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Summary of Significant Accounting Principles (Policies)
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6 Months Ended |
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Jun. 30, 2011
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| Summary of Significant Accounting Principles [Abstract] | |
| Principles of Consolidation and Basis of Presentation |
Principles of Consolidation and Basis of Presentation
The Consolidated Financial Statements include the accounts of the Corporation and its
majority-owned subsidiaries, and those variable interest entities (VIEs) where the Corporation is
the primary beneficiary. Intercompany accounts and transactions have been eliminated. Results of
operations of acquired companies are included from the dates of acquisition and for VIEs, from the
dates that the Corporation became the primary beneficiary. Assets held in an agency or fiduciary
capacity are not included in the Consolidated Financial Statements. The Corporation accounts for
investments in companies for which it owns a voting interest and for which it has the ability to
exercise significant influence over operating and financing decisions using the equity method of
accounting or at fair value under the fair value option. These investments are included in other
assets. Equity method investments are subject to impairment testing and the Corporation’s
proportionate share of income or loss is included in equity investment income.
The preparation of the Consolidated Financial Statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires management to make
estimates and assumptions that affect reported amounts and disclosures. Realized results could
differ from those estimates and assumptions.
These unaudited Consolidated Financial Statements should be read in conjunction with the
audited Consolidated Financial Statements of the Corporation’s 2010 Annual Report on Form 10-K.
The nature of the Corporation’s business is such that the results of any interim period are not
necessarily indicative of results for a full year. In the opinion of management, all adjustments,
which consist of normal recurring adjustments necessary for a fair statement of the interim period
results have been made. The Corporation evaluates subsequent events through the date of filing
with the Securities and Exchange Commission (SEC). Certain prior period amounts have been
reclassified to conform to current period presentation.
Effective January 1, 2011, the Corporation changed the name of the segment formerly known as
Home Loans & Insurance to Consumer Real Estate Services (CRES). For additional information, see
Note 6 – Outstanding Loans and Leases.
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| New Accounting Pronouncements |
New Accounting Pronouncements
In April 2011, the Financial Accounting Standards Board (FASB) issued new accounting guidance
on troubled debt restructurings (TDRs), including how to determine whether a loan modification
represents a concession and whether the debtor is experiencing financial difficulties. This new
accounting guidance will be effective for the Corporation’s interim period ending September 30,
2011 with retrospective application back to January 1, 2011. The adoption of this guidance is not
expected to have a material impact on the Corporation’s consolidated financial position or results
of operations.
In April 2011, the FASB issued new accounting guidance that addresses effective control in
repurchase agreements and eliminates the requirement for entities to consider whether the
transferor (i.e., seller) has the ability to repurchase the financial assets in a repurchase
agreement. This new accounting guidance will be effective, on a prospective basis to new
transactions or modifications to existing transactions, on January 1, 2012. The adoption of this
guidance is not expected to have a material impact on the Corporation’s consolidated financial
position or results of operations.
In May 2011, the FASB issued amendments to the fair value accounting guidance. The amendments
clarify the application of the highest and best use and valuation premise concepts, preclude the
application of blockage factors in the valuation of all financial instruments and include criteria
for applying the fair value measurement principles to portfolios of financial instruments. The
amendments additionally prescribe enhanced financial statement disclosures for Level 3 fair value
measurements. The new amendments will be effective on January 1, 2012. The Corporation is
currently assessing the impact of this guidance on the consolidated financial position and results
of operations.
In June 2011, the FASB issued new accounting guidance on the presentation of comprehensive
income in financial statements. The new guidance removes current presentation options and requires
entities to report components of comprehensive income in either a continuous statement of
comprehensive income or two separate but consecutive statements. This new accounting guidance will
be effective for the Corporation for the three months ended March 31, 2012. The adoption of this
guidance, which involves disclosures only, will not impact the Corporation’s consolidated
financial position or results of operations.
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| Securities Financing Agreements Policy |
Securities Financing Agreements
Securities borrowed or purchased under agreements to resell and securities loaned or sold
under agreements to repurchase (securities financing agreements) are treated as collateralized
financing transactions. These agreements are recorded at the amounts at which the securities were
acquired or sold plus accrued interest, except for certain securities financing agreements that
the Corporation accounts for under the fair value option. Changes in the fair value of securities
financing agreements that are accounted for under the fair value option are recorded in other
income.
