Quarterly report pursuant to Section 13 or 15(d)

Outstanding Loans and Leases

v2.4.0.8
Outstanding Loans and Leases
9 Months Ended
Sep. 30, 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 September 30, 2014 and December 31, 2013.

 
September 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
$
1,935

$
668

$
5,973

$
8,576

$
158,438

 
 
$
167,014

Home equity
212

110

723

1,045

51,298

 
 
52,343

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
 
Residential mortgage (5)
2,085

1,108

12,210

15,403

26,723

$
15,588

 
57,714

Home equity
345

173

1,173

1,691

27,653

5,821

 
35,165

Credit card and other consumer
 
 
 
 
 
 
 
 
U.S. credit card
521

350

831

1,702

87,324

 
 
89,026

Non-U.S. credit card
54

43

104

201

11,232

 
 
11,433

Direct/Indirect consumer (6)
321

145

334

800

82,318

 
 
83,118

Other consumer (7)
21

6

16

43

2,109

 
 
2,152

Total consumer
5,494

2,603

21,364

29,461

447,095

21,409

 
497,965

Consumer loans accounted for under the fair value option (8)
 
 
 
 
 
 
$
2,129

2,129

Total consumer loans and leases
5,494

2,603

21,364

29,461

447,095

21,409

2,129

500,094

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
197

164

300

661

214,797

 
 
215,458

Commercial real estate (9)
35

49

158

242

46,781

 
 
47,023

Commercial lease financing
51

85

82

218

24,280

 
 
24,498

Non-U.S. commercial
43


4

47

84,603

 
 
84,650

U.S. small business commercial
66

46

109

221

13,317

 
 
13,538

Total commercial
392

344

653

1,389

383,778

 
 
385,167

Commercial loans accounted for under the fair value option (8)
 
 
 
 
 
 
6,054

6,054

Total commercial loans and leases
392

344

653

1,389

383,778

 
6,054

391,221

Total loans and leases
$
5,886

$
2,947

$
22,017

$
30,850

$
830,873

$
21,409

$
8,183

$
891,315

Percentage of outstandings
0.66
%
0.33
%
2.47
%
3.46
%
93.22
%
2.40
%
0.92
%
100.00
%
(1) 
Home loans 30-59 days past due includes fully-insured loans of $2.1 billion and nonperforming loans of $440 million. Home loans 60-89 days past due includes fully-insured loans of $1.1 billion and nonperforming loans of $343 million.
(2) 
Home loans includes fully-insured loans of $13.0 billion.
(3) 
Home loans includes $4.4 billion and direct/indirect consumer includes $28 million of nonperforming loans.
(4) 
PCI loan amounts are shown gross of the valuation allowance.
(5) 
Total outstandings includes pay option loans of $3.3 billion. The Corporation no longer originates this product.
(6) 
Total outstandings includes dealer financial services loans of $37.9 billion, unsecured consumer lending loans of $1.7 billion, U.S. securities-based lending loans of $34.6 billion, non-U.S. consumer loans of $4.3 billion, student loans of $3.6 billion and other consumer loans of $894 million.
(7) 
Total outstandings includes consumer finance loans of $1.0 billion, consumer leases of $937 million, consumer overdrafts of $173 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 $179 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 $4.8 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 $45.1 billion and non-U.S. commercial real estate loans of $2.0 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 $293 million and $339 million at September 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 in the Consolidated Statement of Income when the Corporation recognizes a reimbursable loss, as described above. Amounts are collected when reimbursable losses are realized through the sale of the underlying collateral. At September 30, 2014 and December 31, 2013, the Corporation had a receivable of $155 million and $198 million from these vehicles for reimbursement of losses, and principal of $7.4 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 $21.3 billion and $28.2 billion at September 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 September 30, 2014 and December 31, 2013, $981 million and $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 September 30, 2014, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms were $1.4 billion of which $843 million were current on their contractual payments, while $477 million were 90 days or more past due. Of the contractually current nonperforming loans, approximately 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. Excluding PCI loans, the Corporation sold nonperforming consumer loans with a carrying value, excluding the related allowance, of $957 million and $2.8 billion during the three and nine months ended September 30, 2014.
The table below presents the Corporation's nonperforming loans and leases including nonperforming TDRs, and loans accruing past due 90 days or more at September 30, 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)
September 30
2014
 
