BANK OF AMERICA CORP /DE/
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[
ü
] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended
March 31, 2015
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number:
1-6523
Exact name of registrant as specified in its charter:
Bank of America Corporation
State or other jurisdiction of incorporation or organization:
Delaware
IRS Employer Identification No.:
56-0906609
Address of principal executive offices:
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28255
Registrant's telephone number, including area code:
(704) 386-5681
Former name, former address and former fiscal year, if changed since last report:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
ü
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
ü
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (check one).
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Large accelerated filer
ü
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Accelerated filer
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Non-accelerated filer
(do not check if a smaller
reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes No
ü
On
April 28, 2015
, there were
10,502,100,218
shares of Bank of America Corporation Common Stock outstanding.
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Bank of America Corporation
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March 31, 2015
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Form 10-Q
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INDEX
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2
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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This report on Form 10-Q, the documents that it incorporates by reference and the documents into which it may be incorporated by reference may contain, and from time to time Bank of America Corporation (collectively with its subsidiaries, the Corporation) and its management may make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as "anticipates," "targets," "expects," "hopes," "estimates," "intends," "plans," "goal," "believes," "continue" and other similar expressions or future or conditional verbs such as "will," "may," "might," "should," "would" and "could." The forward-looking statements made represent the Corporation's current expectations, plans or forecasts of its future results and revenues, and future business and economic conditions more generally, and other future matters. These statements are not guarantees of future results or performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict and are often beyond the Corporation's control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties more fully discussed elsewhere in this report, and under
Item 1A. Risk Factors of the Corporation's 2014 Annual Report on Form 10-K
and in any of the Corporation's subsequent Securities and Exchange Commission filings: the Corporation's ability to resolve representations and warranties repurchase and related claims and the chance that the Corporation could face related servicing, securities, fraud, indemnity, contribution or other claims from one or more counterparties, including trustees, purchasers of loans, underwriters, issuers, other parties involved in securitizations, monolines or private-label and other investors; the possibility that final court approval of negotiated settlements is not obtained, including the possibility that all of the conditions necessary to obtain final approval of the BNY Mellon Settlement do not occur; the possibility that future representations and warranties losses may occur in excess of the Corporation's recorded liability and estimated range of possible loss for its representations and warranties exposures; the possibility that the Corporation may not collect mortgage insurance claims; potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory proceedings, including the possibility that amounts may be in excess of the Corporation's recorded liability and estimated range of possible losses for litigation exposures; the possibility that the European Commission will impose remedial measures in relation to its investigation of the Corporation's competitive practices; the possible outcome of LIBOR, other reference rate and foreign exchange inquiries and investigations; uncertainties about the financial stability and growth rates of non-U.S. jurisdictions, the risk that those jurisdictions may face difficulties servicing their sovereign debt, and related stresses on financial markets, currencies and trade, and the Corporation's exposures to such risks, including direct, indirect and operational; the impact of U.S. and global interest rates, currency exchange rates and economic conditions; the impact on the Corporation's business, financial condition and results of operations of a potential higher interest rate environment; adverse changes to the Corporation's credit ratings from the major credit rating agencies; estimates of the fair value of certain of the Corporation's assets and liabilities; uncertainty regarding the content, timing and impact of regulatory capital and liquidity requirements, including, but not limited to, any G-SIB surcharge; the possibility that in connection with our effort to exit our Advanced approaches parallel run, our internal analytical models will either not be approved by U.S. banking regulators, or will be approved with significant modifications, which could, for example, increase our risk-weighted assets and, as a result, negatively impact our capital ratios under the Advanced approaches, including an estimated 100 bps negative impact to our Common equity tier 1 ratio; the possible impact of Federal Reserve actions on the Corporation's capital plans; the impact of implementation and compliance with new and evolving U.S. and international regulations, including, but not limited to, recovery and resolution planning requirements, the Volcker Rule and derivatives regulations; the impact of the U.K tax law change limiting how much net operating losses can offset annual profit; a failure in or breach of the Corporation's operational or security systems or infrastructure, or those of third parties, including as a result of cyber attacks and other similar matters.
Forward-looking statements speak only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
Notes to the Consolidated Financial Statements referred to in the Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are incorporated by reference into the MD&A. Certain prior-period amounts have been reclassified to conform to current period presentation. Throughout the MD&A, the Corporation uses certain acronyms and abbreviations which are defined in the Glossary.
3
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Executive Summary
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Business Overview
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The Corporation is a Delaware corporation, a bank holding company (BHC) and a financial holding company. When used in this report, "the Corporation" may refer to Bank of America Corporation individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation's subsidiaries or affiliates. Our principal executive offices are located in Charlotte, North Carolina. Through our banking and various nonbank subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbank financial services and products. We operate our banking activities primarily under the Bank of America, National Association (Bank of America, N.A. or BANA) charter. At
March 31, 2015
, the Corporation had approximately
$2.1 trillion
in assets and approximately
220,000
full-time equivalent employees.
In the Annual Report on Form 10-K for the year ended December 31, 2014, we reported our results of operations through five business segments:
Consumer & Business Banking (CBB)
,
Consumer Real Estate Services (CRES)
,
Global Wealth & Investment Management (GWIM)
,
Global Banking
and
Global Markets
, with the remaining operations recorded in
All Other
. Effective January 1, 2015, to align the segments with how we manage the businesses in 2015, we changed our basis of presentation, and following such change, we report our results of operations through the following five business segments:
Consumer Banking
,
Global Wealth & Investment Management (GWIM)
,
Global Banking
,
Global Markets
and
Legacy Assets & Servicing (LAS)
, with the remaining operations recorded in
All Other
. The Home Loans business, which was included in the former
CRES
segment, is now included in
Consumer Banking
, and
LAS
(also in the former
CRES
segment) has become a separate segment. A portion of the Business Banking business, based on the size of the client, was moved from the former
CBB
segment to
Global Banking
, and the former
CBB
segment was renamed
Consumer Banking
. Also, our merchant services joint venture moved from the former
CBB
segment to
All Other
. In addition, certain management accounting methodologies, including the treatment of intersegment assets and liabilities, and related allocations were refined. Prior periods have been reclassified to conform to the current period presentation.
As of
March 31, 2015
, we operated in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and more than
35
countries. Our retail banking footprint covers approximately 80 percent of the U.S. population, and we serve approximately
48 million
consumer and small business relationships with approximately
4,800
financial centers,
15,900
ATMs, nationwide call centers, and leading online and mobile banking platforms (www.bankofamerica.com). We offer industry-leading support to approximately
three million
small business owners. Our industry leading wealth management and trust businesses, with client balances of
$2.5 trillion
, provide tailored solutions to meet client needs through a full set of brokerage, banking, trust and retirement products. We are a global leader in corporate and investment banking and trading across a broad range of asset classes serving corporations, governments, institutions and individuals around the world.
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First-Quarter 2015 Economic and Business Environment
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In the U.S., economic growth slowed in the first quarter of 2015, restrained by severe winter weather and other temporary factors, including the capital-spending impact of large oil price declines. Retail spending was weak, following an acceleration during the second half of 2014. In addition to reduced energy-industry investment, U.S. Dollar strength was a contributor to export weakness in the first quarter.
In contrast, various measures showed continued gradual labor market improvement, though payroll gains weakened in March and wage gains remained historically low. The unemployment rate also continued to fall during the quarter, ending at 5.5 percent. The sharp decline in energy prices pushed inflation to just above zero during the quarter, while core inflation (excluding food and energy) also remained well below the Board of Governors of the Federal Reserve System's (Federal Reserve) longer-term annual target of two percent.
In March 2015, the Federal Reserve continued to indicate that it would likely be appropriate to raise the target range for the federal funds rate, but emphasized the need for further improvement in the labor market and reasonable confidence that inflation would move back to its two percent objective over the medium term.
Internationally, despite anxiety over Greece, European prospects improved during the quarter, supported by lower energy prices and the European Central Bank's announcement of open-ended quantitative easing. Japanese growth during the first quarter of 2015 remained modest. With Chinese economic growth continuing to moderate, China's monetary authorities and central banks throughout developing Asia continue to display a preference towards easing. The large decline in energy prices, along with international sanctions, continued to pressure the declining Russian economy.
4
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Recent Events
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BNY Mellon Settlement
On March 5, 2015, the New York Appellate Division, First Department issued an order unanimously approving the Bank of New York Mellon (BNY Mellon) Settlement in all respects, reversing the portion of the New York Supreme Court's decision not to approve the Trustee's conduct with respect to the Trustee's consideration of a potential claim that a loan must be repurchased if the servicer modifies its term. The deadline for further appeal has passed. The BNY Mellon Settlement remains subject to certain conditions, including that an Internal Revenue Service (IRS) private letter ruling be obtained confirming that the settlement will not impact the real estate mortgage investment conduit (REMIC) tax status of the trusts. As part of the BNY Mellon Settlement, agreement was reached on certain servicing related matters. For information on servicing matters associated with the BNY Mellon Settlement, see
Mortgage-related Settlements – Servicing Matters
on page
45
, and for more information on the BNY Mellon Settlement, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
to the Consolidated Financial Statements.
Capital Management
On March 11, 2015, we announced that the Federal Reserve completed its 2015 Comprehensive Capital Analysis and Review (CCAR) and advised that it did not object to our 2015 capital plan but gave a conditional, non-objection under which we are required to resubmit our capital plan by September 30, 2015 and address certain weaknesses identified in the capital planning process. The requested capital actions included a request to repurchase $4.0 billion of common stock over five quarters beginning in the second quarter of 2015, and to maintain the quarterly common stock dividend at the current rate of $0.05 per share. If identified weaknesses are not satisfactorily addressed when the Federal Reserve reviews our resubmitted capital plan, the Federal Reserve may restrict our future capital distributions. Pending the resubmission and Federal Reserve review, we are permitted, and intend to proceed with our stock repurchase program and to maintain our common stock dividend at the current rate. For additional information, see
Capital Management
on page
46
.
5
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Selected Financial Data
|
Table
1
provides selected consolidated financial data for the
three months ended March 31, 2015 and 2014
, and at
March 31, 2015
and
December 31, 2014
.
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Table 1
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Selected Financial Data
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Three Months Ended March 31
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(Dollars in millions, except per share information)
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2015
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2014
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|||||
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Income statement
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|||||||
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Revenue, net of interest expense (FTE basis)
(1)
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$
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21,421
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$
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22,767
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Net income (loss)
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3,357
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(276
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)
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Diluted earnings (loss) per common share
(2)
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0.27
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(0.05
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)
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Dividends paid per common share
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0.05
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0.01
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Performance ratios
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|||||||
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Return on average assets
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0.64
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%
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n/m
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Return on average tangible common shareholders' equity
(1)
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7.88
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n/m
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Efficiency ratio (FTE basis)
(1)
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73.27
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97.68
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%
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Asset quality
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|||||||
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Allowance for loan and lease losses at period end
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$
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13,676
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$
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16,618
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Allowance for loan and lease losses as a percentage of total loans and leases outstanding at period end
(3)
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1.57
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%
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1.84
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%
|
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Nonperforming loans, leases and foreclosed properties at period end
(3)
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$
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12,101
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$
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17,732
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Net charge-offs
(4)
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1,194
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1,388
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Annualized net charge-offs as a percentage of average loans and leases outstanding
(3, 4)
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0.56
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%
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0.62
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%
|
|||
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Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the purchased credit-impaired loan portfolio
(3)
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0.57
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0.64
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Annualized net charge-offs and purchased credit-impaired write-offs as a percentage of average loans and leases outstanding
(3)
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0.70
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0.79
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Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs
(4)
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2.82
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2.95
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Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the purchased credit-impaired loan portfolio
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2.55
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2.58
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Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and purchased credit-impaired write-offs
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2.28
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2.30
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March 31
2015 |
December 31
2014 |
||||||
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Total loans and leases
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$
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877,956
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$
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881,391
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Total assets
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2,143,545
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2,104,534
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Total deposits
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1,153,168
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1,118,936
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Total common shareholders' equity
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227,915
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224,162
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Total shareholders' equity
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250,188
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243,471
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Capital ratios under Basel 3 Standardized – Transition
|
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|||||
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Common equity tier 1 capital
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11.1
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%
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12.3
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%
|
|||
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Tier 1 capital
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12.3
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13.4
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Total capital
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15.3
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16.5
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Tier 1 leverage
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8.4
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8.2
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(1)
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Fully taxable-equivalent basis (FTE), return on average tangible common shareholders' equity and the efficiency ratio are non-GAAP financial measures. Other companies may define or calculate these measures differently. For more information on these measures and ratios, and a corresponding reconciliation to GAAP financial measures, see
Supplemental Financial Data
on page
14
.
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(2)
|
The diluted earnings (loss) per common share excludes the effect of any equity instruments that are antidilutive to earnings per share. There were no potential common shares that were dilutive in the first quarter of 2014 because of the net loss applicable to common shareholders.
|
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(3)
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Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see
Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
on page
82
and corresponding
Table 43
, and
Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity
on page
91
and corresponding
Table 52
.
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(4)
|
Net charge-offs exclude
$288 million
of write-offs in the purchased credit-impaired loan portfolio for the
three months ended March 31, 2015
compared to
$391 million
for the same period in
2014
. These write-offs decreased the purchased credit-impaired valuation allowance included as part of the allowance for loan and lease losses. For more information on purchased credit-impaired write-offs, see
Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio
on page
77
.
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n/m = not meaningful
6
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Financial Highlights
|
Net income was
$3.4 billion
, or
$0.27
per diluted share for the
three months ended March 31, 2015
compared to a net loss of
$276 million
, or a loss of
$0.05
per share for the
same period in 2014
. The results for the
three months ended March 31, 2015
compared to the prior-year period were primarily driven by a $5.6 billion decrease in litigation expense, as well as decreases in certain other noninterest expense categories, and lower provision for credit losses, partially offset by lower net interest income and noninterest income.
Total assets increased
$39.0 billion
from
December 31, 2014
to
$2.1 trillion
at
March 31, 2015
primarily related to increased cash and cash equivalents resulting from strong domestic customer deposit inflows driven by seasonality. For additional information on the increase in total assets, see
Executive Summary – Balance Sheet Overview
on page
10
. During the quarter, we maintained our strong capital position with Common equity tier 1 capital of
$147.2 billion
at
March 31, 2015
compared to
$141.2 billion
at
December 31, 2014
with estimated Common equity tier 1 capital ratios of
10.3 percent
compared to
10.0 percent
as measured under Basel 3 Standardized approach, on a fully phased-in basis. Our supplementary leverage ratio was 6.3 percent and 5.9 percent at
March 31, 2015
and
December 31, 2014
, both above the 5.0 percent required minimum. Our Global Excess Liquidity Sources were $478 billion with time-to-required funding at 37 months at
March 31, 2015
compared to $439 billion and 39 months at
December 31, 2014
. For additional information, see
Capital Management
on page
46
and
Liquidity Risk
on page
56
.
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Table 2
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|||||||
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Summary Income Statement
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|||||||
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Three Months Ended March 31
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(Dollars in millions)
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2015
|
2014
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|||||
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Net interest income (FTE basis)
(1)
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$
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9,670
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$
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10,286
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Noninterest income
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11,751
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12,481
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|||
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Total revenue, net of interest expense (FTE basis)
(1)
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21,421
|
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22,767
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|||
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Provision for credit losses
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765
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1,009
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|||
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Noninterest expense
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15,695
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22,238
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|||
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Income (loss) before income taxes (FTE basis)
(1)
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4,961
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(480
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)
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|||
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Income tax expense (benefit) (FTE basis)
(1)
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1,604
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(204
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)
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|||
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Net income (loss)
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3,357
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|
(276
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)
|
|||
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Preferred stock dividends
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382
|
|
238
|
|
|||
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Net income (loss) applicable to common shareholders
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$
|
2,975
|
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$
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(514
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)
|
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Per common share information
|
|||||||
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Earnings (loss)
|
$
|
0.28
|
|
$
|
(0.05
|
)
|
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Diluted earnings (loss)
|
0.27
|
|
(0.05
|
)
|
|||
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(1)
|
FTE basis is a non-GAAP financial measure. For more information on this measure and for a corresponding reconciliation to GAAP financial measures, see
Supplemental Financial Data
on page
14
.
|
Net Interest Income
Net interest income on a fully taxable-equivalent (FTE) basis
decreased
$616 million
to
$9.7 billion
, and the net interest yield on an FTE basis
decreased
12
basis points (bps) to
2.17 percent
for the
three months ended March 31, 2015
compared to the
same period in 2014
. These declines were driven by negative market-related adjustments, lower loan yields and consumer loan balances, and lower net interest income from the asset and liability management (ALM) portfolio. Market-related adjustments on debt securities resulted in an expense of $484 million for the
three months ended March 31, 2015
compared to an expense of $273 million for the
same period in 2014
. Partially offsetting these declines were reductions in funding yields, lower long-term debt balances and commercial loan growth. Market-related adjustments
include acceleration of premium amortization (or discount accretion) on debt securities as the decline in long-term interest rates shortened the estimated lives of mortgage-related debt securities
.
Also included in market-related adjustments is hedge ineffectiveness that impacted net interest income
. For additional information, see
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
7
Noninterest Income
|
Table 3
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|||||||
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Noninterest Income
|
|||||||
|
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Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Card income
|
$
|
1,394
|
|
$
|
1,393
|
|
|
|
Service charges
|
1,764
|
|
1,826
|
|
|||
|
Investment and brokerage services
|
3,378
|
|
3,269
|
|
|||
|
Investment banking income
|
1,487
|
|
1,542
|
|
|||
|
Equity investment income
|
27
|
|
784
|
|
|||
|
Trading account profits
|
2,247
|
|
2,467
|
|
|||
|
Mortgage banking income
|
694
|
|
412
|
|
|||
|
Gains on sales of debt securities
|
268
|
|
377
|
|
|||
|
Other income
|
492
|
|
411
|
|
|||
|
Total noninterest income
|
$
|
11,751
|
|
$
|
12,481
|
|
|
Noninterest income
decreased
$730 million
to
$11.8 billion
for the
three months ended March 31, 2015
compared to the
same period in 2014
. The following highlights the significant changes.
|
•
|
Investment and brokerage services income
increased
$109 million
primarily from increased asset management fees driven by the impact of long-term assets under management (AUM) inflows and higher market levels.
|
|
•
|
Equity investment income
decreased
$757 million
primarily driven by the gain on the sale of a portion of an equity investment in the first quarter of 2014.
|
|
•
|
Trading account profits
decreased
$220 million
. Excluding net debit valuation adjustments (DVA), trading account profits
decreased
$259 million
due to lower trading volumes driven by client flows primarily in our mortgage and credit-related businesses.
|
|
•
|
Mortgage banking income
increased
$282 million
primarily driven by improved mortgage servicing rights (MSR) net-of-hedge performance, an increase in core production revenue and lower representations and warranties provision, partially offset by a decline in servicing fees.
|
|
•
|
Other income
increased
$81 million
due to gains associated with the sales of residential mortgage loans, partially offset by a decrease in net DVA gains on structured liabilities.
|
Provision for Credit Losses
The provision for credit losses
decreased
$244 million
to
$765 million
for the
three months ended March 31, 2015
compared to the
same period in 2014
. The provision for credit losses was
$429 million
lower than net charge-offs, resulting in a reduction in the allowance for credit losses. The decrease in provision for credit losses from the prior-year period was due to improvement in the credit card portfolios primarily driven by lower unemployment levels, as well as lower provision in the commercial portfolio, primarily in U.S. commercial. We expect reserve releases to be lower than the first quarter for the remaining quarters of 2015.
Net charge-offs totaled
$1.2 billion
, or
0.56 percent
of average loans and leases for the
three months ended March 31, 2015
compared to
$1.4 billion
, or
0.62 percent
, for the
same period in 2014
. The
decrease
in net charge-offs was due to credit quality improvement across most major portfolios. For more information on the provision for credit losses, see
Provision for Credit Losses
on page
98
.
8
Noninterest Expense
|
Table 4
|
|||||||
|
Noninterest Expense
|
|||||||
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Personnel
|
$
|
9,614
|
|
$
|
9,749
|
|
|
|
Occupancy
|
1,027
|
|
1,115
|
|
|||
|
Equipment
|
512
|
|
546
|
|
|||
|
Marketing
|
440
|
|
442
|
|
|||
|
Professional fees
|
421
|
|
558
|
|
|||
|
Amortization of intangibles
|
213
|
|
239
|
|
|||
|
Data processing
|
852
|
|
833
|
|
|||
|
Telecommunications
|
171
|
|
370
|
|
|||
|
Other general operating
|
2,445
|
|
8,386
|
|
|||
|
Total noninterest expense
|
$
|
15,695
|
|
$
|
22,238
|
|
|
Noninterest expense
decreased
$6.5 billion
to
$15.7 billion
for the
three months ended March 31, 2015
compared to the
same period in 2014
, primarily driven by declines in litigation expense as well as in certain other noninterest expense categories. Litigation expense, which is included in other general operating expense, decreased $5.6 billion to $370 million as the first quarter of 2014 included costs associated with the settlement with the Federal Housing Finance Agency and the establishment of additional reserves primarily for legacy mortgage-related matters. Telecommunications expense
decreased
$199 million
due to efficiencies gained as we have simplified our operating model, including in-sourcing certain functions. Professional fees
decreased
$137 million
primarily due to lower default-related servicing expenses and legal fees. Personnel expense
decreased
$135 million
as we have continued to streamline processes and achieve cost savings. Personnel expense included approximately $1.0 billion of annual retirement-eligible incentive costs in both periods.
Income Tax Expense
|
Table 5
|
|||||||
|
Income Tax Expense (Benefit)
|
|||||||
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Income (loss) before income taxes
|
$
|
4,742
|
|
$
|
(681
|
)
|
|
|
Income tax expense (benefit)
|
1,385
|
|
(405
|
)
|
|||
|
Effective tax rate
|
29.2
|
%
|
59.5
|
%
|
|||
The effective tax rates for the
three months ended March 31, 2015 and 2014
were primarily driven by our recurring tax preference items. The effective tax rate for the
three months ended March 31, 2014
was also impacted by certain nondeductible accruals, largely offset by discrete tax benefits principally from the resolution of certain tax matters. We expect an effective tax rate of approximately 30 percent, absent any unusual items, for the remainder of 2015.
9
|
Balance Sheet Overview
|
|||||||||||||||||||||
|
Table 6
|
|||||||||||||||||||||
|
Selected Balance Sheet Data
|
|||||||||||||||||||||
|
|
|
|
Average Balance
|
||||||||||||||||||
|
|
March 31
2015 |
December 31
2014 |
% Change
|
Three Months Ended
March 31 |
% Change
|
||||||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||||||||||||||||
|
Assets
|
|
|
|
|
|||||||||||||||||
|
Cash and cash equivalents
|
$
|
162,543
|
|
$
|
138,589
|
|
17
|
%
|
$
|
153,884
|
|
$
|
140,828
|
|
9
|
%
|
|||||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
206,708
|
|
191,823
|
|
8
|
|
213,931
|
|
212,504
|
|
1
|
|
|||||||||
|
Trading account assets
|
186,860
|
|
191,785
|
|
(3
|
)
|
194,391
|
|
203,836
|
|
(5
|
)
|
|||||||||
|
Debt securities
|
383,989
|
|
380,461
|
|
1
|
|
383,120
|
|
329,711
|
|
16
|
|
|||||||||
|
Loans and leases
|
877,956
|
|
881,391
|
|
—
|
|
872,393
|
|
919,482
|
|
(5
|
)
|
|||||||||
|
Allowance for loan and lease losses
|
(13,676
|
)
|
(14,419
|
)
|
(5
|
)
|
(14,247
|
)
|
(17,144
|
)
|
(17
|
)
|
|||||||||
|
All other assets
|
339,165
|
|
334,904
|
|
1
|
|
335,102
|
|
350,049
|
|
(4
|
)
|
|||||||||
|
Total assets
|
$
|
2,143,545
|
|
$
|
2,104,534
|
|
2
|
|
$
|
2,138,574
|
|
$
|
2,139,266
|
|
—
|
|
|||||
|
Liabilities
|
|
|
|
|
|||||||||||||||||
|
Deposits
|
$
|
1,153,168
|
|
$
|
1,118,936
|
|
3
|
|
$
|
1,130,725
|
|
$
|
1,118,178
|
|
1
|
|
|||||
|
Federal funds purchased and securities loaned or sold under agreements to repurchase
|
203,758
|
|
201,277
|
|
1
|
|
214,722
|
|
204,804
|
|
5
|
|
|||||||||
|
Trading account liabilities
|
74,791
|
|
74,192
|
|
1
|
|
78,787
|
|
90,449
|
|
(13
|
)
|
|||||||||
|
Short-term borrowings
|
33,270
|
|
31,172
|
|
7
|
|
29,412
|
|
48,168
|
|
(39
|
)
|
|||||||||
|
Long-term debt
|
237,858
|
|
243,139
|
|
(2
|
)
|
240,127
|
|
253,678
|
|
(5
|
)
|
|||||||||
|
All other liabilities
|
190,512
|
|
192,347
|
|
(1
|
)
|
199,057
|
|
187,430
|
|
6
|
|
|||||||||
|
Total liabilities
|
1,893,357
|
|
1,861,063
|
|
2
|
|
1,892,830
|
|
1,902,707
|
|
(1
|
)
|
|||||||||
|
Shareholders' equity
|
250,188
|
|
243,471
|
|
3
|
|
245,744
|
|
236,559
|
|
4
|
|
|||||||||
|
Total liabilities and shareholders' equity
|
$
|
2,143,545
|
|
$
|
2,104,534
|
|
2
|
|
$
|
2,138,574
|
|
$
|
2,139,266
|
|
—
|
|
|||||
Period-end balance sheet amounts may vary from average balance sheet amounts due to liquidity and balance sheet management activities, primarily involving our portfolios of highly liquid assets. These portfolios are designed to ensure the adequacy of capital while enhancing our ability to manage liquidity requirements for the Corporation and our customers, and to position the balance sheet in accordance with the Corporation's risk appetite. The execution of these activities requires the use of balance sheet and capital-related limits including spot, average and risk-weighted asset limits, particularly within the market-making activities of our trading businesses. One of our key regulatory metrics, Tier 1 leverage ratio, is calculated based on adjusted quarterly average total assets.
10
Balance Sheet Analysis
Assets
At
March 31, 2015
, total assets were approximately
$2.1 trillion
,
up
$39.0 billion
from
December 31, 2014
. The key drivers were increased cash and cash equivalents primarily due to higher interest-bearing deposits with the Federal Reserve as a result of strong domestic deposit inflows driven by seasonality related to income tax refunds and growth in customer and client activity, higher securities borrowed or purchased under agreements to resell due to a shift in mix between reverse repos and debt securities and an increase in commercial loan balances. These increases were partially offset by a decline in consumer loan balances due to loan sales and portfolio run-off outpacing new originations, and a reduction in trading account assets.
Average total assets remained relatively unchanged for the
three months ended March 31, 2015
compared to the
same period in 2014
. Consumer loans declined primarily due to loan sales and continued portfolio run-off. There were also declines in all other assets primarily due to decreases in other nonearning assets, time deposits placed and customer receivables as well as lower trading account assets primarily due to a reduction in non-U.S. sovereign debt inventory. These decreases were largely offset by increases in debt securities due to a shift from whole loans to securities, an increase in U.S. Treasury holdings and increases in the valuation of the debt securities portfolio. There were also increases in cash and cash equivalents primarily driven by higher interest-bearing deposits with the Federal Reserve and non-U.S. central banks and increases in derivative dealer assets.
Liabilities and Shareholders' Equity
At
March 31, 2015
, total liabilities were approximately
$1.9 trillion
,
up
$32.3 billion
from
December 31, 2014
, primarily driven by an increase in deposits as well as increases in securities loaned or sold under agreements to repurchase and short-term borrowings. The increases were partially offset by declines in long-term debt and all other liabilities.
Average total liabilities
decreased
$9.9 billion
for the
three months ended March 31, 2015
compared to the
same period in 2014
. The decline was primarily driven by planned reductions in short-term borrowings driving decreases in Federal Home Loan Bank (FHLB) advances, decreases in long-term debt as maturities outpaced new issuances, and decreases in trading account liabilities primarily due to lower levels of short U.S. Treasury and non-U.S. sovereign debt positions. These decreases were partially offset by growth in deposits, increases in securities loaned or sold under agreements to repurchase and all other liabilities.
Shareholders' equity of
$250.2 billion
at
March 31, 2015
increased
$6.7 billion
from
December 31, 2014
driven by preferred stock issuances, earnings and an increase in accumulated other comprehensive income (OCI) due to a positive net change in the fair value of available-for-sale (AFS) debt securities.
Average shareholders' equity of
$245.7 billion
for the
three months ended March 31, 2015
increased
$9.2 billion
from the
same period in 2014
driven by preferred stock issuances, earnings and an increase in accumulated OCI due to a positive net change in the fair value of AFS debt securities. These increases were partially offset by common share repurchases.
11
|
Table 7
|
|||||||||||||||||||
|
Selected Quarterly Financial Data
|
|||||||||||||||||||
|
|
2015 Quarter
|
2014 Quarters
|
|||||||||||||||||
|
(In millions, except per share information)
|
First
|
Fourth
|
Third
|
Second
|
First
|
||||||||||||||
|
Income statement
|
|
|
|
|
|||||||||||||||
|
Net interest income
|
$
|
9,451
|
|
$
|
9,635
|
|
$
|
10,219
|
|
$
|
10,013
|
|
$
|
10,085
|
|
||||
|
Noninterest income
|
11,751
|
|
9,090
|
|
10,990
|
|
11,734
|
|
12,481
|
|
|||||||||
|
Total revenue, net of interest expense
|
21,202
|
|
18,725
|
|
21,209
|
|
21,747
|
|
22,566
|
|
|||||||||
|
Provision for credit losses
|
765
|
|
219
|
|
636
|
|
411
|
|
1,009
|
|
|||||||||
|
Noninterest expense
|
15,695
|
|
14,196
|
|
20,142
|
|
18,541
|
|
22,238
|
|
|||||||||
|
Income (loss) before income taxes
|
4,742
|
|
4,310
|
|
431
|
|
2,795
|
|
(681
|
)
|
|||||||||
|
Income tax expense (benefit)
|
1,385
|
|
1,260
|
|
663
|
|
504
|
|
(405
|
)
|
|||||||||
|
Net income (loss)
|
3,357
|
|
3,050
|
|
(232
|
)
|
2,291
|
|
(276
|
)
|
|||||||||
|
Net income (loss) applicable to common shareholders
|
2,975
|
|
2,738
|
|
(470
|
)
|
2,035
|
|
(514
|
)
|
|||||||||
|
Average common shares issued and outstanding
|
10,519
|
|
10,516
|
|
10,516
|
|
10,519
|
|
10,561
|
|
|||||||||
|
Average diluted common shares issued and outstanding
(1)
|
11,267
|
|
11,274
|
|
10,516
|
|
11,265
|
|
10,561
|
|
|||||||||
|
Performance ratios
|
|
|
|
|
|
||||||||||||||
|
Return on average assets
|
0.64
|
%
|
0.57
|
%
|
n/m
|
|
0.42
|
%
|
n/m
|
|
|||||||||
|
Four quarter trailing return on average assets
(2)
|
0.39
|
|
0.23
|
|
0.24
|
%
|
0.37
|
|
0.45
|
%
|
|||||||||
|
Return on average common shareholders' equity
|
5.35
|
|
4.84
|
|
n/m
|
|
3.68
|
|
n/m
|
|
|||||||||
|
Return on average tangible common shareholders' equity
(3)
|
7.88
|
|
7.15
|
|
n/m
|
|
5.47
|
|
n/m
|
|
|||||||||
|
Return on average tangible shareholders' equity
(3)
|
7.85
|
|
7.08
|
|
n/m
|
|
5.64
|
|
n/m
|
|
|||||||||
|
Total ending equity to total ending assets
|
11.67
|
|
11.57
|
|
11.24
|
|
10.94
|
|
10.79
|
|
|||||||||
|
Total average equity to total average assets
|
11.49
|
|
11.39
|
|
11.14
|
|
10.87
|
|
11.06
|
|
|||||||||
|
Dividend payout
|
17.68
|
|
19.21
|
|
n/m
|
|
5.16
|
|
n/m
|
|
|||||||||
|
Per common share data
|
|
|
|
|
|
||||||||||||||
|
Earnings (loss)
|
$
|
0.28
|
|
$
|
0.26
|
|
$
|
(0.04
|
)
|
$
|
0.19
|
|
$
|
(0.05
|
)
|
||||
|
Diluted earnings (loss)
(1)
|
0.27
|
|
0.25
|
|
(0.04
|
)
|
0.19
|
|
(0.05
|
)
|
|||||||||
|
Dividends paid
|
0.05
|
|
0.05
|
|
0.05
|
|
0.01
|
|
0.01
|
|
|||||||||
|
Book value
|
21.66
|
|
21.32
|
|
20.99
|
|
21.16
|
|
20.75
|
|
|||||||||
|
Tangible book value
(3)
|
14.79
|
|
14.43
|
|
14.09
|
|
14.24
|
|
13.81
|
|
|||||||||
|
Market price per share of common stock
|
|
|
|
|
|
||||||||||||||
|
Closing
|
$
|
15.39
|
|
$
|
17.89
|
|
$
|
17.05
|
|
$
|
15.37
|
|
$
|
17.20
|
|
||||
|
High closing
|
17.90
|
|
18.13
|
|
17.18
|
|
17.34
|
|
17.92
|
|
|||||||||
|
Low closing
|
15.15
|
|
15.76
|
|
14.98
|
|
14.51
|
|
16.10
|
|
|||||||||
|
Market capitalization
|
$
|
161,909
|
|
$
|
188,141
|
|
$
|
179,296
|
|
$
|
161,628
|
|
$
|
181,117
|
|
||||
|
(1)
|
The diluted earnings (loss) per common share excluded the effect of any equity instruments that are antidilutive to earnings per share. There were no potential common shares that were dilutive in the
third and first quarters of 2014 because of the net loss applicable to common shareholders
.
|
|
(2)
|
Calculated as total net income (loss) for four consecutive quarters divided by annualized average assets for four consecutive quarters.
|
|
(3)
|
Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. Other companies may define or calculate these measures differently. For more information on these ratios and for corresponding reconciliations to GAAP financial measures, see
Supplemental Financial Data
on page
14
.
|
|
(4)
|
For more information on the impact of the purchased credit-impaired loan portfolio on asset quality, see
Consumer Portfolio Credit Risk Management
on page
65
.
|
|
(5)
|
Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments.
|
|
(6)
|
Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see
Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
on page
82
and corresponding Table
43
, and
Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity
on page
91
and corresponding Table
52
.
|
|
(7)
|
Primarily includes amounts allocated to the U.S. credit card and unsecured consumer lending portfolios in
Consumer Banking
, purchased credit-impaired loans and the non-U.S. credit card portfolio in
All Other
.
|
|
(8)
|
Net charge-offs exclude
$288 million
,
$13 million
,
$246 million
,
$160 million
and
$391 million
of write-offs in the purchased credit-impaired loan portfolio in the
first
quarter of
2015
and in the
fourth
,
third
,
second
and
first
quarters of
2014
, respectively. These write-offs decreased the purchased credit-impaired valuation allowance included as part of the allowance for loan and lease losses. For more information on purchased credit-impaired write-offs, see
Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio
on page
77
.
|
n/m = not meaningful
12
|
Table 7
|
|||||||||||||||||||
|
Selected Quarterly Financial Data (continued)
|
|||||||||||||||||||
|
|
2015 Quarter
|
2014 Quarters
|
|||||||||||||||||
|
(Dollars in millions)
|
First
|
Fourth
|
Third
|
Second
|
First
|
||||||||||||||
|
Average balance sheet
|
|
|
|
|
|
||||||||||||||
|
Total loans and leases
|
$
|
872,393
|
|
$
|
884,733
|
|
$
|
899,241
|
|
$
|
912,580
|
|
$
|
919,482
|
|
||||
|
Total assets
|
2,138,574
|
|
2,137,551
|
|
2,136,109
|
|
2,169,555
|
|
2,139,266
|
|
|||||||||
|
Total deposits
|
1,130,725
|
|
1,122,514
|
|
1,127,488
|
|
1,128,563
|
|
1,118,178
|
|
|||||||||
|
Long-term debt
|
240,127
|
|
249,221
|
|
251,772
|
|
259,825
|
|
253,678
|
|
|||||||||
|
Common shareholders' equity
|
225,357
|
|
224,479
|
|
222,374
|
|
222,221
|
|
223,207
|
|
|||||||||
|
Total shareholders' equity
|
245,744
|
|
243,454
|
|
238,040
|
|
235,803
|
|
236,559
|
|
|||||||||
|
Asset quality
(4)
|
|
|
|
|
|
||||||||||||||
|
Allowance for credit losses
(5)
|
$
|
14,213
|
|
$
|
14,947
|
|
$
|
15,635
|
|
$
|
16,314
|
|
$
|
17,127
|
|
||||
|
Nonperforming loans, leases and foreclosed properties
(6)
|
12,101
|
|
12,629
|
|
14,232
|
|
15,300
|
|
17,732
|
|
|||||||||
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding
(6)
|
1.57
|
%
|
1.65
|
%
|
1.71
|
%
|
1.75
|
%
|
1.84
|
%
|
|||||||||
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases
(6)
|
122
|
|
121
|
|
112
|
|
108
|
|
97
|
|
|||||||||
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio
(6)
|
110
|
|
107
|
|
100
|
|
95
|
|
85
|
|
|||||||||
|
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases
(7)
|
$
|
5,492
|
|
$
|
5,944
|
|
$
|
6,013
|
|
$
|
6,488
|
|
$
|
7,143
|
|
||||
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases
(6, 7)
|
73
|
%
|
71
|
%
|
67
|
%
|
64
|
%
|
55
|
%
|
|||||||||
|
Net charge-offs
(8)
|
$
|
1,194
|
|
$
|
879
|
|
$
|
1,043
|
|
$
|
1,073
|
|
$
|
1,388
|
|
||||
|
Annualized net charge-offs as a percentage of average loans and leases outstanding
(6, 8)
|
0.56
|
%
|
0.40
|
%
|
0.46
|
%
|
0.48
|
%
|
0.62
|
%
|
|||||||||
|
Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio
(6)
|
0.57
|
|
0.41
|
|
0.48
|
|
0.49
|
|
0.64
|
|
|||||||||
|
Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding
(6)
|
0.70
|
|
0.40
|
|
0.57
|
|
0.55
|
|
0.79
|
|
|||||||||
|
Nonperforming loans and leases as a percentage of total loans and leases outstanding
(6)
|
1.29
|
|
1.37
|
|
1.53
|
|
1.63
|
|
1.89
|
|
|||||||||
|
Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties
(6)
|
1.39
|
|
1.45
|
|
1.61
|
|
1.70
|
|
1.96
|
|
|||||||||
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs
(8)
|
2.82
|
|
4.14
|
|
3.65
|
|
3.67
|
|
2.95
|
|
|||||||||
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the PCI loan portfolio
|
2.55
|
|
3.66
|
|
3.27
|
|
3.25
|
|
2.58
|
|
|||||||||
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and PCI write-offs
|
2.28
|
|
4.08
|
|
2.95
|
|
3.20
|
|
2.30
|
|
|||||||||
|
Capital ratios at period end
|
|||||||||||||||||||
|
Risk-based capital under
Basel 3 Standardized – Transition
:
|
|
|
|
|
|
||||||||||||||
|
Common equity tier 1 capital
|
11.1
|
%
|
12.3
|
%
|
12.0
|
%
|
12.0
|
%
|
11.8
|
%
|
|||||||||
|
Tier 1 capital
|
12.3
|
|
13.4
|
|
12.8
|
|
12.5
|
|
11.9
|
|
|||||||||
|
Total capital
|
15.3
|
|
16.5
|
|
15.8
|
|
15.3
|
|
14.8
|
|
|||||||||
|
Tier 1 leverage
|
8.4
|
|
8.2
|
|
7.9
|
|
7.7
|
|
7.4
|
|
|||||||||
|
Tangible equity
(3)
|
8.6
|
|
8.4
|
|
8.1
|
|
7.8
|
|
7.6
|
|
|||||||||
|
Tangible common equity
(3)
|
7.5
|
|
7.5
|
|
7.2
|
|
7.1
|
|
7.0
|
|
|||||||||
For footnotes see page
12
.
13
|
Supplemental Financial Data
|
We view net interest income and related ratios and analyses on an FTE basis, which when presented on a consolidated basis, are non-GAAP financial measures. We believe managing the business with net interest income on an FTE basis provides a more accurate picture of the interest margin for comparative purposes. To derive the FTE basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use the federal statutory tax rate of 35 percent. This measure ensures comparability of net interest income arising from taxable and tax-exempt sources.
Certain performance measures including the efficiency ratio and net interest yield utilize net interest income (and thus total revenue) on an FTE basis. The efficiency ratio measures the costs expended to generate a dollar of revenue, and net interest yield measures the bps we earn over the cost of funds.
We also evaluate our business based on certain ratios that utilize tangible equity, a non-GAAP financial measure. Tangible equity represents an adjusted shareholders' equity or common shareholders' equity amount which has been reduced by goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities. These measures are used to evaluate our use of equity. In addition, profitability, relationship and investment models use both return on average tangible common shareholders' equity and return on average tangible shareholders' equity as key measures to support our overall growth goals. These ratios are as follows:
|
•
|
Return on average tangible common shareholders' equity measures our earnings contribution as a percentage of adjusted common shareholders' equity. The tangible common equity ratio represents adjusted ending common shareholders' equity divided by total assets less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities.
|
|
•
|
Return on average tangible shareholders' equity measures our earnings contribution as a percentage of adjusted average total shareholders' equity. The tangible equity ratio represents adjusted ending shareholders' equity divided by total assets less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities.
|
|
•
|
Tangible book value per common share represents adjusted ending common shareholders' equity divided by ending common shares outstanding.
|
The aforementioned supplemental data and performance measures are presented in Tables
7
and
8
.
We evaluate our business segment results based on measures that utilize average allocated capital. Return on average allocated capital is calculated as net income adjusted for cost of funds and earnings credits and certain expenses related to intangibles, divided by average allocated capital. Allocated capital and the related return both represent non-GAAP financial measures. In addition, for purposes of goodwill impairment testing, the Corporation utilizes allocated equity as a proxy for the carrying value of its reporting units. Allocated equity in the reporting units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit. For additional information, see
Business Segment Operations
on page
22
and
Note 8 – Goodwill and Intangible Assets
to the Consolidated Financial Statements
.
