Quarterly report pursuant to Section 13 or 15(d)

Outstanding Loans and Leases

v2.4.0.6
Outstanding Loans and Leases
3 Months Ended
Mar. 31, 2013
Loans and Leases Receivable Disclosure [Abstract]  
Outstanding Loans and Leases
NOTE 5 – Outstanding Loans and Leases

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

 
March 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 (5)
$
2,160

$
666

$
6,611

$
9,437

$
160,996

 
 
$
170,433

Home equity
256

137

606

999

57,959

 
 
58,958

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
 
Residential mortgage (6)
2,827

1,410

24,912

29,149

35,338

$
22,004

 
86,491

Home equity
538

295

1,351

2,184

34,416

7,660

 
44,260

Credit card and other consumer
 
 
 
 
 
 
 
 
U.S. credit card
663

487

1,360

2,510

87,537

 
 
90,047

Non-U.S. credit card
89

67

181

337

10,283

 
 
10,620

Direct/Indirect consumer (7)
473

198

520

1,191

80,327

 
 
81,518

Other consumer (8)
42

16

2

60

1,636

 
 
1,696

Total consumer loans
7,048

3,276

35,543

45,867

468,492

29,664

 
544,023

Consumer loans accounted for under the fair value option (9)
 
 
 
 
 
 
$
1,041

1,041

Total consumer
7,048

3,276

35,543

45,867

468,492

29,664

1,041

545,064

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
406

101

522

1,029

200,331

 
 
201,360

Commercial real estate (10)
154

74

768

996

38,064

 
 
39,060

Commercial lease financing
182

9

16

207

23,260

 
 
23,467

Non-U.S. commercial
14

1


15

82,445

 
 
82,460

U.S. small business commercial
94

69

166

329

12,073

 
 
12,402

Total commercial loans
850

254

1,472

2,576

356,173

 
 
358,749

Commercial loans accounted for under the fair value option (9)
 
 
 
 
 
 
7,779

7,779

Total commercial
850

254

1,472

2,576

356,173

 
7,779

366,528

Total loans and leases
$
7,898

$
3,530

$
37,015

$
48,443

$
824,665

$
29,664

$
8,820

$
911,592

Percentage of outstandings
0.87
%
0.39
%
4.06
%
5.32
%
90.46
%
3.25
%
0.97
%
 
(1) 
Home loans 30-59 days past due includes fully-insured loans of $2.2 billion and nonperforming loans of $735 million. Home loans 60-89 days past due includes fully-insured loans of $961 million and nonperforming loans of $503 million.
(2) 
Home loans includes fully-insured loans of $21.6 billion.
(3) 
Home loans includes $6.4 billion and direct/indirect consumer includes $52 million of nonperforming loans.
(4) 
PCI loan amounts are shown gross of the valuation allowance.
(5) 
Total outstandings includes non-U.S. residential mortgage loans of $86 million.
(6) 
Total outstandings includes pay option loans of $6.5 billion and subprime loans of $533 million. The Corporation no longer originates these products.
(7) 
Total outstandings includes dealer financial services loans of $36.1 billion, consumer lending loans of $4.1 billion, U.S. securities-based lending margin loans of $28.2 billion, student loans of $4.6 billion, non-U.S. consumer loans of $7.4 billion and other consumer loans of $1.1 billion.
(8) 
Total outstandings includes consumer finance loans of $1.4 billion, other non-U.S. consumer loans of $5 million and consumer overdrafts of $115 million.
(9) 
Consumer loans accounted for under the fair value option were residential mortgage loans of $1.0 billion. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.1 billion and non-U.S. commercial loans of $5.7 billion. For addition information, see Note 16 – Fair Value Measurements and Note 17 – Fair Value Option.
(10) 
Total outstandings includes U.S. commercial real estate loans of $37.6 billion and non-U.S. commercial real estate loans of $1.4 billion.
 
