BANK OF AMERICA CORP /DE/ | 2013 | FY | 3


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 December 31, 2013 and 2012.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
%
 
 

(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, 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 20 – Fair Value Measurements and Note 21 – 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
2,938

 
1,714

 
26,728

 
31,380

 
33,982

 
$
17,451

 
 

 
82,813

Home equity
608

 
357

 
1,444

 
2,409

 
36,213

 
8,667

 
 

 
47,289

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
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 loans and leases
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
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 loans and leases
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. The Corporation no longer originates this product.
(7) 
Total outstandings includes dealer financial services loans of $35.9 billion, consumer lending loans of $4.7 billion, U.S. securities-based lending loans of $28.3 billion, non-U.S. consumer loans of $8.3 billion, student loans of $4.8 billion and other consumer loans of $1.2 billion.
(8) 
Total outstandings includes consumer finance loans of $1.4 billion, consumer leases of $34 million, consumer overdrafts of $177 million and other non-U.S. consumer loans of $5 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 20 – Fair Value Measurements and Note 21 – 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 $339 million and $500 million at December 31, 2013 and 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 income (loss) in the Consolidated Statement of Income when the Corporation recognizes a reimbursable loss, as described above. Amounts are collected when reimbursable losses are realized through the sale of the underlying collateral. At December 31, 2013 and 2012, the Corporation had a receivable of $198 million and $305 million from these vehicles for reimbursement of losses, and principal of $12.5 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 $28.2 billion and $24.3 billion at December 31, 2013 and 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 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 December 31, 2013 and 2012, $1.2 billion and $1.5 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 December 31, 2013, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms at the time of discharge were $1.8 billion of which $1.1 billion were current on their contractual payments while $642 million were 90 days or more past due. Of the contractually current nonperforming loans, nearly 80 percent were discharged in Chapter 7 bankruptcy more than 12 months ago, and nearly 50 percent were discharged 24 months or more ago. As subsequent cash payments are received on the loans that are contractually current, the interest component of the payments is generally recorded as interest income on a cash basis and the principal component is recorded as a reduction in the carrying value of the loan.

The table below presents the Corporation’s nonperforming loans and leases including nonperforming TDRs, and loans accruing past due 90 days or more at December 31, 2013 and 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. For more information on the criteria for classification as nonperforming, see Note 1 – Summary of Significant Accounting Principles.
 
 
 
 
 
 
 
 
Credit Quality
 
 
 
 
 
 
 
 
 
 
 
December 31
 
Nonperforming Loans and Leases (1)
 
Accruing Past Due
90 Days or More
(Dollars in millions)
2013
 
2012
 
2013
 
2012
Home loans
 

 
 

 
 

 
 

Core portfolio
 
 
 
 
 
 
 
Residential mortgage (2)
$
3,316

 
$
3,193

 
$
5,137

 
$
3,984

Home equity
1,431

 
1,265

 

 

Legacy Assets & Servicing portfolio
 

 
 

 
 

 
 
Residential mortgage (2)
8,396

 
11,862

 
11,824

 
18,173

Home equity
2,644

 
3,017

 

 

Credit card and other consumer
 

 
 

 
 
 
 
U.S. credit card
n/a

 
n/a

 
1,053

 
1,437

Non-U.S. credit card
n/a

 
n/a

 
131

 
212

Direct/Indirect consumer
35

 
92

 
408

 
545

Other consumer
18

 
2

 
2

 
2

Total consumer
15,840

 
19,431

 
18,555

 
24,353

Commercial
 

 
 

 
 

 
 

U.S. commercial
819

 
1,484

 
47

 
65

Commercial real estate
322

 
1,513

 
21

 
29

Commercial lease financing
16

 
44

 
41

 
15

Non-U.S. commercial
64

 
68

 
17

 

U.S. small business commercial
88

 
115

 
78

 
120

Total commercial
1,309

 
3,224

 
204

 
229

Total loans and leases
$
17,149

 
$
22,655

 
$
18,759

 
$
24,582

(1) 
Nonperforming loan balances do not include nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of $260 million and $521 million at December 31, 2013 and 2012.
(2) 
Residential mortgage loans in the Core and Legacy Assets & Servicing portfolios accruing past due 90 days or more are fully-insured loans. At December 31, 2013 and 2012, residential mortgage includes $13.0 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 $4.0 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. 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 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 December 31, 2013 and 2012.
 
