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Loans
 12 Months Ended
Dec. 31, 2013
Loans and Leases Receivable Disclosure [Line Items]  
Loans
Loans
Loan accounting framework
The accounting for a loan depends on management’s strategy for the loan, and on whether the loan was credit-impaired at the date of acquisition. The Firm accounts for loans based on the following categories:
•
Originated or purchased loans held-for-investment (i.e., “retained”), other than purchased credit-impaired (“PCI”) loans
•
Loans held-for-sale
•
Loans at fair value
•
PCI loans held-for-investment
The following provides a detailed accounting discussion of these loan categories:
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, other than PCI loans, are measured at the principal amount outstanding, net of the following: allowance for loan losses; net charge-offs; interest applied to principal (for loans accounted for on the cost recovery method); unamortized discounts and premiums; and net deferred loan fees or costs. Credit card loans also include billed finance charges and fees net of an allowance for uncollectible amounts.
Interest income
Interest income on performing loans held-for-investment, other than PCI loans, is accrued and recognized as interest income at the contractual rate of interest. Purchase price discounts or premiums, as well as net deferred loan fees or costs, are amortized into interest income over the life of the loan to produce a level rate of return.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest has been suspended. Loans (other than credit card loans and certain consumer loans insured by U.S. government agencies) are placed on nonaccrual status and considered nonperforming when full payment of principal and interest is in doubt, which for consumer loans, excluding credit card, generally occurs when principal or interest is 90 days or more past due unless the loan is both well secured and in the process of collection. A loan is determined to be past due when the minimum payment is not received from the borrower by the contractually specified due date or for certain loans (e.g., residential real estate loans), when a monthly payment is due and unpaid for 30 days or more. Consumer, excluding credit card, loans that are less than 90 days past due may be placed on nonaccrual status when there is evidence that full payment of principal and interest is in doubt (e.g., performing junior liens that are subordinate to nonperforming senior liens). Finally, collateral-dependent loans are typically maintained on nonaccrual status.
On the date a loan is placed on nonaccrual status, all interest accrued but not collected is reversed against interest income. In addition, the amortization of deferred amounts is suspended. Interest income on nonaccrual loans may be recognized as cash interest payments are received (i.e., on a cash basis) if the recorded loan balance is deemed fully collectible; however, if there is doubt regarding the ultimate collectibility of the recorded loan balance, all interest cash receipts are applied to reduce the carrying value of the loan (the cost recovery method). For consumer loans, application of this policy typically results in the Firm recognizing interest income on nonaccrual consumer loans on a cash basis.
A loan may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, the terms of the restructured loan.
As permitted by regulatory guidance, credit card loans are generally exempt from being placed on nonaccrual status; accordingly, interest and fees related to credit card loans continue to accrue until the loan is charged off or paid in full. However, the Firm separately establishes an allowance for the estimated uncollectible portion of accrued interest and fee income on credit card loans. The allowance is established with a charge to interest income and is reported as an offset to loans.
Allowance for loan losses
The allowance for loan losses represents the estimated probable credit losses inherent in the held-for-investment loan portfolio at the balance sheet date. Changes in the allowance for loan losses are recorded in the provision for credit losses on the Firm’s Consolidated Statements of Income. See Note 15 on pages 284–287 of this Annual Report for further information on the Firm’s accounting polices for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking, risk-rated auto and PCI loans, are generally charged off or charged down to the net realizable value of the underlying collateral (i.e., fair value less costs to sell), with an offset to the allowance for loan losses, upon reaching specified stages of delinquency in accordance with standards established by the Federal Financial Institutions Examination Council (“FFIEC”). Residential real estate loans, non-modified credit card loans and scored business banking loans are generally charged off at 180 days past due. In the second quarter of 2012, the Firm revised its policy to charge-off modified credit card loans that do not comply with their modified payment terms at 120 days past due rather than 180 days past due. Auto and student loans are charged off no later than 120 days past due.
Certain consumer loans will be charged off earlier than the FFIEC charge-off standards in certain circumstances as follows:
•
A charge-off is recognized when a loan is modified in a TDR if the loan is determined to be collateral-dependent. A loan is considered to be collateral-dependent when repayment of the loan is expected to be provided solely by the underlying collateral, rather than by cash flows from the borrower’s operations, income or other resources.
•
Loans to borrowers who have experienced an event (e.g., bankruptcy) that suggests a loss is either known or highly certain are subject to accelerated charge-off standards. Residential real estate and auto loans are charged off when the loan becomes 60 days past due, or sooner if the loan is determined to be collateral-dependent. Credit card and scored business banking loans are charged off within 60 days of receiving notification of the bankruptcy filing or other event. Student loans are generally charged off when the loan becomes 60 days past due after receiving notification of a bankruptcy.
•
Auto loans are written down to net realizable value upon repossession of the automobile and after a redemption period (i.e., the period during which a borrower may cure the loan) has passed.
Other than in certain limited circumstances, the Firm typically does not recognize charge-offs on government-guaranteed loans.
Wholesale loans, risk-rated business banking loans and risk-rated auto loans are charged off when it is highly certain that a loss has been realized, including situations where a loan is determined to be both impaired and collateral-dependent. The determination of whether to recognize a charge-off includes many factors, including the prioritization of the Firm’s claim in bankruptcy, expectations of the workout/restructuring of the loan and valuation of the borrower’s equity or the loan collateral.
When a loan is charged down to the estimated net realizable value, the determination of the fair value of the collateral depends on the type of collateral (e.g., securities, real estate). In cases where the collateral is in the form of liquid securities, the fair value is based on quoted market prices or broker quotes. For illiquid securities or other financial assets, the fair value of the collateral is estimated using a discounted cash flow model.
For residential real estate loans, collateral values are based upon external valuation sources. When it becomes likely that a borrower is either unable or unwilling to pay, the Firm obtains a broker’s price opinion of the home based on an exterior-only valuation (“exterior opinions”), which is then updated at least every six months thereafter. As soon as practicable after the Firm receives the property in satisfaction of a debt (e.g., by taking legal title or physical possession), generally, either through foreclosure or upon the execution of a deed in lieu of foreclosure transaction with the borrower, the Firm obtains an appraisal based on an inspection that includes the interior of the home (“interior appraisals”). Exterior opinions and interior appraisals are discounted based upon the Firm’s experience with actual liquidation values as compared to the estimated values provided by exterior opinions and interior appraisals, considering state- and product-specific factors.
For commercial real estate loans, collateral values are generally based on appraisals from internal and external valuation sources. Collateral values are typically updated every six to twelve months, either by obtaining a new appraisal or by performing an internal analysis, in accordance with the Firm’s policies. The Firm also considers both borrower- and market-specific factors, which may result in obtaining appraisal updates or broker price opinions at more frequent intervals.
Loans held-for-sale
Held-for-sale loans are measured at the lower of cost or fair value, with valuation changes recorded in noninterest revenue. For consumer loans, the valuation is performed on a portfolio basis. For wholesale loans, the valuation is performed on an individual loan basis.
Interest income on loans held-for-sale is accrued and recognized based on the contractual rate of interest.
Loan origination fees or costs and purchase price discounts or premiums are deferred in a contra loan account until the related loan is sold. The deferred fees and discounts or premiums are an adjustment to the basis of the loan and therefore are included in the periodic determination of the lower of cost or fair value adjustments and/or the gain or losses recognized at the time of sale.
Held-for-sale loans are subject to the nonaccrual policies described above.
Because held-for-sale loans are recognized at the lower of cost or fair value, the Firm’s allowance for loan losses and charge-off policies do not apply to these loans.
Loans at fair value
Loans used in a market-making strategy or risk managed on a fair value basis are measured at fair value, with changes in fair value recorded in noninterest revenue.
For these loans, the earned current contractual interest payment is recognized in interest income. Changes in fair value are recognized in noninterest revenue. Loan origination fees are recognized upfront in noninterest revenue. Loan origination costs are recognized in the associated expense category as incurred.
Because these loans are recognized at fair value, the Firm’s nonaccrual, allowance for loan losses, and charge-off policies do not apply to these loans.
See Note 4 on pages 215–218 of this Annual Report for further information on the Firm’s elections of fair value accounting under the fair value option. See Note 3 and Note 4 on pages 195–215 and 215–218 of this Annual Report for further information on loans carried at fair value and classified as trading assets.
PCI loans
PCI loans held-for-investment are initially measured at fair value. PCI loans have evidence of credit deterioration since the loan’s origination date and therefore it is probable, at acquisition, that all contractually required payments will not be collected. Because PCI loans are initially measured at fair value, which includes an estimate of future credit losses, no allowance for loan losses related to PCI loans is recorded at the acquisition date. See page 274 of this Note for information on accounting for PCI loans subsequent to their acquisition.
Loan classification changes
Loans in the held-for-investment portfolio that management decides to sell are transferred to the held-for-sale portfolio at the lower of cost or fair value on the date of transfer. Credit-related losses are charged against the allowance for loan losses; losses due to changes in interest rates or foreign currency exchange rates are recognized in noninterest revenue.
In the event that management decides to retain a loan in the held-for-sale portfolio, the loan is transferred to the held-for-investment portfolio at the lower of cost or fair value on the date of transfer. These loans are subsequently assessed for impairment based on the Firm’s allowance methodology. For a further discussion of the methodologies used in establishing the Firm’s allowance for loan losses, see Note 15 on pages 284–287 of this Annual Report.
Loan modifications
The Firm seeks to modify certain loans in conjunction with its loss-mitigation activities. Through the modification, JPMorgan Chase grants one or more concessions to a borrower who is experiencing financial difficulty in order to minimize the Firm’s economic loss, avoid foreclosure or repossession of the collateral, and to ultimately maximize payments received by the Firm from the borrower. The concessions granted vary by program and by borrower-specific characteristics, and may include interest rate reductions, term extensions, payment deferrals, principal forgiveness, or the acceptance of equity or other assets in lieu of payments.
Such modifications are accounted for and reported as troubled debt restructurings (“TDRs”). A loan that has been modified in a TDR is generally considered to be impaired until it matures, is repaid, or is otherwise liquidated, regardless of whether the borrower performs under the modified terms. In certain limited cases, the effective interest rate applicable to the modified loan is at or above the current market rate at the time of the restructuring. In such circumstances, and assuming that the loan subsequently performs under its modified terms and the Firm expects to collect all contractual principal and interest cash flows, the loan is disclosed as impaired and as a TDR only during the year of the modification; in subsequent years, the loan is not disclosed as an impaired loan or as a TDR so long as repayment of the restructured loan under its modified terms is reasonably assured.
Loans, except for credit card loans, modified in a TDR are generally placed on nonaccrual status, although in many cases such loans were already on nonaccrual status prior to modification. These loans may be returned to performing status (the accrual of interest is resumed) if the following criteria are met: (a) the borrower has performed under the modified terms for a minimum of six months and/or six payments, and (b) the Firm has an expectation that repayment of the modified loan is reasonably assured based on, for example, the borrower’s debt capacity and level of future earnings, collateral values, loan-to-value (“LTV”) ratios, and other current market considerations. In certain limited and well-defined circumstances in which the loan is current at the modification date, such loans are not placed on nonaccrual status at the time of modification.
Because loans modified in TDRs are considered to be impaired, these loans are measured for impairment using the Firm’s established asset-specific allowance methodology, which considers the expected re-default rates for the modified loans. A loan modified in a TDR remains subject to the asset-specific allowance methodology throughout its remaining life, regardless of whether the loan is performing and has been returned to accrual status and/or the loan has been removed from the impaired loans disclosures (i.e., loans restructured at market rates). For further discussion of the methodology used to estimate the Firm’s asset-specific allowance, see Note 15 on pages 284–287 of this Annual Report.
Foreclosed property
The Firm acquires property from borrowers through loan restructurings, workouts, and foreclosures. Property acquired may include real property (e.g., residential real estate, land, and buildings) and commercial and personal property (e.g., automobiles, aircraft, railcars, and ships).
The Firm recognizes foreclosed property upon receiving assets in satisfaction of a loan (e.g., by taking legal title or physical possession). For loans collateralized by real property, the Firm generally recognizes the asset received at foreclosure sale or upon the execution of a deed in lieu of foreclosure transaction with the borrower. Foreclosed assets are reported in other assets on the Consolidated Balance Sheets and initially recognized at fair value less costs to sell. Each quarter the fair value of the acquired property is reviewed and adjusted, if necessary, to the lower of cost or fair value. Subsequent adjustments to fair value are charged/credited to noninterest revenue. Operating expense, such as real estate taxes and maintenance, are charged to other expense.