December 31, 2012
(Dollars in millions)
30-59 Days
Past Due
(1)
60-89 Days
Past Due
(1)
90 Days or
More Past Due
(2)
Total
Past Due
30 Days
or More
Total Current
or Less Than 30
Days Past Due
(3)
Purchased
Credit -
impaired
(4)
Loans
Accounted for
Under the Fair
Value Option
Total
Outstandings
Home loans
 
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
 
Residential mortgage (5)
$
2,274

$
806

$
6,227

$
9,307

$
160,809

 
 
$
170,116

Home equity
273

146

591

1,010

59,841

 
 
60,851

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
 
Residential mortgage (6)
2,939

1,715

26,728

31,382

34,004

$
17,571

 
82,957

Home equity
607

356

1,444

2,407

36,191

8,547

 
47,145

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

582

1,437

2,748

92,087

 
 
94,835

Non-U.S. credit card
106

85

212

403

11,294

 
 
11,697

Direct/Indirect consumer (7)
569

239

573

1,381

81,824

 
 
83,205

Other consumer (8)
48

19

4

71

1,557

 
 
1,628

Total consumer loans
7,545

3,948

37,216

48,709

477,607

26,118

 
552,434

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

1,005

Total consumer
7,545

3,948

37,216

48,709

477,607

26,118

1,005

553,439

Commercial
 
 
 
 
 
 
 
 
U.S. commercial
323

133

639

1,095

196,031

 
 
197,126

Commercial real estate (10)
79

144

983

1,206

37,431

 
 
38,637

Commercial lease financing
84

79

30

193

23,650

 
 
23,843

Non-U.S. commercial
2



2

74,182

 
 
74,184

U.S. small business commercial
101

75

168

344

12,249

 
 
12,593

Total commercial loans
589

431

1,820

2,840

343,543

 
 
346,383

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

7,997

Total commercial
589

431

1,820

2,840

343,543

 
7,997

354,380

Total loans and leases
$
8,134

$
4,379

$
39,036

$
51,549

$
821,150

$
26,118

$
9,002

$
907,819

Percentage of outstandings
0.90
%
0.48
%
4.30
%
5.68
%
90.45
%
2.88
%
0.99
%
 
(1) 
Home loans 30-59 days past due includes fully-insured loans of $2.3 billion and nonperforming loans of $702 million. Home loans 60-89 days past due includes fully-insured loans of $1.3 billion and nonperforming loans of $558 million.
(2) 
Home loans includes fully-insured loans of $22.2 billion.
(3) 
Home loans includes $5.5 billion and direct/indirect consumer includes $63 million of nonperforming loans.
(4) 
PCI loan amounts are shown gross of the valuation allowance.
(5) 
Total outstandings includes non-U.S. residential mortgage loans of $93 million.
(6) 
Total outstandings includes pay option loans of $6.7 billion and subprime loans of $509 million. The Corporation no longer originates these products.
(7) 
Total outstandings includes dealer financial services loans of $35.9 billion, consumer lending loans of $4.7 billion, U.S. securities-based lending margin loans of $28.3 billion, student loans of $4.8 billion, non-U.S. consumer loans of $8.3 billion and other consumer loans of $1.2 billion.
(8) 
Total outstandings includes consumer finance loans of $1.4 billion, other non-U.S. consumer loans of $5 million and consumer overdrafts of $177 million.
(9) 
Consumer loans accounted for under the fair value option were residential mortgage loans of $1.0 billion. Commercial loans accounted for under the fair value option were U.S. commercial loans of $2.3 billion and non-U.S. commercial loans of $5.7 billion. For additional information, see Note 16 – Fair Value Measurements and Note 17 – Fair Value Option.
(10) 
Total outstandings includes U.S. commercial real estate loans of $37.2 billion and non-U.S. commercial real estate loans of $1.5 billion.

The Corporation mitigates a portion of its credit risk on the residential mortgage portfolio through the use of synthetic securitization vehicles. These vehicles issue long-term notes to investors, the proceeds of which are held as cash collateral. The Corporation pays a premium to the vehicles to purchase mezzanine loss protection on a portfolio of residential mortgage loans owned by the Corporation. Cash held in the vehicles is used to reimburse the Corporation in the event that losses on the mortgage portfolio exceed 10 basis points (bps) of the original pool balance, up to the remaining amount of purchased loss protection of $449 million and $500 million at March 31, 2013 and December 31, 2012. The vehicles from which the Corporation purchases credit protection are VIEs. The Corporation does not have a variable interest in these vehicles, and accordingly, these vehicles are not consolidated by the Corporation. Amounts due from the vehicles are recorded in other 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 March 31, 2013 and December 31, 2012, the Corporation had a receivable of $269 million and $305 million from these vehicles for reimbursement of losses, and principal of $16.3 billion and $17.6 billion of residential mortgage loans was referenced under these agreements. The Corporation records an allowance for credit losses on these loans without regard to the existence of the purchased loss protection as the protection does not represent a guarantee of individual loans.