 
 
 
 
 
 
 
 
 
 
 
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
$
5,924

 
$
10,391

 
$
9,792

 
$
2,343

 
$
4,229

 
$
1,072

Greater than or equal to 620 and less than 680
7,863

 
5,452

 
3,135

 
4,057

 
5,050

 
1,165

Greater than or equal to 680 and less than 740
24,034

 
7,791

 
3,034

 
11,276

 
9,032

 
1,935

Greater than or equal to 740
69,803

 
10,889

 
2,711

 
36,823

 
14,269

 
2,421

Fully-insured loans (5)
69,712

 
17,535

 

 

 

 

Total home loans
$
177,336

 
$
52,058

 
$
18,672

 
$
54,499

 
$
32,580

 
$
6,593

(1) 
Excludes $2.2 billion of loans accounted for under the fair value option.
(2) 
Excludes PCI loans.
(3) 
Includes $4.0 billion of pay option loans. The Corporation no longer originates this product.
(4) 
Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance.
(5) 
Credit quality indicators are not reported for fully-insured loans as principal repayment is insured.
 
 
 
 
 
 
 
 
Credit Card and Other Consumer – Credit Quality Indicators
 
 
 
December 31, 2013
(Dollars in millions)
U.S. Credit
Card
 
Non-U.S.
Credit Card
 
Direct/Indirect
Consumer
 
Other
Consumer (1)
Refreshed FICO score
 

 
 

 
 

 
 

Less than 620
$
4,989

 
$

 
$
1,220

 
$
539

Greater than or equal to 620 and less than 680
12,753

 

 
3,345

 
264

Greater than or equal to 680 and less than 740
35,413

 

 
9,887

 
199

Greater than or equal to 740
39,183

 

 
26,220

 
188

Other internal credit metrics (2, 3, 4)

 
11,541

 
41,520

 
787

Total credit card and other consumer
$
92,338

 
$
11,541

 
$
82,192

 
$
1,977

(1) 
60 percent of the other consumer portfolio is associated with portfolios from certain consumer finance businesses that the Corporation previously exited.
(2) 
Other internal credit metrics may include delinquency status, geography or other factors.
(3) 
Direct/indirect consumer includes $35.8 billion of securities-based lending which is overcollateralized and therefore has minimal credit risk and $4.1 billion of loans the Corporation no longer originates.
(4) 
Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At December 31, 2013, 98 percent of this portfolio was current or less than 30 days past due, one percent was 30-89 days past due and one percent was 90 days or more past due.
 
 
 
 
 
 
 
 
 
 
Commercial – Credit Quality Indicators (1)
 
 
 
December 31, 2013
(Dollars in millions)
U.S.
Commercial
 
Commercial
Real Estate
 
Commercial
Lease
Financing
 
Non-U.S.
Commercial
 
U.S. Small
Business
Commercial (2)
Risk ratings
 

 
 

 
 

 
 

 
 

Pass rated
$
205,416

 
$
46,507

 
$
24,211

 
$
88,138

 
$
1,191

Reservable criticized
7,141

 
1,386

 
988

 
1,324

 
346

Refreshed FICO score (3)
 
 
 
 
 
 
 
 
 

Less than 620
 

 
 

 
 

 
 

 
224

Greater than or equal to 620 and less than 680
 
 
 
 
 
 
 
 
534

Greater than or equal to 680 and less than 740
 
 
 
 
 
 
 
 
1,567

Greater than or equal to 740
 
 
 
 
 
 
 
 
2,779

Other internal credit metrics (3, 4)
 
 
 
 
 
 
 
 
6,653

Total commercial
$
212,557

 
$
47,893

 
$
25,199

 
$
89,462

 
$
13,294

(1) 
Excludes $7.9 billion of loans accounted for under the fair value option.
(2) 
U.S. small business commercial includes $289 million of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At December 31, 2013, 99 percent of the balances where internal credit metrics are used was current or less than 30 days past due.
(3) 
Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio.
(4) 
Other internal credit metrics may include delinquency status, application scores, geography or other factors.
 