Tables
8
and
9
provide reconciliations of these non-GAAP financial measures to GAAP financial measures. We believe the use of these non-GAAP financial measures provides additional clarity in assessing the results of the Corporation and our segments. Other companies may define or calculate these measures and ratios differently.
|
Table 8
|
|||||||||||||||||||
|
Quarterly Supplemental Financial Data and Reconciliations to GAAP Financial Measures
|
|||||||||||||||||||
|
|
2015 Quarter
|
2014 Quarters
|
|||||||||||||||||
|
(Dollars in millions)
|
First
|
Fourth
|
Third
|
Second
|
First
|
||||||||||||||
|
Fully taxable-equivalent basis data
|
|
|
|
|
|||||||||||||||
|
Net interest income
|
$
|
9,670
|
|
$
|
9,865
|
|
$
|
10,444
|
|
$
|
10,226
|
|
$
|
10,286
|
|
||||
|
Total revenue, net of interest expense
|
21,421
|
|
18,955
|
|
21,434
|
|
21,960
|
|
22,767
|
|
|||||||||
|
Net interest yield
|
2.17
|
%
|
2.18
|
%
|
2.29
|
%
|
2.22
|
%
|
2.29
|
%
|
|||||||||
|
Efficiency ratio
|
73.27
|
|
74.90
|
|
93.97
|
|
84.43
|
|
97.68
|
|
|||||||||
14
|
Table 8
|
|||||||||||||||||||
|
Quarterly Supplemental Financial Data and Reconciliations to GAAP Financial Measures (continued)
|
|||||||||||||||||||
|
|
2015 Quarter
|
2014 Quarters
|
|||||||||||||||||
|
(Dollars in millions)
|
First
|
Fourth
|
Third
|
Second
|
First
|
||||||||||||||
|
Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis
|
|
|
|
|
|
||||||||||||||
|
Net interest income
|
$
|
9,451
|
|
$
|
9,635
|
|
$
|
10,219
|
|
$
|
10,013
|
|
$
|
10,085
|
|
||||
|
Fully taxable-equivalent adjustment
|
219
|
|
230
|
|
225
|
|
213
|
|
201
|
|
|||||||||
|
Net interest income on a fully taxable-equivalent basis
|
$
|
9,670
|
|
$
|
9,865
|
|
$
|
10,444
|
|
$
|
10,226
|
|
$
|
10,286
|
|
||||
|
Reconciliation of total revenue, net of interest expense to total revenue, net of interest expense on a fully taxable-equivalent basis
|
|
|
|
|
|
||||||||||||||
|
Total revenue, net of interest expense
|
$
|
21,202
|
|
$
|
18,725
|
|
$
|
21,209
|
|
$
|
21,747
|
|
$
|
22,566
|
|
||||
|
Fully taxable-equivalent adjustment
|
219
|
|
230
|
|
225
|
|
213
|
|
201
|
|
|||||||||
|
Total revenue, net of interest expense on a fully taxable-equivalent basis
|
$
|
21,421
|
|
$
|
18,955
|
|
$
|
21,434
|
|
$
|
21,960
|
|
$
|
22,767
|
|
||||
|
Reconciliation of income tax expense (benefit) to income tax expense (benefit) on a fully taxable-equivalent basis
|
|
|
|
|
|
||||||||||||||
|
Income tax expense (benefit)
|
$
|
1,385
|
|
$
|
1,260
|
|
$
|
663
|
|
$
|
504
|
|
$
|
(405
|
)
|
||||
|
Fully taxable-equivalent adjustment
|
219
|
|
230
|
|
225
|
|
213
|
|
201
|
|
|||||||||
|
Income tax expense (benefit) on a fully taxable-equivalent basis
|
$
|
1,604
|
|
$
|
1,490
|
|
$
|
888
|
|
$
|
717
|
|
$
|
(204
|
)
|
||||
|
Reconciliation of average common shareholders' equity to average tangible common shareholders' equity
|
|
|
|
|
|
||||||||||||||
|
Common shareholders' equity
|
$
|
225,357
|
|
$
|
224,479
|
|
$
|
222,374
|
|
$
|
222,221
|
|
$
|
223,207
|
|
||||
|
Goodwill
|
(69,776
|
)
|
(69,782
|
)
|
(69,792
|
)
|
(69,822
|
)
|
(69,842
|
)
|
|||||||||
|
Intangible assets (excluding MSRs)
|
(4,518
|
)
|
(4,747
|
)
|
(4,992
|
)
|
(5,235
|
)
|
(5,474
|
)
|
|||||||||
|
Related deferred tax liabilities
|
1,959
|
|
2,019
|
|
2,077
|
|
2,100
|
|
2,165
|
|
|||||||||
|
Tangible common shareholders' equity
|
$
|
153,022
|
|
$
|
151,969
|
|
$
|
149,667
|
|
$
|
149,264
|
|
$
|
150,056
|
|
||||
|
Reconciliation of average shareholders' equity to average tangible shareholders' equity
|
|
|
|
|
|
||||||||||||||
|
Shareholders' equity
|
$
|
245,744
|
|
$
|
243,454
|
|
$
|
238,040
|
|
$
|
235,803
|
|
$
|
236,559
|
|
||||
|
Goodwill
|
(69,776
|
)
|
(69,782
|
)
|
(69,792
|
)
|
(69,822
|
)
|
(69,842
|
)
|
|||||||||
|
Intangible assets (excluding MSRs)
|
(4,518
|
)
|
(4,747
|
)
|
(4,992
|
)
|
(5,235
|
)
|
(5,474
|
)
|
|||||||||
|
Related deferred tax liabilities
|
1,959
|
|
2,019
|
|
2,077
|
|
2,100
|
|
2,165
|
|
|||||||||
|
Tangible shareholders' equity
|
$
|
173,409
|
|
$
|
170,944
|
|
$
|
165,333
|
|
$
|
162,846
|
|
$
|
163,408
|
|
||||
|
Reconciliation of period-end common shareholders' equity to period-end tangible common shareholders' equity
|
|
|
|
|
|
||||||||||||||
|
Common shareholders' equity
|
$
|
227,915
|
|
$
|
224,162
|
|
$
|
220,768
|
|
$
|
222,565
|
|
$
|
218,536
|
|
||||
|
Goodwill
|
(69,776
|
)
|
(69,777
|
)
|
(69,784
|
)
|
(69,810
|
)
|
(69,842
|
)
|
|||||||||
|
Intangible assets (excluding MSRs)
|
(4,391
|
)
|
(4,612
|
)
|
(4,849
|
)
|
(5,099
|
)
|
(5,337
|
)
|
|||||||||
|
Related deferred tax liabilities
|
1,900
|
|
1,960
|
|
2,019
|
|
2,078
|
|
2,100
|
|
|||||||||
|
Tangible common shareholders' equity
|
$
|
155,648
|
|
$
|
151,733
|
|
$
|
148,154
|
|
$
|
149,734
|
|
$
|
145,457
|
|
||||
|
Reconciliation of period-end shareholders' equity to period-end tangible shareholders' equity
|
|
|
|
|
|
||||||||||||||
|
Shareholders' equity
|
$
|
250,188
|
|
$
|
243,471
|
|
$
|
238,681
|
|
$
|
237,411
|
|
$
|
231,888
|
|
||||
|
Goodwill
|
(69,776
|
)
|
(69,777
|
)
|
(69,784
|
)
|
(69,810
|
)
|
(69,842
|
)
|
|||||||||
|
Intangible assets (excluding MSRs)
|
(4,391
|
)
|
(4,612
|
)
|
(4,849
|
)
|
(5,099
|
)
|
(5,337
|
)
|
|||||||||
|
Related deferred tax liabilities
|
1,900
|
|
1,960
|
|
2,019
|
|
2,078
|
|
2,100
|
|
|||||||||
|
Tangible shareholders' equity
|
$
|
177,921
|
|
$
|
171,042
|
|
$
|
166,067
|
|
$
|
164,580
|
|
$
|
158,809
|
|
||||
|
Reconciliation of period-end assets to period-end tangible assets
|
|
|
|
|
|
||||||||||||||
|
Assets
|
$
|
2,143,545
|
|
$
|
2,104,534
|
|
$
|
2,123,613
|
|
$
|
2,170,557
|
|
$
|
2,149,851
|
|
||||
|
Goodwill
|
(69,776
|
)
|
(69,777
|
)
|
(69,784
|
)
|
(69,810
|
)
|
(69,842
|
)
|
|||||||||
|
Intangible assets (excluding MSRs)
|
(4,391
|
)
|
(4,612
|
)
|
(4,849
|
)
|
(5,099
|
)
|
(5,337
|
)
|
|||||||||
|
Related deferred tax liabilities
|
1,900
|
|
1,960
|
|
2,019
|
|
2,078
|
|
2,100
|
|
|||||||||
|
Tangible assets
|
$
|
2,071,278
|
|
$
|
2,032,105
|
|
$
|
2,050,999
|
|
$
|
2,097,726
|
|
$
|
2,076,772
|
|
||||
15
|
Table 9
|
|||||||
|
Segment Supplemental Financial Data Reconciliations to GAAP Financial Measures
(1)
|
|||||||
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Consumer Banking
|
|||||||
|
Reported net income
|
$
|
1,475
|
|
$
|
1,468
|
|
|
|
Adjustment related to intangibles
(2)
|
1
|
|
1
|
|
|||
|
Adjusted net income
|
$
|
1,476
|
|
$
|
1,469
|
|
|
|
Average allocated equity
(3)
|
$
|
59,348
|
|
$
|
60,417
|
|
|
|
Adjustment related to goodwill and a percentage of intangibles
|
(30,348
|
)
|
(30,417
|
)
|
|||
|
Average allocated capital
|
$
|
29,000
|
|
$
|
30,000
|
|
|
|
Deposits
|
|||||||
|
Reported net income
|
$
|
538
|
|
$
|
561
|
|
|
|
Adjustment related to intangibles
(2)
|
—
|
|
—
|
|
|||
|
Adjusted net income
|
$
|
538
|
|
$
|
561
|
|
|
|
Average allocated equity
(3)
|
$
|
30,424
|
|
$
|
29,425
|
|
|
|
Adjustment related to goodwill and a percentage of intangibles
|
(18,424
|
)
|
(18,425
|
)
|
|||
|
Average allocated capital
|
$
|
12,000
|
|
$
|
11,000
|
|
|
|
Consumer Lending
|
|||||||
|
Reported net income
|
$
|
937
|
|
$
|
907
|
|
|
|
Adjustment related to intangibles
(2)
|
1
|
|
1
|
|
|||
|
Adjusted net income
|
$
|
938
|
|
$
|
908
|
|
|
|
Average allocated equity
(3)
|
$
|
28,923
|
|
$
|
30,993
|
|
|
|
Adjustment related to goodwill and a percentage of intangibles
|
(11,923
|
)
|
(11,993
|
)
|
|||
|
Average allocated capital
|
$
|
17,000
|
|
$
|
19,000
|
|
|
|
Global Wealth & Investment Management
|
|||||||
|
Reported net income
|
$
|
651
|
|
$
|
729
|
|
|
|
Adjustment related to intangibles
(2)
|
3
|
|
3
|
|
|||
|
Adjusted net income
|
$
|
654
|
|
$
|
732
|
|
|
|
Average allocated equity
(3)
|
$
|
22,168
|
|
$
|
22,243
|
|
|
|
Adjustment related to goodwill and a percentage of intangibles
|
(10,168
|
)
|
(10,243
|
)
|
|||
|
Average allocated capital
|
$
|
12,000
|
|
$
|
12,000
|
|
|
|
Global Banking
|
|||||||
|
Reported net income
|
$
|
1,365
|
|
$
|
1,291
|
|
|
|
Adjustment related to intangibles
(2)
|
—
|
|
1
|
|
|||
|
Adjusted net income
|
$
|
1,365
|
|
$
|
1,292
|
|
|
|
Average allocated equity
(3)
|
$
|
58,944
|
|
$
|
57,453
|
|
|
|
Adjustment related to goodwill and a percentage of intangibles
|
(23,944
|
)
|
(23,953
|
)
|
|||
|
Average allocated capital
|
$
|
35,000
|
|
$
|
33,500
|
|
|
|
Global Markets
|
|||||||
|
Reported net income
|
$
|
945
|
|
$
|
1,313
|
|
|
|
Adjustment related to intangibles
(2)
|
2
|
|
2
|
|
|||
|
Adjusted net income
|
$
|
947
|
|
$
|
1,315
|
|
|
|
Average allocated equity
(3)
|
$
|
40,364
|
|
$
|
39,377
|
|
|
|
Adjustment related to goodwill and a percentage of intangibles
|
(5,364
|
)
|
(5,377
|
)
|
|||
|
Average allocated capital
|
$
|
35,000
|
|
$
|
34,000
|
|
|
|
(1)
|
There are no adjustments to reported net income (loss) or average allocated equity for
LAS
.
|
|
(2)
|
Represents cost of funds, earnings credits and certain expenses related to intangibles.
|
|
(3)
|
Average allocated equity is comprised of average allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the business segment. For more information on allocated capital, see
Business Segment Operations
on page
22
and
Note 8 – Goodwill and Intangible Assets
to the Consolidated Financial Statements
.
|
16
|
Net Interest Income Excluding Trading-related Net Interest Income
|
We manage net interest income on an FTE basis and excluding the impact of trading-related activities. As discussed in
Global Markets
on page
33
, we evaluate our sales and trading results and strategies on a total market-based revenue approach by combining net interest income and noninterest income for
Global Markets
. An analysis of net interest income, average earning assets and net interest yield on earning assets, all of which adjust for the impact of trading-related net interest income from reported net interest income on an FTE basis, is shown below. We believe the use of this non-GAAP presentation in
Table 10
provides additional clarity in assessing our results.
|
Table 10
|
|||||||
|
Net Interest Income Excluding Trading-related Net Interest Income
|
|||||||
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Net interest income (FTE basis)
|
|
|
|||||
|
As reported
|
$
|
9,670
|
|
$
|
10,286
|
|
|
|
Impact of trading-related net interest income
|
(917
|
)
|
(905
|
)
|
|||
|
Net interest income excluding trading-related net interest income
(1)
|
$
|
8,753
|
|
$
|
9,381
|
|
|
|
Average earning assets
|
|||||||
|
As reported
|
$
|
1,804,399
|
|
$
|
1,803,297
|
|
|
|
Impact of trading-related earning assets
|
(418,214
|
)
|
(442,700
|
)
|
|||
|
Average earning assets excluding trading-related earning assets
(1)
|
$
|
1,386,185
|
|
$
|
1,360,597
|
|
|
|
Net interest yield contribution (FTE basis)
(2)
|
|||||||
|
As reported
|
2.17
|
%
|
2.29
|
%
|
|||
|
Impact of trading-related activities
|
0.38
|
|
0.48
|
|
|||
|
Net interest yield on earning assets excluding trading-related activities
(1)
|
2.55
|
%
|
2.77
|
%
|
|||
|
(1)
|
Represents a non-GAAP financial measure.
|
|
(2)
|
Calculated on an annualized basis.
|
For the
three months ended March 31, 2015
, net interest income excluding trading-related net interest income
decreased
$628 million
to
$8.8 billion
compared to the
same period in 2014
. The
decrease
was due to the negative market-related adjustments, lower loan yields and consumer loan balances, and lower net interest income from the ALM portfolio. Market-related adjustments on debt securities resulted in an expense of $484 million compared to an expense of $273 million for the
same period in 2014
. Partially offsetting the decrease were reductions in funding yields, lower long-term debt balances and commercial loan growth. For more information on the impact of interest rates, see
Interest Rate Risk Management for Non-trading Activities
on page
108
.
Average earning assets excluding trading-related earning assets for the
three months ended March 31, 2015
increased
$25.6 billion
to
$1,386.2 billion
compared to the
same period in 2014
. The
increase
was primarily in debt securities and interest-bearing deposits with the Federal Reserve, partially offset by a decline in consumer loans.
For the
three months ended March 31, 2015
, net interest yield on earning assets excluding trading-related activities
decreased
22 bps
to
2.55 percent
compared to the
same period in 2014
due to the same factors as described above.
17
|
Table 11
|
|||||||||||||||||||||
|
Quarterly Average Balances and Interest Rates – FTE Basis
|
|||||||||||||||||||||
|
|
First Quarter 2015
|
Fourth Quarter 2014
|
|||||||||||||||||||
|
(Dollars in millions)
|
Average
Balance
|
Interest
Income/
Expense
|
Yield/
Rate
|
Average
Balance
|
Interest
Income/
Expense
|
Yield/
Rate
|
|||||||||||||||
|
Earning assets
|
|
|
|
|
|
|
|||||||||||||||
|
Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks
|
$
|
126,189
|
|
$
|
84
|
|
0.27
|
%
|
$
|
109,042
|
|
$
|
74
|
|
0.27
|
%
|
|||||
|
Time deposits placed and other short-term investments
|
8,379
|
|
33
|
|
1.61
|
|
9,339
|
|
41
|
|
1.73
|
|
|||||||||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
213,931
|
|
231
|
|
0.44
|
|
217,982
|
|
237
|
|
0.43
|
|
|||||||||
|
Trading account assets
|
138,946
|
|
1,122
|
|
3.26
|
|
144,147
|
|
1,142
|
|
3.15
|
|
|||||||||
|
Debt securities
|
383,120
|
|
1,898
|
|
2.01
|
|
371,014
|
|
1,687
|
|
1.82
|
|
|||||||||
|
Loans and leases
(1)
:
|
|||||||||||||||||||||
|
Residential mortgage
(2)
|
215,030
|
|
1,851
|
|
3.45
|
|
223,132
|
|
1,946
|
|
3.49
|
|
|||||||||
|
Home equity
|
84,915
|
|
770
|
|
3.66
|
|
86,825
|
|
808
|
|
3.70
|
|
|||||||||
|
U.S. credit card
|
88,695
|
|
2,027
|
|
9.27
|
|
89,381
|
|
2,087
|
|
9.26
|
|
|||||||||
|
Non-U.S. credit card
|
10,002
|
|
262
|
|
10.64
|
|
10,950
|
|
280
|
|
10.14
|
|
|||||||||
|
Direct/Indirect consumer
(3)
|
80,713
|
|
491
|
|
2.47
|
|
83,121
|
|
522
|
|
2.49
|
|
|||||||||
|
Other consumer
(4)
|
1,847
|
|
15
|
|
3.29
|
|
2,031
|
|
85
|
|
16.75
|
|
|||||||||
|
Total consumer
|
481,202
|
|
5,416
|
|
4.54
|
|
495,440
|
|
5,728
|
|
4.60
|
|
|||||||||
|
U.S. commercial
|
234,907
|
|
1,645
|
|
2.84
|
|
231,215
|
|
1,648
|
|
2.83
|
|
|||||||||
|
Commercial real estate
(5)
|
48,234
|
|
347
|
|
2.92
|
|
46,996
|
|
360
|
|
3.04
|
|
|||||||||
|
Commercial lease financing
|
24,495
|
|
216
|
|
3.53
|
|
24,238
|
|
199
|
|
3.28
|
|
|||||||||
|
Non-U.S. commercial
|
83,555
|
|
485
|
|
2.35
|
|
86,844
|
|
527
|
|
2.41
|
|
|||||||||
|
Total commercial
|
391,191
|
|
2,693
|
|
2.79
|
|
389,293
|
|
2,734
|
|
2.79
|
|
|||||||||
|
Total loans and leases
|
872,393
|
|
8,109
|
|
3.75
|
|
884,733
|
|
8,462
|
|
3.80
|
|
|||||||||
|
Other earning assets
|
61,441
|
|
705
|
|
4.66
|
|
65,864
|
|
739
|
|
4.46
|
|
|||||||||
|
Total earning assets
(6)
|
1,804,399
|
|
12,182
|
|
2.73
|
|
1,802,121
|
|
12,382
|
|
2.73
|
|
|||||||||
|
Cash and due from banks
|
27,695
|
|
27,590
|
|
|||||||||||||||||
|
Other assets, less allowance for loan and lease losses
|
306,480
|
|
307,840
|
|
|||||||||||||||||
|
Total assets
|
$
|
2,138,574
|
|
$
|
2,137,551
|
|
|||||||||||||||
|
(1)
|
Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis. PCI loans were recorded at fair value upon acquisition and accrete interest income over the remaining life of the loan.
|
|
(2)
|
Includes non-U.S. residential mortgage loans of
$2 million
in the
first
quarter of
2015
, and
$3 million
,
$3 million
,
$2 million
and
$0 million
in the
fourth
,
third
,
second
and
first
quarters of
2014
, respectively.
|
|
(3)
|
Includes non-U.S. consumer loans of
$4.0 billion
in the
first
quarter of
2015
, and
$4.2 billion
,
$4.3 billion
,
$4.4 billion
and
$4.6 billion
in the
fourth
,
third
,
second
and
first
quarters of
2014
, respectively.
|
|
(4)
|
Includes consumer finance loans of
$661 million
in the
first
quarter of
2015
, and
$907 million
,
$1.1 billion
,
$1.1 billion
and
$1.2 billion
in the
fourth
,
third
,
second
and
first
quarters of
2014
, respectively; consumer leases of
$1.0 billion
in the
first
quarter of
2015
, and
$965 million
,
$887 million
,
$762 million
and
$656 million
in the
fourth
,
third
,
second
and
first
quarters of
2014
, respectively; and consumer overdrafts of
$141 million
in the
first
quarter of
2015
, and
$156 million
,
$161 million
,
$137 million
and
$140 million
in the
fourth
,
third
,
second
and
first
quarters of
2014
, respectively.
|
|
(5)
|
Includes U.S. commercial real estate loans of
$45.6 billion
in the
first
quarter of
2015
, and
$45.1 billion
,
$45.0 billion
,
$46.7 billion
and
$47.0 billion
in the
fourth
,
third
,
second
and
first
quarters of
2014
, respectively; and non-U.S. commercial real estate loans of
$2.7 billion
in the
first
quarter of
2015
, and
$1.9 billion
,
$1.0 billion
,
$1.6 billion
and
$1.8 billion
in the
fourth
,
third
,
second
and
first
quarters of
2014
, respectively.
|
|
(6)
|
Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by
$11 million
in the
first
quarter of
2015
, and
$10 million
,
$30 million
,
$13 million
and
$5 million
in the
fourth
,
third
,
second
and
first
quarters of
2014
, respectively. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by
$582 million
in the
first
quarter of
2015
, and
$659 million
,
$602 million
,
$621 million
and
$592 million
in the
fourth
,
third
,
second
and
first
quarters of
2014
, respectively. For more information on interest rate contracts, see Interest Rate Risk Management for Non-trading Activities on page
108
.
|
18
|
Table 11
|
||||||||||||||||||||||||||||||||
|
Quarterly Average Balances and Interest Rates – FTE Basis (continued)
|
||||||||||||||||||||||||||||||||
|
|
Third Quarter 2014
|
Second Quarter 2014
|
First Quarter 2014
|
|||||||||||||||||||||||||||||
|
(Dollars in millions)
|
Average
Balance
|
Interest
Income/
Expense
|
Yield/
Rate
|
Average
Balance
|
Interest
Income/
Expense
|
Yield/
Rate
|
Average
Balance
|
Interest
Income/
Expense
|
Yield/
Rate
|
|||||||||||||||||||||||
|
Earning assets
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks
|
$
|
110,876
|
|
$
|
77
|
|
0.28
|
%
|
$
|
123,582
|
|
$
|
85
|
|
0.28
|
%
|
$
|
112,570
|
|
$
|
72
|
|
0.26
|
%
|
||||||||
|
Time deposits placed and other short-term investments
|
10,457
|
|
41
|
|
1.54
|
|
10,509
|
|
40
|
|
1.51
|
|
13,879
|
|
49
|
|
1.43
|
|
||||||||||||||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
223,978
|
|
239
|
|
0.42
|
|
235,393
|
|
298
|
|
0.51
|
|
212,504
|
|
265
|
|
0.51
|
|
||||||||||||||
|
Trading account assets
|
143,282
|
|
1,147
|
|
3.18
|
|
147,798
|
|
1,214
|
|
3.29
|
|
147,583
|
|
1,213
|
|
3.32
|
|
||||||||||||||
|
Debt securities
|
359,653
|
|
2,236
|
|
2.48
|
|
345,889
|
|
2,133
|
|
2.46
|
|
329,711
|
|
2,005
|
|
2.41
|
|
||||||||||||||
|
Loans and leases
(1)
:
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
Residential mortgage
(2)
|
235,272
|
|
2,083
|
|
3.54
|
|
243,406
|
|
2,195
|
|
3.61
|
|
247,560
|
|
2,238
|
|
3.62
|
|
||||||||||||||
|
Home equity
|
88,590
|
|
836
|
|
3.76
|
|
90,729
|
|
842
|
|
3.72
|
|
92,755
|
|
853
|
|
3.71
|
|
||||||||||||||
|
U.S. credit card
|
88,866
|
|
2,093
|
|
9.34
|
|
88,058
|
|
2,042
|
|
9.30
|
|
89,545
|
|
2,092
|
|
9.48
|
|
||||||||||||||
|
Non-U.S. credit card
|
11,784
|
|
304
|
|
10.25
|
|
11,759
|
|
308
|
|
10.51
|
|
11,554
|
|
308
|
|
10.79
|
|
||||||||||||||
|
Direct/Indirect consumer
(3)
|
82,669
|
|
523
|
|
2.51
|
|
82,102
|
|
524
|
|
2.56
|
|
81,728
|
|
530
|
|
2.63
|
|
||||||||||||||
|
Other consumer
(4)
|
2,110
|
|
19
|
|
3.44
|
|
2,011
|
|
18
|
|
3.60
|
|
1,962
|
|
18
|
|
3.66
|
|
||||||||||||||
|
Total consumer
|
509,291
|
|
5,858
|
|
4.58
|
|
518,065
|
|
5,929
|
|
4.58
|
|
525,104
|
|
6,039
|
|
4.64
|
|
||||||||||||||
|
U.S. commercial
|
230,891
|
|
1,660
|
|
2.86
|
|
230,486
|
|
1,670
|
|
2.91
|
|
228,059
|
|
1,650
|
|
2.93
|
|
||||||||||||||
|
Commercial real estate
(5)
|
46,069
|
|
347
|
|
2.98
|
|
48,315
|
|
357
|
|
2.97
|
|
48,753
|
|
368
|
|
3.06
|
|
||||||||||||||
|
Commercial lease financing
|
24,325
|
|
212
|
|
3.48
|
|
24,409
|
|
193
|
|
3.16
|
|
24,727
|
|
234
|
|
3.78
|
|
||||||||||||||
|
Non-U.S. commercial
|
88,665
|
|
555
|
|
2.48
|
|
91,305
|
|
571
|
|
2.51
|
|
92,839
|
|
544
|
|
2.37
|
|
||||||||||||||
|
Total commercial
|
389,950
|
|
2,774
|
|
2.83
|
|
394,515
|
|
2,791
|
|
2.84
|
|
394,378
|
|
2,796
|
|
2.87
|
|
||||||||||||||
|
Total loans and leases
|
899,241
|
|
8,632
|
|
3.82
|
|
912,580
|
|
8,720
|
|
3.83
|
|
919,482
|
|
8,835
|
|
3.88
|
|
||||||||||||||
|
Other earning assets
|
65,995
|
|
710
|
|
4.27
|
|
65,099
|
|
665
|
|
4.09
|
|
67,568
|
|
697
|
|
4.18
|
|
||||||||||||||
|
Total earning assets
(6)
|
1,813,482
|
|
13,082
|
|
2.87
|
|
1,840,850
|
|
13,155
|
|
2.86
|
|
1,803,297
|
|
13,136
|
|
2.94
|
|
||||||||||||||
|
Cash and due from banks
|
25,120
|
|
|
27,377
|
|
|
28,258
|
|
|
|||||||||||||||||||||||
|
Other assets, less allowance for loan and lease losses
|
297,507
|
|
|
|
301,328
|
|
|
|
307,711
|
|
|
|
||||||||||||||||||||
|
Total assets
|
$
|
2,136,109
|
|
|
|
$
|
2,169,555
|
|
|
|
|
$
|
2,139,266
|
|
|
|
||||||||||||||||
For footnotes see page
18
.
19
|
Table 11
|
|||||||||||||||||||||
|
Quarterly Average Balances and Interest Rates – FTE Basis (continued)
|
|||||||||||||||||||||
|
|
First Quarter 2015
|
Fourth Quarter 2014
|
|||||||||||||||||||
|
(Dollars in millions)
|
Average
Balance
|
Interest
Income/
Expense
|
Yield/
Rate
|
Average
Balance
|
Interest
Income/
Expense
|
Yield/
Rate
|
|||||||||||||||
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|||||||||||||||
|
U.S. interest-bearing deposits:
|
|
|
|
|
|
|
|||||||||||||||
|
Savings
|
$
|
46,224
|
|
$
|
2
|
|
0.02
|
%
|
$
|
45,621
|
|
$
|
1
|
|
0.01
|
%
|
|||||
|
NOW and money market deposit accounts
|
531,827
|
|
67
|
|
0.05
|
|
515,995
|
|
76
|
|
0.06
|
|
|||||||||
|
Consumer CDs and IRAs
|
58,704
|
|
45
|
|
0.31
|
|
61,880
|
|
52
|
|
0.33
|
|
|||||||||
|
Negotiable CDs, public funds and other deposits
|
28,796
|
|
22
|
|
0.31
|
|
30,950
|
|
22
|
|
0.29
|
|
|||||||||
|
Total U.S. interest-bearing deposits
|
665,551
|
|
136
|
|
0.08
|
|
654,446
|
|
151
|
|
0.09
|
|
|||||||||
|
Non-U.S. interest-bearing deposits:
|
|||||||||||||||||||||
|
Banks located in non-U.S. countries
|
4,544
|
|
8
|
|
0.74
|
|
5,415
|
|
9
|
|
0.63
|
|
|||||||||
|
Governments and official institutions
|
1,382
|
|
1
|
|
0.21
|
|
1,647
|
|
1
|
|
0.18
|
|
|||||||||
|
Time, savings and other
|
54,276
|
|
75
|
|
0.55
|
|
57,029
|
|
76
|
|
0.53
|
|
|||||||||
|
Total non-U.S. interest-bearing deposits
|
60,202
|
|
84
|
|
0.56
|
|
64,091
|
|
86
|
|
0.53
|
|
|||||||||
|
Total interest-bearing deposits
|
725,753
|
|
220
|
|
0.12
|
|
718,537
|
|
237
|
|
0.13
|
|
|||||||||
|
Federal funds purchased, securities loaned or sold under agreements to repurchase and short-term borrowings
|
244,134
|
|
606
|
|
1.01
|
|
251,432
|
|
615
|
|
0.97
|
|
|||||||||
|
Trading account liabilities
|
78,787
|
|
373
|
|
1.92
|
|
78,174
|
|
350
|
|
1.78
|
|
|||||||||
|
Long-term debt
|
240,127
|
|
1,313
|
|
2.20
|
|
249,221
|
|
1,315
|
|
2.10
|
|
|||||||||
|
Total interest-bearing liabilities
(6)
|
1,288,801
|
|
2,512
|
|
0.79
|
|
1,297,364
|
|
2,517
|
|
0.77
|
|
|||||||||
|
Noninterest-bearing sources:
|
|||||||||||||||||||||
|
Noninterest-bearing deposits
|
404,972
|
|
403,977
|
|
|||||||||||||||||
|
Other liabilities
|
199,057
|
|
192,756
|
|
|||||||||||||||||
|
Shareholders' equity
|
245,744
|
|
243,454
|
|
|||||||||||||||||
|
Total liabilities and shareholders' equity
|
$
|
2,138,574
|
|
$
|
2,137,551
|
|
|||||||||||||||
|
Net interest spread
|
1.94
|
%
|
1.96
|
%
|
|||||||||||||||||
|
Impact of noninterest-bearing sources
|
0.23
|
|
0.22
|
|
|||||||||||||||||
|
Net interest income/yield on earning assets
|
$
|
9,670
|
|
2.17
|
%
|
$
|
9,865
|
|
2.18
|
%
|
|||||||||||
For footnotes see page
18
.
20
|
Table 11
|
||||||||||||||||||||||||||||||||
|
Quarterly Average Balances and Interest Rates – FTE Basis (continued)
|
||||||||||||||||||||||||||||||||
|
|
Third Quarter 2014
|
Second Quarter 2014
|
First Quarter 2014
|
|||||||||||||||||||||||||||||
|
(Dollars in millions)
|
Average
Balance
|
Interest
Income/
Expense
|
Yield/
Rate
|
Average
Balance
|
Interest
Income/
Expense
|
Yield/
Rate
|
Average
Balance
|
Interest
Income/
Expense
|
Yield/
Rate
|
|||||||||||||||||||||||
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
U.S. interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
Savings
|
$
|
46,803
|
|
$
|
1
|
|
0.01
|
%
|
$
|
47,450
|
|
$
|
—
|
|
—
|
%
|
$
|
45,196
|
|
$
|
1
|
|
0.01
|
%
|
||||||||
|
NOW and money market deposit accounts
|
517,043
|
|
78
|
|
0.06
|
|
519,399
|
|
79
|
|
0.06
|
|
523,237
|
|
83
|
|
0.06
|
|
||||||||||||||
|
Consumer CDs and IRAs
|
65,579
|
|
59
|
|
0.35
|
|
68,706
|
|
70
|
|
0.41
|
|
71,140
|
|
84
|
|
0.48
|
|
||||||||||||||
|
Negotiable CDs, public funds and other deposits
|
31,806
|
|
27
|
|
0.34
|
|
33,426
|
|
30
|
|
0.35
|
|
29,826
|
|
27
|
|
0.37
|
|
||||||||||||||
|
Total U.S. interest-bearing deposits
|
661,231
|
|
165
|
|
0.10
|
|
668,981
|
|
179
|
|
0.11
|
|
669,399
|
|
195
|
|
0.12
|
|
||||||||||||||
|
Non-U.S. interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
Banks located in non-U.S. countries
|
8,022
|
|
21
|
|
1.05
|
|
10,537
|
|
15
|
|
0.56
|
|
11,071
|
|
16
|
|
0.59
|
|
||||||||||||||
|
Governments and official institutions
|
1,706
|
|
1
|
|
0.14
|
|
1,754
|
|
1
|
|
0.12
|
|
1,857
|
|
1
|
|
0.12
|
|
||||||||||||||
|
Time, savings and other
|
61,331
|
|
83
|
|
0.54
|
|
64,078
|
|
87
|
|
0.55
|
|
60,507
|
|
79
|
|
0.53
|
|
||||||||||||||
|
Total non-U.S. interest-bearing deposits
|
71,059
|
|
105
|
|
0.59
|
|
76,369
|
|
103
|
|
0.54
|
|
73,435
|
|
96
|
|
0.53
|
|
||||||||||||||
|
Total interest-bearing deposits
|
732,290
|
|
270
|
|
0.15
|
|
745,350
|
|
282
|
|
0.15
|
|
742,834
|
|
291
|
|
0.16
|
|
||||||||||||||
|
Federal funds purchased, securities loaned or sold under agreements to repurchase and short-term borrowings
|
255,111
|
|
590
|
|
0.92
|
|
271,247
|
|
765
|
|
1.13
|
|
252,972
|
|
609
|
|
0.97
|
|
||||||||||||||
|
Trading account liabilities
|
84,989
|
|
392
|
|
1.83
|
|
95,154
|
|
398
|
|
1.68
|
|
90,449
|
|
435
|
|
1.95
|
|
||||||||||||||
|
Long-term debt
|
251,772
|
|
1,386
|
|
2.19
|
|
259,825
|
|
1,484
|
|
2.29
|
|
253,678
|
|
1,515
|
|
2.41
|
|
||||||||||||||
|
Total interest-bearing liabilities
(6)
|
1,324,162
|
|
2,638
|
|
0.79
|
|
1,371,576
|
|
2,929
|
|
0.86
|
|
1,339,933
|
|
2,850
|
|
0.86
|
|
||||||||||||||
|
Noninterest-bearing sources:
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
Noninterest-bearing deposits
|
395,198
|
|
|
|
383,213
|
|
|
|
|
375,344
|
|
|
|
|||||||||||||||||||
|
Other liabilities
|
178,709
|
|
|
|
178,963
|
|
|
|
|
187,430
|
|
|
|
|||||||||||||||||||
|
Shareholders' equity
|
238,040
|
|
|
|
235,803
|
|
|
|
|
236,559
|
|
|
|
|||||||||||||||||||
|
Total liabilities and shareholders' equity
|
$
|
2,136,109
|
|
|
|
$
|
2,169,555
|
|
|
|
$
|
2,139,266
|
|
|
|
|||||||||||||||||
|
Net interest spread
|
|
|
2.08
|
%
|
|
|
2.00
|
%
|
|
|
2.08
|
%
|
||||||||||||||||||||
|
Impact of noninterest-bearing sources
|
|
|
0.21
|
|
|
|
0.22
|
|
|
|
0.21
|
|
||||||||||||||||||||
|
Net interest income/yield on earning assets
|
|
$
|
10,444
|
|
2.29
|
%
|
|
$
|
10,226
|
|
2.22
|
%
|
|
$
|
10,286
|
|
2.29
|
%
|
||||||||||||||
For footnotes see page
18
.
21
|
Business Segment Operations
|
|
Segment Description and Basis of Presentation
|
Effective January 1, 2015, to align the segments with how we manage the businesses in 2015, we changed our basis of presentation, and following such change, we report our results of operations through the following five business segments:
Consumer Banking
,
Global Wealth & Investment Management (GWIM)
,
Global Banking
,
Global Markets
and
Legacy Assets & Servicing (LAS)
, with the remaining operations recorded in
All Other
. For more information on our segment realignment, see
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements.
We prepare and evaluate segment results using certain non-GAAP financial measures. For additional information, see
Supplemental Financial Data
on page
14
.
Table 12
provides selected summary financial data for our business segments and
All Other
for the
three months ended March 31, 2015
compared to the
same period in 2014
. For additional detailed information on these results, see the business segment and
All Other
discussions which follow.
|
Table 12
|
|||||||||||||||||||||||||||||||
|
Business Segment Results
|
|||||||||||||||||||||||||||||||
|
|
Three Months Ended March 31
|
||||||||||||||||||||||||||||||
|
|
Total Revenue
(1)
|
Provision for Credit Losses
|
Noninterest Expense
|
Net Income (Loss)
|
|||||||||||||||||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||||||||||||
|
Consumer Banking
|
$
|
7,450
|
|
$
|
7,651
|
|
$
|
716
|
|
$
|
809
|
|
$
|
4,389
|
|
$
|
4,495
|
|
$
|
1,475
|
|
$
|
1,468
|
|
|||||||
|
Global Wealth & Investment Management
|
4,517
|
|
4,547
|
|
23
|
|
23
|
|
3,459
|
|
3,359
|
|
651
|
|
729
|
|
|||||||||||||||
|
Global Banking
|
4,289
|
|
4,535
|
|
96
|
|
281
|
|
2,022
|
|
2,190
|
|
1,365
|
|
1,291
|
|
|||||||||||||||
|
Global Markets
|
4,603
|
|
5,017
|
|
21
|
|
19
|
|
3,120
|
|
3,075
|
|
945
|
|
1,313
|
|
|||||||||||||||
|
Legacy Assets & Servicing
|
914
|
|
686
|
|
91
|
|
12
|
|
1,201
|
|
7,401
|
|
(238
|
)
|
(4,880
|
)
|
|||||||||||||||
|
All Other
|
(352
|
)
|
331
|
|
(182
|
)
|
(135
|
)
|
1,504
|
|
1,718
|
|
(841
|
)
|
(197
|
)
|
|||||||||||||||
|
Total FTE basis
|
21,421
|
|
22,767
|
|
765
|
|
1,009
|
|
15,695
|
|
22,238
|
|
3,357
|
|
(276
|
)
|
|||||||||||||||
|
FTE adjustment
|
(219
|
)
|
(201
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Total Consolidated
|
$
|
21,202
|
|
$
|
22,566
|
|
$
|
765
|
|
$
|
1,009
|
|
$
|
15,695
|
|
$
|
22,238
|
|
$
|
3,357
|
|
$
|
(276
|
)
|
|||||||
|
(1)
|
Total revenue is net of interest expense and is on an FTE basis which for consolidated revenue is a non-GAAP financial measure. For more information on this measure and for a corresponding reconciliation to a GAAP financial measure, see
Supplemental Financial Data
on page
14
.
|
The Corporation periodically reviews capital allocated to its businesses and allocates capital annually during the strategic and capital planning processes. We utilize a methodology that considers the effect of regulatory capital requirements in addition to internal risk-based capital models. The Corporation's internal risk-based capital models use a risk-adjusted methodology incorporating each segment's credit, market, interest rate, business and operational risk components. For more information on the nature of these risks, see
Managing Risk
on page
46
. The capital allocated to the business segments is referred to as allocated capital, which represents a non-GAAP financial measure. For purposes of goodwill impairment testing, the Corporation utilizes allocated equity as a proxy for the carrying value of its reporting units. Allocated equity in the reporting units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit. For additional information, see
Note 8 – Goodwill and Intangible Assets
to the Consolidated Financial Statements
.
During the latest annual planning process, we made refinements to the amount of capital allocated to each of our businesses based on multiple considerations that included, but were not limited to, risk-weighted assets measured under Basel 3 Standardized and Advanced approaches, business segment exposures and risk profile, and strategic plans. As a result of this process, in the first quarter of 2015, we adjusted the amount of capital being allocated to our business segments, primarily
LAS
.
For more information on the basis of presentation for business segments, including the allocation of negative market-related adjustments to net interest income, and reconciliations to consolidated total revenue, net income (loss) and period-end total assets, see
Note 18 – Business Segment Information
to the Consolidated Financial Statements
.