In addition, the Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling $24.4 billion and $24.3 billion at March 31, 2013 and December 31, 2012, providing full protection on residential mortgage loans that become severely delinquent. All of these loans are individually insured and therefore the Corporation does not record an allowance for credit losses related to these loans. For additional information, see Note 8 – Representations and Warranties Obligations and Corporate Guarantees.

Nonperforming Loans and Leases

In accordance with bank regulatory interagency guidance, the Corporation classifies junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At March 31, 2013 and December 31, 2012, $1.4 billion and $1.5 billion of such loans were included in nonperforming loans.

In accordance with regulatory guidance, the Corporation classifies consumer real estate loans that have been discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower as troubled debt restructurings (TDRs), irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified. The Corporation continues to have a lien on the underlying collateral. At March 31, 2013, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms at the time of discharge were $2.0 billion of which $961 million were current on their contractual payments while $917 million were 90 days or more past due. Of the contractually current nonperforming loans, more than 70 percent were discharged in Chapter 7 bankruptcy more than 12 months ago, and nearly 45 percent were discharged 24 months or more ago. As subsequent cash payments are received, the interest component of the payments is generally recorded as interest income on a cash basis and the principal component is recorded as a reduction in the carrying value of the loan.
The table below presents the Corporation's nonperforming loans and leases including nonperforming TDRs, and loans accruing past due 90 days or more at March 31, 2013 and December 31, 2012. Nonperforming loans held-for-sale (LHFS) are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. See Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2012 Annual Report on Form 10-K for further information on the criteria for classification as nonperforming.

Credit Quality
 
 
 
 
 
 
 
 
Nonperforming Loans and Leases (1)
 
Accruing Past Due 90 Days or More
(Dollars in millions)
March 31
2013
 
December 31
2012
 
March 31
2013
 
December 31
2012
Home loans
 
 
 
 
 
 
 
Core portfolio
 
 
 
 
 
 
 
Residential mortgage (2)
$
3,407

 
$
3,190

 
$
4,391

 
$
3,984

Home equity
1,302

 
1,265

 

 

Legacy Assets & Servicing portfolio
 
 
 
 
 
 
 
Residential mortgage (2)
11,595

 
11,866

 
17,226

 
18,173

Home equity
2,893

 
3,016

 

 

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

 
n/a

 
1,360

 
1,437

Non-U.S. credit card
n/a

 
n/a

 
181

 
212

Direct/Indirect consumer
84

 
92

 
494

 
545

Other consumer
1

 
2

 
1

 
2

Total consumer
19,282

 
19,431

 
23,653

 
24,353

Commercial
 
 
 
 
 
 
 
U.S. commercial
1,354

 
1,484

 
23

 
65

Commercial real estate
1,139

 
1,513

 
11

 
29

Commercial lease financing
19

 
44

 
10

 
15

Non-U.S. commercial
112

 
68

 

 

U.S. small business commercial
110

 
115

 
116

 
120

Total commercial
2,734

 
3,224

 
160

 
229

Total loans and leases
$
22,016

 
$
22,655

 
$
23,813

 
$
24,582

(1) 
Nonperforming loan balances do not include nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of $512 million and $521 million at March 31, 2013 and December 31, 2012.
(2) 
Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At March 31, 2013 and December 31, 2012, residential mortgage includes $17.0 billion and $17.8 billion of loans on which interest has been curtailed by the FHA, and therefore are no longer accruing interest, although principal is still insured, and $4.6 billion and $4.4 billion of loans on which interest is still accruing.
n/a = not applicable

Credit Quality Indicators

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

Home Loans – Credit Quality Indicators (1)
 
 
 
 
 
 
 
March 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 90 percent
$
84,300

$
22,125

$
11,877

$
44,202

$
15,541

$
1,980

Greater than 90 percent but less than 100 percent
8,368

5,013

3,142

5,606

4,357

736

Greater than 100 percent
10,182

13,979

6,985

9,150

16,702

4,944

Fully-insured loans (5)
67,583

23,370





Total home loans
$
170,433

$
64,487

$
22,004

$
58,958

$
36,600

$
7,660

 
 