December 31
2013
 
September 30
2014
 
December 31
2013
Home loans
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
Residential mortgage (2)
$
2,725

 
$
3,316

 
$
4,253

 
$
5,137

Home equity
1,500

 
1,431

 

 

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
Residential mortgage (2)
5,393

 
8,396

 
8,792

 
11,824

Home equity
2,526

 
2,644

 

 

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

 
n/a

 
831

 
1,053

Non-U.S. credit card
n/a

 
n/a

 
104

 
131

Direct/Indirect consumer
30

 
35

 
332

 
408

Other consumer
14

 
18

 
1

 
2

Total consumer
12,188

 
15,840

 
14,313

 
18,555

Commercial
 
 
 
 
 
 
 
U.S. commercial
757

 
819

 
121

 
47

Commercial real estate
445

 
322

 
2

 
21

Commercial lease financing
7

 
16

 
80

 
41

Non-U.S. commercial
45

 
64

 
4

 
17

U.S. small business commercial
98

 
88

 
69

 
78

Total commercial
1,352

 
1,309

 
276

 
204

Total loans and leases
$
13,540

 
$
17,149

 
$
14,589

 
$
18,759

(1) 
Nonperforming loan balances do not include nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of $101 million and $260 million at September 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 September 30, 2014 and December 31, 2013, residential mortgage includes $9.1 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 $3.9 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 September 30, 2014 and December 31, 2013.

Home Loans – Credit Quality Indicators (1)
 
 
 
 
 
 
 
September 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
$
98,917

$
20,106

$
10,803

$
46,290

$
16,148

$
2,278

Greater than 90 percent but less than or equal to 100 percent
4,724

3,233

2,001

2,860

3,991

1,170

Greater than 100 percent
4,853

5,341

2,784

3,193

9,205

2,373

Fully-insured loans (5)
58,520

13,446





Total home loans
$
167,014

$
42,126

$
15,588

$
52,343

$
29,344

$
5,821

 
 
 
 
 
 
 
Refreshed FICO score
 
 
 
 
 
 
Less than 620
$
4,546

$
7,044

$
6,524

$
2,059

$
3,487

$
905

Greater than or equal to 620 and less than 680
6,569

4,357

3,045

3,721

4,706

1,036

Greater than or equal to 680 and less than 740
21,788

6,857

3,245

10,566

8,236

1,697

Greater than or equal to 740
75,591

10,422

2,774

35,997

12,915

2,183

Fully-insured loans (5)
58,520

13,446





Total home loans
$
167,014

$
42,126

$
15,588

$
52,343

$
29,344

$
5,821

(1) 
Excludes $2.1 billion of loans accounted for under the fair value option.
(2) 
Excludes PCI loans.
(3) 
Includes $2.9 billion of pay option loans. The Corporation no longer originates this product.
(4) 
Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance.
(5) 
Credit quality indicators are not reported for fully-insured loans as principal repayment is insured.

Credit Card and Other Consumer – Credit Quality Indicators
 
September 30, 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
$
4,435

 
$

 
$
1,274

 
$
467

Greater than or equal to 620 and less than 680
12,171

 

 
1,932

 
294

Greater than or equal to 680 and less than 740
34,527

 

 
10,932

 
357

Greater than or equal to 740
37,893

 

 
25,509

 
859

Other internal credit metrics (2, 3, 4)

 
11,433

 
43,471

 
175

Total credit card and other consumer
$
89,026

 
$
11,433

 
$
83,118

 
$
2,152

(1) 
Forty-eight 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 $38.9 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $3.6 billion of loans the Corporation no longer originates.
(4) 
Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At September 30, 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)
 