22
|
Consumer Banking
|
|
Three Months Ended March 31
|
||||||||||||||||||||||||||
|
Deposits
|
Consumer
Lending
|
Total Consumer Banking
|
||||||||||||||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
% Change
|
|||||||||||||||||||
|
Net interest income (FTE basis)
|
$
|
2,297
|
|
$
|
2,340
|
|
$
|
2,574
|
|
$
|
2,731
|
|
$
|
4,871
|
|
$
|
5,071
|
|
(4
|
)%
|
||||||
|
Noninterest income:
|
||||||||||||||||||||||||||
|
Card income
|
3
|
|
2
|
|
1,164
|
|
1,146
|
|
1,167
|
|
1,148
|
|
2
|
|
||||||||||||
|
Service charges
|
966
|
|
993
|
|
—
|
|
—
|
|
966
|
|
993
|
|
(3
|
)
|
||||||||||||
|
Mortgage banking income
|
—
|
|
—
|
|
288
|
|
178
|
|
288
|
|
178
|
|
62
|
|
||||||||||||
|
All other income
|
103
|
|
91
|
|
55
|
|
170
|
|
158
|
|
261
|
|
(39
|
)
|
||||||||||||
|
Total noninterest income
|
1,072
|
|
1,086
|
|
1,507
|
|
1,494
|
|
2,579
|
|
2,580
|
|
—
|
|
||||||||||||
|
Total revenue, net of interest expense (FTE basis)
|
3,369
|
|
3,426
|
|
4,081
|
|
4,225
|
|
7,450
|
|
7,651
|
|
(3
|
)
|
||||||||||||
|
Provision for credit losses
|
63
|
|
64
|
|
653
|
|
745
|
|
716
|
|
809
|
|
(11
|
)
|
||||||||||||
|
Noninterest expense
|
2,451
|
|
2,465
|
|
1,938
|
|
2,030
|
|
4,389
|
|
4,495
|
|
(2
|
)
|
||||||||||||
|
Income before income taxes (FTE basis)
|
855
|
|
897
|
|
1,490
|
|
1,450
|
|
2,345
|
|
2,347
|
|
—
|
|
||||||||||||
|
Income tax expense (FTE basis)
|
317
|
|
336
|
|
553
|
|
543
|
|
870
|
|
879
|
|
(1
|
)
|
||||||||||||
|
Net income
|
$
|
538
|
|
$
|
561
|
|
$
|
937
|
|
$
|
907
|
|
$
|
1,475
|
|
$
|
1,468
|
|
—
|
|
||||||
|
Net interest yield (FTE basis)
|
1.74
|
%
|
1.87
|
%
|
5.32
|
%
|
5.72
|
%
|
3.54
|
%
|
3.85
|
%
|
||||||||||||||
|
Return on average allocated capital
|
18
|
|
21
|
|
22
|
|
19
|
|
21
|
|
20
|
|
||||||||||||||
|
Efficiency ratio (FTE basis)
|
72.76
|
|
71.97
|
|
47.49
|
|
48.05
|
|
58.92
|
|
58.76
|
|
||||||||||||||
|
Balance Sheet
|
||||||||||||||||||||||||||
|
Three Months Ended March 31
|
||||||||||||||||||||||||||
|
Average
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
% Change
|
|||||||||||||||||||
|
Total loans and leases
|
$
|
5,879
|
|
$
|
6,092
|
|
$
|
193,702
|
|
$
|
190,333
|
|
$
|
199,581
|
|
$
|
196,425
|
|
2
|
%
|
||||||
|
Total earning assets
(1)
|
535,555
|
|
508,332
|
|
196,044
|
|
193,671
|
|
558,833
|
|
533,751
|
|
5
|
|
||||||||||||
|
Total assets
(1)
|
562,314
|
|
535,023
|
|
205,368
|
|
202,879
|
|
594,916
|
|
569,650
|
|
4
|
|
||||||||||||
|
Total deposits
|
530,289
|
|
504,065
|
|
n/m
|
|
n/m
|
|
531,365
|
|
504,849
|
|
5
|
|
||||||||||||
|
Allocated capital
|
12,000
|
|
11,000
|
|
17,000
|
|
19,000
|
|
29,000
|
|
30,000
|
|
(3
|
)
|
||||||||||||
|
Period end
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
% Change
|
|||||||||||||||||||
|
Total loans and leases
|
$
|
5,824
|
|
$
|
5,951
|
|
$
|
194,329
|
|
$
|
196,049
|
|
$
|
200,153
|
|
$
|
202,000
|
|
(1
|
)%
|
||||||
|
Total earning assets
(1)
|
553,574
|
|
527,045
|
|
197,738
|
|
199,097
|
|
576,868
|
|
552,117
|
|
4
|
|
||||||||||||
|
Total assets
(1)
|
580,337
|
|
554,344
|
|
207,237
|
|
208,729
|
|
613,130
|
|
589,048
|
|
4
|
|
||||||||||||
|
Total deposits
|
548,303
|
|
523,348
|
|
n/m
|
|
n/m
|
|
549,489
|
|
524,413
|
|
5
|
|
||||||||||||
|
(1)
|
In segments and businesses where the total of liabilities and equity exceeds assets, we allocate assets from
All Other
to match the segments' and businesses' liabilities and allocated shareholders' equity. As a result, total earning assets and total assets of the businesses may not equal total
Consumer Banking
.
|
n/m = not meaningful
Consumer Banking,
which is comprised of Deposits and Consumer Lending,
offers a diversified range of credit, banking and investment products and services to consumers and small businesses.
Our customers and clients
have access to a franchise network that stretches coast to coast through
32
states and the District of Columbia.
The franchise network includes approximately
4,800
financial centers,
15,900
ATMs, nationwide call centers, and online and mobile platforms.
Consumer Banking
Results
Net income for
Consumer Banking
of
$1.5 billion
remained relatively unchanged in the
three months ended March 31, 2015
compared to the
same period in 2014
as lower noninterest expense and lower provision for credit losses were offset by lower net interest income. Net interest income
decreased
$200 million
to
$4.9 billion
primarily due to the allocation of negative market-related adjustments, lower card yields and card loan balances, partially offset by the beneficial impact of an increase in investable assets as a result of higher deposit balances. Noninterest income of
$2.6 billion
remained relatively unchanged as higher mortgage banking income and card income offset lower service charges and other income which included a portfolio divestiture gain in 2014.
23
The provision for credit losses
decreased
$93 million
to
$716 million
primarily as a result of continued improvement in credit quality within the credit card portfolio, partially offset by a slower pace of credit quality improvement within the consumer real estate portfolio. Noninterest expense
decreased
$106 million
to
$4.4 billion
primarily driven by lower personnel and operating expenses.
The return on average allocated capital was
21 percent
, up from
20 percent
, reflecting a small decrease in allocated capital. For more information on capital allocated to the business segments, see
Business Segment Operations
on page
22
.
Deposits
Deposits includes the results of consumer deposit activities which consist of a comprehensive range of products provided to consumers and small businesses. Our deposit products include
traditional savings accounts, money market savings accounts, CDs and IRAs, noninterest- and interest-bearing checking accounts,
as well as
investment accounts and products
. The revenue is allocated to the deposit products using our funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Deposits generates fees such as account service fees, non-sufficient funds fees, overdraft charges and ATM fees, as well as investment and brokerage fees from Merrill Edge accounts. Merrill Edge is an integrated investing and banking service targeted at customers with less than $250,000 in investable assets. Merrill Edge provides investment advice and guidance, client brokerage asset services, a self-directed online investing platform and key banking capabilities including access to the Corporation's network of financial centers and ATMs.
Deposits includes the net impact of migrating customers and their related deposit balances between Deposits and
GWIM
as well as other client-managed businesses. For more information on the migration of customer balances to or from
GWIM
, see
GWIM
on page
27
.
Net income for Deposits
decreased
$23 million
to
$538 million
in the
three months ended March 31, 2015
compared to the
same period in 2014
driven by lower revenue, partially offset by lower noninterest expense. Net interest income
declined
$43 million
to
$2.3 billion
due to the allocation of negative market-related adjustments, partially offset by the beneficial impact of an increase in investable assets as a result of higher deposit balances. Noninterest income
decreased
$14 million
to
$1.1 billion
primarily due to lower deposit service charges.
The provision for credit losses of
$63 million
remained relatively unchanged. Noninterest expense
decreased
$14 million
to
$2.5 billion
due to lower operating expenses.
Average deposits
increased
$26.2 billion
to
$530.3 billion
driven by a continuing customer shift to more liquid products in the low rate environment. Growth in checking, traditional savings and money market savings of $37.1 billion was partially offset by a decline in time deposits of $10.9 billion. As a result of our continued pricing discipline and the shift in the mix of deposits, the rate paid on average deposits
declined
by
two bps
to
five bps
.
|
Key Statistics
–
Deposits
|
||||||||
|
Three Months Ended
March 31 |
||||||||
|
2015
|
2014
|
|||||||
|
Total deposit spreads (excludes noninterest costs)
|
1.62
|
%
|
1.57
|
%
|
||||
|
Period end
|
||||||||
|
Client brokerage assets (in millions)
|
$
|
118,492
|
|
$
|
100,206
|
|
||
|
Online banking active accounts (units in thousands)
|
31,479
|
|
30,470
|
|
||||
|
Mobile banking active accounts (units in thousands)
|
16,943
|
|
14,986
|
|
||||
|
Financial centers
|
4,835
|
|
5,095
|
|
||||
|
ATMs
|
15,915
|
|
16,214
|
|
||||
Client brokerage assets
increased
$18.3 billion
driven by new accounts, increased account flows and higher market valuations. Mobile banking active accounts
increased
2.0 million
reflecting continuing changes in our customers' banking preferences. The number of financial centers
declined
260
and ATMs
declined
299
as we continue to optimize our consumer banking network and improve our cost-to-serve.
24
Consumer Lending
Consumer Lending offers products to consumers and small businesses across the U.S. The products offered include
credit and debit cards, residential mortgages and home equity loans, and direct and indirect loans
such as automotive, marine, aircraft, recreational vehicle and consumer personal loans. In addition to earning net interest spread revenue on its lending activities, Consumer Lending generates interchange revenue from credit and debit card transactions, late fees, cash advance fees, annual credit card fees, mortgage banking fee income and other miscellaneous fees. Consumer Lending products are available to our customers through our retail network, direct telephone, and online and mobile channels.
Consumer Lending includes the net impact of migrating customers and their related loan balances between Consumer Lending and
GWIM
. For more information on the migration of customer balances to or from
GWIM
, see
GWIM
on page
27
.
Net income for Consumer Lending
increased
$30 million
to
$937 million
in the
three months ended March 31, 2015
compared to the
same period in 2014
primarily due to lower provision for credit losses and noninterest expense, partially offset by lower net interest income. Net interest income
decreased
$157 million
to
$2.6 billion
driven by the impact of lower card yields and lower average card loan balances. Noninterest income of
$1.5 billion
remained relatively unchanged as mortgage banking income and card income increased while the prior-year period included a portfolio divestiture gain.
The provision for credit losses
decreased
$92 million
to
$653 million
driven by continued improvement in credit quality within the credit card portfolio, partially offset by a slower pace of credit quality improvement within the consumer real estate portfolio. Noninterest expense
decreased
$92 million
to
$1.9 billion
primarily driven by lower personnel expense.
Average loans
increased
$3.4 billion
to
$193.7 billion
primarily driven by an increase in residential mortgages, partially offset by lower home equity loans and continued run-off of non-core portfolios. Beginning with new originations in 2014, we retain certain residential mortgages in
Consumer Banking
, consistent with where the overall relationship is managed; previously such mortgages were in
All Other
.
|
Key Statistics
–
Consumer Lending
|
||||||||
|
Three Months Ended
March 31 |
||||||||
|
(Dollars in millions)
|
2015
|
2014
|
||||||
|
Total U.S. credit card
(1)
|
||||||||
|
Gross interest yield
|
9.27
|
%
|
9.48
|
%
|
||||
|
Risk-adjusted margin
|
9.05
|
|
9.49
|
|
||||
|
New accounts (in thousands)
|
1,161
|
|
1,027
|
|
||||
|
Purchase volumes
|
$
|
50,178
|
|
$
|
48,863
|
|
||
|
Debit card purchase volumes
|
$
|
66,898
|
|
$
|
65,890
|
|
||
|
(1)
|
Total U.S. credit card includes portfolios in
Consumer Banking
and
GWIM
.
|
During the
three months ended March 31, 2015
, the total U.S. credit card risk-adjusted margin
decreased
44
bps compared to the
same period in 2014
due to a portfolio divestiture gain in 2014 and a decrease in net interest margin, partially offset by an improvement in credit quality. Total U.S. credit card purchase volumes
increased
$1.3 billion
to
$50.2 billion
and debit card purchase volumes
increased
$1.0 billion
to
$66.9 billion
, reflecting higher levels of consumer spending.
|
Mortgage Banking Income
|
Mortgage banking income is earned primarily in
Consumer Banking
and
LAS
. Mortgage banking income in Consumer Lending consists mainly of core production income, which is comprised primarily of revenue from the fair value gains and losses recognized on our interest rate lock commitments (IRLCs) and loans held-for-sale (LHFS), the related secondary market execution, and costs related to representations and warranties in the sales transactions along with other obligations incurred in the sales of mortgage loans.
25
The table below summarizes the components of mortgage banking income.
|
Mortgage Banking Income
|
|||||||
|
Three Months Ended
March 31 |
|||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Consumer Lending:
|
|||||||
|
Core production revenue
|
$
|
300
|
|
$
|
189
|
|
|
|
Representations and warranties provision
|
6
|
|
7
|
|
|||
|
Other consumer mortgage banking income
(1)
|
(18
|
)
|
(18
|
)
|
|||
|
Total Consumer Lending mortgage banking income
|
288
|
|
178
|
|
|||
|
LAS
mortgage banking income
(2)
|
461
|
|
291
|
|
|||
|
Eliminations
(3)
|
(55
|
)
|
(57
|
)
|
|||
|
Total consolidated mortgage banking income
|
$
|
694
|
|
$
|
412
|
|
|
|
(1)
|
Primarily intercompany charge for loan servicing activities provided by
LAS
.
|
|
(2)
|
Amounts for
LAS
are included in this
Consumer Banking
table to show the components of consolidated mortgage banking income.
|
|
(3)
|
Includes the effect of transfers of mortgage loans from
Consumer Banking
to the ALM portfolio included in
All Other
and intercompany charges for loan servicing.
|
Core production revenue
increased
$111 million
to
$300 million
due to higher first mortgage origination volumes, and to a lesser extent, an industry-wide increase in margins.
|
Key Statistics
|
|||||||
|
Three Months Ended
March 31 |
|||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Loan production
(1)
:
|
|||||||
|
Total
(2)
|
|||||||
|
First mortgage
|
$
|
13,713
|
|
$
|
8,850
|
|
|
|
Home equity
|
3,217
|
|
1,984
|
|
|||
|
Consumer Banking:
|
|||||||
|
First mortgage
|
$
|
9,854
|
|
$
|
6,702
|
|
|
|
Home equity
|
3,017
|
|
1,791
|
|
|||
|
(1)
|
The above loan production amounts represent the unpaid principal balance of loans and in the case of home equity, the principal amount of the total line of credit.
|
|
(2)
|
In addition to loan production in
Consumer Banking
, there is also first mortgage and home equity loan production in
GWIM
.
|
First mortgage loan originations in
Consumer Banking
and for the total Corporation increased for the
three months ended March 31, 2015
compared to the
same period in 2014
reflecting growth in the overall mortgage market as lower interest rates beginning in late 2014 drove an increase in refinances.
During the
three months ended March 31, 2015
, 73 percent of the total Corporation first mortgage production volume was for refinance originations and 27 percent was for purchase originations compared to 66 percent and 34 percent for the
same period in 2014
. Home Affordable Refinance Program (HARP) refinance originations were three percent of all refinance originations compared to nine percent for the
same period in 2014
. Making Home Affordable non-HARP refinance originations were 10 percent of all refinance originations compared to 22 percent for the
same period in 2014
. The remaining 87 percent of refinance originations were conventional refinances compared to 69 percent for the
same period in 2014
.
Home equity production for the total Corporation was
$3.2 billion
for the
three months ended March 31, 2015
compared to
$2.0 billion
for the
same period in 2014
, with the
increase
due to a higher demand in the market based on improving housing trends, and increased market share driven by improved financial center engagement with customers and more competitive pricing.
26
|
Global Wealth & Investment Management
|
|
|
Three Months Ended March 31
|
|
||||||||
|
(Dollars in millions)
|
2015
|
2014
|
% Change
|
|||||||
|
Net interest income (FTE basis)
|
$
|
1,351
|
|
$
|
1,485
|
|
(9
|
)%
|
||
|
Noninterest income:
|
||||||||||
|
Investment and brokerage services
|
2,723
|
|
2,604
|
|
5
|
|
||||
|
All other income
|
443
|
|
458
|
|
(3
|
)
|
||||
|
Total noninterest income
|
3,166
|
|
3,062
|
|
3
|
|
||||
|
Total revenue, net of interest expense (FTE basis)
|
4,517
|
|
4,547
|
|
(1
|
)
|
||||
|
Provision for credit losses
|
23
|
|
23
|
|
—
|
|
||||
|
Noninterest expense
|
3,459
|
|
3,359
|
|
3
|
|
||||
|
Income before income taxes (FTE basis)
|
1,035
|
|
1,165
|
|
(11
|
)
|
||||
|
Income tax expense (FTE basis)
|
384
|
|
436
|
|
(12
|
)
|
||||
|
Net income
|
$
|
651
|
|
$
|
729
|
|
(11
|
)
|
||
|
Net interest yield (FTE basis)
|
2.13
|
%
|
2.40
|
%
|
|
|||||
|
Return on average allocated capital
|
22
|
|
25
|
|
|
|||||
|
Efficiency ratio (FTE basis)
|
76.57
|
|
73.86
|
|
|
|||||
|
Balance Sheet
|
||||||||||
|
Three Months Ended March 31
|
||||||||||
|
Average
|
2015
|
2014
|
% Change
|
|||||||
|
Total loans and leases
|
$
|
126,129
|
|
$
|
115,945
|
|
9
|
%
|
||
|
Total earning assets
|
257,625
|
|
250,732
|
|
3
|
|
||||
|
Total assets
|
275,130
|
|
270,275
|
|
2
|
|
||||
|
Total deposits
|
243,561
|
|
242,792
|
|
—
|
|
||||
|
Allocated capital
|
12,000
|
|
12,000
|
|
—
|
|
||||
|
|
|
|||||||||
|
Period end
|
March 31
2015 |
December 31
2014 |
% Change
|
|||||||
|
Total loans and leases
|
$
|
127,556
|
|
$
|
125,431
|
|
2
|
%
|
||
|
Total earning assets
|
255,840
|
|
256,519
|
|
—
|
|
||||
|
Total assets
|
272,777
|
|
274,887
|
|
(1
|
)
|
||||
|
Total deposits
|
244,080
|
|
245,391
|
|
(1
|
)
|
||||
GWIM
consists of two primary businesses: Merrill Lynch Global Wealth Management (MLGWM)
and U.S. Trust, Bank of America Private Wealth Management (U.S. Trust).
MLGWM's advisory business
provides a high-touch client experience through a network of financial advisors focused on clients with over $250,000 in total investable assets
. MLGWM provides
tailored solutions to meet
our
clients' needs through a full set of brokerage, banking and retirement products.
U.S. Trust, together with MLGWM's Private Banking & Investments Group,
provides comprehensive wealth management solutions targeted to high net worth and ultra high net worth clients, as well as customized solutions to meet clients' wealth structuring, investment management, trust and banking needs, including specialty asset management services.
Net income for
GWIM
decreased
$78 million
to
$651 million
in the
three months ended March 31, 2015
compared to the
same period in 2014
driven by a decline in net interest income and an increase in noninterest expense, partially offset by higher noninterest income. Net interest income
decreased
$134 million
to
$1.4 billion
due to the allocation of negative market-related adjustments and other ALM results, partially offset by higher net interest income from loan growth. Noninterest income, primarily investment and brokerage services,
increased
$
104 million
to $
3.2 billion
driven by increased asset management fees due to the impact of long-term AUM flows and higher
27
market levels, partially offset by lower transactional revenue. Noninterest expense
increased
$100 million
to
$3.5 billion
primarily due to higher revenue-related incentive compensation and investment in client-facing professionals.
Return on average allocated capital was
22 percent
,
down
from
25 percent
, due to a decrease in net income. For more information on capital allocated to the business segments, see
Business Segment Operations
on page
22
.
|
Key Indicators and Metrics
|
|||||||
|
Three Months Ended March 31
|
|||||||
|
(Dollars in millions, except as noted)
|
2015
|
2014
|
|||||
|
Revenue by Business
|
|||||||
|
Merrill Lynch Global Wealth Management
|
$
|
3,748
|
|
$
|
3,764
|
|
|
|
U.S. Trust
|
751
|
|
768
|
|
|||
|
Other
(1)
|
18
|
|
15
|
|
|||
|
Total revenue, net of interest expense (FTE basis)
|
$
|
4,517
|
|
$
|
4,547
|
|
|
|
Client Balances by Business
|
|||||||
|
Merrill Lynch Global Wealth Management
|
$
|
2,043,447
|
|
$
|
1,946,922
|
|
|
|
U.S. Trust
|
391,105
|
|
378,177
|
|
|||
|
Other
(1)
|
75,295
|
|
70,720
|
|
|||
|
Client Balances by Type
|
|||||||
|
Assets under management
|
$
|
917,257
|
|
$
|
841,818
|
|
|
|
Brokerage assets
|
1,076,277
|
|
1,054,052
|
|
|||
|
Assets in custody
|
141,273
|
|
136,342
|
|
|||
|
Deposits
|
244,080
|
|
244,051
|
|
|||
|
Loans and leases
(2)
|
130,960
|
|
119,556
|
|
|||
|
Total client balances
|
$
|
2,509,847
|
|
$
|
2,395,819
|
|
|
|
Assets Under Management Flows
|
|||||||
|
Liquidity assets under management
(3)
|
$
|
(1,493
|
)
|
$
|
(2,429
|
)
|
|
|
Long-term assets under management
(4)
|
14,654
|
|
17,382
|
|
|||
|
Total assets under management flows
|
$
|
13,161
|
|
$
|
14,953
|
|
|
|
Associates
(5)
|
|||||||
|
Number of Financial Advisors
|
16,175
|
|
15,323
|
|
|||
|
Total Wealth Advisors
|
17,508
|
|
16,481
|
|
|||
|
Total Client-Facing Professionals
|
20,018
|
|
19,199
|
|
|||
|
Merrill Lynch Global Wealth Management Metrics
|
|||||||
|
Financial Advisor Productivity
(6)
(in thousands)
|
$
|
1,041
|
|
$
|
1,056
|
|
|
|
U.S. Trust Metrics
|
|||||||
|
Client-Facing Professionals
|
2,157
|
|
2,117
|
|
|||
|
(1)
|
Includes the results of BofA Global Capital Management and certain administrative items.
|
|
(2)
|
Includes margin receivables which are classified in customer and other receivables on the Consolidated Balance Sheet.
|
|
(3)
|
Defined as assets under advisory and discretion of
GWIM
in which the investment strategy seeks a high level of income while maintaining liquidity and capital preservation. The duration of these strategies is primarily less than one year.
|
|
(4)
|
Defined as assets under advisory and discretion of
GWIM
in which the duration of the investment strategy is longer than one year.
|
|
(5)
|
Includes Financial Advisors in the
Consumer Banking
segment of
1,992
and
1,598
at March 31, 2015 and 2014.
|
|
(6)
|
Financial Advisor Productivity is defined as annualized Merrill Lynch Global Wealth Management total revenue divided by the total number of Financial Advisors (excluding Financial Advisors in the
Consumer Banking
segment). Total revenue excludes corporate allocation of net interest income related to certain ALM activities.
|
28
Revenue from MLGWM of
$3.7 billion
remained relatively unchanged as higher net interest income from loan growth was more than offset by the allocation of negative market-related adjustments and other ALM results. Additionally, increased asset management fees due to the impact of long-term AUM flows and higher market levels were partially offset by lower transactional revenue. Revenue from U.S. Trust of
$751 million
decreased
two percent
driven by the allocation of negative market-related adjustments and other ALM results, partially offset by increased asset management fees due to the impact of higher market levels and long-term AUM flows.
Client balances increased
$114 billion
, or
five percent
, to over
$2.5 trillion
as a result of higher market levels and AUM and loan flows.
The number of client-facing professionals
increased
four
percent due to increases in Merrill Edge financial solutions advisors, financial advisor development program participants and experienced financial advisors.
|
Net Migration Summary
|
GWIM
results are impacted by the net migration of clients and their corresponding deposit, loan and brokerage balances primarily to or from
Consumer Banking
, as presented in the table below. Migrations result from the movement of clients between business segments to better align with client needs.
|
Net Migration Summary
|
|||||||
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Total deposits, net – (from) to
GWIM
|
$
|
(483
|
)
|
$
|
1,144
|
|
|
|
Total loans, net – (from) to
GWIM
|
(26
|
)
|
(1
|
)
|
|||
|
Total brokerage, net – (from) to
GWIM
|
(582
|
)
|
(191
|
)
|
|||
29
|
Global Banking
|
|||||||||||
|
|
Three Months Ended March 31
|
|||||||||
|
(Dollars in millions)
|
2015
|
2014
|
% Change
|
|||||||
|
Net interest income (FTE basis)
|
$
|
2,265
|
|
$
|
2,507
|
|
(10
|
)%
|
||
|
Noninterest income:
|
||||||||||
|
Service charges
|
710
|
|
733
|
|
(3
|
)
|
||||
|
Investment banking fees
|
852
|
|
822
|
|
4
|
|
||||
|
All other income
|
462
|
|
473
|
|
(2
|
)
|
||||
|
Total noninterest income
|
2,024
|
|
2,028
|
|
—
|
|
||||
|
Total revenue, net of interest expense (FTE basis)
|
4,289
|
|
4,535
|
|
(5
|
)
|
||||
|
Provision for credit losses
|
96
|
|
281
|
|
(66
|
)
|
||||
|
Noninterest expense
|
2,022
|
|
2,190
|
|
(8
|
)
|
||||
|
Income before income taxes (FTE basis)
|
2,171
|
|
2,064
|
|
5
|
|
||||
|
Income tax expense (FTE basis)
|
806
|
|
773
|
|
4
|
|
||||
|
Net income
|
$
|
1,365
|
|
$
|
1,291
|
|
6
|
|
||
|
Net interest yield (FTE basis)
|
2.87
|
%
|
3.23
|
%
|
||||||
|
Return on average allocated capital
|
16
|
|
16
|
|
||||||
|
Efficiency ratio (FTE basis)
|
47.15
|
|
48.30
|
|
||||||
|
Balance Sheet
|
||||||||||
|
Three Months Ended March 31
|
||||||||||
|
Average
|
2015
|
2014
|
% Change
|
|||||||
|
Total loans and leases
|
$
|
289,524
|
|
$
|
287,920
|
|
1
|
%
|
||
|
Total earning assets
|
320,443
|
|
314,685
|
|
2
|
|
||||
|
Total assets
|
365,355
|
|
362,264
|
|
1
|
|
||||
|
Total deposits
|
289,935
|
|
285,594
|
|
2
|
|
||||
|
Allocated capital
|
35,000
|
|
33,500
|
|
4
|
|
||||
|
|
||||||||||
|
Period end
|
March 31
2015 |
December 31
2014 |
% Change
|
|||||||
|
Total loans and leases
|
$
|
295,653
|
|
$
|
288,905
|
|
2
|
%
|
||
|
Total earning assets
|
322,242
|
|
311,782
|
|
3
|
|
||||
|
Total assets
|
368,595
|
|
357,081
|
|
3
|
|
||||
|
Total deposits
|
293,846
|
|
283,191
|
|
4
|
|
||||
Global Banking
, which includes Global Corporate Banking, Global Commercial Banking, Business Banking and Global Investment Banking,
provides a wide range of lending-related products and services, integrated working capital management and treasury solutions to clients, and underwriting and advisory services through
our network
of offices and client relationship teams.
Our
lending products and services include commercial loans, leases, commitment facilities, trade finance, real estate lending and asset-based lending.
Our
treasury solutions business includes treasury management, foreign exchange and short-term investing options.
We also provide investment banking products to our clients such as
debt and equity underwriting and distribution, and merger-related and other advisory services.
Underwriting debt and equity issuances, fixed-income and equity research, and certain market-based activities are executed through
our global broker-dealer affiliates which are our primary dealers in several countries. Within
Global Banking
, Global Commercial Banking clients
generally include middle-market companies, commercial real estate firms, auto dealerships
and
not-for-profit companies
. Global Corporate Banking clients generally include
large global corporations, financial institutions
and
leasing clients
. Business Banking clients include
mid-sized U.S.-based businesses requiring customized and integrated financial advice and solutions
.
Net income for
Global Banking
increased
$74 million
to
$1.4 billion
for the
three months ended March 31, 2015
compared to the
same period in 2014
primarily driven by a reduction in the provision for credit losses and
lower
noninterest expense, partially offset by lower revenue.
30
Revenue
decreased
$246 million
to
$4.3 billion
for the
three months ended March 31, 2015
compared to the
same period in 2014
primarily due to
lower
net interest income. The decline in net interest income reflects the allocation of negative market-related adjustments and costs for maintaining High Quality Liquid Assets (HQLA) under the Liquidity Coverage Ratio (LCR) requirements, and loan spread compression. Noninterest income remained relatively unchanged as
higher
investment banking fees were offset by a gain on sale of an equity investment in the prior-year period.
The provision for credit losses
decreased
$185 million
to
$96 million
, primarily in the U.S. commercial portfolio. Noninterest expense
decreased
$168 million
to
$2.0 billion
primarily due to lower technology initiative costs, litigation expense and incentive compensation expense.
Return on average allocated capital of
16 percent
remained relatively unchanged as growth in earnings was offset by
increased
capital allocations. For more information on capital allocated to the business segments, see
Business Segment Operations
on page
22
.
|
Global Corporate, Global Commercial and Business Banking
|
Global Corporate, Global Commercial and Business Banking each include Business Lending and Global Transaction Services (formerly Global Treasury Services) activities. Business Lending includes various lending-related products and services, and related hedging activities, including commercial loans, leases, commitment facilities, trade finance, real estate lending and asset-based lending. Global Transaction Services includes deposits, treasury management, credit card, foreign exchange, and short-term investment and custody solutions. The table below presents a summary of the results, which exclude certain capital markets activity in
Global Banking
.
|
Global Corporate, Global Commercial and Business Banking
|
|||||||||||||||||||||||||||||||
|
Three Months Ended March 31
|
|||||||||||||||||||||||||||||||
|
Global Corporate Banking
|
Global Commercial Banking
|
Business Banking
|
Total
|
||||||||||||||||||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||||||||||||
|
Revenue
|
|||||||||||||||||||||||||||||||
|
Business Lending
|
$
|
889
|
|
$
|
912
|
|
$
|
912
|
|
$
|
1,011
|
|
$
|
87
|
|
$
|
89
|
|
$
|
1,888
|
|
$
|
2,012
|
|
|||||||
|
Global Transaction Services
|
667
|
|
736
|
|
655
|
|
733
|
|
165
|
|
177
|
|
1,487
|
|
1,646
|
|
|||||||||||||||
|
Total revenue, net of interest expense
|
$
|
1,556
|
|
$
|
1,648
|
|
$
|
1,567
|
|
$
|
1,744
|
|
$
|
252
|
|
$
|
266
|
|
$
|
3,375
|
|
$
|
3,658
|
|
|||||||
|
Balance Sheet
|
|||||||||||||||||||||||||||||||
|
Average
|
|||||||||||||||||||||||||||||||
|
Total loans and leases
|
$
|
131,315
|
|
$
|
131,209
|
|
$
|
141,772
|
|
$
|
140,258
|
|
$
|
16,432
|
|
$
|
16,445
|
|
$
|
289,519
|
|
$
|
287,912
|
|
|||||||
|
Total deposits
|
136,522
|
|
140,456
|
|
121,527
|
|
115,975
|
|
31,888
|
|
29,165
|
|
289,937
|
|
285,596
|
|
|||||||||||||||
|
Period end
|
|||||||||||||||||||||||||||||||
|
Total loans and leases
|
$
|
134,464
|
|
$
|
131,522
|
|
$
|
144,654
|
|
$
|
141,709
|
|
$
|
16,539
|
|
$
|
16,406
|
|
$
|
295,657
|
|
$
|
289,637
|
|
|||||||
|
Total deposits
|
138,914
|
|
143,510
|
|
122,135
|
|
113,797
|
|
32,801
|
|
28,981
|
|
293,850
|
|
286,288
|
|
|||||||||||||||
Business Lending revenue
declined
$124 million
for the
three months ended March 31, 2015
compared to the
same period in 2014
due to the allocation of negative market-related adjustments, loan spread compression and a gain on sale of an equity investment in Global Commercial Banking in the prior-year period.
Global Transaction Services revenue
decreased
$159 million
for the
three months ended March 31, 2015
compared to the
same period in 2014
primarily due to the allocation of negative market-related adjustments and costs for maintaining HQLA under the LCR requirements.
Average loans and leases remained relatively unchanged for the
three months ended March 31, 2015
compared to the
same period in 2014
as growth in the commercial and industrial portfolio was offset by a decline in the commercial real estate portfolio. Average deposits remained relatively unchanged for the
three months ended March 31, 2015
compared to the
same period in 2014
.
31
|
Global Investment Banking
|
Client teams and product specialists underwrite and distribute debt, equity and loan products, and provide advisory services and tailored risk management solutions. The economics of most investment banking and underwriting activities are shared primarily between
Global Banking
and
Global Markets
based on the activities performed by each segment. To provide a complete discussion of our consolidated investment banking fees, the table below presents total Corporation investment banking fees including the portion attributable to
Global Banking.
|
Investment Banking Fees
|
|||||||||||||||
|
Three Months Ended March 31
|
|||||||||||||||
|
Global Banking
|
Total Corporation
|
||||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
2015
|
2014
|
|||||||||||
|
Products
|
|||||||||||||||
|
Advisory
|
$
|
387
|
|
$
|
257
|
|
$
|
428
|
|
$
|
286
|
|
|||
|
Debt issuance
|
335
|
|
447
|
|
781
|
|
1,025
|
|
|||||||
|
Equity issuance
|
130
|
|
118
|
|
345
|
|
313
|
|
|||||||
|
Gross investment banking fees
|
852
|
|
822
|
|
1,554
|
|
1,624
|
|
|||||||
|
Self-led deals
|
(22
|
)
|
(35
|
)
|
(67
|
)
|
(82
|
)
|
|||||||
|
Total investment banking fees
|
$
|
830
|
|
$
|
787
|
|
$
|
1,487
|
|
$
|
1,542
|
|
|||
Total Corporation investment banking fees of
$1.5 billion
, excluding self-led deals, included within
Global Banking
and
Global Markets
decreased
four percent
for the
three months ended March 31, 2015
compared to the
same period in 2014
as strong advisory and equity underwriting fees were offset by lower underwriting fees for debt products primarily as a result of regulatory guidance implemented during 2014, which limits the types of leveraged finance transactions that are permitted.
32
|
Global Markets
|
|
|
Three Months Ended March 31
|
|||||||||
|
(Dollars in millions)
|
2015
|
2014
|
% Change
|
|||||||
|
Net interest income (FTE basis)
|
$
|
1,004
|
|
$
|
1,002
|
|
—
|
|
||
|
Noninterest income:
|
||||||||||
|
Investment and brokerage services
|
562
|
|
561
|
|
—
|
|
||||
|
Investment banking fees
|
630
|
|
736
|
|
(14
|
)%
|
||||
|
Trading account profits
|
2,127
|
|
2,367
|
|
(10
|
)
|
||||
|
All other income
|
280
|
|
351
|
|
(20
|
)
|
||||
|
Total noninterest income
|
3,599
|
|
4,015
|
|
(10
|
)
|
||||
|
Total revenue, net of interest expense (FTE basis)
|
4,603
|
|
5,017
|
|
(8
|
)
|
||||
|
Provision for credit losses
|
21
|
|
19
|
|
11
|
|
||||
|
Noninterest expense
|
3,120
|
|
3,075
|
|
1
|
|
||||
|
Income before income taxes (FTE basis)
|
1,462
|
|
1,923
|
|
(24
|
)
|
||||
|
Income tax expense (FTE basis)
|
517
|
|
610
|
|
(15
|
)
|
||||
|
Net income
|
$
|
945
|
|
$
|
1,313
|
|
(28
|
)
|
||
|
Return on average allocated capital
|
11
|
%
|
16
|
%
|
||||||
|
Efficiency ratio (FTE basis)
|
67.80
|
|
61.30
|
|
||||||
|
Balance Sheet
|
||||||||||
|
Three Months Ended March 31
|
||||||||||
|
Average
|
2015
|
2014
|
% Change
|
|||||||
|
Trading-related assets:
|
||||||||||
|
Trading account securities
|
$
|
193,491
|
|
$
|
203,281
|
|
(5
|
)%
|
||
|
Reverse repurchases
|
115,328
|
|
109,271
|
|
6
|
|
||||
|
Securities borrowed
|
78,713
|
|
80,981
|
|
(3
|
)
|
||||
|
Derivative assets
|
56,419
|
|
43,595
|
|
29
|
|
||||
|
Total trading-related assets
(1)
|
443,951
|
|
437,128
|
|
2
|
|
||||
|
Total loans and leases
|
56,990
|
|
63,696
|
|
(11
|
)
|
||||
|
Total earning assets
(1)
|
434,914
|
|
456,879
|
|
(5
|
)
|
||||
|
Total assets
|
598,503
|
|
601,427
|
|
—
|
|
||||
|
Allocated capital
|
35,000
|
|
34,000
|
|
3
|
|
||||
|
Period end
|
March 31
2015 |
December 31
2014 |
% Change
|
|||||||
|
Total trading-related assets
(1)
|
$
|
424,996
|
|
$
|
418,860
|
|
1
|
%
|
||
|
Total loans and leases
|
63,019
|
|
59,388
|
|
6
|
|
||||
|
Total earning assets
(1)
|
421,520
|
|
421,799
|
|
—
|
|
||||
|
Total assets
|
586,737
|
|
579,512
|
|
1
|
|
||||
|
(1)
|
Trading-related assets include derivative assets, which are considered non-earning assets.
|
Global Markets
offers sales and trading services, including research, to institutional clients across fixed-income, credit, currency, commodity and equity businesses.
Global Markets
product coverage includes securities and derivative products in both the primary and secondary markets.
Global Markets
provides market-making, financing, securities clearing, settlement and custody services globally to
our
institutional investor clients in support of their investing and trading activities.
We also work with our
commercial and corporate clients to provide risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and mortgage-related products.
As a result of our market-making activities in these products, we
may be required to manage risk in a broad range of financial products including government securities, equity and equity-linked securities, high-grade and high-yield corporate debt securities,
syndicated loans, mortgage-backed securities (MBS), commodities and asset-backed securities (ABS). The
economics of most investment banking and underwriting activities are shared primarily between
Global Markets
and
Global Banking
33
based on the activities performed by each segment
.
Global Banking
originates certain deal-related transactions with our corporate and commercial clients that are executed and distributed by
Global Markets.
For more information on investment banking fees on a consolidated basis, see page
32
.
Net income for
Global Markets
decreased
$368 million
to
$945 million
for the
three months ended March 31, 2015
compared to the
same period in 2014
. Excluding net DVA, net income
decreased
$310 million
to
$933 million
primarily driven by lower trading account profits due to declines in mortgage and credit-related products and a decline in investment banking fees primarily from lower debt issuance. Net DVA
gains
were
$19 million
in the
three months ended March 31, 2015
compared to
gains
of
$112 million
in the same period in 2014. Noninterest expense
increased
$45 million
to
$3.1 billion
as a reduction in revenue-related incentive compensation was more than offset by higher litigation expense.
Average earning assets
decreased
$22.0 billion
to
$434.9 billion
largely driven by a decrease in trading account securities as well as a decrease in low-margin prime brokerage loans.
Period-end loans and leases
increased
$3.6 billion
from
December 31, 2014
due to higher mortgage finance balances as a result of strong client demand.
The return on average allocated capital was
11 percent
,
down
from
16 percent
, reflecting lower net income and an increase in allocated capital. For more information on capital allocated to the business segments, see
Business Segment Operations
on page
22
.
|
Sales and Trading Revenue
|
Sales and trading revenue includes unrealized and realized gains and losses on trading and other assets, net interest income, and fees primarily from commissions on equity securities. Sales and trading revenue is segregated into fixed-income (government debt obligations, investment and non-investment grade corporate debt obligations, commercial mortgage-backed securities, residential mortgage-backed securities (RMBS), collateralized loan obligations (CLOs), interest rate and credit derivative contracts), currencies (interest rate and foreign exchange contracts), commodities (primarily futures, forwards, swaps and options) and equities (equity-linked derivatives and cash equity activity). The table below and related discussion present sales and trading revenue, substantially all of which is in
Global Markets,
with the remainder in
Global Banking
. In addition, the table below and related discussion present sales and trading revenue excluding the impact of net DVA, which is a non-GAAP financial measure. We believe the use of this non-GAAP financial measure provides clarity in assessing the underlying performance of these businesses.
|
Sales and Trading Revenue
(1, 2)
|
|||||||
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Sales and trading revenue
|
|||||||
|
Fixed income, currencies and commodities
|
$
|
2,749
|
|
$
|
3,024
|
|
|
|
Equities
|
1,165
|
|
1,193
|
|
|||
|
Total sales and trading revenue
|
$
|
3,914
|
|
$
|
4,217
|
|
|
|
Sales and trading revenue, excluding net DVA
(3)
|
|||||||
|
Fixed income, currencies and commodities
|
$
|
2,745
|
|
$
|
2,944
|
|
|
|
Equities
|
1,150
|
|
1,161
|
|
|||
|
Total sales and trading revenue, excluding net DVA
(3)
|
$
|
3,895
|
|
$
|
4,105
|
|
|
|
(1)
|
Includes FTE adjustments of
$47 million
for the
three months ended March 31, 2015
compared to
$40 million
for the
same period in 2014
. For more information on sales and trading revenue, see
Note 2 – Derivatives
to the Consolidated Financial Statements
.
|
|
(2)
|
Includes
Global Banking
sales and trading revenue of
$76 million
for the
three months ended March 31, 2015
compared to
$85 million
for the
same period in 2014
.
|
|
(3)
|
FICC and Equities sales and trading revenue, excluding net DVA, is a non-GAAP financial measure. FICC net DVA gains were
$4 million
for the
three months ended March 31, 2015
compared to net DVA gains of
$80 million
for the same period in 2014. Equities net DVA gains were
$15 million
for the
three months ended March 31, 2015
compared to net DVA gains of
$32 million
for the same period in 2014.
|
Fixed-income, currency and commodities (FICC) revenue, excluding net DVA,
decreased
$199 million
to
$2.7 billion
for the
three months ended March 31, 2015
compared to the
same period in 2014
primarily driven by declines in mortgage and credit-related businesses due to lower trading volumes driven by client flows. These declines were partially offset by stronger results in foreign exchange as increased volatility led to higher client flows and revenue. Equities revenue, excluding net DVA, was relatively flat compared to the
same period in 2014
.
