Bank of America Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Outstanding Loans and Leases

Outstanding Loans and Leases

6 Months Ended

Jun. 30, 2014

Loans and Leases Receivable Disclosure [Abstract]

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.



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.

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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