September 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
$
208,599

 
$
46,079

 
$
23,496

 
$
83,591

 
$
832

Reservable criticized
6,859

 
944

 
1,002

 
1,059

 
220

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
187

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
538

Greater than or equal to 680 and less than 740
 
 
 
 
 
 
 
 
1,619

Greater than or equal to 740
 
 
 
 
 
 
 
 
3,008

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
7,134

Total commercial
$
215,458

 
$
47,023

 
$
24,498

 
$
84,650

 
$
13,538

(1) 
Excludes $6.1 billion of loans accounted for under the fair value option.
(2) 
U.S. small business commercial includes $253 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At September 30, 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) 
Sixty 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 186. 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 of $2.7 billion were included in TDRs at September 30, 2014, of which $1.4 billion were classified as nonperforming and $1.3 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 September 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 $614 million and $533 million at September 30, 2014 and December 31, 2013.

The table below provides the unpaid principal balance, carrying value and related allowance at September 30, 2014 and December 31, 2013, and the average carrying value and interest income recognized for the three and nine months ended September 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
 
 
 
 
 
September 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
 
 
 
 
$
18,055

 
$
13,828

 
$

 
$
21,567

 
$
16,450

 
$

Home equity
 
 
 
 
3,472

 
1,564

 

 
3,249

 
1,385

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
10,352

 
$
10,056

 
$
693

 
$
13,341

 
$
12,862

 
$
991

Home equity
 
 
 
 
874

 
742

 
225

 
893

 
761

 
240

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
 
 
 
 
$
28,407

 
$
23,884

 
$
693

 
$
34,908

 
$
29,312

 
$
991

Home equity
 
 
 
 
4,346

 
2,306

 
225

 
4,142

 
2,146

 
240

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 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
$
13,981

 
$
161

 
$
16,984

 
$
152

 
$
15,181

 
$
508

 
$
16,563

 
$
436

Home equity
1,509

 
26

 
1,286

 
19

 
1,449

 
72

 
1,208

 
55

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
10,621

 
$
111

 
$
14,027

 
$
173

 
$
11,482

 
$
363

 
$
14,221

 
$
451

Home equity
745

 
5

 
902

 
9

 
746

 
19

 
942

 
31

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
24,602

 
$
272

 
$
31,011

 
$
325

 
$
26,663

 
$
871

 
$
30,784

 
$
887

Home equity
2,254

 
31

 
2,188

 
28

 
2,195

 
91

 
2,150

 
86

(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 September 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 nine months ended September 30, 2014 and 2013, and net charge-offs recorded during the period on loans that were modified in TDRs during the nine months ended September 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 September 30, 2014 and 2013 (1)
 
September 30, 2014
 
Three Months Ended September 30, 2014
(Dollars in millions)
Unpaid Principal Balance
 
Carrying
 Value
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate (2)
 
Net Charge-offs (3)
Residential mortgage
$
1,332

 
$
1,226

 
5.07
%
 
4.90
%
 
$
19

Home equity
314

 
228

 
3.74

 
3.44

 
32

Total
$
1,646

 
$
1,454

 
4.82

 
4.62

 
$
51

 
 
 
 
 
 
 
 
 
 
 
September 30, 2013
 
Three Months Ended September 30, 2013
Residential mortgage
$
3,275

 
$
2,947

 
5.22
%
 
4.52
%
 
$
64

Home equity
220

 
147

 
5.58

 
4.33

 
36

Total
$
3,495

 
$
3,094

 
5.22

 
4.51

 
$
100

 
 
 
 
 
 
 
 
 
 
Home Loans – TDRs Entered into During the Nine Months Ended September 30, 2014 and 2013 (1)
 
September 30, 2014
 
Nine Months Ended September 30, 2014
Residential mortgage
$
3,498

 
$
3,091

 
5.12
%
 
4.57
%
 
$
60

Home equity
702

 
477

 
3.98

 
3.31

 
76

Total
$
4,200

 
$
3,568

 
4.93

 
4.36

 
$
136

 
 