 
 
 
 
 
 
 
 
 
 
 
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 or equal to 90 percent
$
80,585

 
$
20,613

 
$
8,581

 
$
44,971

 
$
15,922

 
$
2,074

Greater than 90 percent but less than or equal to 100 percent
8,891

 
5,097

 
2,368

 
5,825

 
4,507

 
805

Greater than 100 percent
12,984

 
16,454

 
6,502

 
10,055

 
18,193

 
5,788

Fully-insured loans (5)
67,656

 
23,198

 

 

 

 

Total home loans
$
170,116

 
$
65,362

 
$
17,451

 
$
60,851

 
$
38,622

 
$
8,667

Refreshed FICO score
 

 
 

 
 

 
 

 
 

 
 

Less than 620
$
6,366

 
$
14,320

 
$
8,647

 
$
2,586

 
$
5,411

 
$
1,989

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

 
6,157

 
2,712

 
4,500

 
5,921

 
1,529

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

 
8,611

 
2,976

 
12,625

 
10,395

 
2,299

Greater than or equal to 740
62,392

 
13,076

 
3,116

 
41,140

 
16,895

 
2,850

Fully-insured loans (5)
67,656

 
23,198

 

 

 

 

Total home loans
$
170,116

 
$
65,362

 
$
17,451

 
$
60,851

 
$
38,622

 
$
8,667

(1) 
Excludes $1.0 billion of loans accounted for under the fair value option.
(2) 
Excludes PCI loans.
(3) 
Includes $6.1 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, 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 $8.0 billion of loans accounted for under the fair value option.
(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 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. For additional information, see Note 1 – Summary of Significant Accounting Principles. 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 198.
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 (DOJ), 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.
Home loans that have been discharged in Chapter 7 bankruptcy with no change in repayment terms at the time of discharge of $3.6 billion were included in TDRs at December 31, 2013, of which $1.8 billion were classified as nonperforming and $1.8 billion were loans fully-insured by the Federal Housing Administration (FHA). Of the $3.6 billion of home loan TDRs, approximately 27 percent, 30 percent and 43 percent were discharged in Chapter 7 bankruptcy in 2013, 2012 and in years prior to 2012, respectively. 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 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 December 31, 2013 and 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 $533 million and $650 million at December 31, 2013 and 2012.

The table below provides information for impaired loans in the Corporation’s Home Loans portfolio segment at December 31, 2013 and 2012, and for 2013, 2012 and 2011, 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
 
 
 
 
 
 
 
 
 
December 31, 2013
 
December 31, 2012
(Dollars in millions)
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
With no recorded allowance
 

 
 

 
 

 
 

 
 

 
 
Residential mortgage
$
21,567

 
$
16,450

 
$

 
$
20,226

 
$
14,967

 
$

Home equity
3,249

 
1,385

 

 
2,624

 
1,103

 

With an allowance recorded
 
 
 
 
 

 
 
 
 
 
 
Residential mortgage
13,341

 
12,862

 
991

 
14,223

 
13,158

 
1,252

Home equity
893

 
761

 
240

 
1,256

 
1,022

 
448

Total
 

 
 

 
 

 
 
 
 
 
 
Residential mortgage
$
34,908

 
$
29,312

 
$
991

 
$
34,449

 
$
28,125

 
$
1,252

Home equity
4,142

 
2,146

 
240

 
3,880

 
2,125

 
448

 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
2012
 
2011
 
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
$
16,625

 
$
621

 
$
10,937

 
$
366

 
$
6,507

 
$
241

Home equity
1,245

 
76

 
734

 
49

 
442

 
23

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
13,926

 
616

 
11,575

 
423

 
9,552

 
325

Home equity
912

 
41

 
1,145

 
44

 
1,357

 
34

Total
 

 
 

 
 
 
 
 
 
 
 