 
 
 
 
 
Refreshed FICO score
 
 
 
 
 
 
Less than 620
$
6,350

$
13,567

$
12,421

$
2,555

$
5,035

$
1,388

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

6,526

3,490

4,416

5,600

1,342

Greater than or equal to 680 and less than 740
24,639

8,587

3,192

12,360

9,978

2,181

Greater than or equal to 740
63,241

12,437

2,901

39,627

15,987

2,749

Fully-insured loans (5)
67,583

23,370





Total home loans
$
170,433

$
64,487

$
22,004

$
58,958

$
36,600

$
7,660

(1) 
Excludes loans accounted for under the fair value option of $1.0 billion.
(2) 
Excludes PCI loans.
(3) 
Includes $5.9 billion of pay option loans and $340 million of subprime loans. The Corporation no longer originates these products.
(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
 
March 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
$
5,788

 
$

 
$
1,680

 
$
636

Greater than or equal to 620 and less than 680
13,467

 

 
3,272

 
292

Greater than or equal to 680 and less than 740
35,881

 

 
9,555

 
222

Greater than or equal to 740
34,911

 

 
25,073

 
206

Other internal credit metrics (2, 3, 4)

 
10,620

 
41,938

 
340

Total credit card and other consumer
$
90,047

 
$
10,620

 
$
81,518

 
$
1,696

(1) 
80 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 $35.6 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $4.6 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 March 31, 2013, 97 percent of this portfolio was current or less than 30 days past due, one percent was 30-89 days past due and two percent was 90 days or more past due.

Commercial – Credit Quality Indicators (1)
 
March 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
$
193,755

 
$
36,116

 
$
22,510

 
$
81,089

 
$
1,516

Reservable criticized
7,605

 
2,944

 
957

 
1,371

 
542

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
375

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
569

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

Greater than or equal to 740
 
 
 
 
 
 
 
 
2,504

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
5,343

Total commercial
$
201,360

 
$
39,060

 
$
23,467

 
$
82,460

 
$
12,402

(1) 
Excludes loans accounted for under the fair value option of $7.8 billion.
(2) 
U.S. small business commercial includes $361 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 March 31, 2013, 99 percent of the balances where internal credit metrics are used were current or less than 30 days past due.
(3) 
Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio.
(4) 
Other internal credit metrics may include delinquency status, application scores, geography or other factors.
Home Loans – Credit Quality Indicators (1)
 
 
 
 
 
 
 
December 31, 2012
(Dollars in millions)
Core Portfolio
Residential
Mortgage
(2)
Legacy Assets & Servicing
Residential Mortgage
(2)
Residential
Mortgage PCI
(3)
Core Portfolio Home Equity (2)
Legacy Assets & Servicing Home
Equity
(2)
Home
Equity PCI
Refreshed LTV (4)
 
 
 
 
 
 
Less than 90 percent
$
80,585

$
20,622

$
8,604

$
44,971

$
15,907

$
2,050

Greater than 90 percent but less than 100 percent
8,891

5,103

2,384

5,825

4,507

788

Greater than 100 percent
12,984

16,463

6,583

10,055

18,184

5,709

Fully-insured loans (5)
67,656

23,198





Total home loans
$
170,116

$
65,386

$
17,571

$
60,851

$
38,598

$
8,547

 
 
 
 
 
 
 
Refreshed FICO score
 
 
 
 
 
 
Less than 620
$
6,366

$
14,325

$
8,711

$
2,586

$
5,408

$
1,930

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

6,165

2,740

4,500

5,885

1,500

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

8,618

2,995

12,625

10,387

2,278

Greater than or equal to 740
62,392

13,080

3,125

41,140

16,918

2,839

Fully-insured loans (5)
67,656

23,198





Total home loans
$
170,116

$
65,386

$
17,571

$
60,851

$
38,598

$
8,547

(1) 
Excludes loans accounted for under the fair value option of $1.0 billion.
(2) 
Excludes PCI loans.
(3) 
Includes $6.1 billion of pay option loans and $348 million of subprime loans. The Corporation no longer originates these products.
(4) 
Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance.
(5) 
Credit quality indicators are not reported for fully-insured loans as principal repayment is insured.