 
 
 
 
 
 
 
 
 
September 30, 2013
 
Nine Months Ended September 30, 2013
Residential mortgage
$
10,295

 
$
9,153

 
5.34
%
 
4.34
%
 
$
181

Home equity
706

 
425

 
5.55

 
4.17

 
145

Total
$
11,001

 
$
9,578

 
5.35

 
4.34

 
$
326

(1) 
TDRs entered into during the three and nine months ended September 30, 2014 include residential mortgage modifications with principal forgiveness of $13 million and $52 million. TDRs entered into during the three and nine months ended September 30, 2013 include residential mortgage modifications with principal forgiveness of $118 million and $462 million.
(2) 
The post-modification interest rate reflects the interest rate applicable only to permanently completed modifications, which exclude loans that are in a trial modification period.
(3) 
Net charge-offs include amounts recorded on loans modified during the period that are no longer held by the Corporation at September 30, 2014 and 2013 due to sales and other dispositions.


The table below presents the September 30, 2014 and 2013 carrying value for home loans that were modified in a TDR during the three and nine months ended September 30, 2014 and 2013 by type of modification.

Home Loans – Modification Programs
 
TDRs Entered into During the
Three Months Ended September 30, 2014
(Dollars in millions)
Residential Mortgage
 
Home
Equity
 
Total Carrying Value
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
103

 
$
15

 
$
118

Principal and/or interest forbearance

 
9

 
9

Other modifications (1)
12

 

 
12

Total modifications under government programs
115

 
24

 
139

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
53

 
2

 
55

Capitalization of past due amounts
29

 
1

 
30

Principal and/or interest forbearance
4

 
43

 
47

Other modifications (1)
11

 

 
11

Total modifications under proprietary programs
97

 
46

 
143

Trial modifications
843

 
105

 
948

Loans discharged in Chapter 7 bankruptcy (2)
171

 
53

 
224

Total modifications
$
1,226

 
$
228

 
$
1,454

 
 
 
 
 
 
 
TDRs Entered into During the
Three Months Ended September 30, 2013
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
393

 
$
3

 
$
396

Principal and/or interest forbearance
4

 
2

 
6

Other modifications (1)
18

 

 
18

Total modifications under government programs
415

 
5

 
420

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
764

 
13

 
777

Capitalization of past due amounts
26

 

 
26

Principal and/or interest forbearance
57

 
7

 
64

Other modifications (1)
10

 

 
10

Total modifications under proprietary programs
857

 
20

 
877

Trial modifications
1,395

 
51

 
1,446

Loans discharged in Chapter 7 bankruptcy (2)
280

 
71

 
351

Total modifications
$
2,947

 
$
147

 
$
3,094

(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
Nine Months Ended September 30, 2014
(Dollars in millions)
Residential Mortgage
 
Home
Equity
 
Total Carrying Value
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
546

 
$
49

 
$
595

Principal and/or interest forbearance
15

 
18

 
33

Other modifications (1)
80

 

 
80

Total modifications under government programs
641

 
67

 
708

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
232

 
14

 
246

Capitalization of past due amounts
70

 
1

 
71

Principal and/or interest forbearance
61

 
64

 
125

Other modifications (1)
33

 
27

 
60

Total modifications under proprietary programs
396

 
106

 
502

Trial modifications
1,616

 
158

 
1,774

Loans discharged in Chapter 7 bankruptcy (2)
438

 
146

 
584

Total modifications
$
3,091

 
$
477

 
$
3,568

 
 
 
 
 
 
 
TDRs Entered into During the
Nine Months Ended September 30, 2013
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
1,127

 
$
27

 
$
1,154

Principal and/or interest forbearance
32

 
14

 
46

Other modifications (1)
68

 

 
68

Total modifications under government programs
1,227

 
41

 
1,268

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
2,829

 
50

 
2,879

Capitalization of past due amounts
98

 