34
|
Legacy Assets & Servicing
|
|
Three Months Ended March 31
|
||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
% Change
|
|||||||
|
Net interest income (FTE basis)
|
$
|
428
|
|
$
|
377
|
|
14
|
%
|
||
|
Noninterest income:
|
||||||||||
|
Mortgage banking income
|
461
|
|
291
|
|
58
|
|
||||
|
All other income
|
25
|
|
18
|
|
39
|
|
||||
|
Total noninterest income
|
486
|
|
309
|
|
57
|
|
||||
|
Total revenue, net of interest expense (FTE basis)
|
914
|
|
686
|
|
33
|
|
||||
|
Provision for credit losses
|
91
|
|
12
|
|
n/m
|
|
||||
|
Noninterest expense
|
1,201
|
|
7,401
|
|
(84
|
)
|
||||
|
Loss before income taxes (FTE basis)
|
(378
|
)
|
(6,727
|
)
|
(94
|
)
|
||||
|
Income tax benefit (FTE basis)
|
(140
|
)
|
(1,847
|
)
|
(92
|
)
|
||||
|
Net loss
|
$
|
(238
|
)
|
$
|
(4,880
|
)
|
(95
|
)
|
||
|
Net interest yield (FTE basis)
|
4.19
|
%
|
3.82
|
%
|
||||||
|
Balance Sheet
|
||||||||||
|
Three Months Ended March 31
|
||||||||||
|
Average
|
2015
|
2014
|
% Change
|
|||||||
|
Total loans and leases
|
$
|
32,411
|
|
$
|
38,104
|
|
(15
|
)%
|
||
|
Total earning assets
|
41,371
|
|
40,026
|
|
3
|
|
||||
|
Total assets
|
52,617
|
|
57,400
|
|
(8
|
)
|
||||
|
Allocated capital
|
24,000
|
|
17,000
|
|
41
|
|
||||
|
Period end
|
March 31
2015 |
December 31
2014 |
% Change
|
|||||||
|
Total loans and leases
|
$
|
31,690
|
|
$
|
33,055
|
|
(4
|
)%
|
||
|
Total earning assets
|
42,590
|
|
33,923
|
|
26
|
|
||||
|
Total assets
|
53,538
|
|
45,958
|
|
16
|
|
||||
n/m = not meaningful
LAS
is responsible for our
mortgage servicing activities related to residential first mortgage and home equity loans serviced for others and loans held by the Corporation, including loans that have been designated as the
LAS
Portfolios. The
LAS
Portfolios (both owned and serviced), herein referred to as the Legacy Owned and Legacy Serviced Portfolios, respectively (together, the Legacy Portfolios), and as further defined below, include those loans originated prior to January 1, 2011 that would not have been originated under our established underwriting standards as of December 31, 2010. For more information on our
Legacy Portfolios
, see page
36
. In addition,
LAS
is responsible for managing
certain legacy exposures related to mortgage originations, sales and servicing activities (e.g., litigation, representations and warranties).
LAS
also includes the financial results of the home equity portfolio selected as part of the Legacy Owned Portfolio and
the results of MSR activities, including net hedge results
.
LAS
includes certain revenues and expenses on loans serviced for others, including owned loans serviced for
Consumer Banking
,
GWIM
and
All Other
.
The
net loss
for
LAS
decreased
$4.6 billion
to a net loss of
$238 million
primarily driven by significantly lower litigation expense, which is included in noninterest expense, and
higher
mortgage banking income, partially offset by
higher
provision for credit losses. Mortgage banking income
increased
$170 million
primarily due to
higher
servicing income and lower representations and warranties provision. The provision for credit losses
increased
$79 million
driven by a slower pace of credit quality improvement. Noninterest expense
decreased
$6.2 billion
primarily due to a $5.7 billion decrease in litigation expense. Excluding litigation, noninterest expense decreased $542 million to $1.0 billion due to lower default-related staffing and other default-related servicing expenses. We expect that noninterest expense, excluding litigation expense, will decline to approximately $800 million per quarter in the fourth quarter of 2015.
The increase in allocated capital for
LAS
reflects higher Basel 3 Advanced approaches operational risk capital in 2014.
35
Servicing
LAS
is responsible for all of our in-house servicing activities related to the residential mortgage and home equity loan portfolios, including owned loans and loans serviced for others (collectively, the mortgage serviced portfolio). A portion of this portfolio has been designated as the Legacy Serviced Portfolio, which represented 26 percent and 29 percent of the total mortgage serviced portfolio, as measured by unpaid principal balance, at
March 31, 2015 and 2014
. In addition,
LAS
is responsible for managing subservicing agreements.
Servicing activities include collecting cash for principal, interest and escrow payments from borrowers, disbursing customer draws for lines of credit, accounting for and remitting principal and interest payments to investors and escrow payments to third parties, and responding to customer inquiries. Our home retention efforts, including single point of contact resources, are also part of our servicing activities, along with supervision of foreclosures and property dispositions. Prior to foreclosure,
LAS
evaluates various workout options in an effort to help our customers avoid foreclosure. For more information on our servicing activities, including the impact of foreclosure delays, see
Off-Balance Sheet Arrangements and Contractual Obligations – Servicing, Foreclosure and Other Mortgage Matters
on page
53
of the MD&A of the Corporation's 2014 Annual Report on Form 10-K
.
Legacy Portfolios
The Legacy Portfolios (both owned and serviced) include those loans originated prior to January 1, 2011 that would not have been originated under our established underwriting standards in place as of December 31, 2010. The purchased credit-impaired (PCI) portfolio, as well as certain loans that met a pre-defined delinquency status or probability of default threshold as of January 1, 2011, are also included in the Legacy Portfolios. Since determining the pool of loans to be included in the Legacy Portfolios as of January 1, 2011, the criteria have not changed for these portfolios, but will continue to be evaluated over time.
Legacy Owned Portfolio
The Legacy Owned Portfolio includes those loans that met the criteria as described above and are on the balance sheet of the Corporation.
Home equity loans in this portfolio are held on the balance sheet of
LAS,
and residential mortgage loans in this portfolio are included as part of
All Other
.
The financial results of the on-balance sheet loans are reported in the segment that owns the loans or in
All Other
. Total loans in the Legacy Owned Portfolio
decreased
$4.3 billion
during the
three months ended March 31, 2015
to
$85.6 billion
, of which
$31.7 billion
was held on the
LAS
balance sheet and the remainder was included as part of
All Other
. The
decrease
was largely due to payoffs and paydowns.
Legacy Serviced Portfolio
The Legacy Serviced Portfolio includes loans serviced by
LAS
in both the Legacy Owned Portfolio and those loans serviced for outside investors that met the criteria as described above. The table below summarizes the balances of the residential mortgage loans included in the Legacy Serviced Portfolio (the Legacy Residential Mortgage Serviced Portfolio) representing 24 percent and 27 percent of the total residential mortgage serviced portfolio of
$588 billion
and
$693 billion
, as measured by unpaid principal balance, at
March 31, 2015 and 2014
. The decline in the Legacy Residential Mortgage Serviced Portfolio was due to paydowns and payoffs, and MSR and loan sales.
|
Legacy Residential Mortgage Serviced Portfolio, a subset of the Residential Mortgage Serviced Portfolio
(1, 2)
|
|||||||
|
March 31
|
|||||||
|
(Dollars in billions)
|
2015
|
2014
|
|||||
|
Unpaid principal balance
|
|||||||
|
Residential mortgage loans
|
|||||||
|
Total
|
$
|
141
|
|
$
|
189
|
|
|
|
60 days or more past due
|
21
|
|
42
|
|
|||
|
Number of loans serviced (in thousands)
|
|||||||
|
Residential mortgage loans
|
|||||||
|
Total
|
764
|
|
1,022
|
|
|||
|
60 days or more past due
|
109
|
|
216
|
|
|||
|
(1)
|
Excludes loans for which servicing transferred to third parties as of
March 31, 2015
with an effective MSR sale date of April 1, 2015, totaling
$39 million
.
|
|
(2)
|
Excludes
$32 billion
and
$37 billion
of home equity loans and HELOCs at
March 31, 2015 and 2014
.
|
36
Non-Legacy Portfolio
As previously discussed,
LAS
is responsible for all of our servicing activities. The table below summarizes the balances of the residential mortgage loans that are not included in the Legacy Serviced Portfolio (the Non-Legacy Residential Mortgage Serviced Portfolio) representing 76 percent and 73 percent of the total residential mortgage serviced portfolio, as measured by unpaid principal balance, at
March 31, 2015 and 2014
. The decline in the Non-Legacy Residential Mortgage Serviced Portfolio was primarily due to paydowns and payoffs, partially offset by new originations.
|
Non-Legacy Residential Mortgage Serviced Portfolio, a subset of the Residential Mortgage Serviced Portfolio
(1, 2)
|
|||||||
|
March 31
|
|||||||
|
(Dollars in billions)
|
2015
|
2014
|
|||||
|
Unpaid principal balance
|
|||||||
|
Residential mortgage loans
|
|||||||
|
Total
|
$
|
447
|
|
$
|
504
|
|
|
|
60 days or more past due
|
8
|
|
11
|
|
|||
|
Number of loans serviced (in thousands)
|
|||||||
|
Residential mortgage loans
|
|||||||
|
Total
|
2,868
|
|
3,196
|
|
|||
|
60 days or more past due
|
44
|
|
61
|
|
|||
|
(1)
|
Excludes loans for which servicing transferred to third parties as of
March 31, 2015
with an effective MSR sale date of April 1, 2015, totaling
$235 million
.
|
|
(2)
|
Excludes
$49 billion
and
$50 billion
of home equity loans and HELOCs at
March 31, 2015 and 2014
.
|
|
LAS Mortgage Banking Income
|
LAS
mortgage banking income includes income earned in connection with servicing activities and MSR valuation adjustments, net of results from risk management activities used to hedge certain market risks of the MSRs. The costs associated with our servicing activities are included in noninterest expense.
LAS
mortgage banking income also includes the cost of legacy representations and warranties exposures and revenue from the sales of loans that had returned to performing status. The table below summarizes
LAS
mortgage banking income.
|
LAS Mortgage Banking Income
|
|||||||
|
Three Months Ended March 31
|
|||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Servicing income:
|
|||||||
|
Servicing fees
|
$
|
430
|
|
$
|
533
|
|
|
|
Amortization of expected cash flows
(1)
|
(198
|
)
|
(210
|
)
|
|||
|
Fair value changes of MSRs, net of risk management activities used to hedge certain market risks
(2)
|
250
|
|
66
|
|
|||
|
Other servicing-related revenue
|
—
|
|
4
|
|
|||
|
Total net servicing income
|
482
|
|
393
|
|
|||
|
Representations and warranties provision
|
(90
|
)
|
(185
|
)
|
|||
|
Other mortgage banking income
(3)
|
69
|
|
83
|
|
|||
|
Total
LAS
mortgage banking income
|
$
|
461
|
|
$
|
291
|
|
|
|
(1)
|
Represents the net change in fair value of the MSR asset due to the recognition of modeled cash flows.
|
|
(2)
|
Includes gains (losses) on sales of MSRs.
|
|
(3)
|
Consists primarily of revenue from sales of repurchased loans that had returned to performing status.
|
LAS
mortgage banking income
increased
$170 million
primarily driven by improved MSR net-of-hedge performance and lower representations and warranties provision, partially offset by lower servicing fees due to a smaller servicing portfolio.
37
|
Key Statistics
|
|||||||||
|
(Dollars in millions, except as noted)
|
March 31
2015 |
December 31
2014 |
|||||||
|
Mortgage serviced portfolio (in billions)
(1, 2)
|
$
|
669
|
|
$
|
693
|
|
|||
|
Mortgage loans serviced for investors (in billions)
(1)
|
459
|
|
474
|
|
|||||
|
Mortgage servicing rights:
|
|||||||||
|
Balance
(3)
|
3,108
|
|
3,271
|
|
|||||
|
Capitalized mortgage servicing rights (% of loans serviced for investors)
|
68
|
|
bps
|
69
|
|
bps
|
|||
|
(1)
|
The servicing portfolio and mortgage loans serviced for investors represent the unpaid principal balance of loans.
|
|
(2)
|
Servicing of residential mortgage loans, HELOCs and home equity loans by
LAS
.
|
|
(3)
|
At
March 31, 2015
and
December 31, 2014
, excludes
$286 million
and
$259 million
of certain non-U.S. residential mortgage MSR balances that are recorded in
Global Markets
.
|
The decline in the size of our servicing portfolio was driven by loan prepayment activity, which exceeded new originations primarily due to our exit from non-retail channels as well as strategic sales of MSRs during 2014.
Mortgage Servicing Rights
At
March 31, 2015
, the balance of consumer MSRs managed within
LAS
, which excludes
$286 million
of certain non-U.S. residential mortgage MSRs recorded in
Global Markets
, was
$3.1 billion
, which represented
68
bps of the related unpaid principal balance compared to
$3.3 billion
, or
69
bps of the related unpaid principal balance at
December 31, 2014
. The consumer MSR balance managed within
LAS
decreased
$163 million
in the
three months ended March 31, 2015
primarily driven by a decrease in value due to lower mortgage rates at
March 31, 2015
compared to
December 31, 2014
, which resulted in higher forecasted prepayment speeds, and the recognition of modeled cash flows, partially offset by additions to the portfolio and changes to other model and cash flow assumptions. For more information on our servicing activities, see
Off-Balance Sheet Arrangements and Contractual Obligations – Servicing, Foreclosure and Other Mortgage Matters
on page
44
. For more information on MSRs, see
Note 17 – Mortgage Servicing Rights
to the Consolidated Financial Statements
.
38
|
All Other
|
|
|
Three Months Ended March 31
|
|||||||||
|
(Dollars in millions)
|
2015
|
2014
|
% Change
|
|||||||
|
Net interest income (FTE basis)
|
$
|
(249
|
)
|
$
|
(156
|
)
|
60
|
%
|
||
|
Noninterest income:
|
||||||||||
|
Card income
|
69
|
|
87
|
|
(21
|
)
|
||||
|
Equity investment income
|
1
|
|
696
|
|
(100
|
)
|
||||
|
Gains on sales of debt securities
|
263
|
|
357
|
|
(26
|
)
|
||||
|
All other loss
|
(436
|
)
|
(653
|
)
|
(33
|
)
|
||||
|
Total noninterest income
|
(103
|
)
|
487
|
|
n/m
|
|
||||
|
Total revenue, net of interest expense (FTE basis)
|
(352
|
)
|
331
|
|
n/m
|
|
||||
|
Provision (benefit) for credit losses
|
(182
|
)
|
(135
|
)
|
35
|
|
||||
|
Noninterest expense
|
1,504
|
|
1,718
|
|
(12
|
)
|
||||
|
Loss before income taxes (FTE basis)
|
(1,674
|
)
|
(1,252
|
)
|
34
|
|
||||
|
Income tax benefit (FTE basis)
|
(833
|
)
|
(1,055
|
)
|
(21
|
)
|
||||
|
Net loss
|
$
|
(841
|
)
|
$
|
(197
|
)
|
n/m
|
|
||
|
Balance Sheet
|
||||||||||
|
Three Months Ended March 31
|
||||||||||
|
Average
|
2015
|
2014
|
% Change
|
|||||||
|
Loans and leases:
|
||||||||||
|
Residential mortgage
|
$
|
151,305
|
|
$
|
193,989
|
|
(22
|
)%
|
||
|
Non-U.S. credit card
|
10,002
|
|
11,554
|
|
(13
|
)
|
||||
|
Other
|
6,451
|
|
11,849
|
|
(46
|
)
|
||||
|
Total loans and leases
|
167,758
|
|
217,392
|
|
(23
|
)
|
||||
|
Total assets
(1)
|
252,053
|
|
278,250
|
|
(9
|
)
|
||||
|
Total deposits
|
19,405
|
|
34,982
|
|
(45
|
)
|
||||
|
|
||||||||||
|
Period end
|
March 31
2015 |
December 31
2014 |
% Change
|
|||||||
|
Loans and leases:
|
||||||||||
|
Residential mortgage
|
$
|
144,098
|
|
$
|
155,595
|
|
(7
|
)%
|
||
|
Non-U.S. credit card
|
9,660
|
|
10,465
|
|
(8
|
)
|
||||
|
Other
|
6,127
|
|
6,552
|
|
(6
|
)
|
||||
|
Total loans and leases
|
159,885
|
|
172,612
|
|
(7
|
)
|
||||
|
Total equity investments
|
4,716
|
|
4,886
|
|
(3
|
)
|
||||
|
Total assets
(1)
|
248,768
|
|
258,048
|
|
(4
|
)
|
||||
|
Total deposits
|
19,467
|
|
19,242
|
|
1
|
|
||||
|
(1)
|
In segments where the total of liabilities and equity exceeds assets, which are generally deposit-taking segments, we allocate assets from
All Other
to those segments to match liabilities (i.e., deposits) and allocated shareholders' equity. Such allocated assets were
$505.2 billion
and
$476.3 billion
for the
three months ended March 31, 2015 and 2014
, and
$516.0 billion
and
$478.2 billion
at
March 31, 2015
and
December 31, 2014
.
|
n/m = not meaningful
39
All Other
consists of ALM activities,
equity investments, the international consumer card business, liquidating businesses, residual expense allocations and other. ALM activities encompass residential mortgage securities, interest rate and foreign currency risk management activities including the residual net interest income allocation, the impact of certain allocation methodologies and accounting hedge ineffectiveness.
Beginning with new originations in 2014, we retain certain residential mortgages in
Consumer Banking
, consistent with where the overall relationship is managed; previously such mortgages were in
All Other
. Additionally,
certain residential mortgage loans that are managed by
LAS
are held in
All Other
.
The results of certain ALM activities are allocated to
our
business segments
. For more information on our ALM activities, see
Interest Rate Risk Management for Non-trading Activities
on page
108
and
Note 18 – Business Segment Information
to the Consolidated Financial Statements
. Equity investments include our merchant services joint venture as well as Global Principal Investments (GPI) which is comprised of a portfolio of equity, real estate and other alternative investments. For more information on our merchant services joint venture, see
Note 10 – Commitments and Contingencies
to the Consolidated Financial Statements
.
The
net loss
for
All Other
increased
$644 million
to
$841 million
for the
three months ended March 31, 2015
due to a
decrease
in equity investment income and lower net interest income, partially offset by gains on sales of residential mortgage loans, lower noninterest expense and an increased benefit in the provision for credit losses. Equity investment income
decreased
$695 million
primarily due to the sale of a portion of an equity investment in the first quarter of 2014. Gains on the sales of residential mortgage loans, net of hedges, were $217 million compared to gains of $12 million a year ago.
The provision (benefit) for credit losses improved
$47 million
to a
benefit
of
$182 million
primarily driven by the impact of recoveries on nonperforming loan sales.
Noninterest expense
decreased
$214 million
to
$1.5 billion
primarily driven by lower litigation expense and infrastructure and support costs. Annual retirement-eligible incentive costs of $1.0 billion were recorded on a consolidated basis in both the
three months ended March 31, 2015 and 2014
. These costs are allocated to the business segments ratably over the year. The income tax
benefit
was
$833 million
compared to a
benefit
of
$1.1 billion
, as the prior period included tax benefits attributable to the resolution of certain tax matters.
40
|
Off-Balance Sheet Arrangements and Contractual Obligations
|
We have contractual obligations to make future payments on debt and lease agreements. Additionally, in the normal course of business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. For more information on obligations and commitments, see
Note 10 – Commitments and Contingencies
to the Consolidated Financial Statements
,
Off-Balance Sheet Arrangements and Contractual Obligations
on page
50
of the MD&A of the Corporation's 2014 Annual Report on Form 10-K
, as well as
Note 11 – Long-term Debt
and
Note 12 – Commitments and Contingencies
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
|
Representations and Warranties
|
We securitize
first-lien residential mortgage loans generally in the form of RMBS guaranteed by the
government-sponsored enterprises (GSEs), which include Freddie Mac (FHLMC) and Fannie Mae (FNMA), or by the Government National Mortgage Association (GNMA) in the case of Federal Housing Administration (FHA)-insured, U.S. Department of Veterans Affairs (VA)-guaranteed and Rural Housing Service-guaranteed mortgage loans, and sell pools of first-lien residential mortgage loans in the form of whole loans. In addition, in prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations (in certain of these securitizations, monoline insurers or other financial guarantee providers insured all or some of the securities) or in the form of whole loans. In connection with these transactions, we
or certain of
our
subsidiaries or legacy companies make or have made various representations and warranties.
Breaches of these representations and warranties have resulted in and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to the GSEs,
U.S. Department of Housing and Urban Development (HUD)
with respect to FHA-insured loans, VA, whole-loan investors, securitization trusts, monoline insurers or other financial guarantors (collectively, repurchases). In all such cases, subsequent to repurchasing the loan,
we
would be exposed to any credit loss on the repurchased mortgage loans after accounting for any
mortgage insurance (MI)
or mortgage guarantee payments that
we
may receive.
We have
vigorously contested any request for repurchase when
we conclude
that a valid basis for repurchase does not exist and will continue to do so in the future. However, in an effort to resolve these legacy mortgage-related issues,
we have reached settlements, certain of which have been for significant amounts, in lieu of a loan-by-loan review process, including with the GSEs, four monoline insurers and BNY Mellon, as trustee.
On March 5, 2015, the New York Appellate Division, First Department issued an order unanimously approving the BNY Mellon Settlement in all respects, reversing the portion of the New York Supreme Court's decision not to approve the Trustee's conduct with respect to the Trustee's consideration of a potential claim that a loan must be repurchased if the servicer modifies its terms. The deadline for further appeal has passed. The BNY Mellon Settlement remains subject to certain conditions, including that an IRS private letter ruling be obtained confirming that the settlement will not impact the REMIC tax status of the trusts. There can be no assurance as to when or whether such conditions to the BNY Mellon Settlement will be satisfied. If these conditions to the effectiveness of the BNY Mellon Settlement are not satisfied, or if we and Countrywide Financial Corporation (Countrywide) withdraw from the BNY Mellon Settlement in accordance with its terms, our future representations and warranties losses could be substantially different from existing accruals and the estimated range of possible loss over existing accruals. As part of the BNY Mellon Settlement, agreement was reached on certain servicing related matters. For information on servicing matters associated with the BNY Mellon Settlement, see
Mortgage-related Settlements – Servicing Matters
on page
45
.
For more information on accounting for representations and warranties, repurchase claims and exposures, including a summary of the larger bulk settlements, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
and
Note 12 – Commitments and Contingencies
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
and
Item 1A. Risk Factors of the Corporation's 2014 Annual Report on Form 10-K
.
Unresolved Repurchase Claims
Unresolved representations and warranties repurchase claims
represent the notional amount of repurchase claims made by counterparties, typically the outstanding principal balance or the unpaid principal balance at the time of default
.
In the case of first-lien mortgages, the claim amount is often significantly greater than the expected loss amount due to the benefit of collateral and, in some cases
, MI or mortgage guarantee payments.
Claims received from a counterparty remain outstanding until the underlying loan is repurchased, the claim is rescinded by the counterparty or the representations and warranties claims with respect to the applicable trust are settled, and fully and finally released. When a claim is denied
and we do
not receive a response from the counterparty, the claim remains in the unresolved repurchase claims balance until resolution
.
41
At
March 31, 2015
, we had
$25.8 billion
of unresolved repurchase claims, net of duplicate claims, compared to
$22.8 billion
at
December 31, 2014
.
These repurchase claims primarily relate to private-label securitizations and include claims in the amount of
$6.4 billion
and
$4.7 billion
at
March 31, 2015
and
December 31, 2014
,
net of duplicate claims, where we believe the statute of limitations has expired under current law, and
$4.1 billion
and
$4.0 billion
in claims, net of duplicate claims, related to loans in specific private-label securitization groups or tranches where
we own
substantially all of the outstanding securities.
For additional information, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
to the Consolidated Financial Statements
.
The continued increase in the notional amount of unresolved repurchase claims during the
three months ended March 31, 2015
is primarily due to: (1) continued submission of claims by private-label securitization trustees, (2) the level of detail, support and analysis accompanying such claims, which impact overall claim quality and, therefore, claims resolution, (3) the lack of an established process to resolve disputes related to these claims, (4) the submission of claims where
we believe
the statute of limitations has expired under current law and (5) the submission of duplicate claims, often in multiple submissions, on the same loan
.
For example, claims submitted without individual file reviews generally lack the level of detail and analysis of individual loans found in other claims that is necessary to evaluate a claim
.
Absent any settlements,
we expect
unresolved repurchase claims related to private-label securitizations to continue to increase
as such claims continue to be submitted and there is not an established process for the ultimate resolution of such claims on which there is a disagreement.
During the
three months ended March 31, 2015
, we had limited loan-level representations and warranties repurchase claims experience with the monoline insurers due to bulk settlements in prior years and ongoing litigation with a single monoline insurer. For additional information, see
Note 12 – Commitments and Contingencies
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
As a result of various bulk settlements with the GSEs, we have resolved substantially all outstanding and potential representations and warranties repurchase claims on whole loans sold by legacy Bank of America and Countrywide to FNMA and FHLMC through June 30, 2012 and December 31, 2009, respectively. For more information on the monolines and experience with GSEs, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
to the Consolidated Financial Statements
.
In addition to unresolved repurchase claims, we have received notifications indicating that we may owe indemnity obligations pertaining to loans for which we have not received a repurchase request from sponsors of third-party securitizations with whom we engaged in whole-loan transactions. These notifications totaled
$2.0 billion
at both
March 31, 2015
and
December 31, 2014
.
We also from time to time receive correspondence purporting to raise representations and warranties breach issues from entities that do not have contractual standing or ability to bring such claims. We believe such communications to be procedurally and/or substantively invalid, and generally do not respond to such correspondence.
The presence of repurchase claims on a given trust, receipt of notices of indemnification obligations and receipt of other communications, as discussed above, are all factors that inform our liability for obligations under representations and warranties and the corresponding estimated range of possible loss.
Representations and Warranties Liability
The liability for representations and warranties and corporate guarantees is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in mortgage banking income in the Consolidated Statement of Income
. For more information on the representations and warranties liability and the corresponding estimated range of possible loss, see
Off-Balance Sheet Arrangements and Contractual Obligations – Estimated Range of Possible Loss
on page
44
.
At
March 31, 2015
and
December 31, 2014
, the liability for representations and warranties was
$12.0 billion
and
$12.1 billion
. For the
three months ended March 31, 2015
, the representations and warranties provision was
$84 million
compared to
$178 million
for the
same period in 2014
.
Our liability at
March 31, 2015
for obligations under representations and warranties is necessarily dependent on, and limited by a number of factors including for private-label securitizations the implied repurchase experience based on the BNY Mellon Settlement, as well as certain other assumptions and judgmental factors. Where relevant, we also consider more recent experience, such as claim activity, notification of potential indemnification obligations, our experience with various counterparties, recent court decisions related to the statute of limitations and other facts and circumstances, such as bulk settlements, as we believe appropriate. Accordingly, future provisions associated with obligations under representations and warranties may be materially impacted if future experiences are different from historical experience or our understandings, interpretations or assumptions. Although we have not recorded any representations and warranties liability for certain potential private-label securitization and whole-loan exposures where the applicable statute of limitations has expired under current law, these exposures are considered in the determination of the estimated range of possible loss.
42
Experience with Private-label Securitization and Whole-Loan Investors
In prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations or in the form of whole loans to investors other than GSEs (although the GSEs are investors in certain private-label securitizations). Such loans originated from
2004
through
2008
had an original principal balance of
$970 billion
, including
$786 billion
sold to private-label and whole-loan investors without monoline insurance. Of the
$970 billion
,
$578 billion
in principal has been paid,
$203 billion
in principal has defaulted,
$42 billion
in principal was severely delinquent, and
$147 billion
in principal was current or less than 180 days past due at
March 31, 2015
as summarized in
Table 13
.
|
Table 13
|
|||||||||||||||||||||||||||||||||||
|
Overview of Non-Agency Securitization and Whole-Loan Balances from 2004 to 2008
|
|||||||||||||||||||||||||||||||||||
|
Principal Balance
|
Defaulted or Severely Delinquent
|
||||||||||||||||||||||||||||||||||
|
(Dollars in billions)
|
Original
Principal Balance |
Outstanding Principal Balance March 31
2015 |
Outstanding
Principal Balance 180 Days or More Past Due |
Defaulted
Principal Balance |
Defaulted
or Severely Delinquent |
Borrower Made Less than 13
Payments |
Borrower Made
13 to 24 Payments |
Borrower Made
25 to 36 Payments |
Borrower Made More than 36
Payments |
||||||||||||||||||||||||||
|
By Entity
|
|||||||||||||||||||||||||||||||||||
|
Bank of America
|
$
|
100
|
|
$
|
14
|
|
$
|
3
|
|
$
|
7
|
|
$
|
10
|
|
$
|
1
|
|
$
|
2
|
|
$
|
2
|
|
$
|
5
|
|
||||||||
|
Countrywide
|
|||||||||||||||||||||||||||||||||||
|
BNY Mellon Settlement
|
409
|
|
94
|
|
21
|
|
87
|
|
108
|
|
16
|
|
26
|
|
25
|
|
41
|
|
|||||||||||||||||
|
Other
|
307
|
|
55
|
|
12
|
|
65
|
|
77
|
|
8
|
|
18
|
|
19
|
|
32
|
|
|||||||||||||||||
|
Total Countrywide
|
716
|
|
149
|
|
33
|
|
152
|
|
185
|
|
24
|
|
44
|
|
44
|
|
73
|
|
|||||||||||||||||
|
Merrill Lynch
|
72
|
|
13
|
|
3
|
|
18
|
|
21
|
|
3
|
|
4
|
|
3
|
|
11
|
|
|||||||||||||||||
|
First Franklin
|
82
|
|
13
|
|
3
|
|
26
|
|
29
|
|
5
|
|
6
|
|
5
|
|
13
|
|
|||||||||||||||||
|
Total
(1, 2)
|
$
|
970
|
|
$
|
189
|
|
$
|
42
|
|
$
|
203
|
|
$
|
245
|
|
$
|
33
|
|
$
|
56
|
|
$
|
54
|
|
$
|
102
|
|
||||||||
|
By Product
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
Prime
|
$
|
302
|
|
$
|
53
|
|
$
|
7
|
|
$
|
27
|
|
$
|
34
|
|
$
|
2
|
|
$
|
6
|
|
$
|
7
|
|
$
|
19
|
|
||||||||
|
Alt-A
|
173
|
|
43
|
|
9
|
|
41
|
|
50
|
|
7
|
|
12
|
|
11
|
|
20
|
|
|||||||||||||||||
|
Pay option
|
150
|
|
32
|
|
9
|
|
45
|
|
54
|
|
5
|
|
13
|
|
15
|
|
21
|
|
|||||||||||||||||
|
Subprime
|
251
|
|
49
|
|
14
|
|
71
|
|
85
|
|
17
|
|
20
|
|
15
|
|
33
|
|
|||||||||||||||||
|
Home equity
|
88
|
|
9
|
|
—
|
|
18
|
|
18
|
|
2
|
|
5
|
|
4
|
|
7
|
|
|||||||||||||||||
|
Other
|
6
|
|
3
|
|
3
|
|
1
|
|
4
|
|
—
|
|
—
|
|
2
|
|
2
|
|
|||||||||||||||||
|
Total
|
$
|
970
|
|
$
|
189
|
|
$
|
42
|
|
$
|
203
|
|
$
|
245
|
|
$
|
33
|
|
$
|
56
|
|
$
|
54
|
|
$
|
102
|
|
||||||||
|
(1)
|
Excludes transactions sponsored by Bank of America and Merrill Lynch where no representations or warranties were made.
|
|
(2)
|
Includes exposures on third-party sponsored transactions related to legacy entity originations.
|
As it relates to private-label securitizations, we believe a contractual liability to repurchase mortgage loans generally arises if there is a breach of representations and warranties that materially and adversely affects the interest of the investor or all the investors in a securitization trust or of the monoline insurer or other financial guarantor (as applicable).
Legacy entities, and to a lesser extent Bank of America, sold loans to investors via private-label securitizations or as whole loans. The majority of the loans sold were included in private-label securitizations, including third-party sponsored transactions. We provided representations and warranties to the whole-loan investors and these investors may retain those rights even when the whole loans were aggregated with other collateral into private-label securitizations sponsored by the whole-loan investors. Loans originated between
2004
and
2008
and sold without monoline insurance had an original total principal balance of
$786 billion
included in Table
13
. Of the
$786 billion
,
$472 billion
have been paid in full and
$193 billion
were defaulted or severely delinquent at
March 31, 2015
. At least
25
payments have been made on approximately
64 percent
of the defaulted and severely delinquent loans.
We have received approximately
$37 billion
of representations and warranties repurchase claims related to loans originated between
2004
and
2008
, including
$28 billion
from private-label securitization trustees and a financial guarantee provider,
$8 billion
from whole-loan investors and
$815 million
from one private-label securitization counterparty.
Continued high levels of new private-label claims are primarily related to repurchase requests received from trustees for private-label securitization transactions not included in the BNY Mellon Settlement
. We have resolved
$9 billion
of these claims with losses of
$2 billion
. The majority of these resolved claims were from third-party whole-loan investors. Approximately
$4 billion
of these claims were resolved through repurchase or indemnification,
$5 billion
43
were rescinded by the investor and
$335 million
were resolved through settlements. As of
March 31, 2015
,
15 percent
of the whole-loan claims for these vintages that we initially denied have subsequently been resolved through repurchase or make-whole payments and
44 percent
have been resolved through rescission of the claim by the counterparty or repayment in full by the borrower. At
March 31, 2015
, for these vintages, the notional amount of unresolved repurchase claims submitted by private-label securitization trustees, whole-loan investors, including third-party securitization sponsors and others was
$28 billion
, including
$4 billion
of duplicate claims primarily submitted without a loan file review. We have performed an initial review with respect to substantially all of these claims and although we do not believe a valid basis for repurchase has been established by the claimant, we consider such claims activity in the computation of our liability for representations and warranties. Until we receive a repurchase claim, we generally do not review loan files related to private-label securitizations and believe we are not required by the governing documents to do so.
Estimated Range of Possible Loss
We currently estimate
that the range of possible loss for representations and warranties exposures could be up to
$4 billion
over existing accruals at
March 31, 2015
.
The estimated range of possible loss reflects principally non-GSE exposures. It represents a reasonably possible loss, but does not represent a probable loss, and is based on currently available information, significant judgment and a number of assumptions that are subject to change.
For more information on the methodology used to estimate the representations and warranties liability, the corresponding estimated range of possible loss and the types of losses not considered, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
to the Consolidated Financial Statements
and
Item 1A. Risk Factors of the Corporation's 2014 Annual Report on Form 10-K
and, for more information related to the sensitivity of the assumptions used to estimate our liability for obligations under representations and warranties, see
Complex Accounting Estimates – Representations and Warranties Liability
on page
113
of the MD&A of the Corporation's 2014 Annual Report on Form 10-K
.
|
Servicing, Foreclosure and Other Mortgage Matters
|
We service a large portion of the loans we or our subsidiaries have securitized and also service loans on behalf of third-party securitization vehicles and other investors. Our servicing obligations are set forth in servicing agreements with the applicable counterparty. These obligations may include, but are not limited to, loan repurchase requirements in certain circumstances, indemnifications, payment of fees, advances for foreclosure costs that are not reimbursable, or responsibility for losses in excess of partial guarantees for VA loans.
Servicing agreements with the GSEs and GNMA generally provide the GSEs and GNMA with broader rights relative to the servicer than are found in servicing agreements with private investors. For example, the GSEs claim that they have the contractual right to loan repurchase for certain servicing breaches. In addition, the GSEs' first-lien mortgage seller/servicer guides provide timelines to resolve delinquent loans through workout efforts or liquidation, if necessary, and purport to require the imposition of compensatory fees if those deadlines are not satisfied except for reasons beyond the control of the servicer. Servicers for GNMA are required to service in accordance with the applicable government agency requirements which include detailed regulatory requirements for servicing loans and reducing the amount of insurance or guaranty benefits that are paid if the applicable timelines are not satisfied. In addition, many non-agency RMBS and whole-loan servicing agreements state that the servicer may be liable for failure to perform its servicing obligations in keeping with industry standards or for acts or omissions that involve willful malfeasance, bad faith or gross negligence in the performance of, or reckless disregard of, the servicer's duties.
44
It is not possible to reasonably estimate our liability with respect to certain potential servicing-related claims. While we have recorded certain accruals for servicing-related claims, the amount of potential liability in excess of existing accruals could be material to the Corporation's results of operations or cash flows for any particular reporting period.
Mortgage Electronic Registration Systems, Inc.
For information on Mortgage Electronic Registration Systems, Inc., see
Off-Balance Sheet Arrangements and Contractual Obligations – Mortgage Electronic Registration Systems, Inc.
on page
54
of the MD&A of the Corporation's 2014 Annual Report on Form 10-K
.
Other Mortgage-related Matters
We continue to be subject to additional borrower and non-borrower litigation and governmental and regulatory scrutiny related to our past and current origination, servicing, transfer of servicing and servicing rights, servicing compliance obligations, and foreclosure activities, including those claims not covered by the National Mortgage Settlement or the settlement with the Department of Justice (DoJ). This scrutiny may extend beyond our pending foreclosure matters to issues arising out of alleged irregularities with respect to previously completed foreclosure activities. The ongoing environment of additional regulation, increased regulatory compliance obligations, and enhanced regulatory enforcement, combined with ongoing uncertainty related to the continuing evolution of the regulatory environment, has resulted in operational and compliance costs and may limit our ability to continue providing certain products and services. For more information on management's estimate of the aggregate range of possible loss and on regulatory investigations, see
Note 10 – Commitments and Contingencies
to the Consolidated Financial Statements
.
Mortgage-related Settlements – Servicing Matters
In connection with the BNY Mellon Settlement, BANA has agreed to implement certain servicing changes related to loss mitigation activities. BANA also agreed to transfer the servicing rights related to certain high-risk loans to qualified subservicers on a schedule that began with the signing of the BNY Mellon Settlement. This servicing transfer protocol has reduced the servicing fees payable to BANA. Upon final approval of the BNY Mellon Settlement, failure to meet the established benchmarking standards for loans not in subservicing arrangements can trigger payment of agreed-upon fees. Additionally, we and Countrywide have agreed to work to resolve with the Trustee certain mortgage documentation issues related to the enforceability of mortgages in foreclosure and to reimburse the related Covered Trust for any loss if BANA is unable to foreclose on the mortgage and the Covered Trust is not made whole by a title policy because of these issues. These agreements will terminate if final approval of the BNY Mellon Settlement is not obtained, although we could still have exposure under the pooling and servicing agreements related to the mortgages in the Covered Trusts for these issues.
BANA has agreed to implement uniform servicing standards established under the National Mortgage Settlement. These standards are intended to strengthen procedural safeguards and documentation requirements associated with foreclosure, bankruptcy and loss mitigation activities, as well as addressing the imposition of fees and the integrity of documentation, with a goal of ensuring greater transparency for borrowers. These uniform servicing standards also obligate us to implement compliance processes reasonably designed to provide assurance of the achievement of these objectives. Compliance with the uniform servicing standards is subject to ongoing review by the independent monitor. Implementation of these uniform servicing standards has contributed to elevated costs associated with the servicing process, but is not expected to result in material delays or dislocation in the performance of our mortgage servicing obligations, including the completion of foreclosures.
45
|
Managing Risk
|
Risk is inherent in all our business activities. The seven types of risk faced by the Corporation are strategic, credit, market, liquidity, compliance, operational and reputational risks. Sound risk management is needed to serve our customers and deliver for our shareholders. If not managed well, risks can result in financial loss, regulatory sanctions and penalties, and damage to our reputation, each of which may adversely impact our ability to execute our business strategies. The Corporation takes a comprehensive approach to risk management with a defined Risk Framework and an articulated Risk Appetite Statement which are approved annually by the Corporation's Board of Directors (the Board) and the Board's Enterprise Risk Committee (ERC).
Our Risk Framework is the foundation for comprehensive management of the risks facing the Corporation. The Risk Framework sets forth clear roles, responsibilities and accountability for the management of risk and provides a blueprint for how the Board, through delegation of authority to committees and executive officers, establishes risk appetite and associated limits for our activities.
Our Risk Appetite Statement is intended to ensure that the Corporation maintains an acceptable risk profile by providing a common framework and a comparable set of measures for senior management and the Board to clearly indicate the level of risk the Corporation is willing to accept. Risk appetite is set at least annually in conjunction with the strategic, capital and financial operating plans to align risk appetite with the Corporation's strategy and financial resources. Our line of business strategies and risk appetite are also similarly aligned. For a more detailed discussion of our risk management activities, see the discussion below and pages
55 through 109
of the MD&A of the Corporation's 2014 Annual Report on Form 10-K
.
|
Strategic Risk Management
|
Strategic risk is embedded in every business and is one of the major risk categories along with credit, market, liquidity, compliance, operational and reputational risks. It is the risk that results from incorrect assumptions, unsuitable business plans, ineffective strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic and competitive environments, customer preferences, and technology developments in the geographic locations in which we operate.
Our appetite for strategic risk is assessed based on the strategic plan, with strategic risks selectively and carefully considered against the backdrop of the evolving marketplace. Strategic risk is managed in the context of our overall financial condition, risk appetite and stress test results, among other considerations. The chief executive officer and executive management team manage and act on significant strategic actions, such as divestitures, consolidation of legal entities or capital actions subsequent to required review and approval by the Board.
For more information on our strategic risk management activities, see page
58
of the MD&A of the Corporation's 2014 Annual Report on Form 10-K
.
|
Capital Management
|
The Corporation manages its capital position to maintain sufficient capital to support its business activities and maintain capital, risk and risk appetite commensurate with one another. Additionally, we seek to maintain safety and soundness at all times even under adverse scenarios, take advantage of organic growth opportunities, maintain ready access to financial markets, continue to serve as a credit intermediary, remain a source of strength for our subsidiaries, and satisfy current and future regulatory capital requirements. Capital management is integrated into our risk and governance processes, as capital is a key consideration in the development of our strategic plan, risk appetite and risk limits.