Loan portfolio
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment, the Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class:
Consumer, excluding
credit card(a)
 
Credit card
 
Wholesale(c)
Residential real estate – excluding PCI
• Home equity – senior lien
• Home equity – junior lien
• Prime mortgage, including
     option ARMs
• Subprime mortgage
Other consumer loans
• Auto(b)
• Business banking(b)
• Student and other
Residential real estate – PCI
• Home equity
• Prime mortgage
• Subprime mortgage
• Option ARMs
 
• Credit card loans
 
• Commercial and industrial
• Real estate
• Financial institutions
• Government agencies
• Other(d)
(a)
Includes loans held in CCB, and prime mortgage loans held in the AM business segment and in Corporate/Private Equity.
(b)
Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.
(c)
Includes loans held in CIB, CB and AM business segments and in Corporate/Private Equity. Classes are internally defined and may not align with regulatory definitions.
(d)
Other primarily includes loans to SPEs and loans to private banking clients. See Note 1 on pages 189–191 of this Annual Report for additional information on SPEs.
The following tables summarize the Firm’s loan balances by portfolio segment.
December 31, 2013
Consumer, excluding credit card
Credit card(a)
Wholesale
Total
 
(in millions)
 
Retained
$
288,449

$
127,465

$
308,263

$
724,177

(b) 
Held-for-sale
614

326

11,290

12,230

 
At fair value
—

—

2,011

2,011

 
Total
$
289,063

$
127,791

$
321,564

$
738,418

 
 
 
 
 
 
 
December 31, 2012
Consumer, excluding credit card
Credit card(a)
Wholesale
Total
 
(in millions)
 
Retained
$
292,620

$
127,993

$
306,222

$
726,835

(b) 
Held-for-sale
—

—

4,406

4,406

 
At fair value
—

—

2,555

2,555

 
Total
$
292,620

$
127,993

$
313,183

$
733,796

 
(a)
Includes billed finance charges and fees net of an allowance for uncollectible amounts.
(b)
Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unearned income, unamortized discounts and premiums, and net deferred loan costs of $1.9 billion and $2.5 billion at December 31, 2013 and 2012, respectively.
The following table provides information about the carrying value of retained loans purchased, sold and reclassified to held-for-sale during the periods indicated. These tables exclude loans recorded at fair value. The Firm manages its exposure to credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures.
 
 
2013
 
2012
Years ended December 31,
(in millions)
 
Consumer, excluding credit card
 
Credit card
Wholesale
Total
 
Consumer, excluding credit card
 
Credit card
Wholesale
Total
Purchases
 
$
7,616

(a)(b) 
$
328

$
697

$
8,641

 
$
6,601

(a)(b) 
$
—

$
827

$
7,428

Sales
 
4,845

 
—

4,232

9,077

 
1,852

 
—

3,423

5,275

Retained loans reclassified to held-for-sale
 
1,261

 
309

5,641

7,211

 
—

 
1,043

504

1,547


(a)
Purchases predominantly represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools as permitted by Ginnie Mae guidelines. The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, the Federal Housing Administration (“FHA”), Rural Housing Services (“RHS”) and/or the U.S. Department of Veterans Affairs (“VA”).
(b)
Excluded retained loans purchased from correspondents that were originated in accordance with the Firm’s underwriting standards. Such purchases were $5.7 billion and $1.4 billion for the years ended December 31, 2013 and 2012, respectively.
The following table provides information about gains/(losses) on loan sales by portfolio segment.
Year ended December 31, (in millions)
2013
2012
2011
Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)
 
 
 
Consumer, excluding credit card
$
313

$
122

$
131

Credit card
3

(9
)
(24
)
Wholesale
(76
)
180

121

Total net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)
$
240

$
293

$
228

(a)
Excludes sales related to loans accounted for at fair value.
Consumer, excluding credit card [Member]
  
Loans and Leases Receivable Disclosure [Line Items]  
Loans
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist primarily of residential mortgages, home equity loans and lines of credit, auto loans, business banking loans, and student and other loans, with a focus on serving the prime consumer credit market. The portfolio also includes home equity loans secured by junior liens, prime mortgage loans with an interest-only payment period, and certain payment-option loans originated by Washington Mutual that may result in negative amortization.
The table below provides information about retained consumer loans, excluding credit card, by class.
December 31, (in millions)
2013
2012
Residential real estate – excluding PCI
 
 
Home equity:
 
 
Senior lien
$
17,113

$
19,385

Junior lien
40,750

48,000

Mortgages:
 
 
Prime, including option ARMs
87,162

76,256

Subprime
7,104

8,255

Other consumer loans
 
 
Auto
52,757

49,913

Business banking
18,951

18,883

Student and other
11,557

12,191

Residential real estate – PCI
 
 
Home equity
18,927

20,971

Prime mortgage
12,038

13,674

Subprime mortgage
4,175

4,626

Option ARMs
17,915

20,466

Total retained loans
$
288,449

$
292,620


Delinquency rates are a primary credit quality indicator for consumer loans. Loans that are more than 30 days past due provide an early warning of borrowers who may be experiencing financial difficulties and/or who may be unable or unwilling to repay the loan. As the loan continues to age, it becomes more clear that the borrower is likely either unable or unwilling to pay. In the case of residential real estate loans, late-stage delinquencies (greater than 150 days past due) are a strong indicator of loans that will ultimately result in a foreclosure or similar liquidation transaction. In addition to delinquency rates, other credit quality indicators for consumer loans vary based on the class of loan, as follows:
•
For residential real estate loans, including both non-PCI and PCI portfolios, the current estimated LTV ratio, or the combined LTV ratio in the case of junior lien loans, is an indicator of the potential loss severity in the event of default. Additionally, LTV or combined LTV can provide insight into a borrower’s continued willingness to pay, as the delinquency rate of high-LTV loans tends to be greater than that for loans where the borrower has equity in the collateral. The geographic distribution of the loan collateral also provides insight as to the credit quality of the portfolio, as factors such as the regional economy, home price changes and specific events such as natural disasters, will affect credit quality. The borrower’s current or “refreshed” FICO score is a secondary credit-quality indicator for certain loans, as FICO scores are an indication of the borrower’s credit payment history. Thus, a loan to a borrower with a low FICO score (660 or below) is considered to be of higher risk than a loan to a borrower with a high FICO score. Further, a loan to a borrower with a high LTV ratio and a low FICO score is at greater risk of default than a loan to a borrower that has both a high LTV ratio and a high FICO score.
•
For scored auto, scored business banking and student loans, geographic distribution is an indicator of the credit performance of the portfolio. Similar to residential real estate loans, geographic distribution provides insights into the portfolio performance based on regional economic activity and events.
•
Risk-rated business banking and auto loans are similar to wholesale loans in that the primary credit quality indicators are the risk rating that is assigned to the loan and whether the loans are considered to be criticized and/or nonaccrual. Risk ratings are reviewed on a regular and ongoing basis by Credit Risk Management and are adjusted as necessary for updated information about borrowers’ ability to fulfill their obligations. For further information about risk-rated wholesale loan credit quality indicators, see page 279 of this Note.
Residential real estate – excluding PCI loans
The following table provides information by class for residential real estate – excluding retained PCI loans in the consumer, excluding credit card, portfolio segment.
The following factors should be considered in analyzing certain credit statistics applicable to the Firm’s residential real estate – excluding PCI loans portfolio: (i) junior lien home equity loans may be fully charged off when the loan becomes 180 days past due, and the value of the collateral does not support the repayment of the loan, resulting in relatively high charge-off rates for this product class; and (ii) the lengthening of loss-mitigation timelines may result in higher delinquency rates for loans carried at the net realizable value of the collateral that remain on the Firm’s Consolidated Balance Sheets.
Residential real estate – excluding PCI loans
 
 
 
 
 
 
 
Home equity
December 31,
(in millions, except ratios)
Senior lien
 
Junior lien
2013
2012
 
2013
 
2012
Loan delinquency(a)
 
 
 
 
 