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

 
$

 
$
1,896

 
$
668

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

 

 
3,367

 
301

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

 

 
9,592

 
232

Greater than or equal to 740
37,533

 

 
25,164

 
212

Other internal credit metrics (2, 3, 4)

 
11,697

 
43,186

 
215

Total credit card and other consumer
$
94,835

 
$
11,697

 
$
83,205

 
$
1,628


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

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

 
$
34,968

 
$
22,874

 
$
72,688

 
$
1,690

Reservable criticized
7,524

 
3,669

 
969

 
1,496

 
573

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 
Less than 620
 
 
 
 
 
 
 
 
400

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
580

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

Greater than or equal to 740
 
 
 
 
 
 
 
 
2,496

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

Total commercial
$
197,126

 
$
38,637

 
$
23,843

 
$
74,184

 
$
12,593


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

Impaired Loans and Troubled Debt Restructurings


A loan is considered impaired when, based on current information, it is probable that the Corporation will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans and all consumer and commercial TDRs. For more information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2012 Annual Report on Form 10-K. Impaired loans exclude nonperforming consumer loans and nonperforming commercial leases unless they are classified as TDRs. Loans accounted for under the fair value option are also excluded. Purchased credit-impaired (PCI) loans are excluded and reported separately on page 171.

Home Loans

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

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

In accordance with regulatory guidance addressing certain home loans that have been discharged in Chapter 7 bankruptcy, $4.1 billion of home loans that have been discharged in Chapter 7 bankruptcy with no change in repayment terms at the time of discharge were included in TDRs at March 31, 2013, of which $2.0 billion were classified as nonperforming and $2.1 billion were loans fully-insured by the Federal Housing Administration (FHA). Of the $4.1 billion of home loan TDRs, approximately six percent, 38 percent and 56 percent had been discharged in Chapter 7 bankruptcy in the first quarter of 2013, in the year ended December 31, 2012 and in years prior to 2012, respectively. For more information on the regulatory guidance on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.

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

The net present value of the estimated cash flows is based on model-driven estimates of projected payments, prepayments, defaults and loss-given-default (LGD). Using statistical modeling methodologies, the Corporation estimates the probability that a loan will default prior to maturity based on the attributes of each loan. The factors that are most relevant to the probability of default are the refreshed LTV, or in the case of a subordinated lien, refreshed CLTV, borrower credit score, months since origination (i.e., vintage) and geography. Each of these factors is further broken down by present collection status (whether the loan is current, delinquent, in default or in bankruptcy). Severity (or LGD) is estimated based on the refreshed LTV for first mortgages or CLTV for subordinated liens. The estimates are based on the Corporation's historical experience, but are 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 March 31, 2013 and December 31, 2012, remaining commitments to lend additional funds to debtors whose terms have been modified in a home loan TDR were immaterial. Home loan foreclosed properties totaled $620 million and $650 million at March 31, 2013 and December 31, 2012.

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

Impaired Loans – Home Loans
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
 
March 31, 2013
 
2013
 
2012
(Dollars in millions)
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(1)
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
22,130

 
$
16,821

 
n/a

 
$
15,894

 
$
144

 
$
8,704

 
$
75

Home equity
2,796

 
1,164

 
n/a

 
1,134

 
17

 
506

 
9

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
15,698

 
$
14,641

 
$
1,425

 
$
13,900

 
$
154

 
$
11,174

 
$
100

Home equity
1,168

 
955

 
370

 
988

 
11

 
1,255

 
9

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
37,828

 
$
31,462

 
$
1,425

 
$
29,794

 
$
298

 
$
19,878

 
$
175

Home equity
3,964

 
2,119

 
370

 
2,122

 
28

 
1,761

 
18

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
With no recorded allowance
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
20,226

 
$
14,967

 
n/a

 
 
 
 
 
 
 
 
Home equity
2,624

 
1,103

 
n/a

 
 
 
 
 
 
 
 
With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
14,223

 
$
13,158

 
$
1,252

 
 
 
 
 
 
 
 
Home equity
1,256

 
1,022

 
448

 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
$
34,449

 
$
28,125

 
$
1,252

 
 
 
 
 
 
 
 
Home equity
3,880

 
2,125

 
448

 
 
 
 
 
 
 
 
(1) 
Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible.
n/a = not applicable
The table below presents the March 31, 2013 and 2012 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of home loans that were modified in TDRs during the three months ended March 31, 2013 and 2012, and net charge-offs that were recorded during the period in which the modification occurred. The following Home Loans portfolio segment tables include loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period. These TDRs are managed by Legacy Assets & Servicing.