We conduct an Internal Capital Adequacy Assessment Process (ICAAP) on a quarterly basis. The ICAAP is a forward-looking assessment of our projected capital needs and resources, incorporating earnings, balance sheet and risk forecasts under baseline and adverse economic and market conditions. We utilize quarterly stress tests to assess the potential impacts to our balance sheet, earnings, regulatory capital and liquidity under a variety of stress scenarios. We perform qualitative risk assessments to identify and assess material risks not fully captured in our forecasts or stress tests. We assess the capital impacts of proposed changes to regulatory capital requirements. Management assesses ICAAP results and provides documented quarterly assessments of the adequacy of our capital guidelines and capital position to the Board or its committees.
The Corporation periodically reviews capital allocated to its businesses and allocates capital annually during the strategic and capital planning processes. For additional information, see
Business Segment Operations
on page
22
.
46
|
CCAR and Capital Planning
|
The Federal Reserve requires BHCs to submit a capital plan and requests for capital actions on an annual basis, consistent with the rules governing the Comprehensive Capital Analysis and Review (CCAR) capital plan. The CCAR capital plan is the central element of the Federal Reserve's approach to ensure that large BHCs have adequate capital and robust processes for managing their capital.
In January 2015, we submitted our 2015 CCAR capital plan and related supervisory stress tests, and we received the results in March 2015. Based on the information in our January 2015 submission, we exceeded all stressed capital ratio minimum requirements in the severely adverse scenario with more than $20 billion in excess capital after all planned capital actions, a significant improvement from the prior-year CCAR quantitative results. On March 11, 2015, the Federal Reserve advised that it did not object to our 2015 capital plan but gave a conditional, non-objection under which we are required to resubmit our capital plan by September 30, 2015 and address certain weaknesses identified in the capital planning process. If identified weaknesses are not satisfactorily addressed when the Federal Reserve reviews our resubmitted capital plan, the Federal Reserve may restrict our future capital distributions. The requested capital actions included a request to repurchase $4.0 billion of common stock over five quarters beginning in the second quarter of 2015, and to maintain the quarterly common stock dividend at the current rate of $0.05 per share. We have begun a review of our entire CCAR process with a goal of assuring better alignment with regulator expectations.
Pending the resubmission of our capital plan, we are permitted, and have proceeded with our stock repurchase program and to maintain our common stock dividend at the current rate. The timing and amount of common stock repurchases and common stock dividends will be consistent with our 2015 CCAR capital plan and subject to the Federal Reserve's review of our submission of a revised capital plan as discussed above. In addition, the timing and amount of common stock repurchases will be subject to various factors, including the Corporation's capital position, liquidity, financial performance and alternative uses of capital, stock trading price, and general market conditions, and may be suspended at any time. The common stock repurchases may be effected through open market purchases or privately negotiated transactions, including repurchase plans that satisfy the conditions of Rule 10b5-1 of the Securities Exchange Act of 1934.
|
Regulatory Capital
|
As a financial services holding company, we are subject to regulatory capital rules issued by U.S. banking regulators. On January 1, 2014, we became subject to Basel 3, which includes certain transition provisions through January 1, 2019 (Basel 3 Standardized
–
Transition). Basel 3 generally continues to be subject to interpretation and clarification by U.S. banking regulators. Basel 3 expanded and modified the calculation of risk-weighted assets for credit and market risk (applicable to banks that meet the definition as an advanced approaches bank), and introduced a Standardized approach for the calculation of risk-weighted assets, which serves as a minimum. The Corporation and its primary affiliated banking entity, BANA, meet the definition of an advanced approaches bank and measure regulatory capital adequacy based on Basel 3.
Risk-weighted assets are calculated for credit risk for all on- and off-balance sheet credit exposures and for market risk on trading assets and liabilities, including derivative exposures. Credit risk-weighted assets are calculated by assigning a prescribed risk weight to all on-balance sheet assets and to the credit equivalent amount of certain off-balance sheet exposures. Off-balance sheet exposures include financial guarantees, unfunded lending commitments, letters of credit and derivatives. Market risk-weighted assets are calculated using risk models for trading account positions, including all foreign exchange and commodity positions, regardless of the applicable accounting guidance. Any assets that are a direct deduction from the computation of capital are excluded from risk-weighted assets and adjusted average total assets, consistent with regulatory guidance. For more information on the regulatory capital amounts and calculations, see Basel 3 below.
Basel 3
Basel 3 provides Tier 1 and Total capital calculations and establishes a Common equity tier 1 capital ratio. Basel 3 also includes minimum capital ratios and buffer requirements and a supplementary leverage ratio (SLR), and addresses the composition of regulatory capital and the adequately capitalized minimum requirements under the Prompt Corrective Action (PCA) framework. The composition of regulatory capital under Basel 3 is subject to a transition period as described below. The new minimum capital ratio requirements and related buffers are being phased in from January 1, 2014 through January 1, 2019. For more information on the SLR, see
Capital Management – Other Regulatory Capital Requirements
on page
53
.
47
As an advanced approaches bank, under Basel 3, we are required to complete a qualification period (parallel run) to demonstrate compliance with the Basel 3 rules to the satisfaction of U.S. banking regulators. Upon notification of approval by U.S. banking regulators to exit our parallel run, we will be required to report regulatory capital ratios and risk-weighted assets under both the Standardized and Advanced approaches. The approach that yields the lower ratio is to be used to assess capital adequacy including under the PCA framework. Prior to receipt of notification of approval, we are required to report our capital adequacy under the Standardized approach only.
Effective January 1, 2015, the PCA framework was amended to reflect the new capital requirements under Basel 3. The PCA framework establishes categories of capitalization, including "well capitalized," based on regulatory ratio requirements. U.S. banking regulators are required to take certain mandatory actions depending on the category of capitalization, with no mandatory actions required for "well-capitalized" banking organizations, which included BANA at
March 31, 2015
. Effective January 1, 2015, Common equity tier 1 capital is included in the measurement of "well capitalized."
Regulatory Capital Composition
–
Transition
Basel 3 requires deductions from capital related to MSRs, deferred tax assets and defined benefit pension assets. Basel 3 also provides for the inclusion in capital of unrealized gains and losses on AFS debt and certain marketable equity securities recorded in accumulated OCI. These changes will be impacted by, among other things, fluctuations in interest rates, earnings performance and corporate actions. Changes to the composition of regulatory capital under Basel 3 are recognized in 20 percent annual increments, and will be fully recognized as of January 1, 2018.
Table 14
summarizes how certain regulatory capital deductions and adjustments have been or will be transitioned from 2014 through 2018 for Common equity tier 1 and Tier 1 capital.
|
Table 14
|
|||||||||
|
Summary of Certain Basel 3 Regulatory Capital Transition Provisions
|
|||||||||
|
Beginning on January 1 of each year
|
2014
|
2015
|
2016
|
2017
|
2018
|
||||
|
Common equity tier 1 capital
|
|||||||||
|
Percent of total amount deducted from Common equity tier 1 capital includes:
|
20%
|
40%
|
60%
|
80%
|
100%
|
||||
|
Deferred tax assets arising from net operating loss and tax credit carryforwards; intangibles, other than mortgage servicing rights and goodwill; defined benefit pension fund net assets; net unrealized cumulative gains (losses) related to changes in own credit risk on liabilities, including derivatives, measured at fair value; direct and indirect investments in own Common equity tier 1 capital instruments; certain amounts exceeding the threshold by 10 percent individually and 15 percent in aggregate
|
|||||||||
|
Percent of total amount used to adjust Common equity tier 1 capital includes
(1)
:
|
80%
|
60%
|
40%
|
20%
|
0%
|
||||
|
Net unrealized gains (losses) on AFS debt and certain marketable equity securities recorded in accumulated OCI; employee benefit plan adjustments recorded in accumulated OCI
|
|||||||||
|
Tier 1 capital
|
|||||||||
|
Percent of total amount deducted from Tier 1 capital includes:
|
80%
|
60%
|
40%
|
20%
|
0%
|
||||
|
Deferred tax assets arising from net operating loss and tax credit carryforwards; defined benefit pension fund net assets; net unrealized cumulative gains (losses) related to changes in own credit risk on liabilities, including derivatives, measured at fair value
|
|||||||||
|
(1)
|
Represents the phase-out percentage of the exclusion by year (e.g., 20 percent of net unrealized gains (losses) on AFS debt and certain marketable equity securities recorded in accumulated OCI was included in 2014).
|
Additionally, Basel 3 revised the regulatory capital treatment for Trust Securities, requiring them to be transitioned from Tier 1 capital into Tier 2 capital in 2014 and 2015, until fully excluded from Tier 1 capital in 2016, and transitioned from Tier 2 capital beginning in 2016 with the full amount excluded in 2022. As of
March 31, 2015
, our qualifying Trust Securities were
$1.4 billion
(approximately
10
bps of the Tier 1 capital ratio).
48
Standardized Approach
Under the Basel 3 Standardized approach, credit risk-weighted assets are measured by applying fixed risk weights to each exposure (excluding securitizations), determined based on the characteristics of the exposure, such as type of obligor, Organization for Economic Cooperation and Development (OECD) country risk code and maturity, among others. For securitization exposures, risk-weighted assets are determined using the Simplified Supervisory Formula Approach (SSFA). Under the Standardized approach, no distinction is made for variations in credit quality for corporate exposures, and the economic benefit of collateral is restricted to a limited list of eligible securities and cash. We estimate that our Common equity tier 1 capital ratio under the Basel 3 Standardized approach, on a fully phased-in basis, would have been
10.3 percent
at
March 31, 2015
. As of
March 31, 2015
, we estimate that our Basel 3 Standardized Common equity tier 1 capital would have been
$147.2 billion
and total risk-weighted assets would have been
$1,431 billion
, on a fully phased-in basis. For a reconciliation of Basel 3 Standardized
–
Transition to Basel 3 Standardized estimates on a fully phased-in basis for Common equity tier 1 capital, see
Table 18
. Our estimates under the Basel 3 Standardized approach may be refined over time as a result of further rulemaking or clarification by U.S. banking regulators or as our understanding and interpretation of the rules evolve. Actual results could differ from those estimates and assumptions.
Advanced Approaches
In addition to the exposures calculated under the Basel 3 Standardized approach, the Basel 3 Advanced approaches include measures of operational risk and risks related to the credit valuation adjustment (CVA) for over-the-counter (OTC) derivative exposures. The Advanced approaches rely on internal analytical models to measure risk weights for credit risk exposures and allow the use of models to estimate the exposure at default (EAD) for certain exposure types. Market risk capital measurements are consistent with the Standardized approach, except for securitization exposures, where the Supervisory Formula Approach (SFA) is also permitted. Credit risk for securitization exposures is based on the SSFA if an SFA approach is unavailable for a particular exposure. Non-securitization credit risk exposures are measured using internal ratings-based models to determine the applicable risk weight by estimating the probability of default, loss-given default (LGD) and, in certain instances, EAD. The internal analytical models primarily rely on internal historical default and loss experience. Operational risk is measured using internal analytical models which rely on both internal and external operational loss experience and data. The calculations require management to make estimates, assumptions and interpretations, including with respect to the probability of future events based on historical experience. Actual results could differ from those estimates and assumptions.
We estimate that our Common equity tier 1 capital ratio under the Basel 3 Advanced approaches, on a fully phased-in basis, would have been
10.1 percent
at
March 31, 2015
. As of
March 31, 2015
, we estimate that our Basel 3 Advanced Common equity tier 1 capital would have been
$147.2 billion
and total risk-weighted assets would have been
$1,461 billion
, on a fully phased-in basis. These estimates assume approval by U.S. banking regulators of our internal analytical models, including approval of the internal models methodology, but do not include the benefit of the removal of the surcharge applicable to the Comprehensive Risk Measure (CRM). Our estimates under the Basel 3 Advanced approaches may be refined over time as a result of further rulemaking or clarification by U.S. banking regulators or as our understanding and interpretation of the rules evolve. The U.S. banking regulators have requested modifications to certain internal analytical models including the wholesale (e.g., commercial) and other credit models which would increase our risk-weighted assets and, as a result, negatively impact our capital ratios, including our Common equity tier 1 ratio by approximately 100 bps. We are currently working with the U.S. banking regulators in order to exit parallel run.
49
Capital Composition and Ratios
Table 15
presents Bank of America Corporation's capital ratios and related information in accordance with Basel 3
Standardized
–
Transition as measured at
March 31, 2015
and
December 31, 2014
.
|
Table 15
|
||||||||||||||
|
Bank of America Corporation Regulatory Capital
|
||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
||||||||||||
|
(Dollars in millions)
|
Ratio
(1)
|
Amount
|
Ratio
(1)
|
Amount
|
||||||||||
|
Common equity tier 1 capital
|
11.1
|
%
|
$
|
155,438
|
|
12.3
|
%
|
$
|
155,361
|
|
||||
|
Tier 1 capital
|
12.3
|
|
173,155
|
|
13.4
|
|
168,973
|
|
||||||
|
Total capital
|
15.3
|
|
214,481
|
|
16.5
|
|
208,670
|
|
||||||
|
Tier 1 leverage
|
8.4
|
|
173,155
|
|
8.2
|
|
168,973
|
|
||||||
|
March 31
2015 |
December 31
2014 |
|||||||||||||
|
Risk-weighted assets (in billions)
(2)
|
$
|
1,405
|
|
$
|
1,262
|
|
||||||||
|
Adjusted quarterly average total assets (in billions)
(3)
|
2,060
|
|
2,060
|
|
||||||||||
|
(1)
|
When presented on a fully phased-in basis, beginning January 1, 2019, the minimum Basel 3 Common equity tier 1, Tier 1 and Total capital ratio requirements for the Corporation are expected to significantly increase and will be comprised of the minimum ratio for Common equity tier 1, Tier 1 and Total capital, plus a capital conservation buffer and the G-SIB buffer. For more information on these buffers, see
Capital Management – Other Regulatory Capital Requirements
on page
53
.
|
|
(2)
|
On a pro-forma basis, under the Basel 3 Standardized – Transition as measured at January 1, 2015, the December 31, 2014 risk-weighted assets would have been $1,392 billion.
|
|
(3)
|
Reflects adjusted average total assets for the
three months ended March 31, 2015
and
December 31, 2014
.
|
Table 16
presents regulatory minimum and "well-capitalized" ratio requirements in accordance with Basel 3
Standardized
–
Transition as measured at
March 31, 2015
and
December 31, 2014
.
|
Table 16
|
|||||||||||
|
Bank of America Corporation Regulatory Capital Ratio Requirements
|
|||||||||||
|
March 31, 2015
|
December 31, 2014
|
||||||||||
|
|
Regulatory Minimum
|
Well-capitalized
(1)
|
Regulatory Minimum
|
Well-capitalized
(1)
|
|||||||
|
Common equity tier 1
|
4.5
|
%
|
n/a
|
|
4.0
|
%
|
n/a
|
|
|||
|
Tier 1 capital
|
6.0
|
|
6.0
|
%
|
5.5
|
|
6.0
|
%
|
|||
|
Total capital
|
8.0
|
|
10.0
|
|
8.0
|
|
10.0
|
|
|||
|
Tier 1 leverage
|
4.0
|
|
n/a
|
|
4.0
|
|
n/a
|
|
|||
|
(1)
|
To be "well capitalized" under current U.S. banking regulatory agency definitions, a bank holding company must maintain these ratios or greater and not be subject to a Federal Reserve Board order or directive to maintain higher capital levels.
|
n/a = not applicable
Common equity tier 1 capital under Basel 3
Standardized
–
Transition of
$155.4 billion
at
March 31, 2015
remained relatively unchanged compared to
December 31, 2014
as earnings and an improvement in accumulated OCI were largely offset by the impact of certain transition provisions under Basel 3 Standardized
–
Transition. For more information on Basel 3 transition provisions, see Table
14
. During the
three months ended March 31, 2015
, Total capital
increased
$5.8 billion
primarily driven by earnings and issuances of preferred stock and subordinated debt. The Tier 1 leverage ratio
increased
21
bps for the
three months ended March 31, 2015
compared to
December 31, 2014
primarily driven by an
increase
in Tier 1 capital. For additional information, see Tables
15
and
17
.
Risk-weighted assets
increased
$144 billion
during the
three months ended March 31, 2015
to
$1,405 billion
primarily due to the change in the calculation of risk-weighted assets from the general risk-based approach at December 31, 2014 to the Basel 3 Standardized approach.
50
At
March 31, 2015
, an increase or decrease in our Common equity tier 1, Tier 1 or Total capital ratios by one bp would require a change of $141 million in Common equity tier 1, Tier 1 or Total capital. We could also increase our Common equity tier 1, Tier 1 or Total capital ratios by one bp on such date by a reduction in risk-weighted assets of $1.3 billion, $1.1 billion and $920 million, respectively. An increase in our Tier 1 leverage ratio by one bp on such date would require $206 million of additional Tier 1 capital or a reduction of $2.4 billion in adjusted average assets.
Table 17
presents the capital composition as measured under Basel 3 Standardized
–
Transition at
March 31, 2015
and
December 31, 2014
.
|
Table 17
|
|||||||
|
Capital Composition
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
Total common shareholders' equity
|
$
|
227,915
|
|
$
|
224,162
|
|
|
|
Goodwill
|
(69,231
|
)
|
(69,234
|
)
|
|||
|
Intangibles, other than mortgage servicing rights and goodwill
|
(1,214
|
)
|
(639
|
)
|
|||
|
Net unrealized gains (losses) on AFS debt securities and net losses on derivatives recorded in accumulated OCI, net-of-tax
|
—
|
|
573
|
|
|||
|
Unamortized net periodic benefit costs recorded in accumulated OCI, net-of-tax
|
1,995
|
|
2,680
|
|
|||
|
DVA related to liabilities and derivatives
(1)
|
332
|
|
231
|
|
|||
|
Deferred tax assets arising from net operating loss and tax credit carryforwards
|
(4,021
|
)
|
(2,226
|
)
|
|||
|
Other
|
(338
|
)
|
(186
|
)
|
|||
|
Common equity tier 1 capital
|
155,438
|
|
155,361
|
|
|||
|
Qualifying preferred stock, net of issuance cost
|
22,273
|
|
19,308
|
|
|||
|
Deferred tax assets arising from net operating loss and tax credit carryforwards under transition
|
(6,031
|
)
|
(8,905
|
)
|
|||
|
DVA related to liabilities and derivatives under transition
|
498
|
|
925
|
|
|||
|
Defined benefit pension fund assets
|
(459
|
)
|
(599
|
)
|
|||
|
Trust preferred securities
|
1,447
|
|
2,893
|
|
|||
|
Other
|
(11
|
)
|
(10
|
)
|
|||
|
Total Tier 1 capital
|
173,155
|
|
168,973
|
|
|||
|
Long-term debt qualifying as Tier 2 capital
|
19,538
|
|
17,953
|
|
|||
|
Nonqualifying trust preferred securities subject to phase out from Tier 2 capital
|
4,843
|
|
3,881
|
|
|||
|
Qualifying allowance for credit losses
|
14,213
|
|
14,634
|
|
|||
|
Other
|
2,732
|
|
3,229
|
|
|||
|
Total capital
|
$
|
214,481
|
|
$
|
208,670
|
|
|
|
(1)
|
Represents loss on structured liabilities and derivatives, net-of-tax, that is excluded from Common equity tier 1, Tier 1 and Total capital for regulatory capital purposes.
|
51
Table 18
presents a reconciliation of our Common equity tier 1 capital in accordance with the Basel 3 Standardized
–
Transition to the Basel 3 Standardized approach fully phased-in estimates and Basel 3 Advanced approaches fully phased-in estimates at
March 31, 2015
and
December 31, 2014
. Basel 3 regulatory capital ratios on a fully phased-in basis are considered non-GAAP financial measures until the end of the transition period on January 1, 2019 when adopted and required by U.S. banking regulators.
|
Table 18
|
|||||||
|
Regulatory Capital Reconciliation
(1)
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
Regulatory capital – Basel 3 transition to fully phased-in
|
|||||||
|
Common equity tier 1 capital (transition)
|
$
|
155,438
|
|
$
|
155,361
|
|
|
|
Deferred tax assets arising from net operating loss and tax credit carryforwards phased in during transition
|
(6,031
|
)
|
(8,905
|
)
|
|||
|
DVA related to liabilities and derivatives phased in during transition
|
498
|
|
925
|
|
|||
|
Defined benefit pension fund assets phased in during transition
|
(459
|
)
|
(599
|
)
|
|||
|
Accumulated OCI phased in during transition
|
(378
|
)
|
(1,592
|
)
|
|||
|
Intangibles phased in during transition
|
(1,821
|
)
|
(2,556
|
)
|
|||
|
Other adjustments and deductions phased in during transition
|
(48
|
)
|
(1,417
|
)
|
|||
|
Common equity tier 1 capital (fully phased-in)
|
$
|
147,199
|
|
$
|
141,217
|
|
|
|
Regulatory capital ratios
|
|||||||
|
Basel 3 Standardized approach Common equity tier 1 (transition)
|
11.1
|
%
|
12.3
|
%
|
|||
|
Basel 3 Standardized approach Common equity tier 1 (fully phased-in)
|
10.3
|
|
10.0
|
|
|||
|
Basel 3 Advanced approaches Common equity tier 1 (fully phased-in)
(2)
|
10.1
|
|
9.6
|
|
|||
|
(1)
|
Fully phased-in Basel 3 estimates are based on our current understanding of the Standardized and Advanced approaches under Basel 3. The Advanced approaches estimates assume approval by U.S. banking regulators of our internal analytical models, and do not include the benefit of the removal of the surcharge applicable to the CRM.
|
|
(2)
|
The U.S. banking regulators have requested modifications to certain internal analytical models including the wholesale (e.g., commercial) and other credit models which would increase our risk-weighted assets and is estimated to negatively impact the Common equity tier 1 capital ratio by approximately 100 bps. We are currently working with the U.S. banking regulators in order to exit parallel run.
|
Bank of America, N.A. Regulatory Capital
Table
19
presents regulatory capital information for BANA in accordance with Basel 3 Standardized
–
Transition as measured at
March 31, 2015
and
December 31, 2014
.
|
Table 19
|
|||||||||||||||||||
|
Bank of America, N.A. Regulatory Capital
|
|||||||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||||||
|
(Dollars in millions)
|
Ratio
|
Amount
|
Minimum
Required
(1)
|
Ratio
|
Amount
|
Minimum
Required
(1)
|
|||||||||||||
|
Common equity tier 1 capital
|
12.6
|
%
|
$
|
145,042
|
|
6.5
|
%
|
13.1
|
%
|
$
|
145,150
|
|
4.0
|
%
|
|||||
|
Tier 1 capital
|
12.6
|
|
145,042
|
|
8.0
|
|
13.1
|
|
145,150
|
|
6.0
|
|
|||||||
|
Total capital
|
14.0
|
|
161,662
|
|
10.0
|
|
14.6
|
|
161,623
|
|
10.0
|
|
|||||||
|
Tier 1 leverage
|
9.5
|
|
145,042
|
|
5.0
|
|
9.6
|
|
145,150
|
|
5.0
|
|
|||||||
|
(1)
|
Percent required to meet guidelines to be considered "well capitalized" under the Prompt Corrective Action framework, except for the December 31, 2014 Common equity tier 1 capital which reflects capital adequacy minimum requirements as an advanced approaches bank under Basel 3 during a transition period that ended in 2014.
|
52
BANA's Common equity tier 1 capital ratio under Basel 3
Standardized
–
Transition was
12.6 percent
at
March 31, 2015
, a
decrease
of
54
bps from
December 31, 2014
, primarily driven by dividends to the parent company and the change in the calculation of risk-weighted assets from the general risk-based approach at December 31, 2014 to the Basel 3 Standardized approach, partially offset by earnings. The Total capital ratio
decreased
59
bps to
14.0 percent
at
March 31, 2015
compared to
December 31, 2014
and the Tier 1 leverage ratio
decreased
11
bps to
9.5 percent
. The
decrease
in the Total capital ratio was driven by the same factors as the Common equity tier 1 capital ratio. The
decrease
in the Tier 1 leverage ratio was primarily driven by an increase in adjusted quarterly average total assets.
Other Regulatory Capital Requirements
Supplementary Leverage Ratio
Basel 3 also requires the calculation of a SLR. The numerator of the SLR is quarter-end Basel 3 Tier 1 capital. The denominator is supplementary leverage exposure based on the daily average of the sum of on-balance sheet exposures less permitted Tier 1 deductions, as well as the simple average of certain off-balance sheet exposures, as of the end of each month in a quarter. Off-balance sheet exposures include lending commitments, letters of credit, OTC derivatives, repo-style transactions and margin loan commitments. Total leverage exposure includes the effective notional principal amount of credit derivatives and similar instruments through which credit protection is sold. The credit conversion factors (CCFs) applied to certain off-balance sheet exposures, conform to the graduated CCF utilized under the Basel 3 Standardized approach, but are subject to a minimum 10 percent CCF. Effective January 1, 2018, the Corporation will be required to maintain a minimum SLR of 3.0 percent, plus a supplementary leverage buffer of 2.0 percent, in order to avoid certain restrictions on capital distributions and discretionary bonuses. Insured depository institutions, including BANA, will be required to maintain a minimum 6.0 percent SLR to be considered "well capitalized."
As of
March 31, 2015
, the Corporation's SLR was
6.3 percent
, which exceeds the 5.0 percent threshold that represents the minimum plus the supplementary leverage buffer for BHCs. The SLR for BANA was
7.1 percent
, which exceeds the 6.0 percent "well-capitalized" level for insured depository institutions of BHCs.
Global Systemically Important Bank Surcharge
In November 2011, the Basel Committee on Banking Supervision (Basel Committee) published a methodology to identify global systemically important banks (G-SIBs) and impose an additional loss absorbency requirement through the introduction of a surcharge of up to 3.5 percent, which must be satisfied with Common equity tier 1 capital. The assessment methodology relies on an indicator-based measurement approach to determine a score relative to the global banking industry. The chosen indicators are size, complexity, cross-jurisdictional activity, inter-connectedness and substitutability/financial institution infrastructure. Institutions with the highest scores are designated as G-SIBs and are assigned to one of four loss absorbency buckets from 1.0 percent to 2.5 percent, in 0.5 percent increments based on each institution's relative score and supervisory judgment. A fifth loss absorbency bucket of 3.5 percent is currently empty and serves to discourage banks from becoming more systemically important. Also in November 2011, the Financial Stability Board (FSB) published an integrated set of policy measures and identified an initial group of G-SIBs, which included the Corporation.
In July 2013, the Basel Committee updated the November 2011 methodology to recalibrate the substitutability/financial institution infrastructure indicator by introducing a cap on the weighting of that component, and requiring the annual publication by the FSB of key information necessary to permit each G-SIB to calculate its score and observe its position within the buckets and relative to the industry total for each indicator. Every three years, beginning on January 1, 2016, the Basel Committee will reconsider and recalibrate the bucket thresholds. The Basel Committee and FSB expect banks to change their behavior in response to the incentives of the G-SIB framework, as well as other aspects of Basel 3 and jurisdiction-specific regulations.
In November 2014, the Basel Committee published an updated list of G-SIBs and their respective loss absorbency buckets. As of
March 31, 2015
, we estimated our surcharge at
1.5 percent
based on this information and the FSB's report, "2014 update of list of global systemically important banks (G-SIBs)." Our surcharge could change each year based on our actions and those of our peers, as the scoring methods utilize data from the Corporation in combination with the industry. If our score were to increase, we could be subject to a higher G-SIB surcharge.
In December 2014, the Federal Reserve proposed a regulation that would implement G-SIB surcharge requirements for the largest U.S. BHCs. Under the proposal, assignment to loss absorbency buckets would be determined by the higher score as calculated according to two methods. Method 1 is substantially similar to the Basel Committee's methodology, whereas Method 2 replaces the substitutability/financial institution infrastructure indicator with a measure of short-term wholesale funding and then multiplies the overall score by two. The Federal Reserve estimates that Method 2 will yield a higher surcharge, currently ranging from 1.0 percent to 4.5 percent.
53
Under the proposed U.S. rules, the G-SIB surcharge requirement will begin to phase in effective January 2016, with full implementation in January 2019. Data from the Basel Committee's original five indicators, measured as of December 31, 2014, combined with short-term wholesale funding data covering the third quarter of 2015, is expected to be used to determine the G-SIB surcharge that will be effective in 2016.
For more information on regulatory capital, see
Note 16 – Regulatory Requirements and Restrictions
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
Capital Conservation and Countercyclical Capital Buffers
Beginning January 1, 2016, we will be subject to capital conservation and countercyclical capital buffers. The Corporation will be required to maintain a capital conservation buffer greater than 2.5 percent, plus any applicable countercyclical capital buffer once fully phased in, in order to avoid certain restrictions on capital distributions and bonus payments. The capital conservation buffer will be composed solely of Common equity tier 1 capital. The countercyclical capital buffer is currently set at zero. U.S. banking regulators must jointly decide on any increase in the countercyclical buffer, after which time banks will have one year to implement.
Minimum Total Loss Absorbing Capacity
In November 2014, the FSB proposed standards for the total loss absorbing capacity (TLAC) that G-SIBs would be required to maintain in order to facilitate an orderly resolution in the event of failure. The proposal would require G-SIBs to hold sufficient amounts of qualifying regulatory capital and debt instruments to help ensure continuity of critical functions upon a resolution without imposing losses on taxpayers or threatening financial stability. Under the proposal, a G-SIB would be required to maintain minimum TLAC of 16.0 percent to 20.0 percent of risk-weighted assets, excluding regulatory capital buffers, and at least twice the minimum Basel 3 Tier 1 leverage ratio. The proposal is expected to be revised after the FSB reviews public comments received on the proposal and completes its impact assessment including a quantitative impact study and a market survey. The FSB intends to submit a final proposal to the Group of Twenty (G-20) by the fourth quarter of 2015 in advance of its summit. U.S. banking regulators are expected to propose TLAC rules in 2015 which would be applicable to U.S. banks that have been designated as G-SIBs.
Broker-dealer Regulatory Capital and Securities Regulation
The Corporation's principal U.S. broker-dealer subsidiaries are Merrill Lynch, Pierce, Fenner & Smith (MLPF&S) and Merrill Lynch Professional Clearing Corp (MLPCC). MLPCC is a fully-guaranteed subsidiary of MLPF&S and provides clearing and settlement services. Both entities are subject to the net capital requirements of SEC Rule 15c3-1. Both entities are also registered as futures commission merchants and are subject to the Commodity Futures Trading Commission Regulation 1.17.
MLPF&S has elected to compute the minimum capital requirement in accordance with the Alternative Net Capital Requirement as permitted by SEC Rule 15c3-1. At
March 31, 2015
, MLPF&S's regulatory net capital as defined by Rule 15c3-1 was $10.5 billion and exceeded the minimum requirement of $1.5 billion by $9.0 billion. MLPCC's net capital of $3.3 billion exceeded the minimum requirement of $518 million by $2.7 billion.
In accordance with the Alternative Net Capital Requirements, MLPF&S is required to maintain tentative net capital in excess of $1.0 billion, net capital in excess of $500 million and notify the SEC in the event its tentative net capital is less than $5.0 billion. At
March 31, 2015
, MLPF&S had tentative net capital and net capital in excess of the minimum and notification requirements.
Merrill Lynch International (MLI), a U.K. investment firm, is regulated by the Prudential Regulation Authority and the Financial Conduct Authority, and is subject to certain regulatory capital requirements. At
March 31, 2015
, MLI's capital resources were $34.4 billion which exceeded the minimum requirement of $19.7 billion.
54
|
Common and Preferred Stock Dividends
|
For a summary of our declared quarterly cash dividends on common stock during the
first quarter of 2015
and through
April 29, 2015
, see
Note 11 – Shareholders' Equity
to the Consolidated Financial Statements
. The Corporation has certain warrants outstanding and exercisable to purchase
150.4 million
shares of its common stock, expiring on January 16, 2019 and warrants outstanding and exercisable to purchase
121.8 million
shares of its common stock, expiring on October 28, 2018. For more information on the original issuance and exercise price of these warrants, see
Note 11 – Shareholders' Equity
to the Consolidated Financial Statements
.
Table
20
is a summary of our cash dividend declarations on preferred stock during the
first quarter of 2015
and through
April 29, 2015
. During the
first quarter of 2015
, we declared
$382 million
of cash dividends on preferred stock, of which
$319 million
was paid during the quarter with the remainder paid in April 2015. For more information on preferred stock, including the preferred issuances of Series AA, see
Note 11 – Shareholders' Equity
to the Consolidated Financial Statements
.
|
Table 20
|
||||||||||||||||
|
Preferred Stock Cash Dividend Summary
|
||||||||||||||||
|
Preferred Stock
|
Outstanding
Notional
Amount
(in millions)
|
Declaration Date
|
Record Date
|
Payment Date
|
Per Annum
Dividend Rate
|
Dividend Per
Share
|
||||||||||
|
Series B
(1)
|
$
|
1
|
|
February 10, 2015
|
April 10, 2015
|
April 24, 2015
|
7.00
|
%
|
$
|
1.75
|
|
|||||
|
|
April 16, 2015
|
July 10, 2015
|
July 24, 2015
|
7.00
|
|
1.75
|
|
|||||||||
|
Series D
(2)
|
$
|
654
|
|
January 9, 2015
|
February 27, 2015
|
March 16, 2015
|
6.204
|
%
|
$
|
0.38775
|
|
|||||
|
April 13, 2015
|
May 29, 2015
|
June 15, 2015
|
6.204
|
|
0.38775
|
|
||||||||||
|
Series E
(2)
|
$
|
317
|
|
January 9, 2015
|
January 30, 2015
|
February 17, 2015
|
Floating
|
|
$
|
0.25556
|
|
|||||
|
April 13, 2015
|
April 30, 2015
|
May 15, 2015
|
Floating
|
|
0.24722
|
|
||||||||||
|
Series F
|
$
|
141
|
|
January 9, 2015
|
February 27, 2015
|
March 16, 2015
|
Floating
|
|
$
|
1,000.00
|
|
|||||
|
April 13, 2015
|
May 29, 2015
|
June 15, 2015
|
Floating
|
|
1,022.22222
|
|
||||||||||
|
Series G
|
$
|
493
|
|
January 9, 2015
|
February 27, 2015
|
March 16, 2015
|
Adjustable
|
|
$
|
1,000.00
|
|
|||||
|
April 13, 2015
|
May 29, 2015
|
June 15, 2015
|
Adjustable
|
|
1,022.22222
|
|
||||||||||
|
Series I
(2)
|
$
|
365
|
|
January 9, 2015
|
March 15, 2015
|
April 1, 2015
|
6.625
|
%
|
$
|
0.4140625
|
|
|||||
|
April 13, 2015
|
June 15, 2015
|
July 1, 2015
|
6.625
|
|
0.4140625
|
|
||||||||||
|
Series K
(3, 4)
|
$
|
1,544
|
|
January 9, 2015
|
January 15, 2015
|
January 30, 2015
|
Fixed-to-floating
|
|
$
|
40.00
|
|
|||||
|
Series L
|
$
|
3,080
|
|
March 18, 2015
|
April 1, 2015
|
April 30, 2015
|
7.25
|
%
|
$
|
18.125
|
|
|||||
|
Series M
(3, 4)
|
$
|
1,310
|
|
April 13, 2015
|
April 30, 2015
|
May 15, 2015
|
Fixed-to-floating
|
|
$
|
40.625
|
|
|||||
|
Series T
|
$
|
5,000
|
|
February 10, 2015
|
March 26, 2015
|
April 10, 2015
|
6.00
|
%
|
$
|
1,500.00
|
|
|||||
|
April 16, 2015
|
June 25, 2015
|
July 10, 2015
|
6.00
|
|
1,500.00
|
|
||||||||||
|
Series U
(3, 4)
|
$
|
1,000
|
|
April 13, 2015
|
May 15, 2015
|
June 1, 2015
|
Fixed-to-floating
|
|
$
|
26.00
|
|
|||||
|
Series V
(3, 4)
|
$
|
1,500
|
|
April 13, 2015
|
June 1, 2015
|
June 17, 2015
|
Fixed-to-floating
|
|
$
|
25.625
|
|
|||||
|
Series W
(2)
|
$
|
1,100
|
|
January 9, 2015
|
February 15, 2015
|
March 9, 2015
|
6.625
|
%
|
$
|
0.4140625
|
|
|||||
|
April 13, 2015
|
May 15, 2015
|
June 9, 2015
|
6.625
|
|
0.4140625
|
|
||||||||||
|
Series X
(3, 4)
|
$
|
2,000
|
|
January 9, 2015
|
February 15, 2015
|
March 5, 2015
|
Fixed-to-floating
|
|
$
|
31.25
|
|
|||||
|
Series Y
(2)
|
$
|
1,100
|
|
March 18, 2015
|
April 1, 2015
|
April 27, 2015
|
6.50
|
%
|
$
|
0.40625
|
|
|||||
|
Series Z
(4)
|
$
|
1,400
|
|
March 18, 2015
|
April 1, 2015
|
April 23, 2015
|
Fixed-to-floating
|
|
$
|
32.50
|
|
|||||
|
(1)
|
Dividends are cumulative.
|
|
(2)
|
Dividends per depositary share, each representing a 1/1,000
th
interest in a share of preferred stock.
|
|
(3)
|
Initially pays dividends semi-annually.
|
|
(4)
|
Dividends per depositary share, each representing a 1/25
th
interest in a share of preferred stock.
|
55
|
Table 20
|
||||||||||||||||
|
Preferred Stock Cash Dividend Summary (continued)
|
||||||||||||||||
|
Preferred Stock
|
Outstanding
Notional
Amount
(in millions)
|
Declaration Date
|
Record Date
|
Payment Date
|
Per Annum
Dividend Rate
|
Dividend Per
Share
|
||||||||||
|
Series 1
(5)
|
$
|
98
|
|
January 9, 2015
|
February 15, 2015
|
February 27, 2015
|
Floating
|
|
$
|
0.18750
|
|
|||||
|
April 13, 2015
|
May 15, 2015
|
May 28, 2015
|
Floating
|
|
0.18750
|
|
||||||||||
|
Series 2
(5)
|
$
|
299
|
|
January 9, 2015
|
February 15, 2015
|
February 27, 2015
|
Floating
|
|
$
|
0.19167
|
|
|||||
|
April 13, 2015
|
May 15, 2015
|
May 28, 2015
|
Floating
|
|
0.18542
|
|
||||||||||
|
Series 3
(5)
|
$
|
653
|
|
January 9, 2015
|
February 15, 2015
|
March 2, 2015
|
6.375
|
%
|
$
|
0.3984375
|
|
|||||
|
April 13, 2015
|
May 15, 2015
|
May 28, 2015
|
6.375
|
|
0.3984375
|
|
||||||||||
|
Series 4
(5)
|
$
|
210
|
|
January 9, 2015
|
February 15, 2015
|
February 27, 2015
|
Floating
|
|
$
|
0.25556
|
|
|||||
|
April 13, 2015
|
May 15, 2015
|
May 28, 2015
|
Floating
|
|
0.24722
|
|
||||||||||
|
Series 5
(5)
|
$
|
422
|
|
January 9, 2015
|
February 1, 2015
|
February 23, 2015
|
Floating
|
|
$
|
0.25556
|
|
|||||
|
April 13, 2015
|
May 1, 2015
|
May 21, 2015
|
Floating
|
|
0.24722
|
|
||||||||||
|
(5)
|
Dividends per depositary share, each representing a 1/1,200
th
interest in a share of preferred stock.
|
|
Liquidity Risk
|
|
Funding and Liquidity Risk Management
|
We define liquidity risk as the potential inability to meet our contractual and contingent financial obligations, on- or off-balance sheet, as they come due. Our primary liquidity risk management objective is to meet all contractual and contingent financial obligations at all times, including during periods of stress. To achieve that objective, we analyze and monitor our liquidity risk under expected and stressed conditions, maintain excess liquidity and access to diverse funding sources, including our stable deposit base, and seek to align liquidity-related incentives and risks.
We define excess liquidity as readily available assets, limited to cash and high-quality, liquid, unencumbered securities that we can use to meet our contractual and contingent financial obligations as those obligations arise. We manage our liquidity position through line of business and asset-liability management activities, as well as through our legal entity funding strategy, on both a forward and current (including intraday) basis under both expected and stressed conditions. We believe that a centralized approach to funding and liquidity risk management within Corporate Treasury enhances our ability to monitor liquidity requirements, maximizes access to funding sources, minimizes borrowing costs and facilitates timely responses to liquidity events. For more information regarding global funding and liquidity risk management, see
Liquidity Risk – Funding and Liquidity Risk Management
on page
65
of the MD&A of the Corporation's 2014 Annual Report on Form 10-K
.
Global Excess Liquidity Sources and Other Unencumbered Assets
We maintain excess liquidity available to Bank of America Corporation, including the parent company and selected subsidiaries, in the form of cash and high-quality, liquid, unencumbered securities. Our liquidity buffer, or Global Excess Liquidity Sources, is comprised of assets that are readily available to the parent company and selected subsidiaries, including bank and broker-dealer subsidiaries, even during stressed market conditions. Our cash is primarily on deposit with the Federal Reserve and, to a lesser extent, central banks outside of the U.S. We limit the composition of high-quality, liquid, unencumbered securities to U.S. government securities, U.S. agency securities, U.S. agency MBS and a select group of non-U.S. government and supranational securities. We believe we can quickly obtain cash for these securities, even in stressed conditions, through repurchase agreements or outright sales. We hold our Global Excess Liquidity Sources in legal entities that allow us to meet the liquidity requirements of our global businesses, and we consider the impact of potential regulatory, tax, legal and other restrictions that could limit the transferability of funds among entities. Our Global Excess Liquidity Sources are substantially the same in composition to what qualifies as High Quality Liquid Assets (HQLA) under the final LCR rules. For more information on the final rules, see
Liquidity Risk – Basel 3 Liquidity Standards
on page
58
.
56
Our Global Excess Liquidity Sources were
$478 billion
and
$439 billion
at
March 31, 2015
and
December 31, 2014
and were maintained as presented in Table
21
.
|
Table 21
|
|||||||||||
|
Global Excess Liquidity Sources
|
|||||||||||
|
(Dollars in billions)
|
March 31
2015 |
December 31
2014 |
Average for Three Months Ended March 31, 2015
|
||||||||
|
Parent company
|
$
|
93
|
|
$
|
98
|
|
$
|
92
|
|
||
|
Bank subsidiaries
|
354
|
|
306
|
|
339
|
|
|||||
|
Other regulated entities
|
31
|
|
35
|
|
35
|
|
|||||
|
Total Global Excess Liquidity Sources
|
$
|
478
|
|
$
|
439
|
|
$
|
466
|
|
||
As shown in Table
21
, parent company Global Excess Liquidity Sources totaled
$93 billion
and
$98 billion
at
March 31, 2015
and
December 31, 2014
. The
decrease
in parent company liquidity was primarily due to derivative collateral outflows and incentive compensation funding. Typically, parent company excess liquidity is in the form of cash deposited with BANA.