 
Current
$
16,470

$
18,688

 
$
39,864

 
$
46,805

30–149 days past due
298

330

 
662

 
960

150 or more days past due
345

367

 
224

 
235

Total retained loans
$
17,113

$
19,385

 
$
40,750

 
$
48,000

% of 30+ days past due to total retained loans
3.76
%
3.60
%
 
2.17
%
 
2.49
%
90 or more days past due and still accruing
$
—

$
—

 
$
—

 
$
—

90 or more days past due and government guaranteed(b)
—

—

 
—

 
—

Nonaccrual loans
932

931

 
1,876

 
2,277

Current estimated LTV ratios(c)(d)(e)
 
 
 
 
 
 
Greater than 125% and refreshed FICO scores:
 
 
 
 
 
 
Equal to or greater than 660
$
40

$
197

 
$
1,101

 
$
4,561

Less than 660
22

93

 
346

 
1,338

101% to 125% and refreshed FICO scores:
 
 
 
 
 
 
Equal to or greater than 660
212

491

 
4,645

 
7,089

Less than 660
107

191

 
1,407

 
1,971

80% to 100% and refreshed FICO scores:
 
 
 
 
 
 
Equal to or greater than 660
858

1,502

 
7,995

 
9,604

Less than 660
326

485

 
2,128

 
2,279

Less than 80% and refreshed FICO scores:
 
 
 
 
 
 
Equal to or greater than 660
13,186

13,988

 
19,732

 
18,252

Less than 660
2,362

2,438

 
3,396

 
2,906

U.S. government-guaranteed
—

—

 
—

 
—

Total retained loans
$
17,113

$
19,385

 
$
40,750

 
$
48,000

Geographic region
 
 
 
 
 
 
California
$
2,397

$
2,786

 
$
9,240

 
$
10,969

New York
2,732

2,847

 
8,429

 
9,753

Illinois
1,248

1,358

 
2,815

 
3,265

Florida
847

892

 
2,167

 
2,572

Texas
2,044

2,508

 
1,199

 
1,503

New Jersey
630

652

 
2,442

 
2,838

Arizona
1,019

1,183

 
1,827

 
2,151

Washington
555

651

 
1,378

 
1,629

Michigan
799

910

 
976

 
1,169

Ohio
1,298

1,514

 
907

 
1,091

All other(f)
3,544

4,084

 
9,370

 
11,060

Total retained loans
$
17,113

$
19,385

 
$
40,750

 
$
48,000


(a)
Individual delinquency classifications included mortgage loans insured by U.S. government agencies as follows: current included $4.7 billion and $3.8 billion; 30–149 days past due included $2.4 billion and $2.3 billion; and 150 or more days past due included $6.6 billion and $9.5 billion at December 31, 2013 and 2012, respectively.
(b)
These balances, which are 90 days or more past due but insured by U.S. government agencies, are excluded from nonaccrual loans. In predominantly all cases, 100% of the principal balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. These amounts have been excluded from nonaccrual loans based upon the government guarantee. At December 31, 2013 and 2012, these balances included $4.7 billion and $6.8 billion, respectively, of loans that are no longer accruing interest because interest has been curtailed by the U.S. government agencies although, in predominantly all cases, 100% of the principal is still insured. For the remaining balance, interest is being accrued at the guaranteed reimbursement rate.
(c)
Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates.
(d)
Junior lien represents combined LTV, which considers all available lien positions, as well as unused lines, related to the property. All other products are presented without consideration of subordinate liens on the property.
(e)
Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(f)
At December 31, 2013 and 2012, included mortgage loans insured by U.S. government agencies of $13.7 billion and $15.6 billion, respectively.
(g)
At December 31, 2013 and 2012, excluded mortgage loans insured by U.S. government agencies of $9.0 billion and $11.8 billion, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee.
(table continued from previous page)
 
 
 
 
 
 
 
Mortgages
 
 
 
Prime, including option ARMs
 
 
Subprime
 
Total residential real estate – excluding PCI
 
2013
 
2012
 
 
2013
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
$
76,108

 
$
61,439

 
 
$
5,956

$
6,673

 
$
138,398

 
$
133,605

 
3,155

 
3,237

 
 
646

727

 
4,761

 
5,254

 
7,899

 
11,580

 
 
502

855

 
8,970

 
13,037

 
$
87,162

 
$
76,256

 
 
$
7,104

$
8,255

 
$
152,129

 
$
151,896

 
2.32
%
(g) 
3.97
%
(g) 
 
16.16
%
19.16
%
 
3.09
%
(g) 
4.28
%
(g) 
$
—

 
$
—

 
 
$
—

$
—

 
$
—

 
$
—

 
7,823

 
10,625

 
 
—

—

 
7,823

 
10,625

 
2,666

 
3,445

 
 
1,390

1,807

 
6,864

 
8,460

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,084

 
$
2,573

 
 
$
52

$
236

 
$
2,277

 
$
7,567

 
303

 
991

 
 
197

653

 
868

 
3,075

 
 
 
 
 
 
 
 
 
 
 
 
 
1,433

 
3,697

 
 
249

457

 
6,539

 
11,734

 
687

 
1,376

 
 
597

985

 
2,798

 
4,523

 
 
 
 
 
 
 
 
 
 
 
 
 
4,528

 
7,070

 
 
614

726

 
13,995

 
18,902

 
1,579

 
2,117

 
 
1,141

1,346

 
5,174

 
6,227

 
 
 
 
 
 
 
 
 
 
 
 
 
58,477

 
38,281

 
 
1,961

1,793

 
93,356

 
72,314

 
5,359

 
4,549

 
 
2,293

2,059

 
13,410

 
11,952

 
13,712

 
15,602

 
 
—

—

 
13,712

 
15,602

 
$
87,162

 
$
76,256

 
 
$
7,104

$
8,255

 
$
152,129

 
$
151,896

 
 
 
 
 
 
 
 
 
 
 
 
 
$
21,876

 
$
17,539

 
 
$
1,069

$
1,240

 
$
34,582

 
$
32,534

 
14,085

 
11,190

 
 
942

1,081

 
26,188

 
24,871

 
5,216

 
3,999

 
 
280

323

 
9,559

 
8,945

 
4,598

 
4,372

 
 
885

1,031

 
8,497

 
8,867

 
3,565

 
2,927

 
 
220

257

 
7,028

 
7,195

 
2,679

 
2,131

 
 
339

399

 
6,090

 
6,020

 
1,385

 
1,162

 
 
144

165

 
4,375

 
4,661

 
1,951

 
1,741

 
 
150

177

 
4,034

 
4,198

 
998

 
866

 
 
178

203

 
2,951

 
3,148

 
466

 
405

 
 
161

191

 
2,832

 
3,201

 
30,343

 
29,924

 
 
2,736

3,188

 
45,993

 
48,256

 
$
87,162

 
$
76,256

 
 
$
7,104

$
8,255

 
$
152,129

 
$
151,896

 


The following tables represent the Firm’s delinquency statistics for junior lien home equity loans and lines as of December 31, 2013 and 2012.
 
 
Delinquencies
 
 
 
Total 30+ day delinquency rate
December 31, 2013
 
30–89 days past due
 
90–149 days past due
 
150+ days
 past due
 
Total loans
 
(in millions, except ratios)
 
 
 
 
 
HELOCs:(a)
 
 
 
 
 
 
 
 
 
 
Within the revolving period(b)
 
$
341

 
$
104

 
$
162

 
$
31,848

 
1.91
%
Beyond the revolving period
 
84

 
21

 
46

 
4,980

 
3.03

HELOANs
 
86

 
26

 
16

 
3,922

 
3.26

Total
 
$
511

 
$
151

 
$
224

 
$
40,750

 
2.17
%
 
 
Delinquencies
 
 
 
Total 30+ day delinquency rate
December 31, 2012
 
30–89 days past due
 
90–149 days past due
 
150+ days
 past due
 
Total loans
 
(in millions, except ratios)
 
 
 
 
 
HELOCs:(a)
 
 
 
 
 
 
 
 
 
 
Within the revolving period(b)
 
$
514

 
$
196

 
$
185

 
$
40,794

 
2.19
%
Beyond the revolving period
 
48

 
19

 
27

 
2,127

 
4.42

HELOANs
 
125

 
58

 
23

 
5,079

 
4.06

Total
 
$
687

 
$
273

 
$
235

 
$
48,000

 
2.49
%
(a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period, but also include HELOCs originated by Washington Mutual that require interest-only payments beyond the revolving period.
(b) The Firm manages the risk of HELOCs during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing financial difficulty or when the collateral does not support the loan amount.
Home equity lines of credit (“HELOCs”) beyond the revolving period and home equity loans (“HELOANs”) have higher delinquency rates than do HELOCs within the revolving period. That is primarily because the fully-amortizing payment that is generally required for those products is higher than the minimum payment options
available for HELOCs within the revolving period. The higher delinquency rates associated with amortizing HELOCs and HELOANs are factored into the loss estimates produced by the Firm’s delinquency roll-rate methodology, which estimates defaults based on the current delinquency status of a portfolio.
Impaired loans
The table below sets forth information about the Firm’s residential real estate impaired loans, excluding PCI loans. These loans are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 15 on pages 284–287 of this Annual Report.
 
Home equity
 
Mortgages
 
Total residential
 real estate
– excluding PCI
December 31,
(in millions)
Senior lien
 
Junior lien
 
Prime, including
option ARMs
 
Subprime
 
2013
2012
 
2013
2012
 
2013
2012
 
2013
2012
 
2013
2012
Impaired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance
$
567

$
542

 
$
727

$
677

 
$
5,871

$
5,810

 
$
2,989

$
3,071

 
$
10,154

$
10,100

Without an allowance(a)
579

550

 
592

546

 
1,133

1,308

 
709

741

 
3,013

3,145

Total impaired loans(b)
$
1,146

$
1,092

 
$
1,319

$
1,223

 
$
7,004

$
7,118

 
$
3,698

$
3,812

 
$
13,167

$
13,245

Allowance for loan losses related to impaired loans
$
94

$
159

 
$
162

$
188

 
$
144

$
70

 
$
94

$
174

 
$
494

$
591

Unpaid principal balance of impaired loans(c)
1,515

1,408

 
2,625

2,352

 
8,990

9,095

 
5,461

5,700

 
18,591

18,555

Impaired loans on nonaccrual status(d)
641

607

 
666

599

 
1,737

1,888

 
1,127

1,308

 
4,171

4,402


(a)
Represents collateral-dependent residential mortgage loans that are charged off to the fair value of the underlying collateral less cost to sell. The Firm reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower (“Chapter 7 loans”) as collateral-dependent nonaccrual TDRs, regardless of their delinquency status.
(b)
At December 31, 2013 and 2012, $7.6 billion and $7.5 billion, respectively, of loans modified subsequent to repurchase from Government National Mortgage Association (“Ginnie Mae”) in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure.
(c)
Represents the contractual amount of principal owed at December 31, 2013 and 2012. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs, net deferred loan fees or costs; and unamortized discounts or premiums on purchased loans.
(d)
As of December 31, 2013 and 2012, nonaccrual loans included $3.0 billion and $2.9 billion, respectively, of TDRs for which the borrowers were less than 90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status refer to the Loan accounting framework on pages 258–260 of this Note.