 
98

Principal and/or interest forbearance
435

 
17

 
452

Other modifications (1)
89

 
14

 
103

Total modifications under proprietary programs
3,451

 
81

 
3,532

Trial modifications 
3,442

 
71

 
3,513

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

 
232

 
1,265

Total modifications
$
9,153

 
$
425

 
$
9,578


(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 nine months ended September 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 $1.1 billion and $1.5 billion that entered into payment default during the nine months ended September 30, 2014 and 2013 but were no longer held by the Corporation as of September 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 September 30, 2014
(Dollars in millions)
 Residential Mortgage
 
Home
Equity
 
Total Carrying Value (1)
Modifications under government programs
$
193

 
$
1

 
$
194

Modifications under proprietary programs
137

 
1

 
138

Loans discharged in Chapter 7 bankruptcy (2)
121

 
15

 
136

Trial modifications
462

 
19

 
481

Total modifications
$
913

 
$
36

 
$
949

 
 
 
 
 
 
 
Three Months Ended September 30, 2013
Modifications under government programs
$
86

 
$

 
$
86

Modifications under proprietary programs
185

 

 
185

Loans discharged in Chapter 7 bankruptcy (2)
205

 
3

 
208

Trial modifications
1,205

 
3

 
1,208

Total modifications
$
1,681

 
$
6

 
$
1,687

 
 
 
 
 
 
 
Nine Months Ended September 30, 2014
Modifications under government programs
$
537

 
$
3

 
$
540

Modifications under proprietary programs
612

 
4

 
616

Loans discharged in Chapter 7 bankruptcy (2)
395

 
57

 
452

Trial modifications
1,753

 
37

 
1,790

Total modifications
$
3,297

 
$
101

 
$
3,398

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

 
$
2

 
$
246

Modifications under proprietary programs
731

 
4

 
735

Loans discharged in Chapter 7 bankruptcy (2)
809

 
27

 
836

Trial modifications
3,142

 
8

 
3,150

Total modifications
$
4,926

 
$
41

 
$
4,967


(1) 
Total carrying value includes loans with a carrying value of $1.1 billion and $1.5 billion that entered into payment default during the nine months ended September 30, 2014 and 2013 but were no longer held by the Corporation as of September 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 September 30, 2014 and December 31, 2013, and the average carrying value and interest income recognized for the three and nine months ended September 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
 
 
 
 
 
 
 
 
 
 
 
 
 
September 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
 
 
 
 
$
63

 
$
27

 
$

 
$
75

 
$
32

 
$

Other consumer
 
 
 
 
34

 
34

 

 
34

 
34

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
 
 
 
 
$
896

 
$
953

 
$
217

 
$
1,384

 
$
1,465

 
$
337

Non-U.S. credit card
 
 
 
 
147

 
186

 
121

 
200

 
240

 
149

Direct/Indirect consumer
 
 
 
 
105

 
127

 
35

 
242

 
282

 
84

Other consumer
 
 
 
 
25

 
24

 
10

 
27

 
26

 
9

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
 
 
 
 
$
896

 
$
953

 
$
217

 
$
1,384

 
$
1,465

 
$
337

Non-U.S. credit card
 
 
 
 
147

 
186

 
121

 
200

 
240

 
149

Direct/Indirect consumer
 
 
 
 
168

 
154

 
35

 
317

 
314

 
84

Other consumer
 
 
 
 
59

 
58

 
10

 
61

 
60

 
9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 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
$
27

 
$

 
$
38

 
$

 
$
27

 
$

 
$
45

 
$

Other consumer
34

 

 
34

 

 
34

 
1

 
34

 
1

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
1,045

 
$
16

 
$
1,926

 
$
30

 
$
1,218

 
$
56

 
$
2,310

 
$
108

Non-U.S. credit card
204

 
2

 
254

 
2

 
221

 
5

 
274

 
6

Direct/Indirect consumer
152

 
2

 
406

 
5

 
202

 
8

 
498

 
20

Other consumer
24

 