Global Excess Liquidity Sources available to our bank subsidiaries totaled
$354 billion
and
$306 billion
at
March 31, 2015
and
December 31, 2014
. The
increase
in bank subsidiaries' liquidity was primarily due to deposit inflows and a shift from less liquid mortgage loans into more liquid securities, partially offset by dividends to the parent company. Global Excess Liquidity Sources at bank subsidiaries exclude the cash deposited by the parent company. Our bank subsidiaries can also generate incremental liquidity by pledging a range of other unencumbered loans and securities to certain FHLBs and the Federal Reserve Discount Window. The cash we could have obtained by borrowing against this pool of specifically-identified eligible assets was approximately $190 billion and $214 billion at
March 31, 2015
and
December 31, 2014
. We have established operational procedures to enable us to borrow against these assets, including regularly monitoring our total pool of eligible loans and securities collateral. Eligibility is defined in guidelines from the FHLBs and the Federal Reserve and is subject to change at their discretion. Due to regulatory restrictions, liquidity generated by the bank subsidiaries can generally be used only to fund obligations within the bank subsidiaries and can only be transferred to the parent company or nonbank subsidiaries with prior regulatory approval.
Global Excess Liquidity Sources available to our other regulated entities, comprised primarily of broker-dealer subsidiaries, totaled
$31 billion
and
$35 billion
at
March 31, 2015
and
December 31, 2014
. Our other regulated entities also held other unencumbered investment-grade securities and equities that we believe could be used to generate additional liquidity. Liquidity held in an other regulated entity is primarily available to meet the obligations of that entity and transfers to the parent company or to any other subsidiary may be subject to prior regulatory approval due to regulatory restrictions and minimum requirements.
Table
22
presents the composition of Global Excess Liquidity Sources at
March 31, 2015
and
December 31, 2014
.
|
Table 22
|
|||||||
|
Global Excess Liquidity Sources Composition
|
|||||||
|
(Dollars in billions)
|
March 31
2015 |
December 31
2014 |
|||||
|
Cash on deposit
|
$
|
122
|
|
$
|
97
|
|
|
|
U.S. Treasury securities
|
60
|
|
74
|
|
|||
|
U.S. agency securities and mortgage-backed securities
|
274
|
|
252
|
|
|||
|
Non-U.S. government and supranational securities
|
22
|
|
16
|
|
|||
|
Total Global Excess Liquidity Sources
|
$
|
478
|
|
$
|
439
|
|
|
57
Time-to-required Funding and Stress Modeling
We use a variety of metrics to determine the appropriate amounts of excess liquidity to maintain at the parent company, our bank subsidiaries and other regulated entities. One metric we use to evaluate the appropriate level of excess liquidity at the parent company is "time-to-required funding." This debt coverage measure indicates the number of months that the parent company can continue to meet its unsecured contractual obligations as they come due using only its Global Excess Liquidity Sources without issuing any new debt or accessing any additional liquidity sources. We define unsecured contractual obligations for purposes of this metric as maturities of senior or subordinated debt issued or guaranteed by Bank of America Corporation. These include certain unsecured debt instruments, primarily structured liabilities, which we may be required to settle for cash prior to maturity. Our time-to-required funding was
37 months
at
March 31, 2015
. For purposes of calculating time-to-required funding at
March 31, 2015
, we have included in the amount of unsecured contractual obligations $8.6 billion related to the BNY Mellon Settlement. The BNY Mellon Settlement is subject to final approval and the timing of this payment is not certain. For more information on the BNY Mellon Settlement, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
to the Consolidated Financial Statements
.
We also utilize liquidity stress models to assist us in determining the appropriate amounts of excess liquidity to maintain at the parent company, our bank subsidiaries and other regulated entities. These models are risk sensitive and have become increasingly important in analyzing our potential contractual and contingent cash outflows beyond those outflows considered in the time-to-required funding analysis. We evaluate the liquidity requirements under a range of scenarios with varying levels of severity and time horizons. The scenarios we consider and utilize incorporate market-wide and Corporation-specific events, including potential credit rating downgrades for the parent company and our subsidiaries, and are based on historical experience, regulatory guidance, and both expected and unexpected future events.
The types of potential contractual and contingent cash outflows we consider in our scenarios may include, but are not limited to, upcoming contractual maturities of unsecured debt and reductions in new debt issuance; diminished access to secured financing markets; potential deposit withdrawals; increased draws on loan commitments, liquidity facilities and letters of credit; additional collateral that counterparties could call if our credit ratings were downgraded; collateral and margin requirements arising from market value changes; and potential liquidity required to maintain businesses and finance customer activities. Changes in certain market factors including, but not limited to, credit rating downgrades, could negatively impact potential contractual and contingent outflows and the related financial instruments, and in some cases these impacts could be material to our financial results.
We consider all sources of funds that we could access during each stress scenario and focus particularly on matching available sources with corresponding liquidity requirements by legal entity. We also use the stress modeling results to manage our asset-liability profile and establish limits and guidelines on certain funding sources and businesses.
Basel 3 Liquidity Standards
The Basel Committee has issued two liquidity risk-related standards that are considered part of the Basel 3 liquidity standards: the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR).
In 2014, the U.S. banking regulators finalized LCR requirements for the largest U.S. financial institutions on a consolidated basis and for their subsidiary depository institutions with total assets greater than $10 billion. The LCR is calculated as the amount of a financial institution's unencumbered HQLA relative to the estimated net cash outflows the institution could encounter over a 30-day period of significant liquidity stress, expressed as a percentage. Under the final rule, an initial minimum LCR of 80 percent was required as of January 2015, and will increase thereafter in 10 percentage point increments annually through January 2017. These minimum requirements are applicable to the Corporation on a consolidated basis and to our insured depository institutions. As of
March 31, 2015
, we estimate the consolidated Corporation was above the 2017 LCR requirements.
In 2014, the Basel Committee issued a final standard for the NSFR, the standard that is intended to reduce funding risk over a longer time horizon. The NSFR is designed to ensure an appropriate amount of stable funding, generally capital and liabilities maturing beyond one year, given the mix of assets and off-balance sheet items. The final standard aligns the NSFR to the LCR and gives more credit to a wider range of funding. The final standard also includes adjustments to the stable funding required for certain types of assets, some of which reduce the stable funding requirement and some of which increase it. Basel Committee standards generally do not apply directly to U.S. financial institutions, but require adoption by U.S. banking regulators. The U.S. banking regulators are expected to propose a similar NSFR regulation applicable to U.S. financial institutions in the near future. We expect to meet the NSFR requirement within the regulatory timeline.
58
Diversified Funding Sources
We fund our assets primarily with a mix of deposits and secured and unsecured liabilities through a centralized, globally coordinated funding strategy. We diversify our funding globally across products, programs, markets, currencies and investor groups.
The primary benefits of our centralized funding strategy include greater control, reduced funding costs, wider name recognition by investors and greater flexibility to meet the variable funding requirements of subsidiaries. Where regulations, time zone differences or other business considerations make parent company funding impractical, certain other subsidiaries may issue their own debt.
We fund a substantial portion of our lending activities through our deposits, which were
$1.15 trillion
and
$1.12 trillion
at
March 31, 2015
and
December 31, 2014
. Deposits are primarily generated by our
Consumer Banking, GWIM
and
Global Banking
segments. These deposits are diversified by clients, product type and geography, and the majority of our U.S. deposits are insured by the Federal Deposit Insurance Corporation. We consider a substantial portion of our deposits to be a stable, low-cost and consistent source of funding. We believe this deposit funding is generally less sensitive to interest rate changes, market volatility or changes in our credit ratings than wholesale funding sources. Our lending activities may also be financed through secured borrowings, including credit card securitizations and securitizations with GSEs, the FHA and private-label investors, as well as FHLB loans.
Our trading activities in other regulated entities are primarily funded on a secured basis through securities lending and repurchase agreements and these amounts will vary based on customer activity and market conditions. We believe funding these activities in the secured financing markets is more cost-efficient and less sensitive to changes in our credit ratings than unsecured financing. Repurchase agreements are generally short-term and often overnight. Disruptions in secured financing markets for financial institutions have occurred in prior market cycles which resulted in adverse changes in terms or significant reductions in the availability of such financing. We manage the liquidity risks arising from secured funding by sourcing funding globally from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate. For more information on secured financing agreements, see
Note 9 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings
to the Consolidated Financial Statements
.
We issue long-term unsecured debt in a variety of maturities and currencies to achieve cost-efficient funding and to maintain an appropriate maturity profile. While the cost and availability of unsecured funding may be negatively impacted by general market conditions or by matters specific to the financial services industry or the Corporation, we seek to mitigate refinancing risk by actively managing the amount of our borrowings that we anticipate will mature within any month or quarter.
During the
three months ended March 31, 2015
, we issued
$9.3 billion
of long-term debt, consisting of $4.2 billion for Bank of America Corporation, $3.4 billion for Bank of America, N.A. and $1.7 billion of other debt.
59
Table
23
presents the carrying value of aggregate annual contractual maturities of long-term debt as of
March 31, 2015
. During the
three months ended March 31, 2015
, we had total long-term debt maturities and purchases of $11.7 billion consisting of $7.2 billion for Bank of America Corporation, $2.3 billion for Bank of America, N.A. and $2.2 billion of other debt.
|
Table 23
|
|||||||||||||||||||||||||||
|
Long-term Debt By Maturity
|
|||||||||||||||||||||||||||
|
Remainder of
|
|||||||||||||||||||||||||||
|
(Dollars in millions)
|
2015
|
2016
|
2017
|
2018
|
2019
|
Thereafter
|
Total
|
||||||||||||||||||||
|
Bank of America Corporation
|
|||||||||||||||||||||||||||
|
Senior notes
|
$
|
11,420
|
|
$
|
16,954
|
|
$
|
18,463
|
|
$
|
19,941
|
|
$
|
15,929
|
|
$
|
40,547
|
|
$
|
123,254
|
|
||||||
|
Senior structured notes
|
3,333
|
|
3,290
|
|
1,520
|
|
1,830
|
|
1,389
|
|
6,945
|
|
18,307
|
|
|||||||||||||
|
Subordinated notes
|
1,210
|
|
4,992
|
|
4,995
|
|
2,632
|
|
1,473
|
|
15,654
|
|
30,956
|
|
|||||||||||||
|
Junior subordinated notes
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7,284
|
|
7,284
|
|
|||||||||||||
|
Total Bank of America Corporation
|
15,963
|
|
25,236
|
|
24,978
|
|
24,403
|
|
18,791
|
|
70,430
|
|
179,801
|
|
|||||||||||||
|
Bank of America, N.A.
|
|||||||||||||||||||||||||||
|
Senior notes
|
22
|
|
3,057
|
|
5,167
|
|
1,751
|
|
15
|
|
106
|
|
10,118
|
|
|||||||||||||
|
Subordinated notes
|
—
|
|
1,066
|
|
3,535
|
|
—
|
|
1
|
|
1,756
|
|
6,358
|
|
|||||||||||||
|
Advances from Federal Home Loan Banks
|
3,003
|
|
6,003
|
|
10
|
|
10
|
|
16
|
|
139
|
|
9,181
|
|
|||||||||||||
|
Securitizations and other Bank VIEs
(1)
|
1,134
|
|
1,290
|
|
3,550
|
|
1,100
|
|
2,450
|
|
1,410
|
|
10,934
|
|
|||||||||||||
|
Total Bank of America, N.A.
|
4,159
|
|
11,416
|
|
12,262
|
|
2,861
|
|
2,482
|
|
3,411
|
|
36,591
|
|
|||||||||||||
|
Other debt
|
|||||||||||||||||||||||||||
|
Senior notes
|
21
|
|
—
|
|
1
|
|
—
|
|
—
|
|
—
|
|
22
|
|
|||||||||||||
|
Structured liabilities
|
1,454
|
|
2,328
|
|
2,014
|
|
1,316
|
|
996
|
|
7,979
|
|
16,087
|
|
|||||||||||||
|
Junior subordinated notes
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
405
|
|
405
|
|
|||||||||||||
|
Nonbank VIEs
(1)
|
5
|
|
461
|
|
245
|
|
92
|
|
27
|
|
2,178
|
|
3,008
|
|
|||||||||||||
|
Other
|
202
|
|
924
|
|
428
|
|
32
|
|
6
|
|
352
|
|
1,944
|
|
|||||||||||||
|
Total other debt
|
1,682
|
|
3,713
|
|
2,688
|
|
1,440
|
|
1,029
|
|
10,914
|
|
21,466
|
|
|||||||||||||
|
Total long-term debt
|
$
|
21,804
|
|
$
|
40,365
|
|
$
|
39,928
|
|
$
|
28,704
|
|
$
|
22,302
|
|
$
|
84,755
|
|
$
|
237,858
|
|
||||||
(1)
Represents the total long-term debt included in the liabilities of consolidated VIEs on the Consolidated Balance Sheet.
Table
24
presents our long-term debt by major currency at
March 31, 2015
and
December 31, 2014
.
|
Table 24
|
|||||||
|
Long-term Debt By Major Currency
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
U.S. Dollar
|
$
|
190,892
|
|
$
|
191,264
|
|
|
|
Euro
|
27,773
|
|
30,687
|
|
|||
|
British Pound
|
7,596
|
|
7,881
|
|
|||
|
Japanese Yen
|
4,780
|
|
6,058
|
|
|||
|
Australian Dollar
|
1,990
|
|
2,135
|
|
|||
|
Canadian Dollar
|
1,619
|
|
1,779
|
|
|||
|
Swiss Franc
|
916
|
|
897
|
|
|||
|
Other
|
2,292
|
|
2,438
|
|
|||
|
Total long-term debt
|
$
|
237,858
|
|
$
|
243,139
|
|
|
Total long-term debt
decreased
$5.3 billion
, or
two percent
, during the
three months ended March 31, 2015
, primarily driven by maturities outpacing new issuances. We may, from time to time, purchase outstanding debt instruments in various transactions, depending on prevailing market conditions, liquidity and other factors. In addition, our other regulated entities may make markets in our debt instruments to provide liquidity for investors. For more information on long-term debt funding, see
Note 11 – Long-term Debt
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
and for more information regarding funding and liquidity risk management, see page
65
of the MD&A of the Corporation's 2014 Annual Report on Form 10-K
.
60
We use derivative transactions to manage the duration, interest rate and currency risks of our borrowings, considering the characteristics of the assets they are funding. For further details on our ALM activities, see
Interest Rate Risk Management for Non-trading Activities
on page
108
.
We may also issue unsecured debt in the form of structured notes for client purposes. During the
three months ended March 31, 2015
, we issued $872 million of structured notes, a majority of which was issued by Bank of America Corporation. Structured notes are debt obligations that pay investors returns linked to other debt or equity securities, indices, currencies or commodities. We typically hedge the returns we are obligated to pay on these liabilities with derivatives and/or investments in the underlying instruments, so that from a funding perspective, the cost is similar to our other unsecured long-term debt. We could be required to settle certain structured liability obligations for cash or other securities prior to maturity under certain circumstances, which we consider for liquidity planning purposes. We believe, however, that a portion of such borrowings will remain outstanding beyond the earliest put or redemption date. We had outstanding structured liabilities with a carrying value of $34.6 billion and $38.8 billion at
March 31, 2015
and
December 31, 2014
.
Substantially all of our senior and subordinated debt obligations contain no provisions that could trigger a requirement for an early repayment, require additional collateral support, result in changes to terms, accelerate maturity or create additional financial obligations upon an adverse change in our credit ratings, financial ratios, earnings, cash flows or stock price.
Contingency Planning
We maintain contingency funding plans that outline our potential responses to liquidity stress events at various levels of severity. These policies and plans are based on stress scenarios and include potential funding strategies and communication and notification procedures that we would implement in the event we experienced stressed liquidity conditions. We periodically review and test the contingency funding plans to validate efficacy and assess readiness.
Our U.S. bank subsidiaries can access contingency funding through the Federal Reserve Discount Window. Certain non-U.S. subsidiaries have access to central bank facilities in the jurisdictions in which they operate. While we do not rely on these sources in our liquidity modeling, we maintain the policies, procedures and governance processes that would enable us to access these sources if necessary.
Credit Ratings
Our borrowing costs and ability to raise funds are impacted by our credit ratings. In addition, credit ratings may be important to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions, including OTC derivatives. Thus, it is our objective to maintain high-quality credit ratings, and management maintains an active dialogue with the rating agencies.
Credit ratings and outlooks are opinions expressed by rating agencies on our creditworthiness and that of our obligations or securities, including long-term debt, short-term borrowings, preferred stock and other securities, including asset securitizations. Our credit ratings are subject to ongoing review by the rating agencies, and they consider a number of factors, including our own financial strength, performance, prospects and operations, as well as factors not under our control. The rating agencies could make adjustments to our ratings at any time, and they provide no assurances that they will maintain our ratings at current levels.
Other factors that influence our credit ratings include changes to the rating agencies' methodologies for our industry or certain security types, the rating agencies' assessment of the general operating environment for financial services companies, the sovereign credit ratings of the U.S. government, our mortgage exposures (including litigation), our relative positions in the markets in which we compete, reputation, liquidity position, diversity of funding sources, funding costs, the level and volatility of earnings, corporate governance and risk management policies, capital position, capital management practices, and current or future regulatory and legislative initiatives.
All three agencies have indicated that, as a systemically important financial institution, the senior credit ratings of the Corporation and Bank of America, N.A. (or in the case of Moody's Investors Service, Inc. (Moody's), only the ratings of Bank of America, N.A.) currently reflect the expectation that, if necessary, we would receive significant support from the U.S. government, and that they will continue to assess such support in the context of sovereign financial strength and regulatory and legislative developments.
On March 17, 2015, Moody's announced several rating actions affecting banks globally following the publication of its new bank rating methodology. As a result, certain ratings of Bank of America have been placed on review for upgrade, including the long-term senior debt and preferred stock ratings of Bank of America Corporation and the long-term senior debt and long-term deposit ratings of Bank of America, N.A. Moody's has indicated that Bank of America Corporation's and Bank of America, N.A.'s long-term senior debt ratings could each increase by one notch to Baa1 and A1, respectively, as a result of this review. The ratings and outlook of the short-term and long-term subordinated debt of Bank of America Corporation and the short-term debt of Bank of America, N.A. remain unchanged. Moody's indicated that it expects to conclude its review in the coming few months.
61
On December 2, 2014, Standard & Poor's Ratings Services (S&P) affirmed the ratings of Bank of America, and revised the outlook on our core operating subsidiaries, including Bank of America, N.A., MLPF&S and MLI, to stable from negative. The negative outlook on the ratings of Bank of America Corporation reflects S&P's ongoing evaluation of whether to continue to include uplift for extraordinary U.S. government support in the ratings of systematically important BHCs. S&P currently includes two notches of uplift for extraordinary U.S. government support in its senior debt rating for Bank of America Corporation.
On November 25, 2014, Fitch Ratings (Fitch) concluded its periodic review of 12 large, complex securities trading and universal banks, including Bank of America Corporation. As a result of this review, Fitch affirmed all of the Corporation's credit ratings and retained a negative outlook. The negative outlook reflects Fitch's expectation that the probability of the U.S. government providing support to a systemically important financial institution during a crisis is likely to decline due to the orderly liquidation provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Fitch has stated that it is likely to remove its support-driven rating floor of A for systemically important U.S. BHCs during the first half of 2015; such removal would likely result in a one-notch downgrade to Bank of America Corporation's long-term senior debt rating.
Table
25
presents the Corporation's current long-term/short-term senior debt ratings and outlooks expressed by the rating agencies.
|
Table 25
|
||||||||||||||||||
|
Senior Debt Ratings
|
||||||||||||||||||
|
Moody's Investors Service
|
Standard & Poor's
|
Fitch Ratings
|
||||||||||||||||
|
Long-term
|
Short-term
|
Outlook
|
Long-term
|
Short-term
|
Outlook
|
Long-term
|
Short-term
|
Outlook
|
||||||||||
|
Bank of America Corporation
|
Baa2
|
P-2
(1)
|
Review for upgrade
|
A-
|
A-2
|
Negative
|
A
|
F1
|
Negative
|
|||||||||
|
Bank of America, N.A.
|
A2
|
P-1
(1)
|
Review for upgrade
|
A
|
A-1
|
Stable
|
A
|
F1
|
Negative
|
|||||||||
|
Merrill Lynch, Pierce, Fenner & Smith
|
NR
|
NR
|
NR
|
A
|
A-1
|
Stable
|
A
|
F1
|
Negative
|
|||||||||
|
Merrill Lynch International
|
NR
|
NR
|
NR
|
A
|
A-1
|
Stable
|
A
|
F1
|
Negative
|
|||||||||
|
(1)
|
The short-term ratings are not on review for upgrade.
|
NR = not rated
A reduction in certain of our credit ratings or the ratings of certain asset-backed securitizations may have a material adverse effect on our liquidity, potential loss of access to credit markets, the related cost of funds, our businesses and on certain trading revenues, particularly in those businesses where counterparty creditworthiness is critical. In addition, under the terms of certain OTC derivative contracts and other trading agreements, in the event of downgrades of our or our rated subsidiaries' credit ratings, the counterparties to those agreements may require us to provide additional collateral, or to terminate these contracts or agreements, which could cause us to sustain losses and/or adversely impact our liquidity. If the short-term credit ratings of our parent company, bank or broker-dealer subsidiaries were downgraded by one or more levels, the potential loss of access to short-term funding sources such as repo financing and the effect on our incremental cost of funds could be material.
Table
26
presents the amount of additional collateral that would have been contractually required by derivative contracts and other trading agreements at
March 31, 2015
if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.
|
Table 26
|
|||||||
|
Additional Collateral Required to be Posted Upon Downgrade
|
|||||||
|
March 31, 2015
|
|||||||
|
(Dollars in millions)
|
One incremental notch
|
Second incremental notch
|
|||||
|
Bank of America Corporation
|
$
|
1,358
|
|
$
|
2,714
|
|
|
|
Bank of America, N.A. and subsidiaries
(1)
|
1,087
|
|
1,877
|
|
|||
|
(1)
|
Included in Bank of America Corporation collateral requirements in this table.
|
62
Table
27
presents the derivative liabilities that would be subject to unilateral termination by counterparties and the amounts of collateral that would have been contractually required at
March 31, 2015
if the long-term senior debt ratings for the Corporation or certain subsidiaries had been lower by one incremental notch and by an additional second incremental notch.
|
Table 27
|
|||||||
|
Derivative Liability Subject to Unilateral Termination Upon Downgrade
|
|||||||
|
March 31, 2015
|
|||||||
|
(Dollars in millions)
|
One incremental notch
|
Second incremental notch
|
|||||
|
Derivative liability
|
$
|
1,364
|
|
$
|
4,724
|
|
|
|
Collateral posted
|
1,106
|
|
3,922
|
|
|||
While certain potential impacts are contractual and quantifiable, the full scope of the consequences of a credit rating downgrade to a financial institution is inherently uncertain, as it depends upon numerous dynamic, complex and inter-related factors and assumptions, including whether any downgrade of a company's long-term credit ratings precipitates downgrades to its short-term credit ratings, and assumptions about the potential behaviors of various customers, investors and counterparties. For more information on potential impacts of credit rating downgrades, see
Liquidity Risk – Time-to-required Funding and Stress Modeling
on page
58
.
For more information on the additional collateral and termination payments that could be required in connection with certain OTC derivative contracts and other trading agreements as a result of such a credit rating downgrade, see
Note 2 – Derivatives
to the Consolidated Financial Statements
herein and Item 1A. Risk Factors
of the Corporation's 2014 Annual Report on Form 10-K
.
63
|
Credit Risk Management
|
Credit quality remained strong in the first quarter of 2015 driven by lower U.S. unemployment as well as our proactive credit risk management activities positively impacting our credit portfolio as nonperforming loans and leases and delinquencies continued to improve. For additional information, see
Executive Summary – First-Quarter 2015 Economic and Business Environment
on page
4
.
We proactively refine our underwriting and credit risk management practices as well as credit standards to meet the changing economic environment. To actively mitigate losses and enhance customer support in our consumer businesses, we have in place collection programs and loan modification and customer assistance infrastructures. We utilize a number of actions to mitigate losses in the commercial businesses including increasing the frequency and intensity of portfolio monitoring, hedging activity and our practice of transferring management of deteriorating commercial exposures to independent special asset officers as credits enter criticized categories.
We have non-U.S. exposure largely in Europe and Asia Pacific. For more information on our exposures and related risks in non-U.S. countries, see
Non-U.S. Portfolio
on page
96
and
Item 1A. Risk Factors of the Corporation's 2014 Annual Report on Form 10-K
.
For more information on our credit risk management activities, see
Consumer Portfolio Credit Risk Management
on page
65
,
Commercial Portfolio Credit Risk Management
on page
85
,
Non-U.S. Portfolio
on page
96
,
Provision for Credit Losses
on page
98
,
Allowance for Credit Losses
on page
98
, and
Note 4 – Outstanding Loans and Leases
and
Note 5 – Allowance for Credit Losses
to the Consolidated Financial Statements
.
64
|
Consumer Portfolio Credit Risk Management
|
Credit risk management for the consumer portfolio begins with initial underwriting and continues throughout a borrower's credit cycle. Statistical techniques in conjunction with experiential judgment are used in all aspects of portfolio management including underwriting, product pricing, risk appetite, setting credit limits, and establishing operating processes and metrics to quantify and balance risks and returns. Statistical models are built using detailed behavioral information from external sources such as credit bureaus and/or internal historical experience. These models are a component of our consumer credit risk management process and are used in part to assist in making both new and ongoing credit decisions, as well as portfolio management strategies, including authorizations and line management, collection practices and strategies, and determination of the allowance for loan and lease losses and allocated capital for credit risk.
During the
three months ended March 31, 2015
, we completed approximately 16,400 customer loan modifications with a total unpaid principal balance of approximately $3 billion, including approximately 5,700 permanent modifications, under the U.S. government's Making Home Affordable Program. Of the loan modifications completed during the
three months ended March 31, 2015
, in terms of both the volume of modifications and the unpaid principal balance associated with the underlying loans, more than half were in the Corporation's held-for-investment (HFI) portfolio. For modified loans on our balance sheet, these modification types are generally considered troubled debt restructurings (TDRs). For more information on TDRs and portfolio impacts, see
Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
on page
82
and
Note 4 – Outstanding Loans and Leases
to the Consolidated Financial Statements
.
|
Consumer Credit Portfolio
|
Improvement in the U.S. unemployment rate continued during the
three months ended March 31, 2015
resulting in improved credit quality and lower credit losses across most major consumer portfolios compared to the
same period in 2014
. Nearly all consumer loan portfolios 30 days or more past due and all consumer loan portfolios 90 days or more past due declined during the
three months ended March 31, 2015
as a result of improved delinquency trends. Although home prices have shown steady improvement since the beginning of 2012, they have not fully recovered to their 2006 levels.
Improved credit quality and continued loan balance run-off across the consumer portfolio drove a
$803 million
decrease
in the consumer allowance for loan and lease losses during the
three months ended March 31, 2015
to
$9.2 billion
at
March 31, 2015
. For additional information, see
Allowance for Credit Losses
on page
98
.
For more information on our accounting policies regarding delinquencies, nonperforming status, charge-offs and TDRs for the consumer portfolio, see
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
. For more information on representations and warranties related to our residential mortgage and home equity portfolios, see
Off-Balance Sheet Arrangements and Contractual Obligations – Representations and Warranties
on page
41
and
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
to the Consolidated Financial Statements
.
65
Table
28
presents our outstanding consumer loans and leases, and the PCI loan portfolio. In addition to being included in the "Outstandings" columns in Table
28
, PCI loans are also shown separately, net of purchase accounting adjustments, in the "Purchased Credit-impaired Loan Portfolio" columns. The impact of the PCI loan portfolio on certain credit statistics is reported where appropriate. For more information on PCI loans, see
Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio
on page
77
and
Note 4 – Outstanding Loans and Leases
to the Consolidated Financial Statements
.
|
Table 28
|
|||||||||||||||
|
Consumer Loans and Leases
|
|||||||||||||||
|
|
Outstandings
|
Purchased Credit-impaired Loan Portfolio
|
|||||||||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
|||||||||||
|
Residential mortgage
(1)
|
$
|
207,925
|
|
$
|
216,197
|
|
$
|
14,185
|
|
$
|
15,152
|
|
|||
|
Home equity
|
83,571
|
|
85,725
|
|
5,354
|
|
5,617
|
|
|||||||
|
U.S. credit card
|
87,288
|
|
91,879
|
|
n/a
|
|
n/a
|
|
|||||||
|
Non-U.S. credit card
|
9,660
|
|
10,465
|
|
n/a
|
|
n/a
|
|
|||||||
|
Direct/Indirect consumer
(2)
|
82,141
|
|
80,381
|
|
n/a
|
|
n/a
|
|
|||||||
|
Other consumer
(3)
|
1,842
|
|
1,846
|
|
n/a
|
|
n/a
|
|
|||||||
|
Consumer loans excluding loans accounted for under the fair value option
|
472,427
|
|
486,493
|
|
19,539
|
|
20,769
|
|
|||||||
|
Loans accounted for under the fair value option
(4)
|
2,055
|
|
2,077
|
|
n/a
|
|
n/a
|
|
|||||||
|
Total consumer loans and leases
|
$
|
474,482
|
|
$
|
488,570
|
|
$
|
19,539
|
|
$
|
20,769
|
|
|||
|
(1)
|
Outstandings include pay option loans of
$2.9 billion
and
$3.2 billion
at
March 31, 2015
and
December 31, 2014
. We no longer originate pay option loans.
|
|
(2)
|
Outstandings include auto and specialty lending loans of
$38.9 billion
and
$37.7 billion
, unsecured consumer lending loans of
$1.3 billion
and
$1.5 billion
, U.S. securities-based lending loans of
$36.6 billion
and
$35.8 billion
, non-U.S. consumer loans of
$4.0 billion
and
$4.0 billion
, student loans of
$611 million
and
$632 million
and other consumer loans of
$743 million
and
$761 million
at
March 31, 2015
and
December 31, 2014
.
|
|
(3)
|
Outstandings include consumer finance loans of
$646 million
and
$676 million
, consumer leases of
$1.1 billion
and
$1.0 billion
and consumer overdrafts of
$120 million
and
$162 million
at
March 31, 2015
and
December 31, 2014
.
|
|
(4)
|
Consumer loans accounted for under the fair value option include residential mortgage loans of
$1.9 billion
and
$1.9 billion
and home equity loans of
$205 million
and
$196 million
at
March 31, 2015
and
December 31, 2014
. For more information on the fair value option, see
Consumer Portfolio Credit Risk Management – Consumer Loans Accounted for Under the Fair Value Option
on page
81
and
Note 15 – Fair Value Option
to the Consolidated Financial Statements
.
|
n/a = not applicable
66
Table
29
presents consumer nonperforming loans and accruing consumer loans past due 90 days or more. Nonperforming loans do not include past due consumer credit card loans, other unsecured loans and in general, consumer non-real estate-secured loans (loans discharged in Chapter 7 bankruptcy are included) as these loans are typically charged off no later than the end of the month in which the loan becomes 180 days past due. Real estate-secured past due consumer loans that are insured by the FHA or individually insured under long-term standby agreements with FNMA and FHLMC (collectively, the fully-insured loan portfolio) are reported as accruing as opposed to nonperforming since the principal repayment is insured. Fully-insured loans included in accruing past due 90 days or more are primarily from our repurchases of delinquent FHA loans pursuant to our servicing agreements with GNMA. Additionally, nonperforming loans and accruing balances past due 90 days or more do not include the PCI loan portfolio or loans accounted for under the fair value option even though the customer may be contractually past due.
|
Table 29
|
|||||||||||||||
|
Consumer Credit Quality
|
|||||||||||||||
|
|
Nonperforming
|
Accruing Past Due 90 Days or More
|
|||||||||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
|||||||||||
|
Residential mortgage
(1)
|
$
|
6,421
|
|
$
|
6,889
|
|
$
|
9,912
|
|
$
|
11,407
|
|
|||
|
Home equity
|
3,759
|
|
3,901
|
|
—
|
|
—
|
|
|||||||
|
U.S. credit card
|
n/a
|
|
n/a
|
|
795
|
|
866
|
|
|||||||
|
Non-U.S. credit card
|
n/a
|
|
n/a
|
|
88
|
|
95
|
|
|||||||
|
Direct/Indirect consumer
|
28
|
|
28
|
|
51
|
|
64
|
|
|||||||
|
Other consumer
|
1
|
|
1
|
|
1
|
|
1
|
|
|||||||
|
Total
(2)
|
$
|
10,209
|
|
$
|
10,819
|
|
$
|
10,847
|
|
$
|
12,433
|
|
|||
|
Consumer loans and leases as a percentage of outstanding consumer loans and leases
(2)
|
2.16
|
%
|
2.22
|
%
|
2.30
|
%
|
2.56
|
%
|
|||||||
|
Consumer loans and leases as a percentage of outstanding loans and leases, excluding PCI and fully-insured loan portfolios
(2)
|
2.58
|
|
2.70
|
|
0.24
|
|
0.26
|
|
|||||||
|
(1)
|
Residential mortgage loans accruing past due 90 days or more are fully-insured loans. At
March 31, 2015
and
December 31, 2014
, residential mortgage included
$6.2 billion
and
$7.3 billion
of loans on which interest has been curtailed by the FHA, and therefore are no longer accruing interest, although principal is still insured, and
$3.7 billion
and
$4.1 billion
of loans on which interest was still accruing.
|
|
(2)
|
Balances exclude consumer loans accounted for under the fair value option. At
March 31, 2015
and
December 31, 2014
,
$380 million
and
$392 million
of loans accounted for under the fair value option were past due 90 days or more and not accruing interest.
|
n/a = not applicable
67
Table
30
presents net charge-offs and related ratios for consumer loans and leases.
|
Table 30
|
|||||||||||||
|
Consumer Net Charge-offs and Related Ratios
|
|||||||||||||
|
|
Three Months Ended March 31
|
||||||||||||
|
Net Charge-offs
(1)
|
Net Charge-off Ratios
(1, 2)
|
||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
2015
|
2014
|
|||||||||
|
Residential mortgage
|
$
|
197
|
|
$
|
127
|
|
0.37
|
%
|
0.21
|
%
|
|||
|
Home equity
|
172
|
|
302
|
|
0.82
|
|
1.32
|
|
|||||
|
U.S. credit card
|
621
|
|
718
|
|
2.84
|
|
3.25
|
|
|||||
|
Non-U.S. credit card
|
44
|
|
76
|
|
1.80
|
|
2.66
|
|
|||||
|
Direct/Indirect consumer
|
34
|
|
58
|
|
0.17
|
|
0.29
|
|
|||||
|
Other consumer
|
49
|
|
58
|
|
10.88
|
|
12.07
|
|
|||||
|
Total
|
$
|
1,117
|
|
$
|
1,339
|
|
0.95
|
|
1.04
|
|
|||
|
(1)
|
Net charge-offs exclude write-offs in the PCI loan portfolio of
$188 million
and
$281 million
in residential mortgage and
$100 million
and
$110 million
in home equity for the
three months ended March 31, 2015 and 2014
. These write-offs decreased the PCI valuation allowance included as part of the allowance for loan and lease losses. For more information on PCI write-offs, see
Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio
on page
77
.
|
|
(2)
|
Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the fair value option.
|
Net charge-off ratios, excluding the PCI and fully-insured loan portfolios, were
0.59 percent
and
0.36 percent
for residential mortgage,
0.88 percent
and
1.42 percent
for home equity, and 1.14 percent and 1.31 percent for the total consumer portfolio for the
three months ended March 31, 2015 and 2014
, respectively. These are the only product classifications that include PCI and fully-insured loans for these periods.
Net charge-offs exclude write-offs in the PCI loan portfolio of
$188 million
and
$281 million
in residential mortgage and
$100 million
and
$110 million
in home equity for the
three months ended March 31, 2015 and 2014
. These write-offs decreased the PCI valuation allowance included as part of the allowance for loan and lease losses. Net charge-off ratios including the PCI write-offs were 0.73 percent and 0.67 percent for residential mortgage and 1.30 percent and 1.81 percent for home equity for the
three months ended March 31, 2015 and 2014
. For more information on PCI write-offs, see
Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio
on page
77
.
68
Table
31
presents outstandings, nonperforming balances, net charge-offs, allowance for loan and lease losses and provision for loan and lease losses for the Core portfolio and the Legacy Assets & Servicing portfolio within the consumer real estate portfolio. For more information on the Legacy Assets & Servicing portfolio, see
LAS
on page
35
.
|
Table 31
|
|||||||||||||||||||||||
|
Consumer Real Estate Portfolio
(1, 2)
|
|||||||||||||||||||||||
|
|
Outstandings
|
Nonperforming
|
Net Charge-offs
(3)
|
||||||||||||||||||||
|
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
Three Months Ended
March 31 |
||||||||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||||||||||||||||||
|
Core portfolio
|
|
|
|
|
|
|
|||||||||||||||||
|
Residential mortgage
|
$
|
156,888
|
|
$
|
162,220
|
|
$
|
2,278
|
|
$
|
2,398
|
|
$
|
51
|
|
$
|
39
|
|
|||||
|
Home equity
|
51,029
|
|
51,887
|
|
1,473
|
|
1,496
|
|
51
|
|
85
|
|
|||||||||||
|
Total Core portfolio
|
207,917
|
|
214,107
|
|
3,751
|
|
3,894
|
|
102
|
|
124
|
|
|||||||||||
|
Legacy Assets & Servicing portfolio
|
|
|
|
|
|||||||||||||||||||
|
Residential mortgage
|
51,037
|
|
53,977
|
|
4,143
|
|
4,491
|
|
146
|
|
88
|
|
|||||||||||
|
Home equity
|
32,542
|
|
33,838
|
|
2,286
|
|
2,405
|
|
121
|
|
217
|
|
|||||||||||
|
Total Legacy Assets & Servicing portfolio
|
83,579
|
|
87,815
|
|
6,429
|
|
6,896
|
|
267
|
|
305
|
|
|||||||||||
|
Consumer real estate portfolio
|
|
|
|
|
|
|
|||||||||||||||||
|
Residential mortgage
|
207,925
|
|
216,197
|
|
6,421
|
|
6,889
|
|
197
|
|
127
|
|
|||||||||||
|
Home equity
|
83,571
|
|
85,725
|
|
3,759
|
|
3,901
|
|
172
|
|
302
|
|
|||||||||||
|
Total consumer real estate portfolio
|
$
|
291,496
|
|
$
|
301,922
|
|
$
|
10,180
|
|
$
|
10,790
|
|
$
|
369
|
|
$
|
429
|
|
|||||
|
Allowance for Loan
and Lease Losses
|
Provision for Loan
and Lease Losses
|
||||||||||||||||||||||
|
March 31
2015 |
December 31
2014 |
Three Months Ended
March 31 |
|||||||||||||||||||||
|
2015
|
2014
|
||||||||||||||||||||||
|
Core portfolio
|
|
|
|
|
|
|
|||||||||||||||||
|
Residential mortgage
|
$
|
547
|
|
$
|
593
|
|
$
|
5
|
|
$
|
(44
|
)
|
|||||||||||
|
Home equity
|
699
|
|
702
|
|
48
|
|
10
|
|
|||||||||||||||
|
Total Core portfolio
|
|
|
1,246
|
|
1,295
|
|
53
|
|
(34
|
)
|
|||||||||||||
|
Legacy Assets & Servicing portfolio
|
|
|
|
||||||||||||||||||||
|
Residential mortgage
|
1,879
|
|
2,307
|
|
(94
|
)
|
(120
|
)
|
|||||||||||||||
|
Home equity
|
2,125
|
|
2,333
|
|
13
|
|
13
|
|
|||||||||||||||
|
Total Legacy Assets & Servicing portfolio
|
|
|
|
|
4,004
|
|
4,640
|
|
(81
|
)
|
(107
|
)
|
|||||||||||
|
Consumer real estate portfolio
|
|
|
|
|
|||||||||||||||||||
|
Residential mortgage
|
2,426
|
|
2,900
|
|
(89
|
)
|
(164
|
)
|
|||||||||||||||
|
Home equity
|
2,824
|
|
3,035
|
|
61
|
|
23
|
|
|||||||||||||||
|
Total consumer real estate portfolio
|
$
|
5,250
|
|
$
|
5,935
|
|
$
|
(28
|
)
|
$
|
(141
|
)
|
|||||||||||
|
(1)
|
Formerly referred to as the home loans portfolio.
|
|
(2)
|
Outstandings and nonperforming amounts exclude loans accounted for under the fair value option. Consumer loans accounted for under the fair value option include residential mortgage loans of
$1.9 billion
and
$1.9 billion
and home equity loans of
$205 million
and
$196 million
at
March 31, 2015
and
December 31, 2014
. For more information on the fair value option, see
Consumer Portfolio Credit Risk Management – Consumer Loans Accounted for Under the Fair Value Option
on page
81
and
Note 15 – Fair Value Option
to the Consolidated Financial Statements
.
|
|
(3)
|
Net charge-offs exclude write-offs in the PCI loan portfolio of
$188 million
and
$281 million
in residential mortgage and
$100 million
and
$110 million
in home equity for the
three months ended March 31, 2015 and 2014
, which are included in the Legacy Assets & Servicing portfolio. Write-offs in the PCI loan portfolio decrease the PCI valuation allowance included as part of the allowance for loan and lease losses. For more information on PCI write-offs, see
Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio
on page
77
.
|
69
We believe that the presentation of information adjusted to exclude the impact of the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option is more representative of the ongoing operations and credit quality of the business. As a result, in the following discussions of the residential mortgage and home equity portfolios, we provide information that excludes the impact of the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option in certain credit quality statistics. We separately disclose information on the PCI loan portfolio on page
77
.