The following table presents average impaired loans and the related interest income reported by the Firm.
Year ended December 31,
Average impaired loans
 
Interest income on
impaired loans(a)
 
Interest income on impaired
loans on a cash basis(a)
(in millions)
2013
2012
2011
 
2013
2012
2011
 
2013
2012
2011
Home equity
 
 
 
 
 
 
 
 
 
 
 
Senior lien
$
1,151

$
610

$
287

 
$
59

$
27

$
10

 
$
40

$
12

$
1

Junior lien
1,297

848

521

 
82

42

18

 
55

16

2

Mortgages
 
 
 
 
 
 
 
 
 
 
 
Prime, including option ARMs
7,214

5,989

3,859

 
280

238

147

 
59

28

14

Subprime
3,798

3,494

3,083

 
200

183

148

 
55

31

16

Total residential real estate – excluding PCI
$
13,460

$
10,941

$
7,750

 
$
621

$
490

$
323

 
$
209

$
87

$
33

(a)
Generally, interest income on loans modified in TDRs is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the new terms.
Loan modifications
As required under the terms of certain settlements, the Firm is required to provide borrower relief, which will include, for example, reductions of principal and forbearance. For further information on the global and RMBS settlements, see Business changes and developments in Note 2 on pages 192–194 of this Annual Report.
Modifications of residential real estate loans, excluding PCI loans, are generally accounted for and reported as TDRs. There were no additional commitments to lend to borrowers whose residential real estate loans, excluding PCI loans, have been modified in TDRs.
TDR activity rollforward
The following table reconciles the beginning and ending balances of residential real estate loans, excluding PCI loans, modified in TDRs for the periods presented.
Year ended December 31,
(in millions)
Home equity
 
Mortgages
 
Total residential real estate – excluding PCI
Senior lien
 
Junior lien
 
Prime, including
option ARMs
 
Subprime
 
2013
2012
2011
 
2013
2012
2011
 
2013
2012
2011
 
2013
2012
2011
 
2013
2012
2011
Beginning balance of TDRs
$
1,092

$
335

$
226

 
$
1,223

$
657

$
283

 
$
7,118

$
4,877

$
2,084

 
$
3,812

$
3,219

$
2,751

 
$
13,245

$
9,088

$
5,344

New TDRs
210

835

138

 
388

711

518

 
770

2,918

3,268

 
319

1,043

883

 
1,687

5,507

4,807

Charge-offs post-modification(a)
(31
)
(31
)
(15
)
 
(100
)
(2
)
(78
)
 
(51
)
(135
)
(119
)
 
(93
)
(208
)
(234
)
 
(275
)
(376
)
(446
)
Foreclosures and other liquidations (e.g., short sales)
(18
)
(5
)
—

 
(24
)
(21
)
(11
)
 
(145
)
(138
)
(108
)
 
(73
)
(113
)
(82
)
 
(260
)
(277
)
(201
)
Principal payments and other
(107
)
(42
)
(14
)
 
(168
)
(122
)
(55
)
 
(688
)
(404
)
(248
)
 
(267
)
(129
)
(99
)
 
(1,230
)
(697
)
(416
)
Ending balance of TDRs
$
1,146

$
1,092

$
335

 
$
1,319

$
1,223

$
657

 
$
7,004

$
7,118

$
4,877

 
$
3,698

$
3,812

$
3,219

 
$
13,167

$
13,245

$
9,088

Permanent modifications
$
1,107

$
1,058

$
285

 
$
1,313

$
1,218

$
634

 
$
6,838

$
6,834

$
4,601

 
$
3,596

$
3,661

$
3,029

 
$
12,854

$
12,771

$
8,549

Trial modifications
$
39

$
34

$
50

 
$
6

$
5

$
23

 
$
166

$
284

$
276

 
$
102

$
151

$
190

 
$
313

$
474

$
539

(a)
Includes charge-offs on unsuccessful trial modifications.
Nature and extent of modifications
Making Home Affordable (“MHA”), as well as the Firm’s proprietary modification programs, generally provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or payment extensions and deferral of principal and/or interest payments that would otherwise have been required under the terms of the original agreement.
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the Firm’s loss mitigation programs during the periods presented. This table excludes Chapter 7 loans where the sole concession granted is the discharge of debt. At December 31, 2013, there were approximately 36,700 of such Chapter 7 loans, consisting of approximately 8,800 senior lien home equity loans, 21,700 junior lien home equity loans, 3,100 prime mortgage, including option ARMs, and 3,100 subprime mortgages.
Year ended Dec. 31,
Home equity
 
Mortgages
 
Total residential real estate
 - excluding PCI
Senior lien
 
Junior lien
 
Prime, including
option ARMs
 
Subprime
 
2013
2012
2011
 
2013
2012
2011
 
2013
2012
2011
 
2013
2012
2011
 
2013
2012
2011
Number
of loans approved
for a trial modification(a)
1,719

1,695

1,219

 
884

918

1,308

 
2,846

3,895

4,676

 
4,233

4,841

6,446

 
9,682

11,349

13,649

Number
of loans permanently modified
1,765

4,385

1,006

 
5,040

7,430

9,142

 
4,356

9,043

9,579

 
5,364

9,964

4,972

 
16,525

30,822

24,699

Concession granted:(a)(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate reduction
70
%
83
%
80
%
 
88
%
88
%
95
%
 
73
%
74
%
53
%
 
72
%
69
%
80
%
 
77
%
77
%
75
%
Term or payment extension
76

47

88

 
80

76

81

 
73

57

71

 
56

41

72

 
70

55

75

Principal and/or interest deferred
12

6

10

 
24

17

21

 
30

16

17

 
13

7

19

 
21

12

19

Principal forgiveness
38

11

7

 
32

23

20

 
38

29

2

 
48

42

13

 
39

29

11

Other(c)
—

—

29

 
—

—

7

 
23

29

68

 
14

8

26

 
11

11

35

(a)
Prior period amounts have been revised to conform with the current presentation.
(b)
Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds 100% because predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate reductions and/or term or payment extensions.
(c)
Represents variable interest rate to fixed interest rate modifications.
Financial effects of modifications and redefaults
The following table provides information about the financial effects of the various concessions granted in modifications of residential real estate loans, excluding PCI, under the Firm’s loss mitigation programs and about redefaults of certain loans modified in TDRs for the periods presented. Because the specific types and amounts of concessions offered to borrowers frequently change between the trial modification and the permanent modification, the following tables present only the financial effects of permanent modifications. These tables also exclude Chapter 7 loans where the sole concession granted is the discharge of debt.
Year ended
December 31,
(in millions, except weighted-average data and number of loans)
Home equity
 
Mortgages
 
Total residential real estate – excluding PCI
Senior lien
 
Junior lien
 
Prime, including
option ARMs
 
Subprime
 
2013
2012
2011
 
2013
2012
2011
 
2013
2012
2011
 
2013
2012
2011
 
2013
2012
2011
Weighted-average interest rate of loans with interest rate reductions – before TDR
6.35
%
7.20
%
7.25
%
 
5.05
%
5.45
%
5.46
%
 
5.28
%
6.14
%
5.98
%
 
7.33
%
7.73
%
8.25
%
 
5.88
%
6.57
%
6.44
%
Weighted-average interest rate of loans with interest rate reductions – after TDR
3.23

4.61

3.51

 
2.14

1.94

1.49

 
2.77

3.67

3.34

 
3.52

4.14

3.46

 
2.92

3.69

3.09

Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDR
19

18

18

 
20

20

21

 
25

25

25

 
24

24

23

 
23

24

24

Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDR
31

28

30

 
34

32

34

 
37

36

35

 
35

32

34

 
36

34

35

Charge-offs recognized upon permanent modification
$
7

$
8

$
1

 
$
70

$
65

$
117

 
$
16

$
35

$
61

 
$
5

$
29

$
19

 
$
98

$
137

$
198

Principal deferred
7

4

4

 
24

23

35

 
129

133

167

 
43

43

61

 
203

203

267

Principal forgiven
30

20

1

 
51

58

62

 
206

249

20

 
218

324

46

 
505

651

129

Number of loans that redefaulted within one year of permanent modification(a)
404

374

222

 
1,069

1,436

1,310

 
673

920

1,142

 
1,072

1,426

1,989

 
3,218

4,156

4,663

Balance of loans that redefaulted within one year of permanent modification(a)
$
26

$
30

$
18

 
$
20

$
46

$
52

 
$
164

$
255

$
340

 
$
106

$
156

$
281

 
$
316

$
487

$
691

(a)
Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that a modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of loans modified within the last 12 months may not be representative of ultimate redefault levels.
Approximately 85% of the trial modifications approved on or after July 1, 2010 (the approximate date on which substantial revisions were made to the HAMP program), that are seasoned more than six months have been successfully converted to permanent modifications.
The primary performance indicator for TDRs is the rate at which permanently modified loans redefault. At December 31, 2013, the cumulative redefault rates of residential real estate loans that have been modified under the Firm’s loss mitigation programs, excluding PCI loans, based upon permanent modifications that were completed after October 1, 2009, and that are seasoned more than six months, are 20% for senior lien home equity, 20% for junior lien home equity, 15% for prime mortgages, including option ARMs, and 26% for subprime mortgages.
Default rates of Chapter 7 loans vary significantly based on the delinquency status of the loan and overall economic conditions at the time of discharge. Default rates for Chapter 7 residential real estate loans that were less than 60 days past due at the time of discharge have ranged between approximately 10% and 40% in recent years based on the economic conditions at the time of discharge. At December 31, 2013, Chapter 7 residential real estate loans included approximately 20% of senior lien home equity, 11% of junior lien home equity, 33% of prime mortgages, including option ARMs, and 23% of subprime mortgages that were 30 days or more past due.
At December 31, 2013, the weighted-average estimated remaining lives of residential real estate loans, excluding PCI loans, permanently modified in TDRs were 6 years for senior lien home equity, 7 years for junior lien home equity, 10 years for prime mortgages, including option ARMs and 8 years for subprime mortgage. The estimated remaining lives of these loans reflect estimated prepayments, both voluntary and involuntary (i.e., foreclosures and other forced liquidations).

