 
 
1,567

Greater than or equal to 740
 
 
 
 
 
 
 
 
2,779

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
6,653

Total commercial
$
212,557

 
$
47,893

 
$
25,199

 
$
89,462

 
$
13,294


(1) 
Excludes $7.9 billion of loans accounted for under the fair value option.
(2) 
U.S. small business commercial includes $289 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, 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.

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. 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 184. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2013 Annual Report on Form 10-K.

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.

Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers under both government and proprietary programs. 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.

Home loans that have been discharged in Chapter 7 bankruptcy with no change in repayment terms at the time of discharge of $3.2 billion were included in TDRs at June 30, 2014, of which $1.6 billion were classified as nonperforming and $1.6 billion were fully-insured by the Federal Housing Administration (FHA). For more information on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.

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, less costs to sell, 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 used to measure impairment 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 June 30, 2014 and December 31, 2013, 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 $547 million and $533 million at June 30, 2014 and December 31, 2013.

The table below provides the unpaid principal balance, carrying value and related allowance at June 30, 2014 and December 31, 2013, and the average carrying value and interest income recognized for the three and six months ended June 30, 2014 and 2013 for impaired loans in the Corporation's Home Loans portfolio segment 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, which is net of previously recorded charge-offs.

Impaired Loans – Home Loans
 
 
 
 
 
June 30, 2014
 
December 31, 2013
(Dollars in millions)
 
 
 
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
18,494

 
$
14,135

 
$

 
$
21,567

 
$
16,450

 
$

Home equity
 
 
 
 
3,356

 
1,454

 

 
3,249

 
1,385

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
11,554

 
$
11,184

 
$
831

 
$
13,341

 
$
12,862

 
$
991

Home equity
 
 
 
 
883

 
747

 
238

 
893

 
761

 
240

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
30,048

 
$
25,319

 
$
831

 
$
34,908

 
$
29,312

 
$
991

Home equity
 
 
 
 
4,239

 
2,201

 
238

 
4,142

 
2,146

 
240

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2014
 
2013
 
2014
 
2013
 
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
$
15,202

 
$
187

 
$
16,812

 
$
140

 
$
15,781

 
$
347

 
$
16,353

 
$
284

Home equity
1,436

 
24

 
1,204

 
19

 
1,419

 
46

 
1,169

 
36

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
11,493

 
$
121

 
$
14,735

 
$
124

 
$
11,913

 
$
252

 
$
14,317

 
$
278

Home equity
744

 
6

 
936

 
11

 
747

 
14

 
962

 
22

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
26,695

 
$
308

 
$
31,547

 
$
264

 
$
27,694

 
$
599

 
$
30,670

 
$
562

Home equity
2,180

 
30

 
2,140

 
30

 
2,166

 
60

 
2,131

 
58

(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.
The table below presents the June 30, 2014 and 2013 unpaid principal balance, carrying value, and average pre- and post-modification interest rates on home loans that were modified in TDRs during the three and six months ended June 30, 2014 and 2013, and net charge-offs recorded during the period on loans that were modified in TDRs during the six months ended June 30, 2014 and 2013. 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 June 30, 2014 and 2013 (1)
 
June 30, 2014
 
Three Months Ended June 30, 2014
(Dollars in millions)
Unpaid Principal Balance
 
Carrying
 Value
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
 
Net Charge-offs (2)
Residential mortgage
$
1,677

 
$
1,475

 
5.07
%
 
4.69
%
 
$
24

Home equity
236

 
163

 
3.97

 
3.58

 
29

Total
$
1,913

 
$
1,638

 
4.94

 
4.55

 
$
53

 
 
 
 
 
 
 
 
 
 
 
June 30, 2013
 
Three Months Ended June 30, 2013
Residential mortgage
$
3,988

 
$
3,518

 
5.29
%
 
4.56
%
 
$
78

Home equity
268

 
169

 
6.23

 
5.20

 
45

Total
$
4,256

 
$
3,687

 
5.35

 
4.60

 
$
123

 
 
 
 
 
 
 
 
 
 
Home Loans – TDRs Entered into During the Six Months Ended June 30, 2014 and 2013 (1)
 
June 30, 2014
 
Six Months Ended June 30, 2014
Residential mortgage
$
2,873

 
$
2,513

 
5.09
%
 
4.59
%
 
$
41

Home equity
420

 
281

 
4.17

 
3.47

 
44

Total
$
3,293

 
$
2,794

 
4.98

 
4.45

 
$
85

 
 