Residential mortgage
$
30,551

 
$
1,237

 
$
22,512

 
$
789

 
$
16,059

 
$
566

Home equity
2,157

 
117

 
1,879

 
93

 
1,799

 
57

(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 December 31, 2013, 2012 and 2011 unpaid principal balance, carrying value, and average pre- and post-modification interest rates of home loans that were modified in TDRs during 2013, 2012 and 2011, 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 2013, 2012 and 2011 (1)
 
 
 
December 31, 2013
 
2013
(Dollars in millions)
Unpaid Principal Balance
 
Carrying Value
 
Pre-Modification Interest Rate
 
Post-Modification Interest Rate
 
Net
Charge-offs (2)
Residential mortgage
$
11,233

 
$
10,016

 
5.30
%
 
4.27
%
 
$
235

Home equity
878

 
521

 
5.29

 
3.92

 
192

Total
$
12,111

 
$
10,537

 
5.30

 
4.24

 
$
427

 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
2012
Residential mortgage
$
15,088

 
$
12,228

 
5.52
%
 
4.70
%
 
$
523

Home equity
1,721

 
858

 
5.22

 
4.39

 
716

Total
$
16,809

 
$
13,086

 
5.49

 
4.66

 
$
1,239

 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
2011
Residential mortgage
$
11,764

 
$
9,991

 
5.94
%
 
5.16
%
 
$
308

Home equity
1,112

 
556

 
6.58

 
5.25

 
239

Total
$
12,876

 
$
10,547

 
6.01

 
5.17

 
$
547

(1) 
TDRs entered into during 2013 include residential mortgage modifications with principal forgiveness of $467 million. TDRs entered into during 2012 include residential mortgage modifications with principal forgiveness of $778 million and home equity modifications of $9 million. Prior to 2012, the principal forgiveness amount was not significant.
(2) 
Net charge-offs include amounts recorded on loans modified during the period that are no longer held by the Corporation at December 31, 2013, 2012 and 2011 due to sales and other dispositions.
The table below presents the December 31, 2013, 2012 and 2011 carrying value for home loans that were modified in a TDR during 2013, 2012 and 2011 by type of modification.
 
 
 
 
 
 
Home Loans – Modification Programs
 
 
 
TDRs Entered into During 2013
(Dollars in millions)
Residential Mortgage
 
Home
Equity
 
Total Carrying Value
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
1,815

 
$
48

 
$
1,863

Principal and/or interest forbearance
35

 
24

 
59

Other modifications (1)
100

 

 
100

Total modifications under government programs
1,950

 
72

 
2,022

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
2,799

 
40

 
2,839

Capitalization of past due amounts
132

 
2

 
134

Principal and/or interest forbearance
469

 
17

 
486

Other modifications (1)
105

 
25

 
130

Total modifications under proprietary programs
3,505

 
84

 
3,589

Trial modifications
3,410

 
87

 
3,497

Loans discharged in Chapter 7 bankruptcy (2)
1,151

 
278

 
1,429

Total modifications
$
10,016

 
$
521

 
$
10,537

 
 
 
 
 
 
 
TDRs Entered into During 2012
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
642

 
$
78

 
$
720

Principal and/or interest forbearance
51

 
31

 
82

Other modifications (1)
37

 
1

 
38

Total modifications under government programs
730

 
110

 
840

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
3,350

 
44

 
3,394

Capitalization of past due amounts
144

 

 
144

Principal and/or interest forbearance
424

 
16

 
440

Other modifications (1)
97

 
21

 
118

Total modifications under proprietary programs
4,015

 
81

 
4,096

Trial modifications
4,547

 
69

 
4,616

Loans discharged in Chapter 7 bankruptcy (2)
2,936

 
598

 
3,534

Total modifications
$
12,228

 
$
858

 
$
13,086

 
 
 
 
 
 
 
TDRs Entered into During 2011
Modifications under government programs
 
 
 
 
 
Contractual interest rate reduction
$
994

 
$
189

 
$
1,183

Principal and/or interest forbearance
189

 
36

 
225

Other modifications (1)
64

 
5

 
69

Total modifications under government programs
1,247

 
230

 
1,477

Modifications under proprietary programs
 
 
 