Other consumer loans
The table below provides information for other consumer retained loan classes, including auto, business banking and student loans.
December 31,
(in millions, except ratios)
Auto
 
Business banking
 
Student and other
 
Total other consumer
 
2013
 
2012
 
2013
2012
 
2013
 
2012
 
2013
 
2012
 
Loan delinquency(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
52,152

 
$
49,290

 
$
18,511

$
18,482

 
$
10,529

 
$
11,038

 
$
81,192

 
$
78,810

 
30–119 days past due
599

 
616

 
280

263

 
660

 
709

 
1,539

 
1,588

 
120 or more days past due
6

 
7

 
160

138

 
368

 
444

 
534

 
589

 
Total retained loans
$
52,757

 
$
49,913

 
$
18,951

$
18,883

 
$
11,557

 
$
12,191

 
$
83,265

 
$
80,987

 
% of 30+ days past due to total retained loans
1.15
%
 
1.25
%
 
2.32
%
2.12
%
 
2.52
%
(d) 
2.12
%
(d) 
1.60
%
(d) 
1.58
%
(d) 
90 or more days past due and still accruing (b)
$
—

 
$
—

 
$
—

$
—

 
$
428

 
$
525

 
$
428

 
$
525

 
Nonaccrual loans
161

 
163

 
385

481

 
86

 
70

 
632

 
714

 
Geographic region
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
California
$
5,615

 
$
4,962

 
$
2,374

$
1,983

 
$
1,112

 
$
1,108

 
$
9,101

 
$
8,053

 
New York
3,898

 
3,742

 
3,084

2,981

 
1,218

 
1,202

 
8,200

 
7,925

 
Illinois
2,917

 
2,738

 
1,341

1,404

 
740

 
748

 
4,998

 
4,890

 
Florida
2,012

 
1,922

 
646

527

 
539

 
556

 
3,197

 
3,005

 
Texas
5,310

 
4,739

 
2,646

2,749

 
878

 
891

 
8,834

 
8,379

 
New Jersey
2,014

 
1,921

 
392

379

 
397

 
409

 
2,803

 
2,709

 
Arizona
1,855

 
1,719

 
1,046

1,139

 
252

 
265

 
3,153

 
3,123

 
Washington
950

 
824

 
234

202

 
227

 
287

 
1,411

 
1,313

 
Michigan
1,902

 
2,091

 
1,383

1,368

 
513

 
548

 
3,798

 
4,007

 
Ohio
2,229

 
2,462

 
1,316

1,443

 
708

 
770

 
4,253

 
4,675

 
All other
24,055

 
22,793

 
4,489

4,708

 
4,973

 
5,407

 
33,517

 
32,908

 
Total retained loans
$
52,757

 
$
49,913

 
$
18,951

$
18,883

 
$
11,557

 
$
12,191

 
$
83,265

 
$
80,987

 
Loans by risk ratings(c)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noncriticized
$
9,968

 
$
8,882

 
$
13,622

$
13,336

 
NA

 
NA

 
$
23,590

 
$
22,218

 
Criticized performing
54

 
130

 
711

713

 
NA

 
NA

 
765

 
843

 
Criticized nonaccrual
38

 
4

 
316

386

 
NA

 
NA

 
354

 
390

 
(a)
Individual delinquency classifications included loans insured by U.S. government agencies under the Federal Family Education Loan Program (“FFELP”) as follows: current included $4.9 billion and $5.4 billion; 30-119 days past due included $387 million and $466 million; and 120 or more days past due included $350 million and $428 million at December 31, 2013 and 2012, respectively.
(b)
These amounts represent student loans, which are insured by U.S. government agencies under the FFELP. These amounts were accruing as reimbursement of insured amounts is proceeding normally.
(c)
For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be criticized and/or nonaccrual.
(d)
December 31, 2013 and 2012, excluded loans 30 days or more past due and still accruing, which are insured by U.S. government agencies under the FFELP, of $737 million and $894 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.


Other consumer impaired loans and loan modifications
The table below sets forth information about the Firm’s other consumer impaired loans, including risk-rated business banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.

December 31,
(in millions)
Auto
 
Business banking
 
Total other consumer(c)
2013
2012
 
2013
2012
 
2013
2012
Impaired loans
 
 
 
 
 
 
 
 
With an allowance
$
96

$
78

 
$
475

$
543

 
$
571

$
621

Without an allowance(a)
47

72

 
—

—

 
47

72

Total impaired loans
$
143

$
150

 
$
475

$
543

 
$
618

$
693

Allowance for loan losses related to impaired loans
$
13

$
12

 
$
94

$
126

 
$
107

$
138

Unpaid principal balance of impaired loans(b)
235

259

 
553

624

 
788

883

Impaired loans on nonaccrual status
113

109

 
328

394

 
441

503

(a)
When discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged off and/or there have been interest payments received and applied to the loan balance.
(b)
Represents the contractual amount of principal owed at December 31, 2013 and 2012. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs; interest payments received and applied to the principal balance; net deferred loan fees or costs; and unamortized discounts or premiums on purchased loans.
(c)
There were no impaired student and other loans at December 31, 2013 and 2012.
The following table presents average impaired loans for the periods presented.
Year ended December 31,
(in millions)
Average impaired loans(b)
2013
2012
2011
Auto
$
132

$
111

$
92

Business banking
516

622

760

Total other consumer(a)
$
648

$
733

$
852

(a)
There were no impaired student and other loans for the years ended 2013, 2012 and 2011.
(b)
The related interest income on impaired loans, including those on a cash basis, was not material for the years ended 2013, 2012 and 2011.
Loan modifications
The following table provides information about the Firm’s other consumer loans modified in TDRs. All of these TDRs are reported as impaired loans in the tables above.
December 31,
(in millions)
Auto
 
Business banking
 
Total other consumer(c)
2013
2012
 
2013
2012
 
2013
2012
Loans modified in troubled debt restructurings(a)(b)
$
107

$
150

 
$
271

$
352

 
$
378

$
502

TDRs on nonaccrual status
77

109

 
124

203

 
201

312

(a)
These modifications generally provided interest rate concessions to the borrower or term or payment extensions.
(b)
Additional commitments to lend to borrowers whose loans have been modified in TDRs as of December 31, 2013 and 2012 were immaterial.
(c)
There were no student and other loans modified in TDRs at December 31, 2013 and 2012.
TDR activity rollforward
The following table reconciles the beginning and ending balances of other consumer loans modified in TDRs for the periods presented.

Year ended December 31,
(in millions)
Auto
 
Business banking
 
Total other consumer
2013
2012
2011
 
2013
2012
2011
 
2013
2012
2011
Beginning balance of TDRs
$
150

$
88

$
91

 
$
352

$
415

$
395

 
$
502

$
503

$
486

New TDRs
90

145

54

 
66

104

195

 
156

249

249

Charge-offs post-modification
(10
)
(9
)
(5
)
 
(10
)
(9
)
(11
)
 
(20
)
(18
)
(16
)
Foreclosures and other liquidations
—

—

—

 
—

(1
)
(3
)
 
—

(1
)
(3
)
Principal payments and other
(123
)
(74
)
(52
)
 
(137
)
(157
)
(161
)
 
(260
)
(231
)
(213
)
Ending balance of TDRs
$
107

$
150

$
88

 
$
271

$
352

$
415

 
$
378

$
502

$
503



Financial effects of modifications and redefaults
For auto loans, TDRs typically occur in connection with the bankruptcy of the borrower. In these cases, the loan is modified with a revised repayment plan that typically incorporates interest rate reductions and, to a lesser extent, principal forgiveness. Beginning September 30, 2012, Chapter 7 auto loans are also considered TDRs.
For business banking loans, concessions are dependent on individual borrower circumstances and can be of a short-term nature for borrowers who need temporary relief or longer term for borrowers experiencing more fundamental financial difficulties. Concessions are predominantly term or payment extensions, but also may include interest rate reductions.
The balance of business banking loans modified in TDRs that experienced a payment default, and for which the payment default occurred within one year of the modification, was $43 million, $42 million and $80 million, during the years ended December 31, 2013, 2012 and 2011, respectively. The balance of auto loans modified in TDRs that experienced a payment default, and for which the payment default occurred within one year of the modification, was $54 million and $46 million during the years ended December 31, 2013 and 2012, respectively. The corresponding amount for the year ended December 31, 2011 was insignificant. A payment default is deemed to occur as follows: (1) for scored auto and business banking loans, when the loan is two payments past due; and (2) for risk-rated business banking loans and auto loans, when the borrower has not made a loan payment by its scheduled due date after giving effect to the contractual grace period, if any.
The following table provides information about the financial effects of the various concessions granted in modifications of other consumer loans for the periods presented.
Year ended December 31,
 
Auto
 
Business banking
 
2013
2012
2011
 
2013
2012
2011
Weighted-average interest rate of loans with interest rate reductions – before TDR
 
13.66
%
12.64
%
12.45
%
 
8.37
%
7.33
%
7.55
%
Weighted-average interest rate of loans with interest rate reductions – after TDR
 
4.94

4.83

5.70

 
6.05

5.49

5.52

Weighted-average remaining contractual term (in years) of loans with term or payment extensions – before TDR
 
NM

NM

NM

 
1.1

1.4

1.4

Weighted-average remaining contractual term (in years) of loans with term or payment extensions – after TDR
 