Home Loans – TDRs Entered into During the Three Months Ended March 31, 2013 (1)
 
March 31, 2013
 
Three Months Ended March 31, 2013
(Dollars in millions)
Unpaid Principal Balance
 
Carrying Value
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
 
Net Charge-offs
Residential mortgage
$
5,439

 
$
4,843

 
5.45
%
 
4.65
%
 
$
39

Home equity
265

 
154

 
5.90

 
4.58

 
64

Total
$
5,704

 
$
4,997

 
5.47

 
4.65

 
$
103

 
 
 
 
 
 
 
 
 
 
Home Loans – TDRs Entered into During the Three Months Ended March 31, 2012 (1)
 
March 31, 2012
 
Three Months Ended March 31, 2012
Residential mortgage
$
1,578

 
$
1,382

 
5.69
%
 
4.73
%
 
$
56

Home equity
196

 
110

 
5.39

 
3.90

 
43

Total
$
1,774

 
$
1,492

 
5.66

 
4.64

 
$
99

(1) 
TDRs entered into during the three months ended March 31, 2013 include residential mortgage modifications with principal forgiveness of $219 million. For the three months ended March 31, 2012, the principal forgiveness amount was not significant.

The table below presents the March 31, 2013 and 2012 carrying value for home loans that were modified in a TDR during the three months ended March 31, 2013 and 2012 by type of modification.

Home Loans – Modification Programs
 
TDRs Entered into During the
Three Months Ended March 31, 2013
(Dollars in millions)
Residential Mortgage
 
Home
Equity
 
Total Carrying Value
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
626

 
$
12

 
$
638

Principal and/or interest forbearance
4

 
9

 
13

Other modifications (1)
46

 

 
46

Total modifications under government programs
676

 
21

 
697

 
 
 
 
 
 
Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
1,326

 
24

 
1,350

Capitalization of past due amounts
27

 

 
27

Principal and/or interest forbearance
81

 
3

 
84

Other modifications (1)
28

 

 
28

Total modifications under proprietary programs
1,462

 
27

 
1,489

Trial modifications
2,103

 
31

 
2,134

Loans discharged in Chapter 7 bankruptcy (2)
602

 
75

 
677

Total modifications
$
4,843

 
$
154

 
$
4,997

 
 
 
 
 
 
 
TDRs Entered into During the
Three Months Ended March 31, 2012
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
39

 
$
31

 
$
70

Principal and/or interest forbearance
1

 
10

 
11

Other modifications (1)
16

 

 
16

Total modifications under government programs
56

 
41

 
97

 
 
 
 
 
 
Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
376

 
16

 
392

Capitalization of past due amounts
12

 

 
12

Principal and/or interest forbearance
93

 
7

 
100

Other modifications (1)
53

 
2

 
55

Total modifications under proprietary programs
534

 
25

 
559

Trial modifications
792

 
44

 
836

Total modifications
$
1,382

 
$
110

 
$
1,492

(1) 
Includes other modifications such as term or payment extensions and repayment plans.
(2) 
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs in accordance with regulatory guidance issued in the third quarter of 2012. For the three months ended March 31, 2013, residential mortgage loans of $371 million, or 55 percent of loans discharged in Chapter 7 bankruptcy were current or less than 60 days past due.
 
 
 
 
 
 


The table below presents the carrying value of loans that entered into payment default during the three months ended March 31, 2013 and 2012 and that were modified in a TDR during the 12 months preceding payment default. A payment default for home loan TDRs is recognized when a borrower has missed three monthly payments (not necessarily consecutively) since modification. Payment default on 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 March 31, 2013
(Dollars in millions)
 Residential Mortgage
 
Home Equity
 
Total Carrying Value
Modifications under government programs
$
91

 
$
2

 
$
93

Modifications under proprietary programs
282

 
3

 
285

Loans discharged in Chapter 7 bankruptcy (1)
440

 
19

 
459

Trial modifications
552

 
3

 
555

Total modifications
$
1,365

 
$
27

 
$
1,392

 
 
 
 
 
 