 
 
Contractual interest rate reduction
3,531

 
101

 
3,632

Capitalization of past due amounts
410

 
1

 
411

Principal and/or interest forbearance
946

 
49

 
995

Other modifications (1)
441

 
34

 
475

Total modifications under proprietary programs
5,328

 
185

 
5,513

Trial modifications
3,416

 
141

 
3,557

Total modifications
$
9,991

 
$
556

 
$
10,547

(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 amount for 2012 represents the cumulative impact upon adoption of the regulatory guidance. During 2013, home loans of $587 million, or 41 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 2013, 2012 and 2011 that were modified in a TDR during the 12 months preceding payment default. Included in the table are loans with a carrying value of $2.4 billion, $667 million and $514 million that entered payment default during 2013, 2012 and 2011 but were no longer held by the Corporation as of December 31, 2013, 2012 and 2011 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
 
 
 
2013
(Dollars in millions)
 Residential Mortgage
 
Home
Equity
 
Total Carrying Value (1)
Modifications under government programs
$
454

 
$
2

 
$
456

Modifications under proprietary programs
1,117

 
4

 
1,121

Loans discharged in Chapter 7 bankruptcy (2)
964

 
30

 
994

Trial modifications
4,376

 
14

 
4,390

Total modifications
$
6,911

 
$
50

 
$
6,961

 
 
 
 
 
 
 
2012
Modifications under government programs
$
202

 
$
8

 
$
210

Modifications under proprietary programs
942

 
14

 
956

Loans discharged in Chapter 7 bankruptcy (2)
1,228

 
53

 
1,281

Trial modifications
2,351

 
20

 
2,371

Total modifications
$
4,723

 
$
95

 
$
4,818

 
 
 
 
 
 
 
2011
Modifications under government programs
$
352

 
$
2

 
$
354

Modifications under proprietary programs
2,098

 
42

 
2,140

Trial modifications
1,101

 
17

 
1,118

Total modifications
$
3,551

 
$
61

 
$
3,612

(1) 
Total carrying value includes loans with a carrying value of $2.4 billion, $667 million and $514 million that entered into payment default during 2013, 2012 and 2011 but were no longer held by the Corporation as of December 31, 2013, 2012 and 2011 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 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). 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 information on the Corporation’s renegotiated TDR portfolio in the Credit Card and Other Consumer portfolio segment at December 31, 2013 and 2012, and for 2013, 2012 and 2011.
 
 
 
 
 
 
 
 
 
 
 
 
Impaired Loans – Credit Card and Other Consumer – Renegotiated TDRs
 
 
 
 
 
 
 
 
 
December 31, 2013
 
December 31, 2012
(Dollars in millions)
Unpaid
Principal
Balance
 
Carrying
Value (1)
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value (1)
 
Related
Allowance
With an allowance recorded
 

 
 

 
 

 
 

 
 

 
 
U.S. credit card
$
1,384

 
$
1,465

 
$
337

 
$
2,856

 
$
2,871

 
$
719

Non-U.S. credit card
200

 
240

 
149

 
311

 
316

 
198

Direct/Indirect consumer
242

 
282

 
84

 
633

 
636

 
210

Other consumer
27

 
26

 
9

 
30

 
30

 
12

With no recorded allowance
 

 
 

 
 

 
 
 
 
 
 
Direct/Indirect consumer
75

 
32

 

 
105

 
58

 

Other consumer
34

 
34

 

 
35

 
35

 

Total
 

 
 

 
 

 
 
 
 
 
 
U.S. credit card
$
1,384

 
$
1,465

 
$
337

 
$
2,856

 
$
2,871

 
$
719

Non-U.S. credit card
200

 
240

 
149

 
311

 
316

 
198

Direct/Indirect consumer
317

 
314

 
84

 
738

 
694

 
210

Other consumer
61

 
60

 
9

 
65

 
65

 
12

 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
2012
 
2011
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
 
Average
Carrying
Value
 
Interest
Income
Recognized
(2)
With an allowance recorded
 

 
 

 
 
 
 
 
 
 
 