NM

NM

NM

 
3.1

2.4

2.6


Purchased credit-impaired loans
PCI loans are initially recorded at fair value at acquisition; PCI loans acquired in the same fiscal quarter may be aggregated into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. With respect to the Washington Mutual transaction, all of the consumer PCI loans were aggregated into pools of loans with common risk characteristics.
On a quarterly basis, the Firm estimates the total cash flows (both principal and interest) expected to be collected over the remaining life of each pool. These estimates incorporate assumptions regarding default rates, loss severities, the amounts and timing of prepayments and other factors that reflect then-current market conditions. Probable decreases in expected cash flows (i.e., increased credit losses) trigger the recognition of impairment, which is then measured as the present value of the expected principal loss plus any related foregone interest cash flows, discounted at the pool’s effective interest rate. Impairments are recognized through the provision for credit losses and an increase in the allowance for loan losses. Probable and significant increases in expected cash flows (e.g., decreased credit losses, the net benefit of modifications) would first reverse any previously recorded allowance for loan losses with any remaining increases recognized prospectively as a yield adjustment over the remaining estimated lives of the underlying loans. The impacts of (i) prepayments, (ii) changes in variable interest rates, and (iii) any other changes in the timing of expected cash flows are recognized prospectively as adjustments to interest income.
The Firm continues to modify certain PCI loans. The impact of these modifications is incorporated into the Firm’s quarterly assessment of whether a probable and significant change in expected cash flows has occurred, and the loans continue to be accounted for and reported as PCI loans. In evaluating the effect of modifications on expected cash flows, the Firm incorporates the effect of any foregone interest and also considers the potential for redefault. The Firm develops product-specific probability of default estimates, which are used to compute expected credit losses. In developing these probabilities of default, the Firm considers the relationship between the credit quality characteristics of the underlying loans and certain assumptions about home prices and unemployment based upon industry-wide data. The Firm also considers its own historical loss experience to-date based on actual redefaulted modified PCI loans.
The excess of cash flows expected to be collected over the carrying value of the underlying loans is referred to as the accretable yield. This amount is not reported on the Firm’s Consolidated Balance Sheets but is accreted into interest income at a level rate of return over the remaining estimated lives of the underlying pools of loans.
If the timing and/or amounts of expected cash flows on PCI loans were determined not to be reasonably estimable, no interest would be accreted and the loans would be reported as nonaccrual loans; however, since the timing and amounts of expected cash flows for the Firm’s PCI consumer loans are reasonably estimable, interest is being accreted and the loans are being reported as performing loans.
The liquidation of PCI loans, which may include sales of loans, receipt of payment in full by the borrower, or foreclosure, results in removal of the loans from the underlying PCI pool. When the amount of the liquidation proceeds (e.g., cash, real estate), if any, is less than the unpaid principal balance of the loan, the difference is first applied against the PCI pool’s nonaccretable difference for principal losses (i.e., the lifetime credit loss estimate established as a purchase accounting adjustment at the acquisition date). When the nonaccretable difference for a particular loan pool has been fully depleted, any excess of the unpaid principal balance of the loan over the liquidation proceeds is written off against the PCI pool’s allowance for loan losses. Because the Firm’s PCI loans are accounted for at a pool level, the Firm does not recognize charge-offs of PCI loans when they reach specified stages of delinquency (i.e., unlike non-PCI consumer loans, these loans are not charged off based on FFIEC standards).
The PCI portfolio affects the Firm’s results of operations primarily through: (i) contribution to net interest margin; (ii) expense related to defaults and servicing resulting from the liquidation of the loans; and (iii) any provision for loan losses. The PCI loans acquired in the Washington Mutual transaction were funded based on the interest rate characteristics of the loans. For example, variable-rate loans were funded with variable-rate liabilities and fixed-rate loans were funded with fixed-rate liabilities with a similar maturity profile. A net spread will be earned on the declining balance of the portfolio, which is estimated as of December 31, 2013, to have a remaining weighted-average life of 8 years.
Residential real estate – PCI loans
The table below sets forth information about the Firm’s consumer, excluding credit card, PCI loans.
December 31,
(in millions, except ratios)
Home equity
 
Prime mortgage
 
Subprime mortgage
 
Option ARMs
 
Total PCI
2013
2012
 
2013
2012
 
2013
2012
 
2013
2012
 
2013
2012
Carrying value(a)
$
18,927

$
20,971

 
$
12,038

$
13,674

 
$
4,175

$
4,626

 
$
17,915

$
20,466

 
$
53,055

$
59,737

Related allowance for loan losses(b)
1,758

1,908

 
1,726

1,929

 
180

380

 
494

1,494

 
4,158

5,711

Loan delinquency (based on unpaid principal balance)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current
$
18,135

$
20,331

 
$
10,118

$
11,078

 
$
4,012

$
4,198

 
$
15,501

$
16,415

 
$
47,766

$
52,022

30–149 days past due
583

803

 
589

740

 
662

698

 
1,006

1,314

 
2,840

3,555

150 or more days past due
1,112

1,209

 
1,169

2,066

 
797

1,430

 
2,716

4,862

 
5,794

9,567

Total loans
$
19,830

$
22,343

 
$
11,876

$
13,884

 
$
5,471

$
6,326

 
$
19,223

$
22,591

 
$
56,400

$
65,144

% of 30+ days past due to total loans
8.55
%
9.01
%
 
14.80
%
20.21
%
 
26.67
%
33.64
%
 
19.36
%
27.34
%
 
15.31
%
20.14
%
Current estimated LTV ratios (based on unpaid principal balance)(c)(d)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater than 125% and refreshed FICO scores:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equal to or greater than 660
$
1,168

$
4,508

 
$
240

$
1,478

 
$
115

$
375

 
$
301

$
1,597

 
$
1,824

$
7,958

Less than 660
662

2,344

 
290

1,449

 
459

1,300

 
575

2,729

 
1,986

7,822

101% to 125% and refreshed FICO scores:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equal to or greater than 660
3,248

4,966

 
1,017

2,968

 
316

434

 
1,164

3,281

 
5,745

11,649

Less than 660
1,541

2,098

 
884

1,983

 
919

1,256

 
1,563

3,200

 
4,907

8,537

80% to 100% and refreshed FICO scores:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equal to or greater than 660
4,473

3,531

 
2,787

1,872

 
544

416

 
3,311

3,794

 
11,115

9,613

Less than 660
1,782

1,305

 
1,699

1,378

 
1,197

1,182

 
2,769

2,974

 
7,447

6,839

Lower than 80% and refreshed FICO scores:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equal to or greater than 660
5,077

2,524

 
2,897

1,356

 
521

255

 
5,671

2,624

 
14,166

6,759

Less than 660
1,879

1,067

 
2,062

1,400

 
1,400

1,108

 
3,869

2,392

 
9,210

5,967

Total unpaid principal balance
$
19,830

$
22,343

 
$
11,876

$
13,884

 
$
5,471

$
6,326

 
$
19,223

$
22,591

 
$
56,400

$
65,144

Geographic region (based on unpaid principal balance)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
California
$
11,937

$
13,493

 
$
6,845

$
7,877

 
$
1,293

$
1,444

 
$
10,419

$
11,889

 
$
30,494

$
34,703

New York
962

1,067

 
807

927

 
563

649

 
1,196

1,404

 
3,528

4,047

Illinois
451

502

 
353

433

 
283

338

 
481

587

 
1,568

1,860

Florida
1,865

2,054

 
826

1,023

 
526

651

 
1,817

2,480

 
5,034

6,208

Texas
327

385

 
106

148

 
328

368

 
100

118

 
861

1,019

New Jersey
381

423

 
334

401

 
213

260

 
701

854

 
1,629

1,938

Arizona
361

408

 
187

215

 
95

105

 
264

305

 
907

1,033

Washington
1,072

1,215

 
266

328

 
112

142

 
463

563

 
1,913

2,248

Michigan
62

70

 
189

211

 
145

163

 
206

235

 
602

679

Ohio
23

27

 
55

71

 
84

100

 
75

89

 
237

287

All other
2,389

2,699

 
1,908

2,250

 
1,829

2,106

 
3,501

4,067

 
9,627

11,122

Total unpaid principal balance
$
19,830

$
22,343

 
$
11,876

$
13,884

 
$
5,471

$
6,326

 
$
19,223

$
22,591

 
$
56,400

$
65,144

(a)
Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b)
Management concluded as part of the Firm’s regular assessment of the PCI loan pools that it was probable that higher expected credit losses would result in a decrease in expected cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized.
(c)
Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property.
(d)
Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
Approximately 20% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or HELOCs. The following tables set forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on unpaid principal balance as of December 31, 2013 and 2012.
 
 
Delinquencies
 
 
 
Total 30+ day delinquency rate
December 31, 2013
 
30–89 days past due
 
90–149 days past due
 
150+ days
 past due
 
Total loans
 
(in millions, except ratios)
 
 
 
 
 
HELOCs:(a)
 
 
 
 
 
 
 
 
 
 
Within the revolving period(b)
 
$
243

 
$
88

 
$
526

 
$
12,670

 
6.76
%
Beyond the revolving period(c)
 
54

 
21

 
82

 
2,336

 
6.72

HELOANs
 
24

 
11

 
39

 
908

 
8.15

Total
 
$
321

 
$
120

 
$
647

 
$
15,914

 
6.84
%
 
 
Delinquencies
 
 
 
Total 30+ day delinquency rate
December 31, 2012
 
30–89 days past due
 
90–149 days past due
 
150+ days
 past due
 
Total loans
 
(in millions, except ratios)
 
 
 
 
 
 
HELOCs:(a)
 
 
 
 
 
 
 
 
 
 
Within the revolving period(b)
 
$
361

 
$
175

 
$
591

 
$
15,915

 
7.08
%
Beyond the revolving period(c)
 
30

 
13

 
20

 
666

 
9.46

HELOANs
 
37

 
18

 
44

 
1,085

 
9.12

Total
 
$
428

 
$
206

 
$
655

 
$
17,666

 
7.30
%
(a)
In general, these HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of the loan’s term.
(b)
Substantially all undrawn HELOCs within the revolving period have been closed.
(c)
Includes loans modified into fixed-rate amortizing loans.
The table below sets forth the accretable yield activity for the Firm’s PCI consumer loans for the years ended December 31, 2013, 2012 and 2011, and represents the Firm’s estimate of gross interest income expected to be earned over the remaining life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not represent net interest income expected to be earned on these portfolios.
Year ended December 31,
(in millions, except ratios)
Total PCI
2013
 
2012
 
2011
Beginning balance
$
18,457

 
$
19,072

 
$
19,097

Accretion into interest income
(2,201
)
 
(2,491
)
 
(2,767
)
Changes in interest rates on variable-rate loans
(287
)
 
(449
)
 
(573
)
Other changes in expected cash flows(a)
198

 
2,325

 
3,315

Balance at December 31
$
16,167

 
$
18,457

 
$
19,072

Accretable yield percentage
4.31
%
 
4.38
%
 
4.33
%
(a)
Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model and periodically updates model assumptions. For the year ended December 31, 2013, other changes in expected cash flows were due to refining the expected interest cash flows on HELOCs with balloon payments, partially offset by changes in prepayment assumptions. For the years ended December 31, 2012 and December 31, 2011, other changes in expected cash flows were principally driven by the impact of modifications, but also related to changes in prepayment assumptions.

