Quarterly report pursuant to Section 13 or 15(d)

Loans, Notes and Mortgages

v2.4.0.8
Loans, Notes and Mortgages
 6 Months Ended
Jun. 30, 2013
Loans and Leases Receivable, Net of Deferred Income [Abstract]  
Loans Notes And Mortgages Disclosure [Text Block]
Note 10.
Loans, Notes and Mortgages
Loans, notes, mortgages and related commitments to extend credit include:
•
Consumer loans, which are substantially secured, including residential mortgages, home equity loans, and other loans to individuals for household, family, or other personal expenditures;
•
Commercial loans, including corporate and institutional loans (including corporate and financial sponsor, non-investment grade lending commitments), commercial mortgages, asset-backed loans, small- and middle-market business loans, and other loans to businesses; and
•
Other loans, which include securities-backed loans and loans classified as held for sale.
The table below presents information on Merrill Lynch’s loans outstanding at June 30, 2013 and December 31, 2012.
Age Analysis of Outstanding Loans
 
 
 
 
 
 
 
 
(dollars in millions)
June 30, 2013
 
30-59 Days
60-89 Days
90 Days or more
Total Past
Total Current or Less Than
Nonperforming
Purchased Credit
Loans Measured at
Total
 
Past Due
Past Due
Past Due
Due
30 Days Past Due
Loans (1)
Impaired
Fair Value
Outstanding
Consumer loans
 
 
 
 
 
 
 
 
 
 Residential mortgage
$
19

$
6

$
—

$
25

$
575

$
30

$
3,996

$
—

$
4,626

 Home equity
—

—

—

—

75

5

—

—

80

       Total consumer
19

6

—

25

650

35

3,996

—

4,706

Commercial
 
 
 
 
 
 
 
 
 
 Commercial - U.S.
—

—

—

—

1,469

7

—

—

1,476

 Commercial real estate
—

—

—

—

165

33

—

—

198

 Commercial - non-U.S.
—

—

—

—

3,328

8

—

—

3,336

       Total commercial loans
—

—

—

—

4,962

48

—

—

5,010

 Commercial loans measured at fair value
—

—

—

—

—

—

—

203

203

     Total commercial
—

—

—

—

4,962

48

—

203

5,213

         Other (2)
—

—

—

—

9,247

—

—

1,098

10,345

     Total loans
$
19

$
6

$
—

$
25

$
14,859

$
83

$
3,996

$
1,301

$
20,264

Allowance for loan losses
 
 
 
 
 
 
 
 
(40
)
     Total loans, net
 
 
 
 
 
 
 
 
$
20,224

Age Analysis of Outstanding Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(dollars in millions)
December 31, 2012
 
30-59 Days
 
60-89 Days
 
90 Days or more
 
Total Past
 
Total Current or Less Than
 
Nonperforming
 
Loans Measured at
 
Total
 
Past Due
 
Past Due
 
Past Due
 
Due
 
30 Days Past Due
 
Loans (1)
 
Fair Value
 
Outstanding
Consumer loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Residential mortgage
$
10

 
$
4

 
$
—

 
$
14

 
$
412

 
$
24

 
$
—

 
$
450

 Home equity
1

 
—

 
—

 
1

 
93

 
3

 
—

 
97

             Total consumer
11

 
4

 
—

 
15

 
505

 
27

 
—

 
547

Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 U.S. commercial
—

 
—

 
—

 
—

 
2,625

 
8

 
—

 
2,633

 Commercial real estate
—

 
—

 
—

 
—

 
204

 
37

 
—

 
241

 Non-U.S. commercial
—

 
—

 
—

 
—

 
3,007

 
44

 
—

 
3,051

             Total commercial loans
—

 
—

 
—

 
—

 
5,836

 
89

 
—

 
5,925

 Commercial loans measured at
     fair value
—

 
—

 
—

 
—

 
—

 
—

 
1,208

 
1,208

             Total commercial
—

 
—

 
—

 
—

 
5,836

 
89

 
1,208

 
7,133

         Other (3)
—

 
—

 
—

 
—

 
10,053

 
—

 
1,869

 
11,922

             Total loans
$
11

 
$
4

 
$
—

 
$
15

 
$
16,394

 
$
116

 
$
3,077

 
$
19,602

 Allowance for loan losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(57
)
             Total loans, net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
19,545

(1) 
Excludes loans measured at fair value.
(2) 
Includes securities-backed loans and loans held for sale of $8.9 billion and $1.4 billion, respectively, as of June 30, 2013.
(3) 
Includes securities-backed loans and loans held for sale of $9.6 billion and $2.3 billion, respectively, as of December 31, 2012.