 
 
 
 
 
 
 
 
 
June 30, 2013
 
Six Months Ended June 30, 2013
Residential mortgage
$
8,843

 
$
7,798

 
5.38
%
 
4.55
%
 
$
117

Home equity
519

 
306

 
5.83

 
4.59

 
109

Total
$
9,362

 
$
8,104

 
5.41

 
4.55

 
$
226

(1) 
TDRs entered into during the three and six months ended June 30, 2014 include residential mortgage modifications with principal forgiveness of $22 million and $39 million. TDRs entered into during the three and six months ended June 30, 2013 include residential mortgage modifications with principal forgiveness of $125 million and $344 million.
(2) 
Net charge-offs include amounts recorded on loans modified during the period that are no longer held by the Corporation at June 30, 2014 and 2013 due to sales and other dispositions.
The table below presents the June 30, 2014 and 2013 carrying value for home loans that were modified in a TDR during the three and six months ended June 30, 2014 and 2013 by type of modification.

Home Loans – Modification Programs
 
TDRs Entered into During the
Three Months Ended June 30, 2014
(Dollars in millions)
Residential Mortgage
 
Home
Equity
 
Total Carrying Value
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
262

 
$
11

 
$
273

Principal and/or interest forbearance
1

 
3

 
4

Other modifications (1)
52

 

 
52

Total modifications under government programs
315

 
14

 
329

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
53

 
4

 
57

Capitalization of past due amounts
5

 

 
5

Principal and/or interest forbearance
15

 
3

 
18

Other modifications (1)
4

 

 
4

Total modifications under proprietary programs
77

 
7

 
84

Trial modifications
917

 
94

 
1,011

Loans discharged in Chapter 7 bankruptcy (2)
166

 
48

 
214

Total modifications
$
1,475

 
$
163

 
$
1,638

 
 
 
 
 
 
 
TDRs Entered into During the
Three Months Ended June 30, 2013
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
187

 
$
14

 
$
201

Principal and/or interest forbearance
2

 
6

 
8

Other modifications (1)
9

 

 
9

Total modifications under government programs
198

 
20

 
218

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
896

 
4

 
900

Capitalization of past due amounts
26

 

 
26

Principal and/or interest forbearance
100

 
3

 
103

Other modifications (1)
104

 

 
104

Total modifications under proprietary programs
1,126

 
7

 
1,133

Trial modifications
1,811

 
36

 
1,847

Loans discharged in Chapter 7 bankruptcy (2)
383

 
106

 
489

Total modifications
$
3,518

 
$
169

 
$
3,687

(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.
Home Loans – Modification Programs
 
TDRs Entered into During the
Six Months Ended June 30, 2014
(Dollars in millions)
Residential Mortgage
 
Home
Equity
 
Total Carrying Value
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
456

 
$
33

 
$
489

Principal and/or interest forbearance
10

 
11

 
21

Other modifications (1)
70

 

 
70

Total modifications under government programs
536

 
44

 
580

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
161

 
8

 
169

Capitalization of past due amounts
31

 
1

 
32

Principal and/or interest forbearance
41

 
8

 
49

Other modifications (1)
22

 
4

 
26

Total modifications under proprietary programs
255

 
21

 
276

Trial modifications
1,389

 
115

 
1,504

Loans discharged in Chapter 7 bankruptcy (2)
333

 
101

 
434

Total modifications
$
2,513

 
$
281

 
$
2,794

 
 
 
 
 
 
 
TDRs Entered into During the
Six Months Ended June 30, 2013
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
779

 
$
25

 
$
804

Principal and/or interest forbearance
16

 
13

 
29

Other modifications (1)
47

 

 
47

Total modifications under government programs
842

 
38

 
880

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
2,299

 
31

 
2,330

Capitalization of past due amounts
57

 

 
57

Principal and/or interest forbearance
264

 
8

 
272

Other modifications (1)
127

 
6

 
133

Total modifications under proprietary programs
2,747

 
45

 
2,792

Trial modifications 
3,301

 
49

 
3,350

Loans discharged in Chapter 7 bankruptcy (2)
908

 
174

 
1,082

Total modifications
$
7,798

 
$
306

 
$
8,104


(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.
The table below presents the carrying value of loans that entered into payment default during the three and six months ended June 30, 2014 and 2013 that were modified in a TDR during the 12 months preceding payment default. Total carrying value includes loans with a carrying value of $545 million and $410 million that entered into payment default during the six months ended June 30, 2014 and 2013 but were no longer held by the Corporation as of June 30, 2014 and 2013 due to sales and other dispositions. 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 June 30, 2014
(Dollars in millions)
 Residential Mortgage
 