The factors that most significantly affect estimates of gross cash flows expected to be collected, and accordingly the accretable yield balance, include: (i) changes in the benchmark interest rate indices for variable-rate products such as option ARM and home equity loans; and (ii) changes in prepayment assumptions.
Since the date of acquisition, the decrease in the accretable yield percentage has been primarily related to a decrease in interest rates on variable-rate loans and, to a lesser extent, extended loan liquidation periods. Certain events, such as extended or shortened loan liquidation periods, affect the timing of expected cash flows and the accretable yield percentage, but not the amount of cash expected to be received (i.e., the accretable yield balance). While extended loan liquidation periods reduce the accretable yield percentage (because the same accretable yield balance is recognized against a higher-than-expected loan balance over a longer-than-expected period of time), shortened loan liquidation periods would have the opposite effect.
Credit card [Member]
  
Loans and Leases Receivable Disclosure [Line Items]  
Loans
Credit card loan portfolio
The credit card portfolio segment includes credit card loans originated and purchased by the Firm. Delinquency rates are the primary credit quality indicator for credit card loans as they provide an early warning that borrowers may be experiencing difficulties (30 days past due); information on those borrowers that have been delinquent for a longer period of time (90 days past due) is also considered. In addition to delinquency rates, the geographic distribution of the loans provides insight as to the credit quality of the portfolio based on the regional economy.
While the borrower’s credit score is another general indicator of credit quality, the Firm does not view credit scores as a primary indicator of credit quality because the borrower’s credit score tends to be a lagging indicator. However, the distribution of such scores provides a general indicator of credit quality trends within the portfolio. Refreshed FICO score information, which is obtained at least quarterly, for a statistically significant random sample of the credit card portfolio is indicated in the table below; FICO is considered to be the industry benchmark for credit scores.
The Firm generally originates new card accounts to prime consumer borrowers. However, certain cardholders’ FICO scores may decrease over time, depending on the performance of the cardholder and changes in credit score technology.
The table below sets forth information about the Firm’s credit card loans.
As of or for the year ended December 31,
(in millions, except ratios)
2013
2012
Net charge-offs
$
3,879

$
4,944

% of net charge-offs to retained loans
3.14
%
3.95
%
Loan delinquency
 
 
Current and less than 30 days past due
and still accruing
$
125,335

$
125,309

30–89 days past due and still accruing
1,108

1,381

90 or more days past due and still accruing
1,022

1,302

Nonaccrual loans
—

1

Total retained credit card loans
$
127,465

$
127,993

Loan delinquency ratios
 
 
% of 30+ days past due to total retained loans
1.67
%
2.10
%
% of 90+ days past due to total retained loans
0.80

1.02

Credit card loans by geographic region
 
 
California
$
17,194

$
17,115

New York
10,497

10,379

Texas
10,400

10,209

Illinois
7,412

7,399

Florida
7,178

7,231

New Jersey
5,554

5,503

Ohio
4,881

4,956

Pennsylvania
4,462

4,549

Michigan
3,618

3,745

Virginia
3,239

3,193

All other
53,030

53,714

Total retained credit card loans
$
127,465

$
127,993

Percentage of portfolio based on carrying value with estimated refreshed FICO scores
 
 
Equal to or greater than 660
85.1
%
84.1
%
Less than 660
14.9

15.9


Credit card impaired loans and loan modifications
The table below sets forth information about the Firm’s impaired credit card loans. All of these loans are considered to be impaired as they have been modified in TDRs.
December 31, (in millions)
2013
2012
Impaired credit card loans with an allowance(a)(b)
 
 
Credit card loans with modified payment terms(c)
$
2,746

$
4,189

Modified credit card loans that have reverted to pre-modification payment terms(d)
369

573

Total impaired
  credit card loans
$
3,115

$
4,762

Allowance for loan losses related to impaired
  credit card loans
$
971

$
1,681

(a)
The carrying value and the unpaid principal balance are the same for credit card impaired loans.
(b)
There were no impaired loans without an allowance.
(c)
Represents credit card loans outstanding to borrowers enrolled in a credit card modification program as of the date presented.
(d)
Represents credit card loans that were modified in TDRs but that have subsequently reverted back to the loans’ pre-modification payment terms. At December 31, 2013 and 2012, $226 million and $341 million, respectively, of loans have reverted back to the pre-modification payment terms of the loans due to noncompliance with the terms of the modified loans. The remaining $143 million and $232 million at December 31, 2013 and 2012, respectively, of these loans are to borrowers who have successfully completed a short-term modification program. The Firm continues to report these loans as TDRs since the borrowers’ credit lines remain closed.
The following table presents average balances of impaired credit card loans and interest income recognized on those loans.
Year ended December 31,
(in millions)
 
2013
2012
2011
Average impaired credit card loans
 
$
3,882

$
5,893

$
8,499

Interest income on
  impaired credit card loans
 
198

308

463


Loan modifications
JPMorgan Chase may offer one of a number of loan modification programs to credit card borrowers who are experiencing financial difficulty. Most of the credit card loans have been modified under long-term programs for borrowers who are experiencing financial difficulties. Modifications under long-term programs involve placing the customer on a fixed payment plan, generally for 60 months. The Firm may also offer short-term programs for borrowers who may be in need of temporary relief; however, none are currently being offered. Modifications under all short- and long-term programs typically include reducing the interest rate on the credit card. Substantially all modifications are considered to be TDRs.
If the cardholder does not comply with the modified payment terms, then the credit card loan agreement reverts back to its pre-modification payment terms. Assuming that the cardholder does not begin to perform in accordance with those payment terms, the loan continues to age and will ultimately be charged-off in accordance with the Firm’s standard charge-off policy. In addition, if a borrower successfully completes a short-term modification program, then the loan reverts back to its pre-modification payment terms. However, in most cases, the Firm does not reinstate the borrower’s line of credit.
The following table provides information regarding the nature and extent of modifications of credit card loans for the periods presented.
Year ended December 31,
 
New enrollments
(in millions)
 
2013
2012
2011
Short-term programs
 
$
—

$
47

$
167

Long-term programs
 
1,180

1,607

2,523

Total new enrollments
 
$
1,180

$
1,654

$
2,690


Financial effects of modifications and redefaults
The following table provides information about the financial effects of the concessions granted on credit card loans modified in TDRs and redefaults for the periods presented.
Year ended December 31,
(in millions, except
weighted-average data)
 
2013
2012
2011
Weighted-average interest rate of loans – before TDR
 
15.37
%
15.67
%
16.05
%
Weighted-average interest rate of loans – after TDR
 
4.38

5.19

5.28

Loans that redefaulted within one year of modification(a)
 
$
167

$
309

$
687

(a)
Represents loans modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the modification. The amounts presented represent the balance of such loans as of the end of the quarter in which they defaulted.
For credit card loans modified in TDRs, payment default is deemed to have occurred when the loans become two payments past due. A substantial portion of these loans is expected to be charged-off in accordance with the Firm’s standard charge-off policy. Based on historical experience, the estimated weighted-average default rate was expected to be 30.72%, 38.23% and 35.47% for credit card loans modified as of December 31, 2013, 2012 and 2011, respectively.
Wholesale-related [Member]
  
Loans and Leases Receivable Disclosure [Line Items]  
Loans
Wholesale loan portfolio
Wholesale loans include loans made to a variety of customers, ranging from large corporate and institutional clients to high-net-worth individuals.
The primary credit quality indicator for wholesale loans is the risk rating assigned each loan. Risk ratings are used to identify the credit quality of loans and differentiate risk within the portfolio. Risk ratings on loans consider the probability of default (“PD”) and the loss given default (“LGD”). PD is the likelihood that a loan will default and not be repaid. The LGD is the estimated loss on the loan that would be realized upon the default of the borrower and takes into consideration collateral and structural support for each credit facility.
Management considers several factors to determine an appropriate risk rating, including the obligor’s debt capacity and financial flexibility, the level of the obligor’s earnings, the amount and sources for repayment, the level and nature of contingencies, management strength, and the industry and geography in which the obligor operates. The Firm’s definition of criticized aligns with the banking regulatory definition of criticized exposures, which consist of special mention, substandard and doubtful categories. Risk ratings generally represent ratings profiles similar to those defined by S&P and Moody’s. Investment-grade ratings range from “AAA/Aaa” to “BBB-/Baa3.” Noninvestment-grade ratings are classified as noncriticized (“BB+/Ba1 and B-/B3”) and criticized (“CCC+”/“Caa1 and below”), and the criticized portion is further subdivided into performing and nonaccrual loans, representing management’s assessment of the collectibility of principal and interest. Criticized loans have a higher probability of default than noncriticized loans.
Risk ratings are reviewed on a regular and ongoing basis by Credit Risk Management and are adjusted as necessary for updated information affecting the obligor’s ability to fulfill its obligations.
As noted above, the risk rating of a loan considers the industry in which the obligor conducts its operations. As part of the overall credit risk management framework, the Firm focuses on the management and diversification of its industry and client exposures, with particular attention paid to industries with actual or potential credit concern. See Note 5 on page 219 in this Annual Report for further detail on industry concentrations.
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
As of or for the year ended December 31,
(in millions, except ratios)
Commercial
and industrial
 
Real estate
2013
2012
 
2013
2012
Loans by risk ratings
 
 
 
 
 
Investment grade
$
57,690

$
61,870

 
$
52,195

$
41,796

Noninvestment grade:
 
 
 
 
 
Noncriticized
43,477

44,651

 
14,381

14,567

Criticized performing
2,385

2,636

 
2,229

3,857

Criticized nonaccrual
294

708

 
346

520

Total noninvestment grade
46,156

47,995

 
16,956

18,944

Total retained loans
$
103,846

$
109,865

 
$
69,151

$
60,740

% of total criticized to total retained loans
2.58
%
3.04
 %
 
3.72
%
7.21
%
% of nonaccrual loans to total retained loans
0.28

0.64

 
0.50

0.86

Loans by geographic distribution(a)
 