U.S. credit card
$
2,144

 
$
134

 
$
4,085

 
$
253

 
$
7,211

 
$
433

Non-U.S. credit card
266

 
7

 
464

 
10

 
759

 
6

Direct/Indirect consumer
456

 
24

 
929

 
50

 
1,582

 
85

Other consumer
28

 
2

 
29

 
2

 
30

 
2

With no recorded allowance
 

 
 

 
 
 
 
 
 
 
 
Direct/Indirect consumer
42

 

 
58

 

 

 

Other consumer
34

 
2

 
35

 
2

 
30

 
2

Total
 

 
 

 
 
 
 
 
 
 
 
U.S. credit card
$
2,144

 
$
134

 
$
4,085

 
$
253

 
$
7,211

 
$
433

Non-U.S. credit card
266

 
7

 
464

 
10

 
759

 
6

Direct/Indirect consumer
498

 
24

 
987

 
50

 
1,582

 
85

Other consumer
62

 
4

 
64

 
4

 
60

 
4

(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 December 31, 2013 and 2012.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Card and Other Consumer – Renegotiated TDRs by Program Type
 
 
 
 
 
 
 
 
 
 
 
December 31
 
Internal Programs
 
External Programs
 
Other
 
Total
 
Percent of Balances Current or Less Than 30 Days Past Due
(Dollars in millions)
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
U.S. credit card
$
842

 
$
1,887

 
$
607

 
$
953

 
$
16

 
$
31

 
$
1,465

 
$
2,871

 
82.77
%
 
81.48
%
Non-U.S. credit card
71

 
99

 
26

 
38

 
143

 
179

 
240

 
316

 
49.01

 
43.71

Direct/Indirect consumer
170

 
405

 
106

 
225

 
38

 
64

 
314

 
694

 
84.29

 
83.11

Other consumer
60

 
65

 

 

 

 

 
60

 
65

 
71.08

 
72.73

Total renegotiated TDRs
$
1,143

 
$
2,456

 
$
739

 
$
1,216

 
$
197

 
$
274

 
$
2,079

 
$
3,946

 
78.77

 
78.58


The table below provides information on the Corporation’s renegotiated TDR portfolio including the December 31, 2013, 2012 and 2011 unpaid principal balance, carrying value and average pre- and post-modification interest rates of loans that were modified in TDRs during 2013, 2012 and 2011, 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 2013, 2012 and 2011
 
 
 
December 31, 2013
 
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
$
299

 
$
329

 
16.84
%
 
5.84
%
 
$
30

Non-U.S. credit card
134

 
147

 
25.90

 
0.95

 
138

Direct/Indirect consumer
47

 
38

 
11.53

 
4.74

 
15

Other consumer
8

 
8

 
9.28

 
5.25

 

Total
$
488

 
$
522

 
18.89

 
4.37

 
$
183

 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
2012
U.S. credit card
$
396

 
$
400

 
17.59
%
 
6.36
%
 
$
45

Non-U.S. credit card
196

 
206

 
26.19

 
1.15

 
190

Direct/Indirect consumer
160

 
113

 
9.59

 
5.72

 
52

Other consumer
9

 
9

 
9.97

 
6.44

 

Total
$
761

 
$
728

 
18.68

 
4.79

 
$
287

 
 
 
 
 
 
 
 
 
 
 
December 31, 2011
 
2011
U.S. credit card
$
890

 
$
902

 
19.04
%
 
6.16
%
 
$
106

Non-U.S. credit card
305

 
322

 
26.32

 
1.04

 
291

Direct/Indirect consumer
198

 
199

 
15.63

 
5.22

 
23

Other consumer
17

 
17

 
10.01

 
6.53

 

Total
$
1,410

 
$
1,440

 
20.09

 
4.89

 
$
420

(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 2013, 2012 and 2011.
 