Home
Equity
 
Total Carrying Value (1)
Modifications under government programs
$
186

 
$
1

 
$
187

Modifications under proprietary programs
203

 
3

 
206

Loans discharged in Chapter 7 bankruptcy (2)
153

 
41

 
194

Trial modifications
516

 
15

 
531

Total modifications
$
1,058

 
$
60

 
$
1,118

 
 
 
 
 
 
 
Three Months Ended June 30, 2013
Modifications under government programs
$
68

 
$

 
$
68

Modifications under proprietary programs
264

 
1

 
265

Loans discharged in Chapter 7 bankruptcy (2)
163

 
5

 
168

Trial modifications
1,385

 
1

 
1,386

Total modifications
$
1,880

 
$
7

 
$
1,887

 
 
 
 
 
 
 
Six Months Ended June 30, 2014
Modifications under government programs
$
344

 
$
2

 
$
346

Modifications under proprietary programs
475

 
3

 
478

Loans discharged in Chapter 7 bankruptcy (2)
274

 
42

 
316

Trial modifications
1,291

 
18

 
1,309

Total modifications
$
2,384

 
$
65

 
$
2,449

 
 
 
 
 
 
 
Six Months Ended June 30, 2013
Modifications under government programs
$
158

 
$
2

 
$
160

Modifications under proprietary programs
546

 
4

 
550

Loans discharged in Chapter 7 bankruptcy (2)
604

 
24

 
628

Trial modifications
1,937

 
5

 
1,942

Total modifications
$
3,245

 
$
35

 
$
3,280


(1) 
Total carrying value includes loans with a carrying value of $545 million and $410 million that entered into payment default during the six months ended June 30, 2014 and 2013 but were no longer held by the Corporation as of June 30, 2014 and 2013 due to sales and other dispositions.
(2) 
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs.

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, local and international 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, the accounts of non-U.S. credit card customers who do not qualify for a fixed payment plan may have their interest rates reduced, as required by certain local jurisdictions. These modifications, which are also TDRs, tend to experience higher payment default rates given that the borrowers may lack the ability to repay even with the interest rate reduction. 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). The Corporation classifies other secured consumer loans that have been discharged in Chapter 7 bankruptcy as TDRs which are 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. 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 the unpaid principal balance, carrying value and related allowance at June 30, 2014 and December 31, 2013, and the average carrying value and interest income recognized for the three and six months ended June 30, 2014 and 2013 on the Corporation's renegotiated TDR portfolio in the Credit Card and Other Consumer portfolio segment.

Impaired Loans – Credit Card and Other Consumer – Renegotiated TDRs
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2014
 
December 31, 2013
(Dollars in millions)
 
 
 
 
Unpaid
Principal
Balance
 
Carrying
Value
(1)
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
(1)
 
Related
Allowance
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct/Indirect consumer
 
 
 
 
$
65

 
$
27

 
$

 
$
75

 
$
32

 
$

Other consumer
 
 
 
 
35

 
35

 

 
34

 
34

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
 
 
 
 
$
1,013

 
$
1,076

 
$
257

 
$
1,384

 
$
1,465

 
$
337

Non-U.S. credit card
 
 
 
 
174

 
216

 
127

 
200

 
240

 
149

Direct/Indirect consumer
 
 
 
 
138

 
163

 
45

 
242

 
282

 
84

Other consumer
 
 
 
 
25

 
24

 
9

 
27

 
26

 
9

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
 
 
 
 
$
1,013

 
$
1,076

 
$
257

 
$
1,384

 
$
1,465

 
$
337

Non-U.S. credit card
 
 
 
 
174

 
216

 
127

 
200

 
240

 
149

Direct/Indirect consumer
 
 
 
 
203

 
190

 
45

 
317

 
314

 
84

Other consumer
 
 
 
 
60

 
59

 
9

 
61

 
60

 
9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2014
 
2013
 
2014
 
2013
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct/Indirect consumer
$
30

 
$

 
$
44

 
$

 
$
29

 
$

 
$
48

 
$

Other consumer
34

 

 
35

 
1

 
34

 
1

 
35

 
1

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
1,205

 
$
18

 
$
2,287

 
$
36

 
$
1,306

 
$
40

 
$
2,505

 
$
78

Non-U.S. credit card
224

 
1

 
273

 
2

 
230

 
3

 
284

 
4

Direct/Indirect consumer
196

 
3

 
493

 
7

 
227

 
6

 
545

 
15

Other consumer
24

 
1

 
28

 