Residential Mortgage
The residential mortgage portfolio makes up the largest percentage of our consumer loan portfolio at 44 percent of consumer loans and leases at
March 31, 2015
. Nearly 70 percent of the residential mortgage portfolio is in
All Other
and is comprised of originated loans, purchased loans used in our overall ALM activities, delinquent FHA loans repurchased pursuant to our servicing agreements with GNMA as well as loans repurchased related to our representations and warranties. Approximately 25 percent of the residential mortgage portfolio is in
GWIM
and represents residential mortgages originated for the home purchase and refinancing needs of our wealth management clients and the remaining portion of the portfolio is primarily in
Consumer Banking
.
Outstanding balances in the residential mortgage portfolio, excluding loans accounted for under the fair value option,
decreased
$8.3 billion
during the
three months ended March 31, 2015
due to
loan sales including $5.3 billion of loans with standby insurance agreements and $1.0 billion of nonperforming and other delinquent loans, and to a lesser extent, runoff outpacing the retention of new originations. These declines were partially offset by repurchases of delinquent loans pursuant to our servicing agreements with GNMA, which are part of our mortgage banking activities.
At
March 31, 2015
and
December 31, 2014
, the residential mortgage portfolio included
$57.5 billion
and
$65.0 billion
of outstanding fully-insured loans. On this portion of the residential mortgage portfolio, we are protected against principal loss as a result of either FHA insurance or long-term standby agreements with FNMA and FHLMC. At
March 31, 2015
and
December 31, 2014
, $45.2 billion and $47.8 billion had FHA insurance with the remainder protected by long-term standby agreements. At
March 31, 2015
and
December 31, 2014
, $14.9 billion and $15.9 billion of the FHA-insured loan population were repurchases of delinquent FHA loans pursuant to our servicing agreements with GNMA.
The long-term standby agreements with FNMA and FHLMC reduce our regulatory risk-weighted assets due to the transfer of a portion of our credit risk to unaffiliated parties. At
March 31, 2015
, these programs had the cumulative effect of reducing our risk-weighted assets by $3.7 billion, increasing both our Tier 1 capital ratio and Common equity tier 1 capital ratio by three bps under the Basel 3
Standardized
–
Transition. This compared to reducing our risk-weighted assets by $5.2 billion, increasing both our Tier 1 capital ratio and Tier 1 Common capital ratio by five bps at
December 31, 2014
under Basel 3 Standardized
–
Transition.
Table
32
presents certain residential mortgage key credit statistics on both a reported basis excluding loans accounted for under the fair value option, and excluding the PCI loan portfolio, our fully-insured loan portfolio and loans accounted for under the fair value option. Additionally, in the "Reported Basis" columns in the table below, accruing balances past due and nonperforming loans do not include the PCI loan portfolio, in accordance with our accounting policies, even though the customer may be contractually past due. As such, the following discussion presents the residential mortgage portfolio excluding the PCI loan portfolio, the fully-insured loan portfolio and loans accounted for under the fair value option. For more information on the PCI loan portfolio, see page
77
.
70
|
Table 32
|
|||||||||||||||||||||||
|
Residential Mortgage – Key Credit Statistics
|
|||||||||||||||||||||||
|
|
Reported Basis
(1)
|
Excluding Purchased
Credit-impaired and
Fully-insured Loans
|
|||||||||||||||||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
|||||||||||||||||||
|
Outstandings
|
$
|
207,925
|
|
$
|
216,197
|
|
$
|
136,229
|
|
$
|
136,075
|
|
|||||||||||
|
Accruing past due 30 days or more
|
14,422
|
|
16,485
|
|
1,679
|
|
1,868
|
|
|||||||||||||||
|
Accruing past due 90 days or more
|
9,912
|
|
11,407
|
|
—
|
|
—
|
|
|||||||||||||||
|
Nonperforming loans
|
6,421
|
|
6,889
|
|
6,421
|
|
6,889
|
|
|||||||||||||||
|
Percent of portfolio
|
|
|
|
|
|||||||||||||||||||
|
Refreshed LTV greater than 90 but less than or equal to 100
|
9
|
%
|
9
|
%
|
6
|
%
|
6
|
%
|
|||||||||||||||
|
Refreshed LTV greater than 100
|
12
|
|
12
|
|
7
|
|
7
|
|
|||||||||||||||
|
Refreshed FICO below 620
|
16
|
|
16
|
|
7
|
|
8
|
|
|||||||||||||||
|
2006 and 2007 vintages
(2)
|
19
|
|
19
|
|
21
|
|
22
|
|
|||||||||||||||
|
Three Months Ended March 31
|
|||||||||||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
||||||||||||||||||||
|
Net charge-off ratio
(3)
|
0.37
|
%
|
0.21
|
%
|
0.59
|
%
|
0.36
|
%
|
|||||||||||||||
|
(1)
|
Outstandings, accruing past due, nonperforming loans and percentages of portfolio exclude loans accounted for under the fair value option. There were
$1.9 billion
of residential mortgage loans accounted for under the fair value option at both
March 31, 2015
and
December 31, 2014
. For more information on the fair value option, see
Consumer Portfolio Credit Risk Management – Consumer Loans Accounted for Under the Fair Value Option
on page
81
and
Note 15 – Fair Value Option
to the Consolidated Financial Statements
.
|
|
(2)
|
These vintages of loans account for $2.5 billion, or
39 percent
, and $2.8 billion, or
41 percent
of nonperforming residential mortgage loans at
March 31, 2015
and
December 31, 2014
. For the
three months ended March 31, 2015 and 2014
, these vintages accounted for
$47 million
, or
24 percent
, and
$64 million
, or
51 percent
of total residential mortgage net charge-offs.
|
|
(3)
|
Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option.
|
Nonperforming residential mortgage loans
decreased
$468 million
during the
three months ended March 31, 2015
including sales of $371 million, partially offset by a $130 million net increase related to the settlement with the DoJ for those loans that are no longer fully insured. Excluding these items, nonperforming residential mortgage loans decreased as outflows, including the transfer of certain qualifying borrowers discharged in a Chapter 7 bankruptcy to performing status, outpaced new inflows. Of the nonperforming residential mortgage loans at
March 31, 2015
, $2.1 billion, or 33 percent, were current on contractual payments. Nonperforming loans that are contractually current primarily consist of collateral-dependent TDRs, including those that have been discharged in Chapter 7 bankruptcy, as well as loans that have not yet demonstrated a sustained period of payment performance. In addition, $3.1 billion, or 48 percent of nonperforming residential mortgage loans were 180 days or more past due and had been written down to the estimated fair value of the collateral, less costs to sell. Accruing loans past due 30 days or more
decreased
$189 million
during the
three months ended March 31, 2015
.
Net charge-offs
increased
$70 million
to
$197 million
for the
three months ended March 31, 2015
, or
0.59 percent
of total average residential mortgage loans, compared to net charge-offs of
$127 million
, or
0.36 percent
, for the
same period in 2014
. The
increase
in net charge-offs was primarily driven by $185 million of charge-offs related to the consumer relief portion of the settlement with the DoJ, partially offset by recoveries of $40 million related to nonperforming loan sales. Excluding these items, losses declined driven by favorable portfolio trends and decreased write-downs on loans greater than 180 days past due, which were written down to the estimated fair value of the collateral, less costs to sell, due in part to improvement in home prices and the U.S. economy.
Residential mortgage loans with a greater than 90 percent but less than or equal to 100 percent refreshed loan-to-value (LTV) represented
six percent
of the residential mortgage portfolio at both
March 31, 2015
and
December 31, 2014
. Loans with a refreshed LTV greater than 100 percent represented
seven percent
of the residential mortgage loan portfolio at both
March 31, 2015
and
December 31, 2014
. Of the loans with a refreshed LTV greater than 100 percent, 96 percent were performing at both
March 31, 2015
and
December 31, 2014
. Loans with a refreshed LTV greater than 100 percent reflect loans where the outstanding carrying value of the loan is greater than the most recent valuation of the property securing the loan. The majority of these loans have a refreshed LTV greater than 100 percent primarily due to home price deterioration since 2006, somewhat mitigated by subsequent appreciation. Loans to borrowers with refreshed FICO scores below 620 represented
seven percent
and
eight percent
of the residential mortgage portfolio at
March 31, 2015
and
December 31, 2014
.
71
Of the
$136.2 billion
in total residential mortgage loans outstanding at
March 31, 2015
, as shown in Table
33
, 40 percent were originated as interest-only loans. The outstanding balance of interest-only residential mortgage loans that have entered the amortization period was $12.7 billion, or 23 percent, at
March 31, 2015
. Residential mortgage loans that have entered the amortization period generally have experienced a higher rate of early stage delinquencies and nonperforming status compared to the residential mortgage portfolio as a whole. At
March 31, 2015
, $248 million, or two percent of outstanding interest-only residential mortgages that had entered the amortization period were accruing past due 30 days or more compared to
$1.7 billion
, or
one percent
for the entire residential mortgage portfolio. In addition, at
March 31, 2015
, $907 million, or seven percent of outstanding interest-only residential mortgages that had entered the amortization period were nonperforming, of which $462 million were contractually current, compared to
$6.4 billion
, or
five percent
for the entire residential mortgage portfolio, of which $2.1 billion were contractually current. Loans in our interest-only residential mortgage portfolio have an interest-only period of three to ten years and more than 90 percent of these loans have yet to enter the amortization period and will not be required to make a fully-amortizing payment until 2016 or later.
Table
33
presents outstandings, nonperforming loans and net charge-offs by certain state concentrations for the residential mortgage portfolio. The Los Angeles-Long Beach-Santa Ana Metropolitan Statistical Area (MSA) within California represented 13 percent of outstandings at both
March 31, 2015
and
December 31, 2014
. For both the
three months ended March 31, 2015 and 2014
, loans within this MSA contributed net recoveries of $5 million within the residential mortgage portfolio. In the New York area, the New York-Northern New Jersey-Long Island MSA made up 11 percent of outstandings at both
March 31, 2015
and
December 31, 2014
. For the
three months ended March 31, 2015 and 2014
, loans within this MSA contributed net charge-offs of $39 million and $22 million within the residential mortgage portfolio.
|
Table 33
|
|||||||||||||||||||||||
|
Residential Mortgage State Concentrations
|
|||||||||||||||||||||||
|
|
Outstandings
(1)
|
Nonperforming
(1)
|
Net Charge-offs
(2)
|
||||||||||||||||||||
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
Three Months Ended
March 31 |
|||||||||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||||||||||||||||||
|
California
|
$
|
45,950
|
|
$
|
45,496
|
|
$
|
1,328
|
|
$
|
1,459
|
|
$
|
(9
|
)
|
$
|
(8
|
)
|
|||||
|
New York
(3)
|
12,091
|
|
11,826
|
|
470
|
|
477
|
|
13
|
|
13
|
|
|||||||||||
|
Florida
(3)
|
10,119
|
|
10,116
|
|
799
|
|
858
|
|
24
|
|
5
|
|
|||||||||||
|
Texas
|
6,231
|
|
6,635
|
|
244
|
|
269
|
|
5
|
|
1
|
|
|||||||||||
|
Virginia
|
4,334
|
|
4,402
|
|
226
|
|
244
|
|
7
|
|
6
|
|
|||||||||||
|
Other U.S./Non-U.S.
|
57,504
|
|
57,600
|
|
3,354
|
|
3,582
|
|
157
|
|
110
|
|
|||||||||||
|
Residential mortgage loans
(4)
|
$
|
136,229
|
|
$
|
136,075
|
|
$
|
6,421
|
|
$
|
6,889
|
|
$
|
197
|
|
$
|
127
|
|
|||||
|
Fully-insured loan portfolio
|
57,511
|
|
64,970
|
|
|
|
|
|
|||||||||||||||
|
Purchased credit-impaired residential mortgage loan portfolio
|
14,185
|
|
15,152
|
|
|
|
|
|
|||||||||||||||
|
Total residential mortgage loan portfolio
|
$
|
207,925
|
|
$
|
216,197
|
|
|
|
|
|
|||||||||||||
|
(1)
|
Outstandings and nonperforming amounts exclude loans accounted for under the fair value option. There were
$1.9 billion
of residential mortgage loans accounted for under the fair value option at both
March 31, 2015
and
December 31, 2014
. For more information on the fair value option, see
Consumer Portfolio Credit Risk Management – Consumer Loans Accounted for Under the Fair Value Option
on page
81
and
Note 15 – Fair Value Option
to the Consolidated Financial Statements
.
|
|
(2)
|
Net charge-offs exclude
$188 million
and
$281 million
of write-offs in the residential mortgage PCI loan portfolio for the
three months ended March 31, 2015 and 2014
. These write-offs decreased the PCI valuation allowance included as part of the allowance for loan and lease losses. For more information on PCI write-offs, see
Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio
on page
77
.
|
|
(3)
|
In these states, foreclosure requires a court order following a legal proceeding (judicial states).
|
|
(4)
|
Amounts exclude the PCI residential mortgage and fully-insured loan portfolios.
|
The Community Reinvestment Act (CRA) encourages banks to meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate incomes. Our CRA portfolio was $8.8 billion and $9.0 billion at
March 31, 2015
and
December 31, 2014
, or six percent and seven percent of the residential mortgage portfolio. The CRA portfolio included $889 million and $986 million of nonperforming loans at
March 31, 2015
and
December 31, 2014
, representing 14 percent of total nonperforming residential mortgage loans for both periods. Net charge-offs in the CRA portfolio were $34 million for both the
three months ended March 31, 2015 and 2014
, or 17 percent and 27 percent of total net charge-offs for the residential mortgage portfolio.
72
Home Equity
At
March 31, 2015
, the home equity portfolio made up
18 percent
of the consumer portfolio and is comprised of home equity lines of credit (HELOCs), home equity loans and reverse mortgages.
At
March 31, 2015
, our HELOC portfolio had an outstanding balance of $72.4 billion, or 87 percent of the total home equity portfolio compared to $74.2 billion, or 87 percent, at
December 31, 2014
. HELOCs generally have an initial draw period of 10 years. During the initial draw period, the borrowers are only required to pay the interest due on the loans on a monthly basis. After the initial draw period ends, the loans generally convert to 15-year amortizing loans.
At
March 31, 2015
, our home equity loan portfolio had an outstanding balance of
$9.4 billion
, or 11 percent of the total home equity portfolio compared to $9.8 billion, or 11 percent, at
December 31, 2014
. Home equity loans are almost all fixed-rate loans with amortizing payment terms of 10 to 30 years and of the
$9.4 billion
at
March 31, 2015
, 53 percent have 25- to 30-year terms. At
March 31, 2015
, our reverse mortgage portfolio had an outstanding balance, excluding loans accounted for under the fair value option, of $1.8 billion, or two percent of the total home equity portfolio compared to $1.7 billion, or two percent, at
December 31, 2014
. We no longer originate reverse mortgages.
At
March 31, 2015
, approximately 54 percent of the home equity portfolio was included in
Consumer Banking
, 37 percent was included in
LAS
and the remainder of the portfolio was primarily in
GWIM
. Outstanding balances in the home equity portfolio, excluding loans accounted for under the fair value option,
decreased
$2.2 billion
during the
three months ended March 31, 2015
primarily due to paydowns and charge-offs outpacing new originations and draws on existing lines. Of the total home equity portfolio at
March 31, 2015
and
December 31, 2014
, $20.7 billion and $20.6 billion, or 25 percent and 24 percent, were in first-lien positions (26 percent for both periods excluding the PCI home equity portfolio). At
March 31, 2015
, outstanding balances in the home equity portfolio that were in a second-lien or more junior-lien position and where we also held the first-lien loan totaled $14.8 billion, or 19 percent of our total home equity portfolio excluding the PCI loan portfolio.
Unused HELOCs totaled
$53.4 billion
at
March 31, 2015
compared to
$53.7 billion
at
December 31, 2014
. The decrease was primarily due to customers choosing to close accounts, which more than offset customer paydowns of principal balances, as well as the impact of new production. The HELOC utilization rate was 58 percent at both
March 31, 2015
and
December 31, 2014
.
73
Table
34
presents certain home equity portfolio key credit statistics on both a reported basis excluding loans accounted for under the fair value option, and excluding the PCI loan portfolio and loans accounted for under the fair value option. Additionally, in the "Reported Basis" columns in the table below, accruing balances past due 30 days or more and nonperforming loans do not include the PCI loan portfolio, in accordance with our accounting policies, even though the customer may be contractually past due. As such, the following discussion presents the home equity portfolio excluding the PCI loan portfolio and loans accounted for under the fair value option. For more information on the PCI loan portfolio, see page
77
.
|
Table 34
|
|||||||||||||||
|
Home Equity – Key Credit Statistics
|
|||||||||||||||
|
|
Reported Basis
(1)
|
Excluding Purchased
Credit-impaired Loans
|
|||||||||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
|||||||||||
|
Outstandings
|
$
|
83,571
|
|
$
|
85,725
|
|
$
|
78,217
|
|
$
|
80,108
|
|
|||
|
Accruing past due 30 days or more
(2)
|
654
|
|
640
|
|
654
|
|
640
|
|
|||||||
|
Nonperforming loans
(2)
|
3,759
|
|
3,901
|
|
3,759
|
|
3,901
|
|
|||||||
|
Percent of portfolio
|
|
|
|
|
|
|
|
|
|||||||
|
Refreshed CLTV greater than 90 but less than or equal to 100
|
8
|
%
|
8
|
%
|
7
|
%
|
7
|
%
|
|||||||
|
Refreshed CLTV greater than 100
|
17
|
|
16
|
|
15
|
|
14
|
|
|||||||
|
Refreshed FICO below 620
|
8
|
|
8
|
|
7
|
|
7
|
|
|||||||
|
2006 and 2007 vintages
(3)
|
45
|
|
46
|
|
43
|
|
43
|
|
|||||||
|
Three Months Ended March 31
|
|||||||||||||||
|
2015
|
2014
|
2015
|
2014
|
||||||||||||
|
Net charge-off ratio
(4)
|
0.82
|
%
|
1.32
|
%
|
0.88
|
%
|
1.42
|
%
|
|||||||
|
(1)
|
Outstandings, accruing past due, nonperforming loans and percentages of the portfolio exclude loans accounted for under the fair value option. There were
$205 million
and
$196 million
of home equity loans accounted for under the fair value option at
March 31, 2015
and
December 31, 2014
. For more information on the fair value option, see
Consumer Portfolio Credit Risk Management – Consumer Loans Accounted for Under the Fair Value Option
on page
81
and
Note 15 – Fair Value Option
to the Consolidated Financial Statements
.
|
|
(2)
|
Accruing past due 30 days or more includes
$92 million
and
$98 million
and nonperforming loans includes
$491 million
and
$505 million
of loans where we serviced the underlying first-lien at
March 31, 2015
and
December 31, 2014
.
|
|
(3)
|
These vintages of loans have higher refreshed combined LTV ratios and accounted for
46 percent
and
47 percent
of nonperforming home equity loans at
March 31, 2015
and
December 31, 2014
, and
59 percent
and
57 percent
of net charge-offs for the
three months ended March 31, 2015 and 2014
.
|
|
(4)
|
Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option.
|
Nonperforming outstanding balances in the home equity portfolio
decreased
$142 million
during the
three months ended March 31, 2015
as outflows, including the transfer of certain qualifying borrowers discharged in a Chapter 7 bankruptcy to performing status, outpaced new inflows. Of the nonperforming home equity portfolio at
March 31, 2015
, $1.6 billion, or 43 percent, were current on contractual payments. Nonperforming loans that are contractually current primarily consist of collateral-dependent TDRs, including those that have been discharged in Chapter 7 bankruptcy, junior-lien loans where the underlying first-lien is 90 days or more past due, as well as loans that have not yet demonstrated a sustained period of payment performance. In addition, $1.5 billion, or 39 percent of nonperforming home equity loans were 180 days or more past due and had been written down to the estimated fair value of the collateral, less costs to sell. Outstanding balances accruing past due 30 days or more
increased
$14 million
during the
three months ended March 31, 2015
.
In some cases, the junior-lien home equity outstanding balance that we hold is performing, but the underlying first-lien is not. For outstanding balances in the home equity portfolio on which we service the first-lien loan, we are able to track whether the first-lien loan is in default. For loans where the first-lien is serviced by a third party, we utilize credit bureau data to estimate the delinquency status of the first-lien. Given that the credit bureau database we use does not include a property address for the mortgages, we are unable to identify with certainty whether a reported delinquent first-lien mortgage pertains to the same property for which we hold a junior-lien loan. For certain loans, we utilize a third-party vendor to combine credit bureau and public record data to better link a junior-lien loan with the underlying first-lien mortgage. At
March 31, 2015
, we estimate that $1.5 billion of current and $201 million of 30 to 89 days past due junior-lien loans were behind a delinquent first-lien loan. We service the first-lien loans on $251 million of these combined amounts, with the remaining $1.5 billion serviced by third parties. Of the $1.7 billion of current to 89 days past due junior-lien loans, based on available credit bureau data and our own internal servicing data, we estimate that approximately $657 million had first-lien loans that were 90 days or more past due.
74
Net charge-offs
decreased
$130 million
to
$172 million
for the
three months ended March 31, 2015
, or
0.88 percent
of the total average home equity portfolio, compared to
$302 million
, or
1.42 percent
for the
same period in 2014
. This
decrease
in net charge-offs for the
three-month
period was primarily driven by favorable portfolio trends due in part to improvement in home prices and the U.S. economy, partially offset by $45 million of charge-offs related to the consumer relief portion of the settlement with the DoJ. The net charge-off ratios were also impacted by lower outstanding balances primarily as a result of paydowns and charge-offs outpacing new originations and draws on existing lines.
Outstanding balances in the home equity portfolio with greater than 90 percent but less than or equal to 100 percent refreshed combined loan-to-value (CLTVs) comprised
seven percent
of the home equity portfolio at both
March 31, 2015
and
December 31, 2014
. Outstanding balances with refreshed CLTVs greater than 100 percent comprised
15 percent
and
14 percent
of the home equity portfolio at
March 31, 2015
and
December 31, 2014
. Outstanding balances in the home equity portfolio with a refreshed CLTV greater than 100 percent reflect loans where the carrying value and available line of credit of the combined loans are equal to or greater than the most recent valuation of the property securing the loan. Depending on the value of the property, there may be collateral in excess of the first-lien that is available to reduce the severity of loss on the second-lien. Home price deterioration since 2006, partially mitigated by subsequent appreciation, has contributed to an increase in CLTV ratios. Of those outstanding balances with a refreshed CLTV greater than 100 percent, 97 percent of the customers were current on their home equity loan and 93 percent of second-lien loans with a refreshed CLTV greater than 100 percent were current on both their second-lien and underlying first-lien loans at
March 31, 2015
. Outstanding balances in the home equity portfolio to borrowers with a refreshed FICO score below 620 represented
seven percent
of the home equity portfolio at both
March 31, 2015
and
December 31, 2014
.
Of the
$78.2 billion
in total home equity portfolio outstandings at
March 31, 2015
, as shown in
Table 35
, 74 percent were interest-only loans, almost all of which were HELOCs. The outstanding balance of HELOCs that have entered the amortization period was $6.2 billion, or nine percent of total HELOCs at
March 31, 2015
. The HELOCs that have entered the amortization period have experienced a higher percentage of early stage delinquencies and nonperforming status when compared to the HELOC portfolio as a whole. At
March 31, 2015
, $152 million, or two percent of outstanding HELOCs that had entered the amortization period were accruing past due 30 days or more compared to $599 million, or one percent for the entire HELOC portfolio. In addition, at
March 31, 2015
, $937 million, or 15 percent of outstanding HELOCs that had entered the amortization period were nonperforming, of which $421 million were contractually current, compared to $3.4 billion, or five percent for the entire HELOC portfolio, of which $1.4 billion were contractually current. Loans in our HELOC portfolio generally have an initial draw period of 10 years and more than 75 percent of these loans have yet to enter the amortization period and will not be required to make a fully-amortizing payment until 2016 or later. We communicate to contractually current customers more than a year prior to the end of their draw period to inform them of the potential change to the payment structure before entering the amortization period, and provide payment options to customers prior to the end of the draw period.
Although we do not actively track how many of our home equity customers pay only the minimum amount due on their home equity loans and lines, we can infer some of this information through a review of our HELOC portfolio that we service and that is still in its revolving period (i.e., customers may draw on and repay their line of credit, but are generally only required to pay interest on a monthly basis). During the
three months ended March 31, 2015
, approximately 52 percent of these customers with an outstanding balance did not pay any principal on their HELOCs.
75
Table
35
presents outstandings, nonperforming balances and net charge-offs by certain state concentrations for the home equity portfolio. In the New York area, the New York-Northern New Jersey-Long Island MSA made up 12 percent of the outstanding home equity portfolio at both
March 31, 2015
and
December 31, 2014
. For the
three months ended March 31, 2015 and 2014
, loans within this MSA contributed 11 percent and 14 percent of net charge-offs within the home equity portfolio. The Los Angeles-Long Beach-Santa Ana MSA within California made up 12 percent of the outstanding home equity portfolio at both
March 31, 2015
and
December 31, 2014
. For
three months ended March 31, 2015 and 2014
, loans within this MSA contributed five percent and seven percent of net charge-offs within the home equity portfolio.
|
Table 35
|
|||||||||||||||||||||||
|
Home Equity State Concentrations
|
|||||||||||||||||||||||
|
|
Outstandings
(1)
|
Nonperforming
(1)
|
Net Charge-offs
(2)
|
||||||||||||||||||||
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
Three Months Ended
March 31 |
|||||||||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||||||||||||||||||
|
California
|
$
|
22,652
|
|
$
|
23,250
|
|
$
|
993
|
|
$
|
1,012
|
|
$
|
24
|
|
$
|
58
|
|
|||||
|
Florida
(3)
|
9,383
|
|
9,633
|
|
569
|
|
574
|
|
30
|
|
47
|
|
|||||||||||
|
New Jersey
(3)
|
5,814
|
|
5,883
|
|
283
|
|
299
|
|
13
|
|
22
|
|
|||||||||||
|
New York
(3)
|
5,594
|
|
5,671
|
|
366
|
|
387
|
|
12
|
|
27
|
|
|||||||||||
|
Massachusetts
|
3,578
|
|
3,655
|
|
138
|
|
148
|
|
5
|
|
8
|
|
|||||||||||
|
Other U.S./Non-U.S.
|
31,196
|
|
32,016
|
|
1,410
|
|
1,481
|
|
88
|
|
140
|
|
|||||||||||
|
Home equity loans
(4)
|
$
|
78,217
|
|
$
|
80,108
|
|
$
|
3,759
|
|
$
|
3,901
|
|
$
|
172
|
|
$
|
302
|
|
|||||
|
Purchased credit-impaired home equity portfolio
|
5,354
|
|
5,617
|
|
|
|
|
|
|||||||||||||||
|
Total home equity loan portfolio
|
$
|
83,571
|
|
$
|
85,725
|
|
|
|
|
|
|||||||||||||
|
(1)
|
Outstandings and nonperforming amounts exclude loans accounted for under the fair value option. There were
$205 million
and
$196 million
of home equity loans accounted for under the fair value option at
March 31, 2015
and
December 31, 2014
. For more information on the fair value option, see
Consumer Portfolio Credit Risk Management – Consumer Loans Accounted for Under the Fair Value Option
on page
81
and
Note 15 – Fair Value Option
to the Consolidated Financial Statements
.
|
|
(2)
|
Net charge-offs exclude
$100 million
and
$110 million
of write-offs in the home equity PCI loan portfolio for the
three months ended March 31, 2015 and 2014
. These write-offs decreased the PCI valuation allowance included as part of the allowance for loan and lease losses. For more information on PCI write-offs, see
Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio
on page
77
.
|
|
(3)
|
In these states, foreclosure requires a court order following a legal proceeding (judicial states).
|
|
(4)
|
Amount excludes the PCI home equity portfolio.
|
76
Purchased Credit-impaired Loan Portfolio
Loans acquired with evidence of credit quality deterioration since origination and for which it is probable at purchase that we will be unable to collect all contractually required payments are accounted for under the accounting guidance for PCI loans, which addresses accounting for differences between contractual and expected cash flows to be collected from the purchaser's initial investment in loans if those differences are attributable, at least in part, to credit quality.
Table
36
presents the unpaid principal balance, carrying value, related valuation allowance and the net carrying value as a percentage of the unpaid principal balance for the PCI loan portfolio.
|
Table 36
|
||||||||||||||||||
|
Purchased Credit-impaired Loan Portfolio
|
||||||||||||||||||
|
|
March 31, 2015
|
|||||||||||||||||
|
(Dollars in millions)
|
Unpaid
Principal
Balance
|
Carrying
Value
|
Related
Valuation
Allowance
|
Carrying
Value Net of Valuation
Allowance
|
Percent of Unpaid
Principal
Balance
|
|||||||||||||
|
Residential mortgage
|
$
|
14,636
|
|
$
|
14,185
|
|
$
|
679
|
|
$
|
13,506
|
|
92.28
|
%
|
||||
|
Home equity
|
5,418
|
|
5,354
|
|
635
|
|
4,719
|
|
87.10
|
|
||||||||
|
Total purchased credit-impaired loan portfolio
|
$
|
20,054
|
|
$
|
19,539
|
|
$
|
1,314
|
|
$
|
18,225
|
|
90.88
|
|
||||
|
|
December 31, 2014
|
|||||||||||||||||
|
Residential mortgage
|
$
|
15,726
|
|
$
|
15,152
|
|
$
|
880
|
|
$
|
14,272
|
|
90.75
|
%
|
||||
|
Home equity
|
5,605
|
|
5,617
|
|
772
|
|
4,845
|
|
86.44
|
|
||||||||
|
Total purchased credit-impaired loan portfolio
|
$
|
21,331
|
|
$
|
20,769
|
|
$
|
1,652
|
|
$
|
19,117
|
|
89.62
|
|
||||
The total PCI unpaid principal balance
decreased
$1.3 billion
, or
six percent
, during the
three months ended March 31, 2015
primarily driven by sales, payoffs, paydowns and write-offs. During the
three months ended March 31, 2015
, we sold PCI loans with a carrying value of
$586 million
compared to sales of $454 million for the same period in 2014.
Of the unpaid principal balance of
$20.1 billion
at
March 31, 2015
, $16.7 billion, or 83 percent, was current based on the contractual terms, $1.4 billion, or seven percent, was in early stage delinquency, and $1.5 billion was 180 days or more past due, including $1.5 billion of first-lien mortgages and $95 million of home equity loans.
During the
three months ended March 31, 2015
, we recorded a provision
benefit
of
$50 million
for the PCI loan portfolio including $13 million for residential mortgage and $37 million for home equity. This compared to
no
provision
expense
for the
three months ended March 31, 2014
. The provision
benefit
for the
three months ended March 31, 2015
was primarily driven by improved macro-economic conditions.
The PCI valuation allowance
declined
$338 million
during the
three months ended March 31, 2015
due to write-offs in the PCI loan portfolio of
$188 million
in residential mortgage and
$100 million
in home equity, and a provision
benefit
of
$50 million
.
77
Purchased Credit-impaired Residential Mortgage Loan Portfolio
The PCI residential mortgage loan portfolio represented
73 percent
of the total PCI loan portfolio at
March 31, 2015
. Those loans to borrowers with a refreshed FICO score below 620 represented 38 percent of the PCI residential mortgage loan portfolio at
March 31, 2015
. Loans with a refreshed LTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 36 percent of the PCI residential mortgage loan portfolio and 46 percent based on the unpaid principal balance at
March 31, 2015
. Table
37
presents outstandings net of purchase accounting adjustments and before the related valuation allowance, by certain state concentrations.
|
Table 37
|
|||||||
|
Outstanding Purchased Credit-impaired Loan Portfolio – Residential Mortgage State Concentrations
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
California
|
$
|
6,534
|
|
$
|
6,885
|
|
|
|
Florida
(1)
|
1,170
|
|
1,289
|
|
|||
|
Virginia
|
615
|
|
640
|
|
|||
|
Maryland
|
549
|
|
602
|
|
|||
|
Texas
|
292
|
|
318
|
|
|||
|
Other U.S./Non-U.S.
|
5,025
|
|
5,418
|
|
|||
|
Total
|
$
|
14,185
|
|
$
|
15,152
|
|
|
|
(1)
|
In this state, foreclosure requires a court order following a legal proceeding (judicial state).
|
Pay option adjustable-rate mortgages (ARMs), which are included in the PCI residential mortgage portfolio, have interest rates that adjust monthly and minimum required payments that adjust annually, subject to resetting if minimum payments are made and deferred interest limits are reached. Annual payment adjustments are subject to a 7.5 percent maximum change. To ensure that contractual loan payments are adequate to repay a loan, the fully-amortizing loan payment amount is re-established after the initial five- or ten-year period and again every five years thereafter. These payment adjustments are not subject to the 7.5 percent limit and may be substantial due to changes in interest rates and the addition of unpaid interest to the loan balance. Payment advantage ARMs have interest rates that are fixed for an initial period of five years. Payments are subject to reset if the minimum payments are made and deferred interest limits are reached. If interest deferrals cause a loan's principal balance to reach a certain level within the first 10 years of the life of the loan, the payment is reset to the interest-only payment; then at the 10-year point, the fully-amortizing payment is required.
The difference between the frequency of changes in a loan's interest rates and payments along with a limitation on changes in the minimum monthly payments of 7.5 percent per year can result in payments that are not sufficient to pay all of the monthly interest charges (i.e., negative amortization). Unpaid interest is added to the loan balance until the loan balance increases to a specified limit, which can be no more than 115 percent of the original loan amount, at which time a new monthly payment amount adequate to repay the loan over its remaining contractual life is established.
At
March 31, 2015
, the unpaid principal balance of pay option loans, which include pay option ARMs and payment advantage ARMs, was $3.0 billion, with a carrying value of $2.9 billion, including $2.5 billion of loans that were credit-impaired upon acquisition and, accordingly, the reserve is based on a life-of-loan loss estimate. The total unpaid principal balance of pay option loans with accumulated negative amortization was $834 million, including $49 million of negative amortization. For those borrowers who are making payments in accordance with their contractual terms, one percent at both
March 31, 2015
and
December 31, 2014
elected to make only the minimum payment on pay option loans. We believe the majority of borrowers are now making scheduled payments primarily because the low rate environment has caused the fully indexed rates to be affordable to more borrowers. We continue to evaluate our exposure to payment resets on the acquired negative-amortizing loans including the PCI pay option loan portfolio and have taken into consideration in the evaluation several assumptions including prepayment and default rates. Of the loans in the pay option portfolio at
March 31, 2015
that have not already experienced a payment reset, two percent are expected to reset before 2016, 43 percent are expected to reset in 2016 and 18 percent are expected to reset thereafter. In addition, seven percent are expected to prepay and approximately 30 percent are expected to default prior to being reset, most of which were severely delinquent as of
March 31, 2015
. We no longer originate pay option loans.
78
Purchased Credit-impaired Home Equity Loan Portfolio
The PCI home equity portfolio represented
27 percent
of the total PCI loan portfolio at
March 31, 2015
. Those loans with a refreshed FICO score below 620 represented 15 percent of the PCI home equity portfolio at
March 31, 2015
. Loans with a refreshed CLTV greater than 90 percent, after consideration of purchase accounting adjustments and the related valuation allowance, represented 65 percent of the PCI home equity portfolio and 70 percent based on the unpaid principal balance at
March 31, 2015
. Table
38
presents outstandings net of purchase accounting adjustments and before the related valuation allowance, by certain state concentrations.
|
Table 38
|
|||||||
|
Outstanding Purchased Credit-impaired Loan Portfolio – Home Equity State Concentrations
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
California
|
$
|
1,572
|
|
$
|
1,646
|
|
|
|
Florida
(1)
|
297
|
|
313
|
|
|||
|
Virginia
|
254
|
|
265
|
|
|||
|
Arizona
|
181
|
|
188
|
|
|||
|
Colorado
|
140
|
|
151
|
|
|||
|
Other U.S./Non-U.S.
|
2,910
|
|
3,054
|
|
|||
|
Total
|
$
|
5,354
|
|
$
|
5,617
|
|
|
|
(1)
|
In this state, foreclosure requires a court order following a legal proceeding (judicial state).
|
U.S. Credit Card
At
March 31, 2015
, 97 percent of the U.S. credit card portfolio was managed in
Consumer Banking
with the remainder managed in
GWIM
. Outstandings in the U.S. credit card portfolio
decreased
$4.6 billion
during the
three months ended March 31, 2015
due to a seasonal decline in retail transaction volume. Net charge-offs
decreased
$97 million
to
$621 million
during the
three months ended March 31, 2015
compared to the
same period in 2014
due to improvements in delinquencies and bankruptcies as a result of an improved economic environment and the impact of higher credit quality originations. U.S. credit card loans 30 days or more past due and still accruing interest
decreased
$120 million
while loans 90 days or more past due and still accruing interest
decreased
$71 million
during the
three months ended March 31, 2015
as a result of the factors mentioned above that contributed to lower net charge-offs.
Table
39
presents certain key credit statistics for the U.S. credit card portfolio.
|
Table 39
|
|||||||
|
U.S. Credit Card – Key Credit Statistics
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
Outstandings
|
$
|
87,288
|
|
$
|
91,879
|
|
|
|
Accruing past due 30 days or more
|
1,581
|
|
1,701
|
|
|||
|
Accruing past due 90 days or more
|
795
|
|
866
|
|
|||
|
Three Months Ended
March 31 |
|||||||
|
2015
|
2014
|
||||||
|
Net charge-offs
|
$
|
621
|
|
$
|
718
|
|
|
|
Net charge-off ratios
(1)
|
2.84
|
%
|
3.25
|
%
|
|||
|
(1)
|
Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans.
|
Unused lines of credit for U.S. credit card totaled $312.9 billion and $305.9 billion at
March 31, 2015
and
December 31, 2014
. The $7.0 billion increase was driven by a seasonal decrease in line utilization due to lower transaction volumes and closures of inactive accounts.
79
Table
40
presents certain state concentrations for the U.S. credit card portfolio.
|
Table 40
|
|||||||||||||||||||||||
|
U.S. Credit Card State Concentrations
|
|||||||||||||||||||||||
|
|
Outstandings
|
Accruing Past Due
90 Days or More
|
Net Charge-offs
|
||||||||||||||||||||
|
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
Three Months Ended
March 31 |
||||||||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||||||||||||||||||
|
California
|
$
|
13,096
|
|
$
|
13,682
|
|
$
|
118
|
|
$
|
127
|
|
$
|
94
|
|
$
|
114
|
|
|||||
|
Florida
|
7,210
|
|
7,530
|
|
78
|
|
89
|
|
67
|
|
76
|
|
|||||||||||
|
Texas
|
6,318
|
|
6,586
|
|
53
|
|
58
|
|
41
|
|
49
|
|
|||||||||||
|
New York
|
5,381
|
|
5,655
|
|
58
|
|
59
|
|
42
|
|
46
|
|
|||||||||||
|
New Jersey
|
3,745
|
|
3,943
|
|
36
|
|
40
|
|
27
|
|
31
|
|
|||||||||||
|
Other U.S.
|
51,538
|
|
54,483
|
|
452
|
|
493
|
|
350
|
|
402
|
|
|||||||||||
|
Total U.S. credit card portfolio
|
$
|
87,288
|
|
$
|
91,879
|
|
$
|
795
|
|
$
|
866
|
|
$
|
621
|
|
$
|
718
|
|
|||||
Non-U.S. Credit Card
Outstandings in the non-U.S. credit card portfolio, which are recorded in
All Other
, decreased $805 million during the
three months ended March 31, 2015
due to weakening of the British Pound against the U.S. Dollar and a seasonal decline in retail transaction volume. For the
three months ended March 31, 2015
, net charge-offs
decreased
$32 million
to
$44 million
compared to the
same period in 2014
due to improvement in delinquencies as a result of higher credit quality originations and an improved economic environment, as well as increased recoveries from the sale of previously charged-off loans.
Unused lines of credit for non-U.S. credit card totaled $27.0 billion and $28.2 billion at
March 31, 2015
and
December 31, 2014
. The $1.2 billion decrease was driven by weakening of the British Pound against the U.S. Dollar.
Table
41
presents certain key credit statistics for the non-U.S. credit card portfolio.
|
Table 41
|
|||||||
|
Non-U.S. Credit Card – Key Credit Statistics
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
Outstandings
|
$
|
9,660
|
|
$
|
10,465
|
|
|
|
Accruing past due 30 days or more
|
168
|
|
183
|
|
|||
|
Accruing past due 90 days or more
|
88
|
|
95
|
|
|||
|
Three Months Ended
March 31 |
|||||||
|
2015
|
2014
|
||||||
|
Net charge-offs
|
$
|
44
|
|
$
|
76
|
|
|
|
Net charge-off ratios
(1)
|
1.80
|
%
|
2.66
|
%
|
|||
|
(1)
|
Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans.
|
80
Direct/Indirect Consumer
At
March 31, 2015
, approximately 50 percent of the direct/indirect portfolio was included in
GWIM
(principally securities-based lending loans), 49 percent was included in
Consumer Banking
(consumer auto and specialty lending (formerly referred to as dealer financial services) – automotive, marine, aircraft, recreational vehicle loans, and consumer personal loans) and the remainder was primarily student loans in
All Other
.
Outstandings in the direct/indirect portfolio
increased
$1.8 billion
during the
three months ended March 31, 2015
as a bulk auto loan purchase and growth in the securities-based lending portfolio were partially offset by lower outstandings in the unsecured consumer lending portfolio.
For the
three months ended March 31, 2015
, net charge-offs
decreased
$24 million
to
$34 million
, or
0.17 percent
of total average direct/indirect loans, compared to
$58 million
,
0.29 percent
for the
same period in 2014
. This
decrease
in net charge-offs was primarily driven by improvements in delinquencies and bankruptcies in the unsecured consumer lending portfolio as a result of an improved economic environment as well as reduced outstandings in this portfolio.
Direct/indirect loans that were past due 90 days or more and still accruing interest declined $13 million to $51 million during the
three months ended March 31, 2015
due to decreases in the unsecured consumer lending, and auto and specialty lending portfolios.