 
 
 
 
 
 
 
Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Period by Program Type
 
 
 
2013
(Dollars in millions)
Internal Programs
 
External Programs
 
Other
 
Total
U.S. credit card
$
192

 
$
137

 
$

 
$
329

Non-U.S. credit card
73

 
74

 

 
147

Direct/Indirect consumer
15

 
8

 
15

 
38

Other consumer
8

 

 

 
8

Total renegotiated TDRs
$
288

 
$
219

 
$
15

 
$
522

 
 
 
 
 
 
 
 
 
2012
U.S. credit card
$
248

 
$
152

 
$

 
$
400

Non-U.S. credit card
112

 
94

 

 
206

Direct/Indirect consumer
36

 
19

 
58

 
113

Other consumer
9

 

 

 
9

Total renegotiated TDRs
$
405

 
$
265

 
$
58

 
$
728

 
 
 
 
 
 
 
 
 
2011
U.S. credit card
$
492

 
$
407

 
$
3

 
$
902

Non-U.S. credit card
163

 
158

 
1

 
322

Direct/Indirect consumer
112

 
87

 

 
199

Other consumer
17

 

 

 
17

Total renegotiated TDRs
$
784

 
$
652

 
$
4

 
$
1,440


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 21 percent of new U.S. credit card TDRs, 70 percent of new non-U.S. credit card TDRs and 13 percent of new direct/indirect consumer TDRs may be in payment default within 12 months after modification. Loans that entered into payment default during 2013, 2012 and 2011 that had been modified in a TDR during the preceding 12 months were $61 million, $203 million and $863 million for U.S. credit card, $236 million, $298 million and $409 million for non-U.S. credit card, and $12 million, $35 million and $180 million for direct/indirect consumer, respectively.
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 December 31, 2013 and 2012, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were immaterial. Commercial foreclosed properties totaled $90 million and $250 million at December 31, 2013 and 2012.

The table below provides information for impaired loans in the Corporation’s Commercial loan portfolio segment at December 31, 2013 and 2012, and for 2013, 2012 and 2011. 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
 
 
 
 
 
 
 
 
 
December 31, 2013
 
December 31, 2012
(Dollars in millions)
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
 
Unpaid
Principal
Balance
 
Carrying
Value
 
Related
Allowance
With no recorded allowance
 

 
 

 
 

 
 

 
 

 
 
U.S. commercial
$
609

 
$
577

 
$

 
$
571

 
$
476

 
$

Commercial real estate
254

 
228

 

 
370

 
316

 

Non-U.S. commercial
10

 
10

 

 
155

 
36

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 

U.S. commercial
1,581

 
1,262

 
164

 
2,431

 
1,771

 
159

Commercial real estate
1,066

 
731

 
61

 
2,920

 
1,848

 
201

Non-U.S. commercial
254

 
64

 
16

 
365

 
117

 
18

U.S. small business commercial (1)
186

 
176

 
36

 
361

 
317

 
97

Total
 

 
 

 
 

 
 
 
 
 
 
U.S. commercial
$
2,190

 
$
1,839

 
$
164

 
$
3,002

 
$
2,247

 
$
159

Commercial real estate
1,320

 
959

 
61

 
3,290

 
2,164

 
201

Non-U.S. commercial
264

 
74

 
16

 
520

 
153

 
18

U.S. small business commercial (1)
186

 
176

 
36

 
361

 
317

 
97

 
 
 
 
 
 
 
 
 
 
 
 
 
2013
 
2012
 
2011
 
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
$
442

 
$
6

 
$
588

 
$
9

 
$
774

 
$
7

Commercial real estate
269

 
3

 
1,119

 
3

 
1,994

 
7

Non-U.S. commercial
28

 

 
104

 

 
101

 

With an allowance recorded
 
 
 
 
 
 
 
 
 
 
 
U.S. commercial
1,553

 
47

 
2,104

 
55

 
2,422

 
13

Commercial real estate
1,148

 
28

 
2,126

 
29

 
3,309

 
19

Non-U.S. commercial
109

 
5

 
77

 
4

 
76

 
3

U.S. small business commercial (1)
236

 
6

 
409

 
13

 
666

 
23

Total
 

 
 

 
 
 
 
 
 
 
 
U.S. commercial
$
1,995

 
$
53

 
$
2,692

 
$
64

 
$
3,196

 
$
20

Commercial real estate
1,417

 
31

 
3,245

 
32

 
5,303

 
26

Non-U.S. commercial
137

 
5

 
181

 
4

 
177

 
3

U.S. small business commercial (1)
236

 
6

 
409

 
13

 
666

 
23

(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 December 31, 2013, 2012 and 2011 unpaid principal balance and carrying value of commercial loans that were modified as TDRs during 2013, 2012 and 2011, and net charge-offs that were recorded during the period in which the modification occurred. The table below includes loans that were initially classified as TDRs during the period and, beginning in the first quarter of 2013, also loans that had previously been classified as TDRs and were modified again during the period.
 