Merrill Lynch monitors credit quality based on primary credit quality indicators. Within consumer loans, the primary credit quality indicators are the refreshed LTV ratios and the refreshed Fair Isaac Corporation ("FICO") score. Refreshed LTV measures the carrying value of the loan as a percentage of the value of property securing the loan, which is refreshed quarterly. Home equity loans are evaluated using the refreshed combined loan-to-value ratio ("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, which is 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.

Merrill Lynch's commercial 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 Merrill Lynch 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, Merrill Lynch uses other credit quality indicators for certain types of loans.

.










The tables below present credit quality indicators for Merrill Lynch's consumer and commercial loan portfolios, excluding loans accounted for under the fair value option, at June 30, 2013 and December 31, 2012.
 
 
 
 
 
 
Consumer - Credit Quality Indicators
 
 
 
 
 
 
June 30, 2013
(dollars in millions)
Residential Mortgages (1)
 
Home Equity (1)
 
PCI Loans
Refreshed LTV
 
 
 
 
 
   Less than 90 percent
$
232

 
$
72

 
$
2,900

   Greater than 90 percent but less than 100 percent
112

 
4

 
391

   Greater than 100 percent
286

 
4

 
705

          Total Consumer
$
630

 
$
80

 
$
3,996

Refreshed FICO Score
 
 
 
 
 
   Less than 620
$
59

 
$
7

 
$
3,006

   Greater than or equal to 620 and less than 680
120

 
5

 
685

   Greater than or equal to 680 and less than 740
186

 
16

 
247

   Greater than or equal to 740
265

 
52

 
58

          Total Consumer
$
630

 
$
80

 
$
3,996

 
 
 
 
 
 
 
 
 
 
 
 
(1) Excludes PCI loans
 
 
 
 
 
 
 
 
 
Commercial - Credit Quality Indicators
 
 
 
 
 
 
 
(dollars in millions)
June 30, 2013
 
 
 
 
Commercial - U.S.
 
Commercial Real Estate
 
Commercial- non-U.S.
 
 
 
Risk Ratings
 
 
 
 
 
 
 
 
  Pass rated
$
1,412

 
$
77

 
$
3,214

 
 
 
  Reservable criticized
64

 
121

 
122

 
 
 
Total Commercial
$
1,476

 
$
198

 
$
3,336

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




 
 
 
 
 
 
Consumer - Credit Quality Indicators
 
 
 
 
 
 
December 31, 2012
 
(dollars in millions)
Residential Mortgages
 
Home Equity
 
 
Refreshed LTV
 
 
 
 
 
   Less than 90 percent
$
295

 
$
87

 
 
   Greater than 90 percent but less than 100 percent
41

 
5

 
 
   Greater than 100 percent
114

 
5

 
 
          Total Consumer
$
450

 
$
97

 
 
Refreshed FICO Score
 
 
 
 
 
   Less than 620
$
21

 
$
5

 
 
   Greater than or equal to 620 and less than 680
44

 
7

 
 
   Greater than or equal to 680 and less than 740
116

 
25

 
 
   Greater than or equal to 740
269

 
60

 
 
          Total Consumer
$
450

 
$
97

 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
Commercial - Credit Quality Indicators
 
 
 
 
 
 
 
(dollars in millions)
December 31, 2012
 
 
 
 
Commercial - U.S.
 
Commercial Real Estate
 
Commercial- non-U.S.
 