The Corporation’s policy is to obtain possession of collateral with a market value equal to
or in excess of the principal amount loaned under resale agreements. To ensure that the market
value of the underlying collateral remains sufficient, collateral is generally valued daily and
the Corporation may require counterparties to deposit additional collateral or may return
collateral pledged when appropriate. Securities financing agreements give rise to negligible
credit risk as a result of these collateral provisions, and accordingly, no allowance for loan
losses is considered necessary.
Substantially all repurchase and resale activities are transacted under legally enforceable
master repurchase agreements which give the Corporation, in the event of default by the
counterparty, the right to liquidate securities held and to offset receivables and payables with
the same counterparty. The Corporation offsets repurchase and resale transactions with the same
counterparty on the Consolidated Balance Sheet where it has such a legally enforceable master
agreement and the transactions have the same maturity date.
In transactions where the Corporation acts as the lender in a securities lending agreement
and receives securities that can be pledged or sold as collateral, it recognizes an asset on the
Consolidated Balance Sheet at fair value, representing the securities received, and a liability
for the same amount, representing the obligation to return those securities.
At the end of certain quarterly periods during the three years ended December 31, 2009, the
Corporation had recorded certain sales of agency mortgage-backed securities (MBS) which, based on
an ongoing internal review and interpretation, should have been recorded as secured financings.
The Corporation is currently conducting a detailed review to determine whether there are
additional sales of agency MBS which should have been recorded as secured financings. Upon
completion of this detailed review, additional transactions will be identified. These transactions
are not expected to have an impact on the Corporation’s current period consolidated financial
position or results of operations. For additional information, see Note 1 – Summary of Significant
Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2010 Annual
Report on Form 10-K.
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| Loans and Leases |
Loans and Leases
Under applicable accounting guidance, a portfolio segment is defined as the level at which an
entity develops and documents a systematic methodology to determine the allowance for credit
losses, and a class of financing receivables is defined as the level of disaggregation of
portfolio segments based on the initial measurement attribute, risk characteristics and methods
for assessing risk. The Corporation’s portfolio segments are home loans, credit card and other
consumer, and commercial. The classes within the home loans portfolio segment are core portfolio
residential mortgage, Legacy Asset Servicing residential mortgage, Countrywide Financial
Corporation (Countrywide) residential mortgage purchased credit-impaired (PCI), core portfolio
home equity, Legacy Asset Servicing home equity, Countrywide home equity PCI, Legacy Asset
Servicing discontinued real estate and Countrywide discontinued real estate PCI. The classes
within the credit card and other consumer portfolio segment are U.S. credit card, non-U.S. credit
card, direct/indirect consumer and other consumer. The classes within the commercial portfolio
segment are U.S. commercial, commercial real estate, commercial lease financing, non-U.S.
commercial and U.S. small business commercial.
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| Revenue Recognition |
Revenue Recognition
The following summarizes the Corporation’s revenue recognition policies as they relate to
certain noninterest income line items in the Consolidated Statement of Income.
Card income is derived from fees such as interchange, cash advance, annual, late, over-limit
and other miscellaneous fees, which are recorded as revenue when earned, primarily on an accrual
basis. Uncollected fees are included in the customer card receivable balances with an amount
recorded in the allowance for loan and lease losses for estimated uncollectible card income
receivables. If a card receivable is written off against the allowance for loan and lease losses,
the revenue line item applicable to the accrued card income is reversed with a corresponding
credit to the provision for loan and lease losses.
Service charges include fees for insufficient funds, overdrafts and other banking services
and are recorded as revenue when earned. Uncollected fees are included in outstanding loan
balances with an amount recorded for estimated uncollectible service fee receivables. If a service
fee receivable is written off against the allowance for loan and lease losses, the revenue line
item applicable to the service fees is reversed with a corresponding credit to the provision for
loan and lease losses.
Investment and brokerage services revenue consists primarily of asset management fees and
brokerage income that is recognized over the period in which the services are provided or when
commissions are earned. Asset management fees consist primarily of fees for investment management
and trust services and are generally based on the dollar amount of the assets being managed.
Brokerage income is generally derived from commissions and fees earned on the sale of various
financial products.
Investment banking income consists primarily of advisory and underwriting fees, which are
recognized in income as the services are provided and no contingencies exist. Revenues are
generally recognized net of any direct expenses. Non-reimbursed expenses are recorded as
noninterest expense.
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