 
25

 
1

 
29

 
1

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
1,205

 
$
18

 
$
2,287

 
$
36

 
$
1,306

 
$
40

 
$
2,505

 
$
78

Non-U.S. credit card
224

 
1

 
273

 
2

 
230

 
3

 
284

 
4

Direct/Indirect consumer
226

 
3

 
537

 
7

 
256

 
6

 
593

 
15

Other consumer
58

 
1

 
63

 
1

 
59

 
2

 
64

 
2

(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 June 30, 2014 and December 31, 2013.

Credit Card and Other Consumer – Renegotiated TDRs by Program Type
 
Internal Programs
 
External Programs
 
Other (1)
 
Total
 
Percent of Balances Current or
Less Than 30 Days Past Due
(Dollars in millions)
June 30
2014
December 31
2013
 
June 30
2014
December 31
2013
 
June 30
2014
December 31
2013
 
June 30
2014
December 31
2013
 
June 30
2014
December 31
2013
U.S. credit card
$
587

$
842

 
$
477

$
607

 
$
12

$
16

 
$
1,076

$
1,465

 
84.27
%
82.77
%
Non-U.S. credit card
64

71

 
24

26

 
128

143

 
216

240

 
48.07

49.01

Direct/Indirect consumer
97

170

 
63

106

 
30

38

 
190

314

 
85.36

84.29

Other consumer
59

60

 


 


 
59

60

 
75.35

71.08

Total renegotiated TDRs
$
807

$
1,143

 
$
564

$
739

 
$
170

$
197

 
$
1,541

$
2,079

 
79.00

78.77

(1) Other TDRs for non-U.S. credit card include modifications of accounts that are ineligible for a fixed payment plan.
The table below provides information on the Corporation's renegotiated TDR portfolio including the June 30, 2014 and 2013 unpaid principal balance, carrying value and average pre- and post-modification interest rates of loans that were modified in TDRs during the three and six months ended June 30, 2014 and 2013, and net charge-offs recorded during the period on loans that were modified in TDRs during the six months ended June 30, 2014 and 2013.

Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Three Months Ended June 30, 2014 and 2013
 
June 30, 2014
 
Three Months Ended June 30, 2014
(Dollars in millions)
Unpaid Principal Balance
 
Carrying
Value (1)
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
 
Net Charge-offs
U.S. credit card
$
78

 
$
87

 
16.74
%
 
5.03
%
 
$
8

Non-U.S. credit card
47

 
55

 
25.36

 
0.41

 
15

Direct/Indirect consumer
11

 
8

 
8.64

 
4.87

 
4

Other consumer
3

 
3

 
9.64

 
5.66

 

Total
$
139

 
$
153

 
19.30

 
3.37

 
$
27

 
 
 
 
 
 
 
 
 
 
 
June 30, 2013
 
Three Months Ended June 30, 2013
U.S. credit card
$
75

 
$
76

 
16.86
%
 
6.07
%
 
$
5

Non-U.S. credit card
68

 
71

 
26.17

 
0.67

 
22

Direct/Indirect consumer
17

 
12

 
8.92

 
5.18

 
3

Other consumer
2

 
2

 
9.53

 
4.51

 

Total
$
162

 
$
161

 
20.26

 
3.61

 
$
30

 
 
 
 
 
 
 
 
 
 
Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Six Months Ended June 30, 2014 and 2013
 
June 30, 2014
 
Six Months Ended June 30, 2014
U.S. credit card
$
159

 
$
176

 
16.70
%
 
5.13
%
 
$
11

Non-U.S. credit card
91

 
107

 
25.47

 
0.48

 
17

Direct/Indirect consumer
20

 
15

 
9.35

 
4.68

 
7

Other consumer
5

 
5

 
9.13

 
5.31

 

Total
$
275

 
$
303

 
19.32

 
3.47

 
$
35

 
 
 
 
 
 
 
 
 
 
 
June 30, 2013
 
Six Months Ended June 30, 2013
U.S. credit card
$
151

 
$
153

 
16.91
%
 
6.13
%
 
$
7

Non-U.S. credit card
123

 
129

 
26.16

 
0.71

 
25

Direct/Indirect consumer
31

 
22

 
9.54

 
5.25

 
7

Other consumer
3

 
3

 
9.48

 
5.26

 

Total
$
308

 
$
307

 
20.11

 
3.73

 
$
39

(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 six months ended June 30, 2014 and 2013.

Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Period by Program Type
 
Three Months Ended June 30, 2014
(Dollars in millions)
Internal Programs
 
External Programs
 
Other (1)
 
Total
U.S. credit card
$
58

 
$
29

 
$

 
$
87

Non-U.S. credit card
1

 
2

 
52

 
55

Direct/Indirect consumer
2

 
1

 
5

 
8

Other consumer
3

 

 

 
3

Total renegotiated TDRs
$
64

 
$
32

 
$
57

 
$
153

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2013
U.S. credit card
$
39

 
$
37

 
$

 
$
76

Non-U.S. credit card
6

 
3

 
62

 
71

Direct/Indirect consumer
3

 
3

 
6

 
12

Other consumer
2

 

 

 
2

Total renegotiated TDRs
$
50

 
$
43

 
$
68

 
$
161

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2014
U.S. credit card
$
119

 
$
57

 
$

 
$
176

Non-U.S. credit card
4

 
4

 
99

 
107

Direct/Indirect consumer
4

 
2

 
9

 
15

Other consumer
5

 

 

 
5

Total renegotiated TDRs
$
132

 
$
63

 
$
108

 
$
303

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2013
U.S. credit card
$
80

 
$
73

 
$

 
$
153

Non-U.S. credit card
12

 
6

 
111

 
129

Direct/Indirect consumer
7

 
5

 
10

 
22

Other consumer
3

 

 

 
3

Total renegotiated TDRs
$
102

 
$
84

 
$
121

 
$
307

(1) Other TDRs for non-U.S. credit card include modifications of accounts that are ineligible for a fixed payment plan.

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 14 percent of new U.S. credit card TDRs, 76 percent of new non-U.S. credit card TDRs and 10 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 six months ended June 30, 2014 that had been modified in a TDR during the preceding 12 months were $12 million and $25 million for U.S. credit card, $54 million and $110 million for non-U.S. credit card, and $1 million and $3 million for direct/indirect consumer. During the three and six months ended June 30, 2013, loans that entered into payment default that had been modified in a TDR during the preceding 12 months were $14 million and $38 million for U.S. credit card, $59 million and $121 million for non-U.S. credit card and $1 million and $3 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 June 30, 2014 and December 31, 2013, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were immaterial. Commercial foreclosed properties totaled $77 million and $90 million at June 30, 2014 and December 31, 2013.

The table below provides the unpaid principal balance, carrying value and related allowance at June 30, 2014 and December 31, 2013, and the average carrying value and interest income recognized for the three and six months ended June 30, 2014 and 2013 for impaired loans in the Corporation's Commercial loan portfolio segment. 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
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2014
 
December 31, 2013
(Dollars in millions)
 
 
 
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
$
535

 
$
500

 
$

 
$
609

 
$
577

 
$

Commercial real estate
 
 
 
 
201

 
175

 

 
254

 
228

 

Non-U.S. commercial
 
 
 
 

 

 

 
10

 
10

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
$
1,648

 
$
1,384

 
$
184

 
$
1,581

 
$
1,262

 
$
164

Commercial real estate
 
 
 
 
835

 
617

 
52

 
1,066

 
731

 
61

Non-U.S. commercial
 
 
 
 
334

 
51

 
3

 
254

 
64

 
16

U.S. small business commercial (1)
 
 
 
 
168

 
154

 
39

 
186

 
176

 
36

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
$
2,183

 
$
1,884

 
$
184

 
$
2,190

 
$
1,839

 
$
164

Commercial real estate
 
 
 
 
1,036

 
792

 
52

 
1,320

 
959

 
61

Non-U.S. commercial
 
 
 
 
334

 
51

 
3

 
264

 
74

 
16

U.S. small business commercial (1)
 
 
 
 
168

 
154

 
39

 
186

 
176

 
36

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
 
2014
 
2013
 
2014
 
2013
 
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
$
480

 
$
3

 
$
470

 
$
1

 
$
499

 
$
5

 
$
479

 
$
3

Commercial real estate
193

 
1

 
356

 
1

 
206

 
2

 
372

 
2

Non-U.S. commercial
5

 

 
31

 

 
7

 

 
38

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
1,387

 
$
15

 
$
1,619

 
$
12

 
$
1,347

 
$
30

 
$
1,652

 
$
24

Commercial real estate
632

 
6

 
1,139

 
6

 
667

 
13

 
1,359

 
14

Non-U.S. commercial
63

 
1

 
152

 
2

 
68

 
2

 
130

 
5

U.S. small business commercial (1)
159

 
1

 
253

 
2

 
165

 
2

 
270

 
4

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
1,867

 
$
18

 
$
2,089

 
$
13

 
$
1,846

 
$
35

 
$
2,131

 
$
27

Commercial real estate
825

 
7

 
1,495

 
7

 
873

 
15

 
1,731

 
16

Non-U.S. commercial
68

 
1

 
183

 
2

 
75

 
2

 
168

 
5

U.S. small business commercial (1)
159

 
1

 
253

 
2

 
165

 
2

 
270

 
4


(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.