 
 
     Risk Ratings
 
 
 
 
 
 
 
 
Pass rated
$
2,506

 
$
105

 
$
2,918

 
 
 
Reservable criticized
127

 
136

 
133

 
 
 
     Total Commercial
$
2,633

 
$
241

 
$
3,051

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Activity in the allowance for loan losses, which is primarily associated with commercial loans, is presented below:
(dollars in millions)
 
 
 
 
For the Six Months Ended
June 30, 2013
 
For the Six Months Ended
June 30, 2012
Allowance for loan losses, at beginning of period
$
57

 
$
72

Provision for loan losses
(33
)
 
(16
)
Charge-offs
(3
)
 
(9
)
Recoveries
19

 
8

Net charge-offs
16

 
(1
)
Allowance for loan losses, at end of period
$
40

 
$
55

 
 
 
 


Consumer loans, substantially all of which are collateralized, consisted of approximately 42,000 individual loans at June 30, 2013. Commercial loans consisted of approximately 400 separate loans.
Merrill Lynch’s outstanding loans include $1.4 billion and $2.3 billion of loans held for sale at June 30, 2013 and December 31, 2012, respectively. Loans held for sale are loans that Merrill Lynch expects to sell prior to maturity. At June 30, 2013, such loans consisted of $0.7 billion of consumer loans, primarily residential mortgages, and $0.7 billion of commercial loans. At December 31, 2012, such loans consisted of $1.4 billion of consumer loans, primarily residential mortgages, and $0.9 billion of commercial loans.
In some cases, Merrill Lynch enters into single name and index credit default swaps to mitigate credit exposure related to funded and unfunded commercial loans. The notional value of these swaps totaled $1.5 billion and $2.0 billion at June 30, 2013 and December 31, 2012, respectively.
The following tables provide information regarding Merrill Lynch’s net credit default protection associated with its funded and unfunded commercial loans as of June 30, 2013 and December 31, 2012:

Net Credit Default Protection by Maturity Profile
 
 
June 30,
2013
December 31,
2012
Less than or equal to one year
16
%
25
%
Greater than one year and less than or equal to five years
84

75

Total net credit default protection
100
%
100
%
 
 
 



Net Credit Default Protection by Credit Exposure Debt Rating

(dollars in millions)
 
 
 
 
 
June 30, 2013
 
December 31, 2012
Ratings(1)
Net
Notional
 
Percent
 
Net
Notional
 
Percent
AA
$
(173
)
 
11.4
%
 
$
(268
)
 
13.1
%
A
(873
)
 
57.5

 
(1,034
)
 
50.6

BBB
(414
)
 
27.3

 
(530
)
 
26.0

BB
(45
)
 
3.0

 
(86
)
 
4.2

B
—

 
—

 
(30
)
 
1.5

CCC and below
(12
)
 
0.8

 
(93
)
 
4.6

Total net credit default protection
$
(1,517
)
 
100
%
 
$
(2,041
)
 
100.0
%

(1) Merrill Lynch considers ratings of BBB- or higher to meet the definition of investment grade.

Purchased Credit-Impaired Loans
During the three and six months ended June 30, 2013, Merrill Lynch acquired certain residential mortgage loans from Bank of America, the majority of which are accounted for as PCI loans. Such PCI loans had an aggregate unpaid principal balance of $5.3 billion and an aggregate carrying value of $4.1 billion at the dates of acquisition. The following table below provides details of these loans:
 

(dollars in millions)
 
 
Six Months Ended June 30, 2013
Contractually required payments including interest
 
$
7,433

Less: Non accretable difference
 
(2,465
)
      Cash flows expected to be collected (1)
 
4,968

Less: Accretable yield
 
 
(851
)
      Fair value of loans acquired
 
$
4,117

 
 
 
 
(1) Represents undiscounted expected principal and interest cash flows
As of June 30, 2013, the aggregate unpaid principal balance and aggregate carrying value of PCI loans was $5.1 billion and $4.0 billion, respectively.
The table below shows activity for the accretable yield on these loans. The amount of accretable yield is affected by changes in credit outlooks, including items 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 reclassifications from nonaccretable difference during the three and six months ended June 30, 2013 were due to increases in expected cash flows driven by improved home prices and lower expected defaults, along with a decrease in prepayment speeds as a result of rising interest rates. 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.
 
 
 
 
 
 
(dollars in millions)
 
Three Months Ended June 30, 2013
Six Months Ended June 30, 2013
 
Accretable yield, beginning of period
 
$
677

—

 
Acquisitions
 
135

851

 
Accretions
 
(38
)
(72
)
 
Disposals/transfers
 
(7
)
(12
)
 
Reclassifications from nonaccretable difference
 
462

462

 
Accretable yield, June 30, 2013
 
$
1,229

$
1,229