 
27

 
1

 
24

 
1

 
28

 
2

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
1,045

 
$
16

 
$
1,926

 
$
30

 
$
1,218

 
$
56

 
$
2,310

 
$
108

Non-U.S. credit card
204

 
2

 
254

 
2

 
221

 
5

 
274

 
6

Direct/Indirect consumer
179

 
2

 
444

 
5

 
229

 
8

 
543

 
20

Other consumer
58

 

 
61

 
1

 
58

 
2

 
62

 
3

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

The table below provides information on the Corporation's primary modification programs for the renegotiated TDR portfolio at September 30, 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)
September 30
2014
December 31
2013
 
September 30
2014
December 31
2013
 
September 30
2014
December 31
2013
 
September 30
2014
December 31
2013
 
September 30
2014
December 31
2013
U.S. credit card
$
509

$
842

 
$
434

$
607

 
$
10

$
16

 
$
953

$
1,465

 
85.11
%
82.77
%
Non-U.S. credit card
48

71

 
18

26

 
120

143

 
186

240

 
47.77

49.01

Direct/Indirect consumer
70

170

 
47

106

 
37

38

 
154

314

 
84.68

84.29

Other consumer
58

60

 


 


 
58

60

 
75.48

71.08

Total renegotiated TDRs
$
685

$
1,143

 
$
499

$
739

 
$
167

$
197

 
$
1,351

$
2,079

 
79.49

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 September 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 nine months ended September 30, 2014 and 2013, and net charge-offs recorded during the period on loans that were modified in TDRs during the nine months ended September 30, 2014 and 2013.

Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Three Months Ended September 30, 2014 and 2013
 
September 30, 2014
 
Three Months Ended September 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
$
80

 
$
88

 
16.59
%
 
5.13
%
 
$
12

Non-U.S. credit card
43

 
51

 
25.09

 
0.43

 
36

Direct/Indirect consumer
11

 
7

 
7.34

 
4.76

 
4

Other consumer
1

 
1

 
8.96

 
4.82

 

Total
$
135

 
$
147

 
18.98

 
3.50

 
$
52

 
 
 
 
 
 
 
 
 
 
 
September 30, 2013
 
Three Months Ended September 30, 2013
U.S. credit card
$
100

 
$
102

 
16.86
%
 
5.70
%
 
$
9

Non-U.S. credit card
61

 
64

 
26.09

 
0.67

 
53

Direct/Indirect consumer
16

 
12

 
10.89

 
4.68

 
5

Other consumer
2

 
2

 
9.10

 
6.01

 

Total
$
179

 
$
180

 
19.65

 
3.85

 
$
67

 
 
 
 
 
 
 
 
 
 
Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Nine Months Ended September 30, 2014 and 2013
 
September 30, 2014
 
Nine Months Ended September 30, 2014
U.S. credit card
$
223

 
$
244

 
16.66
%
 
5.15
%
 
$
23

Non-U.S. credit card
93

 
109

 
25.11

 
0.58

 
53

Direct/Indirect consumer
26

 
19

 
8.64

 
4.71

 
11

Other consumer
6

 
6

 
9.10

 
5.21

 

Total
$
348

 
$
378

 
18.56

 
3.82

 
$
87

 
 
 
 
 
 
 
 
 
 
 
September 30, 2013
 
Nine Months Ended September 30, 2013
U.S. credit card
$
237

 
$
240

 
16.88
%
 
5.96
%
 
$
16

Non-U.S. credit card
138

 
143

 
26.04

 
0.87

 
78

Direct/Indirect consumer
41

 
31

 
11.17

 
4.90

 
12

Other consumer
4

 
5

 
9.35

 
5.40

 

Total
$
420

 
$
419

 
19.51

 
4.13

 
$
106

(1) 
Includes accrued interest and fees.
The table below provides information on the Corporation's primary modification programs for the renegotiated TDR portfolio for loans that were modified in TDRs during the three and nine months ended September 30, 2014 and 2013.

Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Period by Program Type
 
Three Months Ended September 30, 2014
(Dollars in millions)
Internal Programs
 
External Programs
 
Other (1)
 
Total
U.S. credit card
$
57

 
$
31

 
$

 
$
88

Non-U.S. credit card
2

 
2

 
47

 
51

Direct/Indirect consumer
1

 

 
6

 
7

Other consumer
1

 

 

 
1

Total renegotiated TDRs
$
61

 
$
33

 
$
53

 
$
147

 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2013
U.S. credit card
$
62

 
$
40

 
$

 
$
102

Non-U.S. credit card
4

 
3

 
57

 
64

Direct/Indirect consumer
4

 
2

 
6

 
12

Other consumer
2

 

 

 
2

Total renegotiated TDRs
$
72

 
$
45

 
$
63

 
$
180

 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2014
U.S. credit card
$
161

 
$
83

 
$

 
$
244

Non-U.S. credit card
5

 
5

 
99

 
109

Direct/Indirect consumer
5

 
2

 
12

 
19

Other consumer
6

 

 

 
6

Total renegotiated TDRs
$
177

 
$
90

 
$
111

 
$
378

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

 
$
108

 
$

 
$
240

Non-U.S. credit card
14

 
8

 
121

 
143

Direct/Indirect consumer
11

 
7

 
13

 
31

Other consumer
5

 

 

 
5

Total renegotiated TDRs
$
162

 
$
123

 
$
134

 
$
419

(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, 79 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 nine months ended September 30, 2014 that had been modified in a TDR during the preceding 12 months were $15 million and $40 million for U.S. credit card, $47 million and $157 million for non-U.S. credit card, and $1 million and $4 million for direct/indirect consumer. During the three and nine months ended September 30, 2013, loans that entered into payment default that had been modified in a TDR during the preceding 12 months were $11 million and $49 million for U.S. credit card, $60 million and $181 million for non-U.S. credit card and $1 million and $4 million for direct/indirect consumer.
Commercial Loans

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

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

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

At September 30, 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 $78 million and $90 million at September 30, 2014 and December 31, 2013.

The table below provides the unpaid principal balance, carrying value and related allowance at September 30, 2014 and December 31, 2013, and the average carrying value and interest income recognized for the three and nine months ended September 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
 
 
 
 
 
 
 
 
 
 
 
 
 
September 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
 
 
 
 
$
625

 
$
610

 
$

 
$
609

 
$
577

 
$

Commercial real estate
 
 
 
 
150

 
141

 

 
254

 
228

 

Non-U.S. commercial
 
 
 
 
44

 
44

 

 
10

 
10

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
$
1,304

 
$
994

 
$
93

 
$
1,581

 
$
1,262

 
$
164

Commercial real estate
 
 
 
 
735

 
547

 
58

 
1,066

 
731

 
61

Non-U.S. commercial
 
 
 
 
1

 
1

 

 
254

 
64

 
16

U.S. small business commercial (1)
 
 
 
 
164

 
141

 
37

 
186

 
176

 
36

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
 
 
 
 
$
1,929

 
$
1,604

 
$
93

 
$
2,190

 
$
1,839

 
$
164

Commercial real estate
 
 
 
 
885

 
688

 
58

 
1,320

 
959

 
61

Non-U.S. commercial
 
 
 
 
45

 
45

 

 
264

 
74

 
16

U.S. small business commercial (1)
 
 
 
 
164

 
141

 
37

 
186

 
176

 
36

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30
 
Nine Months Ended September 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
$
555

 
$
3

 
$
371

 
$

 
$
518

 
$
8

 
$
443

 
$
3

Commercial real estate
158

 
1

 
171

 

 
190

 
3

 
305

 
2

Non-U.S. commercial
22

 

 
18

 

 
12

 

 
31

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
1,173

 
$
12

 
$
1,514

 
$
12

 
$
1,289

 
$
42

 
$
1,606

 
$
36

Commercial real estate
689

 
1

 
1,015

 
8

 
675

 
14

 
1,245

 
22

Non-U.S. commercial
45

 
1

 
115

 