 
Three Months Ended March 31, 2012
Modifications under government programs
$
75

 
$
2

 
$
77

Modifications under proprietary programs
376

 
4

 
380

Trial modifications
125

 
5

 
130

Total modifications
$
576

 
$
11

 
$
587

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

Credit Card and Other Consumer

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

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

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

The allowance for impaired credit card and other consumer loans is based on the present value of projected cash flows, which incorporates the Corporation's historical payment default and loss experience on modified loans, discounted using the portfolio's average contractual interest rate, excluding promotionally priced loans, in effect prior to restructuring. Prior to modification, credit card and other consumer loans are included in homogeneous pools which are collectively evaluated for impairment. For these portfolios, loss forecast models are utilized that consider a variety of factors including, but not limited to, historical loss experience, delinquency status, economic trends and credit scores.
The table below provides information on the Corporation's renegotiated TDR portfolio in the Credit Card and Other Consumer portfolio segment at March 31, 2013 and December 31, 2012, and for the three months ended March 31, 2013 and 2012.

Impaired Loans – Credit Card and Other Consumer – Renegotiated TDRs
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
 
March 31, 2013
 
2013
 
2012
(Dollars in millions)
Unpaid
Principal
Balance
 
Carrying
Value
(1)
 
Related
Allowance
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
2,403

 
$
2,416

 
$
558

 
$
2,725

 
$
42

 
$
5,019

 
$
77

Non-U.S. credit card
276

 
281

 
177

 
295

 
2

 
572

 
2

Direct/Indirect consumer
524

 
527

 
168

 
598

 
8

 
1,146

 
16

Without an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct/Indirect consumer
95

 
48

 

 
52

 

 

 

Total
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
2,403

 
$
2,416

 
$
558

 
$
2,725

 
$
42

 
$
5,019

 
$
77

Non-U.S. credit card
276

 
281

 
177

 
295

 
2

 
572

 
2

Direct/Indirect consumer
619

 
575

 
168

 
650

 
8

 
1,146

 
16

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
2,856

 
$
2,871

 
$
719

 
 
 
 
 
 
 
 
Non-U.S. credit card
311

 
316

 
198

 
 
 
 
 
 
 
 
Direct/Indirect consumer
633

 
636

 
210

 
 
 
 
 
 
 
 
Without an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct/Indirect consumer
105

 
58

 

 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. credit card
$
2,856

 
$
2,871

 
$
719

 
 
 
 
 
 
 
 
Non-U.S. credit card
311

 
316

 
198

 
 
 
 
 
 
 
 
Direct/Indirect consumer
738

 
694

 
210

 
 
 
 
 
 
 
 
(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 March 31, 2013 and December 31, 2012.

Credit Card and Other Consumer – Renegotiated TDRs by Program Type
 
Internal Programs
 
External Programs
 
Other
 
Total
 
Percent of Balances Current or
Less Than 30 Days Past Due
(Dollars in millions)
March 31
2013
December 31
2012
 
March 31
2013
December 31
2012
 
March 31
2013
December 31
2012
 
March 31
2013
December 31
2012
 
March 31
2013
December 31
2012
U.S. credit card
$
1,541

$
1,887

 
$
848

$
953

 
$
27

$
31

 
$
2,416

$
2,871

 
82.03
%
81.48
%
Non-U.S. credit card
87

99

 
33

38

 
161

179

 
281

316

 
45.57

43.71

Direct/Indirect consumer
332

405

 
190

225

 
53

64

 
575

694

 
84.07

83.11

Total renegotiated TDRs
$
1,960

$
2,391

 
$
1,071

$
1,216

 
$
241

$
274

 
$
3,272

$
3,881

 
79.26

78.69



At March 31, 2013 and December 31, 2012, the Corporation had a renegotiated TDR portfolio of $3.3 billion and $3.9 billion of which $2.6 billion was current or less than 30 days past due under the modified terms at March 31, 2013.
The table below provides information on the Corporation's renegotiated TDR portfolio including the unpaid principal balance, carrying value and average pre- and post-modification interest rates of loans that were modified in TDRs during the three months ended March 31, 2013 and 2012, and net charge-offs that were recorded during the period in which the modification occurred.

Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Three Months March 31, 2013
 
March 31, 2013
 
Three Months Ended March 31, 2013
(Dollars in millions)
Unpaid Principal Balance
 
Carrying Value (1)
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
 
Net Charge-offs
U.S. credit card
$
84

 
$
85

 
17.00