 
 
 
 
Total non-U.S.
$
34,440

$
35,494

 
$
1,369

$
1,533

Total U.S.
69,406

74,371

 
67,782

59,207

Total retained loans
$
103,846

$
109,865

 
$
69,151

$
60,740

 
 
 
 
 
 
Net charge-offs/(recoveries)
$
99

$
(212
)
 
$
6

$
54

% of net charge-offs/(recoveries) to end-of-period retained loans
0.10
%
(0.19
)%
 
0.01
%
0.09
%
 
 
 
 
 
 
Loan delinquency(b)
 
 
 
 
 
Current and less than 30 days past due and still accruing
$
103,357

$
109,019

 
$
68,627

$
59,829

30–89 days past due and still accruing
181

119

 
164

322

90 or more days past due and still accruing(c)
14

19

 
14

69

Criticized nonaccrual
294

708

 
346

520

Total retained loans
$
103,846

$
109,865

 
$
69,151

$
60,740

(a)
The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b)
The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor’s ability to meet contractual obligations rather than relying on the past due status, which is generally a lagging indicator of credit quality. For a discussion of more significant risk factors, see page 279 of this Note.
(c)
Represents loans that are considered well-collateralized and therefore still accruing interest.
(d)
Other primarily includes loans to SPEs and loans to private banking clients. See Note 1 on pages 189–191 of this Annual Report for additional information on SPEs.
The following table presents additional information on the real estate class of loans within the Wholesale portfolio segment for the periods indicated. The real estate class primarily consists of secured commercial loans mainly to borrowers for multi-family and commercial lessor properties. Multifamily lending specifically finances apartment buildings. Commercial lessors receive financing specifically for real estate leased to retail, office and industrial tenants. Commercial construction and development loans represent financing for the construction of apartments, office and professional buildings and malls. Other real estate loans include lodging, real estate investment trusts (“REITs”), single-family, homebuilders and other real estate.
December 31,
(in millions, except ratios)
Multifamily
 
Commercial lessors
2013
2012
 
2013
2012
Real estate retained loans
$
44,389

$
38,030

 
$
15,949

$
14,668

Criticized
1,142

2,118

 
1,323

1,951

% of criticized to total real estate retained loans
2.57
%
5.57
%
 
8.30
%
13.30
%
Criticized nonaccrual
$
191

$
249

 
$
143

$
207

% of criticized nonaccrual to total real estate retained loans
0.43
%
0.65
%
 
0.90
%
1.41
%

(table continued from previous page)
Financial
 institutions
 
Government agencies
 
Other(d)
 
Total
retained loans
2013
2012
 
2013
2012
 
2013
2012
 
2013
2012
 
 
 
 
 
 
 
 
 
 
 
$
26,712

$
22,064

 
$
9,979

$
9,183

 
$
79,494

$
79,533

 
$
226,070

$
214,446

 
 
 
 
 
 
 
 
 
 
 
6,674

13,760

 
440

356

 
10,992

9,914

 
75,964

83,248

272

395

 
42

5

 
480

201

 
5,408

7,094

25

8

 
1

—

 
155

198

 
821

1,434

6,971

14,163

 
483

361

 
11,627

10,313

 
82,193

91,776

$
33,683

$
36,227

 
$
10,462

$
9,544

 
$
91,121

$
89,846

 
$
308,263

$
306,222

0.88
 %
1.11
 %
 
0.41
%
0.05
%
 
0.70
%
0.44
%
 
2.02
%
2.78
 %
0.07

0.02

 
0.01

—

 
0.17

0.22

 
0.27

0.47

 
 
 
 
 
 
 
 
 
 
 
$
22,726

$
26,326

 
$
2,146

$
1,582

 
$
43,376

$
39,421

 
$
104,057

$
104,356

10,957

9,901

 
8,316

7,962

 
47,745

50,425

 
204,206

201,866

$
33,683

$
36,227

 
$
10,462

$
9,544

 
$
91,121

$
89,846

 
$
308,263

$
306,222

 
 
 
 
 
 
 
 
 
 
 
$
(99
)
$
(36
)
 
$
1

$
2

 
$
9

$
14

 
$
16

$
(178
)
(0.29
)%
(0.10
)%
 
0.01
%
0.02
%
 
0.01
%
0.02
%
 
0.01
%
(0.06
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
33,426

$
36,151

 
$
10,421

$
9,516

 
$
89,717

$
88,177

 
$
305,548

$
302,692

226

62

 
40

28

 
1,233

1,427

 
1,844

1,958

6

6

 
—

—

 
16

44

 
50

138

25

8

 
1

—

 
155

198

 
821

1,434

$
33,683

$
36,227

 
$
10,462

$
9,544

 
$
91,121

$
89,846

 
$
308,263

$
306,222














(table continued from previous page)
Commercial construction and development
 
Other
 
Total real estate loans
2013
2012
 
2013
2012
 
2013
2012
$
3,674

$
2,989

 
$
5,139

$
5,053

 
$
69,151

$
60,740

81

119

 
29

189

 
2,575

4,377

2.20
%
3.98
%
 
0.56
%
3.74
%
 
3.72
%
7.21
%
$
3

$
21

 
$
9

$
43

 
$
346

$
520

0.08
%
0.70
%
 
0.18
%
0.85
%
 
0.50
%
0.86
%




Wholesale impaired loans and loan modifications
Wholesale impaired loans are comprised of loans that have been placed on nonaccrual status and/or that have been modified in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 15 on pages 284–287 of this Annual Report.
The table below sets forth information about the Firm’s wholesale impaired loans.
December 31,
(in millions)
Commercial
and industrial
 
Real estate
 
Financial
institutions
 
Government
 agencies
 
Other
 
Total
retained loans
2013
2012
 
2013
2012
 
2013
2012
 
2013
2012
 
2013
2012
 
2013
2012
Impaired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
With an allowance
$
236

$
588

 
$
258

$
375

 
$
17

$
6

 
$
1

$
—

 
$
85

$
122

 
$
597

$
1,091

Without an allowance(a)
58

173

 
109

133

 
8

2

 
—

—

 
73

76

 
248

384

Total impaired loans
$
294

$
761

 
$
367

$
508

 
$
25

$
8

 
$
1

$
—

 
$
158

$
198

 
$
845

$
1,475

Allowance for loan losses related to impaired loans
$
75

$
205

 
$
63

$
82

 
$
16

$
2

 
$
—

$
—

 
$
27

$
30

 
$
181

$
319

Unpaid principal balance of impaired loans(b)
448

957

 
454

626

 
24

22

 
1

—

 
241

318

 
1,168

1,923

(a)
When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.
(b)
Represents the contractual amount of principal owed at December 31, 2013 and 2012. The unpaid principal balance differs from the impaired loan balances due to various factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums on purchased loans.

The following table presents the Firm’s average impaired loans for the years ended 2013, 2012 and 2011.
Year ended December 31, (in millions)
2013
2012
2011
Commercial and industrial
$
412

$
873

$
1,309

Real estate
484

784

1,813

Financial institutions
17

17

84

Government agencies
—

9

20

Other
211

277

634

Total(a)
$
1,124

$
1,960

$
3,860

(a)
The related interest income on accruing impaired loans and interest income recognized on a cash basis were not material for the years ended December 31, 2013, 2012 and 2011.
Loan modifications
Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing financial difficulty. All TDRs are reported as impaired loans in the tables above.
The following table provides information about the Firm’s wholesale loans that have been modified in TDRs, including a reconciliation of the beginning and ending balances of such loans and information regarding the nature and extent of modifications during the periods presented.
Years ended December 31,
(in millions)
 
Commercial and industrial
 
Real estate
 
Other(b)
 
Total
2013
2012
2011
2013
2012
2011
2013
2012
2011
2013
2012
2011
Beginning balance of TDRs
 
$
575

$
531

$
212

 
$
99

$
176

$
907

 
$
22

$
43

$
24

 
$
696

$
750

$
1,143

New TDRs
 
60

$
162

$
665

 
43

43

113

 
50

73

32

 
153

278

810

Increases to existing TDRs
 
4

183

96

 
—

—

16

 
—

—

—

 
4

183

112

Charge-offs post-modification
 
(9
)
(27
)
(30
)
 
(3
)
(2
)
(146
)
 
—

(7
)
—

 
(12
)
(36
)
(176
)
Sales and other(a)
 
(553
)
(274
)
(412
)
 
(51
)
(118
)
(714
)
 
(39
)
(87
)
(13
)
 
(643
)
(479
)
(1,139
)
Ending balance of TDRs
 
$
77

$
575

$
531

 
$
88

$
99

$
176

 
$
33

$
22

$
43

 
$
198

$
696

$
750

TDRs on nonaccrual status
 
$
77

$
522

$
415

 
$
61

$
92

$
128

 
$
30

$
22

$
35

 
$
168

$
636

$
578

Additional commitments to lend to borrowers whose loans have been modified in TDRs
 
19

44

147

 
—

—

—

 
—

2

—

 
19

46

147

(a)
Sales and other are largely sales and paydowns, but also includes performing loans restructured at market rates that were removed from the reported TDR balance of $12 million, $44 million and $152 million during the years ended December 31, 2013, 2012 and 2011 respectively. Loans that have been removed continue to be evaluated along with other impaired loans to determine the asset-specific component of the allowance for loan losses (see page 260 of this Note).
(b)
Includes loans to Financial institutions, Government agencies and Other.
Financial effects of modifications and redefaults
Wholesale loans modified as TDRs are typically term or payment extensions and, to a lesser extent, deferrals of principal and/or interest on commercial and industrial and real estate loans. For the years ended December 31, 2013, 2012 and 2011, the average term extension granted on wholesale loans with term or payment extensions was 2.1 years, 1.1 years and 3.3 years, respectively. The weighted-average remaining term for all loans modified during these periods was 2.0 years, 3.6 years and 4.5 years respectively. Wholesale TDR loans that redefaulted within one year of the modification were $1 million, $56 million and $96 million during the years ended December 31, 2013, 2012 and 2011, respectively. A payment default is deemed to occur when the borrower has not made a loan payment by its scheduled due date after giving effect to any contractual grace period.