 
60

 
3

 
126

 
5

U.S. small business commercial (1)
144

 
1

 
218

 
1

 
157

 
3

 
253

 
5

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
$
1,728

 
$
15

 
$
1,885

 
$
12

 
$
1,807

 
$
50

 
$
2,049

 
$
39

Commercial real estate
847

 
2

 
1,186

 
8

 
865

 
17

 
1,550

 
24

Non-U.S. commercial
67

 
1

 
133

 

 
72

 
3

 
157

 
5

U.S. small business commercial (1)
144

 
1

 
218

 
1

 
157

 
3

 
253

 
5


(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 September 30, 2014 and 2013 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during the three and nine months ended September 30, 2014 and 2013, and net charge-offs that were recorded during the period on loans that were modified as TDRs during the nine months ended September 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 September 30, 2014 and 2013
 
September 30, 2014
 
Three Months Ended September 30, 2014
(Dollars in millions)
Unpaid Principal Balance
 
Carrying
Value
 
Net Charge-offs
U.S. commercial
$
361

 
$
317

 
$
33

Commercial real estate
49

 
39

 
8

Non-U.S. commercial
45

 
45

 

U.S. small business commercial (1)
2

 
2

 

Total
$
457

 
$
403

 
$
41

 
 
 
 
 
 
 
September 30, 2013
 
Three Months Ended September 30, 2013
U.S. commercial
$
361

 
$
357

 
$
27

Commercial real estate
305

 
284

 

Non-U.S. commercial

 

 

U.S. small business commercial (1)
2

 
3

 

Total
$
668

 
$
644

 
$
27

 
 
 
 
 
 
Commercial – TDRs Entered into During the Nine Months Ended September 30, 2014 and 2013
 
September 30, 2014
 
Nine Months Ended September 30, 2014
U.S. commercial
$
808

 
$
759

 
$
35

Commercial real estate
317

 
299

 
8

Non-U.S. commercial
45

 
45

 

U.S. small business commercial (1)
6

 
6

 

Total
$
1,176

 
$
1,109

 
$
43

 
 
 
 
 
 
 
September 30, 2013
 
Nine Months Ended September 30, 2013
U.S. commercial
$
853

 
$
771

 
$
28

Commercial real estate
615

 
569

 
3

Non-U.S. commercial
21

 
7

 

U.S. small business commercial (1)
7

 
7

 
1

Total
$
1,496

 
$
1,354

 
$
32

(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 $128 million for U.S. commercial, $67 million and $269 million for commercial real estate and $0.3 million and $1 million for U.S. small business commercial at September 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 from nonaccretable difference during the three months ended September 30, 2014 was due to a decrease in forecasted prepayment speeds. The reclassification from nonaccretable difference during the nine months ended September 30, 2014 was due to lower expected loss rates and a decrease in forecasted prepayment speeds. Changes in the prepayment assumption affect the expected remaining life of the portfolio which results in a change to the amount of future interest cash flows.

Rollforward of Accretable Yield
 
 
(Dollars in millions)
Three Months Ended September 30, 2014
 
Nine Months Ended September 30, 2014
Accretable yield, beginning of period
$
6,219

 
$
6,694

Accretion
(265
)
 
(819
)
Disposals/transfers
(241
)
 
(424
)
Reclassifications from nonaccretable difference
242

 
504

Accretable yield, September 30, 2014
$
5,955

 
$
5,955



During the three and nine months ended September 30, 2014, the Corporation sold PCI loans with a carrying value of $1.3 billion and $1.9 billion, which excludes the related allowance of $131 million and $317 million. 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 $7.9 billion and $11.4 billion at September 30, 2014 and December 31, 2013. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were $30.8 billion and $65.5 billion for the nine months ended September 30, 2014 and 2013. Cash used for originations and purchases of LHFS totaled $28.7 billion and $55.6 billion for the nine months ended September 30, 2014 and 2013.