The table below presents the June 30, 2014 and 2013 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during the three and six months ended June 30, 2014 and 2013, and net charge-offs that were recorded during the period on loans that were modified as TDRs during the six months ended June 30, 2014 and 2013. The table below includes 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.

Commercial – TDRs Entered into During the Three Months Ended June 30, 2014 and 2013
 
June 30, 2014
 
Three Months Ended June 30, 2014
(Dollars in millions)
Unpaid Principal Balance
 
Carrying
Value
 
Net Charge-offs
U.S. commercial
$
493

 
$
488

 
$

Commercial real estate
39

 
39

 

Non-U.S. commercial
46

 
46

 

U.S. small business commercial (1)
3

 
3

 

Total
$
581

 
$
576

 
$

 
 
 
 
 
 
 
June 30, 2013
 
Three Months Ended June 30, 2013
U.S. commercial
$
487

 
$
460

 
$
5

Commercial real estate
210

 
193

 
1

Non-U.S. commercial
74

 
73

 

U.S. small business commercial (1)
3

 
3

 

Total
$
774

 
$
729

 
$
6

 
 
 
 
 
 
Commercial – TDRs Entered into During the Six Months Ended June 30, 2014 and 2013
 
June 30, 2014
 
Six Months Ended June 30, 2014
U.S. commercial
$
740

 
$
726

 
$
2

Commercial real estate
282

 
282

 

Non-U.S. commercial
46

 
46

 

U.S. small business commercial (1)
4

 
4

 

Total
$
1,072

 
$
1,058

 
$
2

 
 
 
 
 
 
 
June 30, 2013
 
Six Months Ended June 30, 2013
U.S. commercial
$
840

 
$
813

 
$
2

Commercial real estate
438

 
381

 
3

Non-U.S. commercial
74

 
73

 

U.S. small business commercial (1)
5

 
6

 
1

Total
$
1,357

 
$
1,273

 
$
6

(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 and lease losses. TDRs that were in payment default had a carrying value of $63 million and $104 million for U.S. commercial, $82 million and $288 million for commercial real estate and $0.2 million and $1 million for U.S. small business commercial at June 30, 2014 and 2013.

Purchased Credit-impaired Loans


The table below shows activity for the accretable yield on PCI loans, which includes the Countrywide Financial Corporation (Countrywide) portfolio and loans repurchased in connection with the settlement with FNMA. For more information on the settlement with FNMA, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees of the Corporation's 2013 Annual Report on Form 10-K. The amount of accretable yield is affected by changes in credit outlooks, including metrics such as default rates and loss severities, prepayment 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 reclassification to nonaccretable difference during the three months ended June 30, 2014 was due to an increase in forecasted prepayment speeds as a result of lower interest rates. The reclassification from nonaccretable difference during the six months ended June 30, 2014 was due to lower expected loss rates primarily driven by improved home prices. 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 June 30, 2014
Six Months Ended June 30, 2014
Accretable yield, beginning of period
$
6,706

$
6,694

Accretion
(273
)
(554
)
Disposals/transfers
(92
)
(183
)
Reclassifications (to)/from nonaccretable difference
(122
)
262

Accretable yield, June 30, 2014
$
6,219

$
6,219



For more information on PCI loans, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2013 Annual Report on Form 10-K, and for the carrying value and valuation allowance for PCI loans, see Note 5 – Allowance for Credit Losses.

Loans Held-for-sale

The Corporation had LHFS of $9.2 billion and $11.4 billion at June 30, 2014 and December 31, 2013. Proceeds, including cash and securities, from sales and paydowns of loans originally classified as LHFS were $19.8 billion and $46.4 billion for the six months ended June 30, 2014 and 2013. Amounts used for originations and purchases of LHFS were $18.8 billion and $40.1 billion for the six months ended June 30, 2014 and 2013.