 
 
 
 
 
Commercial – TDRs Entered into During 2013, 2012 and 2011
 
 
 
December 31, 2013
 
2013
(Dollars in millions)
Unpaid Principal Balance
 
Carrying Value
 
Net Charge-offs
U.S. commercial
$
926

 
$
910

 
$
33

Commercial real estate
483

 
425

 
3

Non-U.S. commercial
61

 
44

 
7

U.S. small business commercial (1)
8

 
9

 
1

Total
$
1,478

 
$
1,388

 
$
44

 
 
 
 
 
 
 
December 31, 2012
 
2012
U.S. commercial
$
590

 
$
558

 
$
34

Commercial real estate
793

 
721

 
20

Non-U.S. commercial
90

 
89

 
1

U.S. small business commercial (1)
22

 
22

 
5

Total
$
1,495

 
$
1,390

 
$
60

 
 
 
 
 
 
 
December 31, 2011
 
2011
U.S. commercial
$
1,381

 
$
1,211

 
$
74

Commercial real estate
1,604

 
1,333

 
152

Non-U.S. commercial
44

 
44

 

U.S. small business commercial (1)
58

 
59

 
10

Total
$
3,087

 
$
2,647

 
$
236

(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 losses. TDRs that were in payment default had a carrying value of $55 million, $130 million and $164 million for U.S. commercial, $128 million, $455 million and $446 million for commercial real estate, and $0, $18 million and $68 million for U.S. small business commercial at December 31, 2013, 2012 and 2011, respectively.
Purchased Credit-impaired Loans
PCI loans are acquired loans with evidence of credit quality deterioration since origination for which it is probable at purchase date that the Corporation will be unable to collect all contractually required payments. The following table provides details on PCI loans acquired in connection with the January 6, 2013 settlement with FNMA (the FNMA Settlement).
 
 
Purchased Loans at Acquisition Date
 
 
 
(Dollars in millions)
 
Contractually required payments including interest
$
8,274

Less: Nonaccretable difference
2,159

Cash flows expected to be collected (1)
6,115

Less: Accretable yield
1,125

Fair value of loans acquired
$
4,990

(1) 
Represents undiscounted expected principal and interest cash flows at acquisition.
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 FNMA Settlement. For more information on the FNMA Settlement, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees. The amount of accretable yield is affected by changes in credit outlooks, including metrics such as default rates and loss severities, prepayments 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 2013 were due to increases in expected cash flows driven by improved home prices and lower expected defaults, along with a decrease in forecasted 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.
 
 

Rollforward of Accretable Yield
 
 
 
(Dollars in millions)
 

Accretable yield, January 1, 2012
$
4,990

Accretion
(1,034
)
Disposals/transfers
(109
)
Reclassifications from nonaccretable difference
797

Accretable yield, December 31, 2012
4,644

Accretion
(1,194
)
Loans purchased
1,125

Disposals/transfers
(361
)
Reclassifications from nonaccretable difference
2,480

Accretable yield, December 31, 2013
$
6,694


For more information on PCI loans, see Note 1 – Summary of Significant Accounting Principles, 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 $11.4 billion and $19.4 billion at December 31, 2013 and 2012. Proceeds, including cash and securities, from sales, securitizations and paydowns of LHFS were $81.0 billion, $58.0 billion and $142.4 billion for 2013, 2012 and 2011, respectively. Amounts used for originations and purchases of LHFS were $65.7 billion, $59.5 billion and $118.2 billion for 2013, 2012 and 2011, respectively.

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