Table
42
presents certain state concentrations for the direct/indirect consumer loan portfolio.
|
Table 42
|
|||||||||||||||||||||||
|
Direct/Indirect State Concentrations
|
|||||||||||||||||||||||
|
|
Outstandings
|
Accruing Past Due
90 Days or More
|
Net Charge-offs
|
||||||||||||||||||||
|
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
Three Months Ended
March 31 |
||||||||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||||||||||||||||||
|
California
|
$
|
10,058
|
|
$
|
9,770
|
|
$
|
4
|
|
$
|
5
|
|
$
|
3
|
|
$
|
5
|
|
|||||
|
Florida
|
8,163
|
|
7,930
|
|
4
|
|
5
|
|
4
|
|
8
|
|
|||||||||||
|
Texas
|
7,913
|
|
7,741
|
|
4
|
|
5
|
|
4
|
|
6
|
|
|||||||||||
|
New York
|
4,585
|
|
4,458
|
|
2
|
|
2
|
|
1
|
|
4
|
|
|||||||||||
|
New Jersey
|
2,649
|
|
2,625
|
|
1
|
|
2
|
|
1
|
|
2
|
|
|||||||||||
|
Other U.S./Non-U.S.
|
48,773
|
|
47,857
|
|
36
|
|
45
|
|
21
|
|
33
|
|
|||||||||||
|
Total direct/indirect loan portfolio
|
$
|
82,141
|
|
$
|
80,381
|
|
$
|
51
|
|
$
|
64
|
|
$
|
34
|
|
$
|
58
|
|
|||||
Other Consumer
At
March 31, 2015
, approximately 58 percent of the
$1.8 billion
other consumer portfolio were consumer auto leases included in
Consumer Banking
. The remainder is primarily associated with certain consumer finance businesses that we previously exited.
Consumer Loans Accounted for Under the Fair Value Option
Outstanding consumer loans accounted for under the fair value option totaled
$2.1 billion
at
March 31, 2015
and were comprised of residential mortgage loans that were previously classified as held-for-sale, residential mortgage loans held in consolidated variable interest entities (VIEs) and repurchased home equity loans. The loans that were previously classified as held-for-sale were transferred to the residential mortgage portfolio in connection with the decision to retain the loans. The fair value option had been elected at the time of origination and the loans continue to be measured at fair value after the reclassification. During the
three months ended March 31, 2015
, we recorded net gains of
$3 million
resulting from changes in the fair value of these loans, including losses of $3 million on loans held in consolidated VIEs that were offset by gains recorded on related long-term debt.
81
Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
Table
43
presents nonperforming consumer loans, leases and foreclosed properties activity for the
three months ended March 31, 2015 and 2014
. Nonperforming LHFS are excluded from nonperforming loans as they are recorded at either fair value or the lower of cost or fair value. Nonperforming loans do not include past due consumer credit card loans, other unsecured loans and in general, consumer non-real estate-secured loans (loans discharged in Chapter 7 bankruptcy are included) as these loans are typically charged off no later than the end of the month in which the loan becomes 180 days past due. The charge-offs on these loans have no impact on nonperforming activity and, accordingly, are excluded from this table. The fully-insured loan portfolio is not reported as nonperforming as principal repayment is insured. Additionally, nonperforming loans do not include the PCI loan portfolio or loans accounted for under the fair value option. For more information on nonperforming loans, see
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
. During
three months ended March 31, 2015
, nonperforming consumer loans declined $610 million to
$10.2 billion
and included the impact of sales of $371 million, partially offset by a net increase of $85 million related to the impact of the consumer relief portion of the settlement with the DoJ for those loans that are no longer fully insured. Excluding these, nonperforming loans declined as outflows, including the transfer of certain qualifying borrowers discharged in a Chapter 7 bankruptcy to performing status outpaced new inflows.
The outstanding balance of a real estate-secured loan that is in excess of the estimated property value less costs to sell is charged off no later than the end of the month in which the loan becomes 180 days past due unless repayment of the loan is fully insured. At
March 31, 2015
, $5.2 billion, or 48 percent of nonperforming consumer real estate loans and foreclosed properties had been written down to their estimated property value less costs to sell, including $4.5 billion of nonperforming loans 180 days or more past due and $632 million of foreclosed properties. In addition, at
March 31, 2015
, $3.8 billion, or 37 percent of nonperforming consumer loans were modified and are now current after successful trial periods, or are current loans classified as nonperforming loans in accordance with applicable policies.
Foreclosed properties increased $2 million during the
three months ended March 31, 2015
as additions outpaced liquidations. PCI loans are excluded from nonperforming loans as these loans were written down to fair value at the acquisition date; however, once the underlying real estate is acquired by the Corporation upon foreclosure of the delinquent PCI loan, it is included in foreclosed properties. PCI-related foreclosed properties increased $20 million during the
three months ended March 31, 2015
. Not included in foreclosed properties at
March 31, 2015
was $1.2 billion of real estate that was acquired upon foreclosure of certain delinquent government-guaranteed loans (principally FHA-insured loans). We exclude these amounts from our nonperforming loans and foreclosed properties activity as we expect we will be reimbursed once the property is conveyed to the guarantor for principal and, up to certain limits, costs incurred during the foreclosure process and interest incurred during the holding period. For more information on the review of our foreclosure processes, see
Off-Balance Sheet Arrangements and Contractual Obligations – Servicing, Foreclosure and Other Mortgage Matters
on page
44
.
Restructured Loans
Nonperforming loans also include certain loans that have been modified in TDRs where economic concessions have been granted to borrowers experiencing financial difficulties. These concessions typically result from the Corporation's loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructuring and may only be returned to performing status after considering the borrower's sustained repayment performance for a reasonable period, generally six months. Nonperforming TDRs, excluding those modified loans in the PCI loan portfolio, are included in Table
43
.
82
|
Table 43
|
|||||||
|
Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity
(1)
|
|||||||
|
Three Months Ended
March 31 |
|||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Nonperforming loans and leases, January 1
|
$
|
10,819
|
|
$
|
15,840
|
|
|
|
Additions to nonperforming loans and leases:
|
|
|
|||||
|
New nonperforming loans and leases
|
1,469
|
|
2,027
|
|
|||
|
Reductions to nonperforming loans and leases:
|
|
|
|||||
|
Paydowns and payoffs
|
(253
|
)
|
(468
|
)
|
|||
|
Sales
|
(371
|
)
|
—
|
|
|||
|
Returns to performing status
(2)
|
(867
|
)
|
(800
|
)
|
|||
|
Charge-offs
|
(460
|
)
|
(583
|
)
|
|||
|
Transfers to foreclosed properties
(3)
|
(128
|
)
|
(172
|
)
|
|||
|
Total net additions (reductions) to nonperforming loans and leases
|
(610
|
)
|
4
|
|
|||
|
Total nonperforming loans and leases, March 31
(4)
|
10,209
|
|
15,844
|
|
|||
|
Foreclosed properties, January 1
|
630
|
|
533
|
|
|||
|
Additions to foreclosed properties:
|
|
||||||
|
New foreclosed properties
(3)
|
196
|
|
186
|
|
|||
|
Reductions to foreclosed properties:
|
|||||||
|
Sales
|
(168
|
)
|
(159
|
)
|
|||
|
Write-downs
|
(26
|
)
|
(22
|
)
|
|||
|
Total net additions to foreclosed properties
|
2
|
|
5
|
|
|||
|
Total foreclosed properties, March 31
(5)
|
632
|
|
538
|
|
|||
|
Nonperforming consumer loans, leases and foreclosed properties, March 31
|
$
|
10,841
|
|
$
|
16,382
|
|
|
|
Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases
(6)
|
2.16
|
%
|
3.06
|
%
|
|||
|
Nonperforming consumer loans, leases and foreclosed properties as a percentage of outstanding consumer loans, leases and foreclosed properties
(6)
|
2.29
|
|
3.16
|
|
|||
|
(1)
|
Balances do not include nonperforming LHFS of
$10 million
and
$33 million
and nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of
$86 million
and
$257 million
at
March 31, 2015 and 2014
as well as loans accruing past due 90 days or more as presented in
Table 29
and
Note 4 – Outstanding Loans and Leases
to the Consolidated Financial Statements
.
|
|
(2)
|
Consumer loans may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection.
|
|
(3)
|
New foreclosed properties represents transfers of nonperforming loans to foreclosed properties net of charge-offs taken during the first 90 days after transfer of a loan to foreclosed properties. New foreclosed properties also includes properties obtained upon foreclosure of delinquent PCI loans, properties repurchased due to representations and warranties exposure and properties acquired with newly consolidated subsidiaries.
|
|
(4)
|
At
March 31, 2015
,
45 percent
of nonperforming loans were 180 days or more past due.
|
|
(5)
|
Foreclosed property balances do not include properties insured by certain government-guaranteed loans, principally FHA-insured loans, that entered foreclosure of
$1.2 billion
and
$1.1 billion
at
March 31, 2015 and 2014
.
|
|
(6)
|
Outstanding consumer loans and leases exclude loans accounted for under the fair value option.
|
Our policy is to record any losses in the value of foreclosed properties as a reduction in the allowance for loan and lease losses during the first 90 days after transfer of a loan to foreclosed properties. Thereafter, further losses in value as well as gains and losses on sale are recorded in noninterest expense. New foreclosed properties included in Table
43
are net of $32 million and $45 million of charge-offs for the
three months ended March 31, 2015 and 2014
, recorded during the first 90 days after transfer.
We classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. At
March 31, 2015
and
December 31, 2014
,
$657 million
and
$800 million
of such junior-lien home equity loans were included in nonperforming loans and leases. This decline was driven by overall portfolio improvement as well as $45 million of charge-offs related to the consumer relief portion of the settlement with the DoJ.
83
Table
44
presents TDRs for the consumer real estate portfolio. Performing TDR balances are excluded from nonperforming loans and leases in Table
43
.
|
Table 44
|
|||||||||||||||||||||||
|
Consumer Real Estate Troubled Debt Restructurings
|
|||||||||||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||||||||||
|
(Dollars in millions)
|
Total
|
Nonperforming
|
Performing
|
Total
|
Nonperforming
|
Performing
|
|||||||||||||||||
|
Residential mortgage
(1, 2)
|
$
|
22,554
|
|
$
|
4,400
|
|
$
|
18,154
|
|
$
|
23,270
|
|
$
|
4,529
|
|
$
|
18,741
|
|
|||||
|
Home equity
(3)
|
2,437
|
|
1,592
|
|
845
|
|
2,358
|
|
1,595
|
|
763
|
|
|||||||||||
|
Total consumer real estate troubled debt restructurings
|
$
|
24,991
|
|
$
|
5,992
|
|
$
|
18,999
|
|
$
|
25,628
|
|
$
|
6,124
|
|
$
|
19,504
|
|
|||||
|
(1)
|
Residential mortgage TDRs deemed collateral dependent totaled
$6.0 billion
and
$5.8 billion
, and included
$3.6 billion
and
$3.6 billion
of loans classified as nonperforming and
$2.4 billion
and
$2.2 billion
of loans classified as performing at
March 31, 2015
and
December 31, 2014
.
|
|
(2)
|
Residential mortgage performing TDRs included
$11.3 billion
and
$11.9 billion
of loans that were fully-insured at
March 31, 2015
and
December 31, 2014
.
|
|
(3)
|
Home equity TDRs deemed collateral dependent totaled
$1.6 billion
and
$1.6 billion
, and included
$1.4 billion
and
$1.4 billion
of loans classified as nonperforming and
$240 million
and
$178 million
of loans classified as performing at
March 31, 2015
and
December 31, 2014
.
|
In addition to modifying consumer real estate loans, we work with customers who are experiencing financial difficulty by modifying credit card and other consumer loans. Credit card and other consumer loan modifications generally involve a reduction in the customer's interest rate on the account and placing the customer on a fixed payment plan not exceeding 60 months, all of which are considered TDRs (the renegotiated TDR portfolio). In addition, the accounts of non-U.S. credit card customers who do not qualify for a fixed payment plan may have their interest rates reduced, as required by certain local jurisdictions. These modifications, which are also TDRs, tend to experience higher payment default rates given that the borrowers may lack the ability to repay even with the interest rate reduction. In all cases, the customer's available line of credit is canceled.
Modifications of credit card and other consumer loans are primarily made through internal renegotiation programs utilizing direct customer contact, but may also utilize external renegotiation programs. The renegotiated TDR portfolio is excluded in large part from Table
43
as substantially all of the loans remain on accrual status until either charged off or paid in full. At
March 31, 2015
and
December 31, 2014
, our renegotiated TDR portfolio was
$1.0 billion
and
$1.1 billion
, of which
$818 million
and
$907 million
were current or less than 30 days past due under the modified terms. The
decline
in the renegotiated TDR portfolio was primarily driven by paydowns and charge-offs as well as lower program enrollments. For more information on the renegotiated TDR portfolio, see
Note 4 – Outstanding Loans and Leases
to the Consolidated Financial Statements
.
84
|
Commercial Portfolio Credit Risk Management
|
Commercial credit risk is evaluated and managed with the goal that concentrations of credit exposure do not result in undesirable levels of risk. We review, measure and manage concentrations of credit exposure by industry, product, geography, customer relationship and loan size. We also review, measure and manage commercial real estate loans by geographic location and property type. In addition, within our non-U.S. portfolio, we evaluate exposures by region and by country. Tables
49
,
54
and
59
summarize our concentrations. We also utilize syndications of exposure to third parties, loan sales, hedging and other risk mitigation techniques to manage the size and risk profile of the commercial credit portfolio.
For more information on our accounting policies regarding delinquencies, nonperforming status and net charge-offs for the commercial portfolio, see
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
|
Commercial Credit Portfolio
|
As compared to 2014, during the
three months ended March 31, 2015
credit quality among large corporate borrowers continued to improve despite some headwinds related to credit spreads and flat equity markets. Commercial real estate borrowers also showed improved credit quality as property valuations continue to increase and vacancy rates remain low. There were decreases in the credit quality of certain borrowers impacted by the sustained drop in oil prices.
Outstanding commercial loans and leases
increased
$10.7 billion
during the
three months ended March 31, 2015
, primarily in U.S. commercial and non-U.S. commercial. Nonperforming loans and leases decreased
$117 million
during the
three months ended March 31, 2015
. As a percentage of outstanding loans and leases, nonperforming commercial loans and leases decreased during the
three months ended March 31, 2015
to
0.25 percent
from
0.28 percent
(
0.25 percent
from
0.29 percent
excluding loans accounted for under the fair value option) at
December 31, 2014
. Reservable criticized balances increased
$733 million
during the
three months ended March 31, 2015
as a result of downgrades outpacing paydowns and upgrades. The allowance for loan and lease losses for the commercial portfolio
increased
$60 million
to
$4.5 billion
at
March 31, 2015
compared to
December 31, 2014
driven by loan growth and an increase in reservable criticized balances. For additional information, see
Allowance for Credit Losses
on page
98
.
Table
45
presents our commercial loans and leases portfolio, and related credit quality information at
March 31, 2015
and
December 31, 2014
.
|
Table 45
|
|||||||||||||||||||||||
|
Commercial Loans and Leases
|
|||||||||||||||||||||||
|
|
Outstandings
|
Nonperforming
|
Accruing Past Due 90
Days or More |
||||||||||||||||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
|||||||||||||||||
|
U.S. commercial
|
$
|
225,081
|
|
$
|
220,293
|
|
$
|
680
|
|
$
|
701
|
|
$
|
22
|
|
$
|
110
|
|
|||||
|
Commercial real estate
(1)
|
49,446
|
|
47,682
|
|
132
|
|
321
|
|
25
|
|
3
|
|
|||||||||||
|
Commercial lease financing
|
24,468
|
|
24,866
|
|
16
|
|
3
|
|
9
|
|
41
|
|
|||||||||||
|
Non-U.S. commercial
|
84,842
|
|
80,083
|
|
79
|
|
1
|
|
—
|
|
—
|
|
|||||||||||
|
|
383,837
|
|
372,924
|
|
907
|
|
1,026
|
|
56
|
|
154
|
|
|||||||||||
|
U.S. small business commercial
(2)
|
13,226
|
|
13,293
|
|
89
|
|
87
|
|
65
|
|
67
|
|
|||||||||||
|
Commercial loans excluding loans accounted for under the fair value option
|
397,063
|
|
386,217
|
|
996
|
|
1,113
|
|
121
|
|
221
|
|
|||||||||||
|
Loans accounted for under the fair value option
(3)
|
6,411
|
|
6,604
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Total commercial loans and leases
|
$
|
403,474
|
|
$
|
392,821
|
|
$
|
996
|
|
$
|
1,113
|
|
$
|
121
|
|
$
|
221
|
|
|||||
|
(1)
|
Includes U.S. commercial real estate loans of
$46.7 billion
and
$45.2 billion
and non-U.S. commercial real estate loans of
$2.8 billion
and
$2.5 billion
at
March 31, 2015
and
December 31, 2014
.
|
|
(2)
|
Includes card-related products.
|
|
(3)
|
Commercial loans accounted for under the fair value option include U.S. commercial loans of
$2.0 billion
and
$1.9 billion
and non-U.S. commercial loans of
$4.5 billion
and
$4.7 billion
at
March 31, 2015
and
December 31, 2014
. For more information on the fair value option, see
Note 15 – Fair Value Option
to the Consolidated Financial Statements
.
|
85
Table
46
presents net charge-offs and related ratios for our commercial loans and leases for the
three months ended March 31, 2015 and 2014
. The increase in net charge-offs for the
three months ended March 31, 2015
compared to the
same period in 2014
was primarily related to a net recovery in commercial real estate in the prior-year period.
|
Table 46
|
|||||||||||||
|
Commercial Net Charge-offs and Related Ratios
|
|||||||||||||
|
Three Months Ended March 31
|
|||||||||||||
|
Net Charge-offs
|
Net Charge-off Ratios
(1)
|
||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
2015
|
2014
|
|||||||||
|
U.S. commercial
|
$
|
7
|
|
$
|
5
|
|
0.01
|
%
|
0.01
|
%
|
|||
|
Commercial real estate
|
5
|
|
(37
|
)
|
0.04
|
|
(0.31
|
)
|
|||||
|
Commercial lease financing
|
5
|
|
(2
|
)
|
0.09
|
|
(0.04
|
)
|
|||||
|
Non-U.S. commercial
|
(2
|
)
|
19
|
|
(0.01
|
)
|
0.09
|
|
|||||
|
|
15
|
|
(15
|
)
|
0.02
|
|
(0.02
|
)
|
|||||
|
U.S. small business commercial
|
62
|
|
64
|
|
1.90
|
|
1.95
|
|
|||||
|
Total commercial
|
$
|
77
|
|
$
|
49
|
|
0.08
|
|
0.05
|
|
|||
|
(1)
|
Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the fair value option.
|
Table
47
presents commercial credit exposure by type for utilized, unfunded and total binding committed credit exposure. Commercial utilized credit exposure includes standby letters of credit (SBLCs) and financial guarantees, bankers' acceptances and commercial letters of credit for which we are legally bound to advance funds under prescribed conditions, during a specified time period. Although funds have not yet been advanced, these exposure types are considered utilized for credit risk management purposes.
Total commercial utilized credit exposure
increased
$15.9 billion
during the
three months ended March 31, 2015
primarily driven by loans and leases, and derivative assets, partially offset by decreases in LHFS, and debt securities and other investments. The utilization rate for loans and leases, SBLCs and financial guarantees, commercial letters of credit and bankers' acceptances, in the aggregate, was
57 percent
at both
March 31, 2015
and
December 31, 2014
.
|
Table 47
|
|||||||||||||||||||||||
|
Commercial Credit Exposure by Type
|
|||||||||||||||||||||||
|
|
Commercial Utilized
(1)
|
Commercial Unfunded
(2, 3)
|
Total Commercial Committed
|
||||||||||||||||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
|||||||||||||||||
|
Loans and leases
|
$
|
403,474
|
|
$
|
392,821
|
|
$
|
323,946
|
|
$
|
317,258
|
|
$
|
727,420
|
|
$
|
710,079
|
|
|||||
|
Derivative assets
(4)
|
61,331
|
|
52,682
|
|
—
|
|
—
|
|
61,331
|
|
52,682
|
|
|||||||||||
|
Standby letters of credit and financial guarantees
|
32,649
|
|
33,550
|
|
660
|
|
745
|
|
33,309
|
|
34,295
|
|
|||||||||||
|
Debt securities and other investments
|
16,388
|
|
17,301
|
|
5,972
|
|
5,315
|
|
22,360
|
|
22,616
|
|
|||||||||||
|
Loans held-for-sale
|
5,491
|
|
7,036
|
|
1,816
|
|
2,315
|
|
7,307
|
|
9,351
|
|
|||||||||||
|
Commercial letters of credit
|
1,872
|
|
2,037
|
|
142
|
|
126
|
|
2,014
|
|
2,163
|
|
|||||||||||
|
Bankers' acceptances
|
199
|
|
255
|
|
—
|
|
—
|
|
199
|
|
255
|
|
|||||||||||
|
Foreclosed properties and other
|
1,125
|
|
960
|
|
—
|
|
—
|
|
1,125
|
|
960
|
|
|||||||||||
|
Total
|
$
|
522,529
|
|
$
|
506,642
|
|
$
|
332,536
|
|
$
|
325,759
|
|
$
|
855,065
|
|
$
|
832,401
|
|
|||||
|
(1)
|
Total commercial utilized exposure includes loans of
$6.4 billion
and
$6.6 billion
and issued letters of credit accounted for under the fair value option with a notional amount of
$469 million
and
$535 million
at
March 31, 2015
and
December 31, 2014
.
|
|
(2)
|
Total commercial unfunded exposure includes loan commitments accounted for under the fair value option with a notional amount of
$8.4 billion
and
$9.4 billion
at
March 31, 2015
and
December 31, 2014
.
|
|
(3)
|
Excludes unused business card lines which are not legally binding.
|
|
(4)
|
Derivative assets are carried at fair value, reflect the effects of legally enforceable master netting agreements and have been reduced by cash collateral of
$52.7 billion
and
$47.3 billion
at
March 31, 2015
and
December 31, 2014
. Not reflected in utilized and committed exposure is additional non-cash derivative collateral held of
$21.8 billion
and $23.8 billion which consists primarily of other marketable securities.
|
86
Table
48
presents commercial utilized reservable criticized exposure by loan type. Criticized exposure corresponds to the Special Mention, Substandard and Doubtful asset categories as defined by regulatory authorities. Total commercial utilized reservable criticized exposure
increased
$733 million
, or
six percent
, during the
three months ended March 31, 2015
driven by downgrades outpacing paydowns and upgrades. Approximately 87 percent of commercial utilized reservable criticized exposure was secured at both
March 31, 2015
and
December 31, 2014
.
|
Table 48
|
|||||||||||||
|
Commercial Utilized Reservable Criticized Exposure
|
|||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||
|
(Dollars in millions)
|
Amount
(1)
|
Percent
(2)
|
Amount
(1)
|
Percent
(2)
|
|||||||||
|
U.S. commercial
|
$
|
8,422
|
|
3.34
|
%
|
$
|
7,597
|
|
3.07
|
%
|
|||
|
Commercial real estate
|
854
|
|
1.67
|
|
1,108
|
|
2.24
|
|
|||||
|
Commercial lease financing
|
1,067
|
|
4.36
|
|
1,034
|
|
4.16
|
|
|||||
|
Non-U.S. commercial
|
1,085
|
|
1.20
|
|
887
|
|
1.03
|
|
|||||
|
|
11,428
|
|
2.73
|
|
10,626
|
|
2.60
|
|
|||||
|
U.S. small business commercial
|
875
|
|
6.62
|
|
944
|
|
7.10
|
|
|||||
|
Total commercial utilized reservable criticized exposure
|
$
|
12,303
|
|
2.85
|
|
$
|
11,570
|
|
2.74
|
|
|||
|
(1)
|
Total commercial utilized reservable criticized exposure includes loans and leases of
$10.9 billion
and
$10.2 billion
and commercial letters of credit of
$1.3 billion
and
$1.3 billion
at
March 31, 2015
and
December 31, 2014
.
|
|
(2)
|
Percentages are calculated as commercial utilized reservable criticized exposure divided by total commercial utilized reservable exposure for each exposure category.
|
U.S. Commercial
At
March 31, 2015
, 70 percent of the U.S. commercial loan portfolio, excluding small business, was managed in
Global Banking,
16 percent in
Global Markets
, 10 percent in
GWIM
(generally business-purpose loans for high net worth clients) and the remainder primarily in
Consumer Banking
. U.S. commercial loans, excluding loans accounted for under the fair value option,
increased
$4.8 billion
, or
two percent
, during the
three months ended March 31, 2015
due to growth across all of the commercial businesses. Nonperforming loans and leases
decreased
$21 million
, or
three percent
, during the
three months ended March 31, 2015
. Net charge-offs
increased
$2 million
to
$7 million
for the
three months ended March 31, 2015
compared to the
same period in 2014
.
Commercial Real Estate
Commercial real estate primarily includes commercial loans and leases secured by non-owner-occupied real estate and is dependent on the sale or lease of the real estate as the primary source of repayment. The portfolio remains diversified across property types and geographic regions. California represented the largest state concentration at
21 percent
and
22 percent
of the commercial real estate loans and leases portfolio at
March 31, 2015
and
December 31, 2014
. The commercial real estate portfolio is predominantly managed in
Global Banking
and consists of loans made primarily to public and private developers, and commercial real estate firms. Outstanding loans
increased
$1.8 billion
, or
four percent
, during the
three months ended March 31, 2015
due to new originations primarily in major metropolitan markets.
For the
three months ended March 31, 2015
, we continued to see improvements in credit quality in both the residential and non-residential portfolios. We use a number of proactive risk mitigation initiatives to reduce adversely rated exposure in the commercial real estate portfolio including transfers of deteriorating exposures to management by independent special asset officers and the pursuit of loan restructurings or asset sales to achieve the best results for our customers and the Corporation.
Nonperforming commercial real estate loans and foreclosed properties
increased
$8 million
, or
two percent
, and reservable criticized balances
decreased
$254 million
, or
23 percent
, during the
three months ended March 31, 2015
. Net charge-offs were
$5 million
for the
three months ended March 31, 2015
compared to a net recovery of
$37 million
for the
same period in 2014
.
87
Table
49
presents outstanding commercial real estate loans by geographic region, based on the geographic location of the collateral, and by property type.
|
Table 49
|
|||||||
|
Outstanding Commercial Real Estate Loans
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
By Geographic Region
|
|
|
|||||
|
California
|
$
|
10,213
|
|
$
|
10,352
|
|
|
|
Northeast
|
9,249
|
|
8,781
|
|
|||
|
Southwest
|
6,888
|
|
6,570
|
|
|||
|
Southeast
|
5,849
|
|
5,495
|
|
|||
|
Midwest
|
2,748
|
|
2,867
|
|
|||
|
Florida
|
2,718
|
|
2,520
|
|
|||
|
Illinois
|
2,371
|
|
2,785
|
|
|||
|
Northwest
|
2,256
|
|
2,151
|
|
|||
|
Midsouth
|
1,750
|
|
1,724
|
|
|||
|
Non-U.S.
|
2,795
|
|
2,494
|
|
|||
|
Other
(1)
|
2,609
|
|
1,943
|
|
|||
|
Total outstanding commercial real estate loans
|
$
|
49,446
|
|
$
|
47,682
|
|
|
|
By Property Type
|
|
|
|||||
|
Non-residential
|
|||||||
|
Office
|
$
|
13,637
|
|
$
|
13,306
|
|
|
|
Multi-family rental
|
8,349
|
|
8,382
|
|
|||
|
Shopping centers/retail
|
8,160
|
|
7,969
|
|
|||
|
Industrial/warehouse
|
5,262
|
|
4,550
|
|
|||
|
Hotels/motels
|
3,855
|
|
3,578
|
|
|||
|
Multi-use
|
1,678
|
|
1,943
|
|
|||
|
Land and land development
|
528
|
|
490
|
|
|||
|
Other
|
6,163
|
|
5,754
|
|
|||
|
Total non-residential
|
47,632
|
|
45,972
|
|
|||
|
Residential
|
1,814
|
|
1,710
|
|
|||
|
Total outstanding commercial real estate loans
|
$
|
49,446
|
|
$
|
47,682
|
|
|
|
(1)
|
Includes unsecured loans to real estate investment trusts and national home builders whose portfolios of properties span multiple geographic regions and properties in the states of Colorado, Utah, Hawaii, Wyoming and Montana.
|
88
Tables
50
and
51
present commercial real estate credit quality data by non-residential and residential property types. The residential portfolio presented in Tables
49
,
50
and
51
includes condominiums and other residential real estate. Other property types in Tables
49
,
50
and
51
primarily include special purpose, nursing/retirement homes, medical facilities and restaurants, as well as unsecured loans to borrowers whose primary business is commercial real estate.
|
Table 50
|
|||||||||||||||
|
Commercial Real Estate Credit Quality Data
|
|||||||||||||||
|
Nonperforming Loans and
Foreclosed Properties
(1)
|
Utilized Reservable
Criticized Exposure
(2)
|
||||||||||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
|||||||||||
|
Non-residential
|
|
|
|
|
|||||||||||
|
Office
|
$
|
145
|
|
$
|
177
|
|
$
|
91
|
|
$
|
235
|
|
|||
|
Multi-family rental
|
21
|
|
21
|
|
135
|
|
125
|
|
|||||||
|
Shopping centers/retail
|
44
|
|
46
|
|
320
|
|
350
|
|
|||||||
|
Industrial/warehouse
|
70
|
|
42
|
|
30
|
|
67
|
|
|||||||
|
Hotels/motels
|
19
|
|
3
|
|
20
|
|
26
|
|
|||||||
|
Multi-use
|
19
|
|
11
|
|
61
|
|
55
|
|
|||||||
|
Land and land development
|
48
|
|
51
|
|
28
|
|
63
|
|
|||||||
|
Other
|
10
|
|
15
|
|
144
|
|
159
|
|
|||||||
|
Total non-residential
|
376
|
|
366
|
|
829
|
|
1,080
|
|
|||||||
|
Residential
|
20
|
|
22
|
|
25
|
|
28
|
|
|||||||
|
Total commercial real estate
|
$
|
396
|
|
$
|
388
|
|
$
|
854
|
|
$
|
1,108
|
|
|||
|
(1)
|
Includes commercial foreclosed properties of
$264 million
and
$67 million
at
March 31, 2015
and
December 31, 2014
.
|
|
(2)
|
Includes loans, SBLCs and bankers' acceptances and excludes loans accounted for under the fair value option.
|
|
Table 51
|
|||||||||||||
|
Commercial Real Estate Net Charge-offs and Related Ratios
|
|||||||||||||
|
Three Months Ended March 31
|
|||||||||||||
|
Net Charge-offs
|
Net Charge-off Ratios
(1)
|
||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
2015
|
2014
|
|||||||||
|
Non-residential
|
|
|
|
|
|||||||||
|
Office
|
$
|
4
|
|
$
|
(1
|
)
|
0.12
|
%
|
(0.04
|
)%
|
|||
|
Multi-family rental
|
—
|
|
(5
|
)
|
—
|
|
(0.21
|
)
|
|||||
|
Shopping centers/retail
|
—
|
|
2
|
|
—
|
|
0.12
|
|
|||||
|
Industrial/warehouse
|
(2
|
)
|
(3
|
)
|
(0.17
|
)
|
(0.23
|
)
|
|||||
|
Hotels/motels
|
5
|
|
—
|
|
0.58
|
|
—
|
|
|||||
|
Multi-use
|
(1
|
)
|
(9
|
)
|
(0.24
|
)
|
(1.87
|
)
|
|||||
|
Land and land development
|
—
|
|
1
|
|
—
|
|
0.29
|
|
|||||
|
Other
|
(1
|
)
|
(22
|
)
|
(0.08
|
)
|
(1.43
|
)
|
|||||
|
Total non-residential
|
5
|
|
(37
|
)
|
0.04
|
|
(0.32
|
)
|
|||||
|
Residential
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||
|
Total commercial real estate
|
$
|
5
|
|
$
|
(37
|
)
|
0.04
|
|
(0.31
|
)
|
|||
|
(1)
|
Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans excluding loans accounted for under the fair value option.
|
89
At
March 31, 2015
, total committed non-residential exposure was $69.2 billion compared to $67.7 billion at
December 31, 2014
, of which $47.6 billion and $46.0 billion were funded secured loans. Non-residential nonperforming loans and foreclosed properties
increased
$10 million
, or
three percent
, to
$376 million
at
March 31, 2015
compared to
$366 million
at
December 31, 2014
, which represented 0.79 percent of total non-residential loans and foreclosed properties for both periods. The
increase
in nonperforming loans and foreclosed properties in the non-residential portfolio was primarily in the industrial/warehouse and hotel/motels property types, largely offset by the office property type. Non-residential utilized reservable criticized exposure
decreased
$251 million
, or
23 percent
, to
$829 million
at
March 31, 2015
compared to
$1.1 billion
at
December 31, 2014
, which represented 1.69 percent and 2.27 percent of non-residential utilized reservable exposure. For the non-residential portfolio, net charge-offs were
$5 million
for the
three months ended March 31, 2015
compared to a net recovery of
$37 million
for the
same period in 2014
.
At
March 31, 2015
, total committed residential exposure was $3.7 billion compared to $3.6 billion at
December 31, 2014
, of which $1.8 billion and $1.7 billion were funded secured loans at
March 31, 2015
and
December 31, 2014
. Residential nonperforming loans and foreclosed properties
decreased
$2 million
, or
nine percent
, and residential utilized reservable criticized exposure
decreased
$3 million
, or
11 percent
during the
three months ended March 31, 2015
. The nonperforming loans, leases and foreclosed properties and the utilized reservable criticized ratios for the residential portfolio were 1.08 percent and 1.31 percent at
March 31, 2015
compared to 1.28 percent and 1.51 percent at
December 31, 2014
.
At
March 31, 2015
and
December 31, 2014
, the commercial real estate loan portfolio included $7.0 billion and $6.7 billion of funded construction and land development loans that were originated to fund the construction and/or rehabilitation of commercial properties. Reservable criticized construction and land development loans totaled $102 million and $164 million, and nonperforming construction and land development loans and foreclosed properties totaled $55 million and $80 million at
March 31, 2015
and
December 31, 2014
. During a property's construction phase, interest income is typically paid from interest reserves that are established at the inception of the loan. As construction is completed and the property is put into service, these interest reserves are depleted and interest payments from operating cash flows begin. We do not recognize interest income on nonperforming loans regardless of the existence of an interest reserve.
Non-U.S. Commercial
At
March 31, 2015
, 76 percent of the non-U.S. commercial loan portfolio was managed in
Global Banking
and 24 percent in
Global Markets
. Outstanding loans, excluding loans accounted for under the fair value option,
increased
$4.8 billion
during the
three months ended March 31, 2015
primarily due to growth in securitization finance on consumer loans and increased corporate demand. We had a net recovery of
$2 million
for the
three months ended March 31, 2015
compared to net charge-offs of
$19 million
for the
same period in 2014
. For additional information on the non-U.S. commercial portfolio, see
Non-U.S. Portfolio
on page
96
.
U.S. Small Business Commercial
The U.S. small business commercial loan portfolio is comprised of small business card loans and small business loans managed in
Consumer Banking
. Credit card-related products were 44 percent and 43 percent of the U.S. small business commercial portfolio at
March 31, 2015
and
December 31, 2014
. Net charge-offs
decreased
$2 million
to
$62 million
for the
three months ended March 31, 2015
compared to the
same period in 2014
. Of the U.S. small business commercial net charge-offs, 77 percent were credit card-related products for the
three months ended March 31, 2015
compared to 80 percent for the
same period in 2014
.
Commercial Loans Accounted for Under the Fair Value Option
The portfolio of commercial loans accounted for under the fair value option is held primarily in
Global Markets
and
Global Banking
. Outstanding commercial loans accounted for under the fair value option
decreased
$193 million
to an aggregate fair value of
$6.4 billion
at
March 31, 2015
compared to
December 31, 2014
primarily due to decreased corporate borrowings under bank credit facilities. We recorded net losses of $97 million during the
three months ended March 31, 2015
compared to net gains of $17 million for the
same period in 2014
from changes in the fair value of this loan portfolio. These amounts were primarily attributable to changes in instrument-specific credit risk, were recorded in other income and do not reflect the results of hedging activities.
In addition, unfunded lending commitments and letters of credit accounted for under the fair value option had an aggregate fair value of
$329 million
and
$405 million
at
March 31, 2015
and
December 31, 2014
, which was recorded in accrued expenses and other liabilities. The associated aggregate notional amount of unfunded lending commitments and letters of credit accounted for under the fair value option was
$8.9 billion
and
$9.9 billion
at
March 31, 2015
and
December 31, 2014
. We recorded net gains of
$118 million
during the
three months ended March 31, 2015
compared to
$9 million
for the
same period in 2014
from changes in the fair value of commitments and letters of credit. These amounts were primarily attributable to changes in instrument-specific credit risk, were recorded in other income and do not reflect the results of hedging activities.
90
Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity
Table
52
presents the nonperforming commercial loans, leases and foreclosed properties activity during the
three months ended March 31, 2015
and
2014
. Nonperforming loans do not include loans accounted for under the fair value option. During the
three months ended March 31, 2015
, nonperforming commercial loans and leases
decreased
$117 million
to
$996 million
driven by transfers to foreclosed properties, paydowns and charge-offs outpacing new nonperforming loans. Transfers to foreclosed properties of
$205 million
were largely related to one client relationship. Approximately 96 percent of commercial nonperforming loans, leases and foreclosed properties were secured and approximately 52 percent were contractually current. Commercial nonperforming loans were carried at approximately 79 percent of their unpaid principal balance before consideration of the allowance for loan and lease losses as the carrying value of these loans has been reduced to the estimated property value less costs to sell.
|
Table 52
|
|||||||
|
Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity
(1, 2)
|
|||||||
|
Three Months Ended March 31
|
|||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Nonperforming loans and leases, January 1
|
$
|
1,113
|
|
$
|
1,309
|
|
|
|
Additions to nonperforming loans and leases:
|
|||||||
|
New nonperforming loans and leases
|
287
|
|
262
|
|
|||
|
Advances
|
2
|
|
8
|
|
|||
|
Reductions to nonperforming loans and leases:
|
|||||||
|
Paydowns
|
(110
|
)
|
(171
|
)
|
|||
|
Sales
|
(16
|
)
|
(27
|
)
|
|||
|
Returns to performing status
(3)
|
(24
|
)
|
(63
|
)
|
|||
|
Charge-offs
|
(51
|
)
|
(50
|
)
|
|||
|
Transfers to foreclosed properties
(4)
|
(205
|
)
|
(3
|
)
|
|||
|
Total net reductions to nonperforming loans and leases
|
(117
|
)
|
(44
|
)
|
|||
|
Total nonperforming loans and leases, March 31
|
996
|
|
1,265
|
|
|||
|
Foreclosed properties, January 1
|
67
|
|
90
|
|
|||
|
Additions to foreclosed properties:
|
|
||||||
|
New foreclosed properties
(4)
|
200
|
|
2
|
|
|||
|
Reductions to foreclosed properties:
|
|||||||
|
Sales
|
(2
|
)
|
(5
|
)
|
|||
|
Write-downs
|
(1
|
)
|
(2
|
)
|
|||
|
Total net additions (reductions) to foreclosed properties
|
197
|
|
(5
|
)
|
|||
|
Total foreclosed properties, March 31
|
264
|
|
85
|
|
|||
|
Nonperforming commercial loans, leases and foreclosed properties, March 31
|
$
|
1,260
|
|
$
|
1,350
|
|
|
|
Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases
(5)
|
0.25
|
%
|
0.33
|
%
|
|||
|
Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans, leases and foreclosed properties
(5)
|
0.32
|
|
0.35
|
|
|||
|
(1)
|
Balances do not include nonperforming LHFS of $334 million and $259 million at
March 31, 2015
and
2014
.
|
|
(2)
|
Includes U.S. small business commercial activity. Small business card loans are excluded as they are not classified as nonperforming.
|
|
(3)
|
Commercial loans and leases may be returned to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection. TDRs are generally classified as performing after a sustained period of demonstrated payment performance.
|
|
(4)
|
New foreclosed properties represents transfers of nonperforming loans to foreclosed properties net of charge-offs recorded during the first 90 days after transfer of a loan to foreclosed properties.
|
|
(5)
|
Outstanding commercial loans exclude loans accounted for under the fair value option.
|
91
Table
53
presents our commercial TDRs by product type and performing status. U.S. small business commercial TDRs are comprised of renegotiated small business card loans and are not classified as nonperforming as they are charged off no later than the end of the month in which the loan becomes 180 days past due. For more information on TDRs, see
Note 4 – Outstanding Loans and Leases
to the Consolidated Financial Statements
.
|
Table 53
|
|||||||||||||||||||||||
|
Commercial Troubled Debt Restructurings
|
|||||||||||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||||||||||
|
(Dollars in millions)
|
Total
|
Non-performing
|
Performing
|
Total
|
Non-performing
|
Performing
|
|||||||||||||||||
|
U.S. commercial
|
$
|
1,104
|
|
$
|
352
|
|
$
|
752
|
|
$
|
1,096
|
|
$
|
308
|
|
$
|
788
|
|
|||||
|
Commercial real estate
|
235
|
|
44
|
|
191
|
|
456
|
|
234
|
|
222
|
|
|||||||||||
|
Non-U.S. commercial
|
51
|
|
8
|
|
43
|
|
43
|
|
—
|
|
43
|
|
|||||||||||
|
U.S. small business commercial
|
29
|
|
—
|
|
29
|
|
35
|
|
—
|
|
35
|
|
|||||||||||
|
Total commercial troubled debt restructurings
|
$
|
1,419
|
|
$
|
404
|
|
$
|
1,015
|
|
$
|
1,630
|
|
$
|
542
|
|
$
|
1,088
|
|
|||||
|
Industry Concentrations
|
Table
54
presents commercial committed and utilized credit exposure by industry and the total net credit default protection purchased to cover the funded and unfunded portions of certain credit exposures. Our commercial credit exposure is diversified across a broad range of industries. Total commercial committed credit exposure
increased
$22.7 billion
, or
three percent
,
during the three months to March 31, 2015
to
$855.1 billion
. Increases in commercial committed exposure were concentrated in diversified financials, banking, pharmaceuticals and biotechnology, and real estate, partially offset by lower exposure to healthcare equipment and services, and energy.
Industry limits are used internally to manage industry concentrations and are based on committed exposures and capital usage that are allocated on an industry-by-industry basis. A risk management framework is in place to set and approve industry limits as well as to provide ongoing monitoring. The Management Risk Committee (MRC) oversees industry limit governance.
Diversified financials, our largest industry concentration with committed exposure of
$111.3 billion
,
increased
$7.8 billion
, or
eight percent
, during the
three months ended March 31, 2015
. The
increase
was driven by growth in loan and loan equivalent exposure to asset managers and capital markets.
Real estate, our second largest industry concentration with committed exposure of
$78.4 billion
,
increased
$2.2 billion
, or
three percent
, during the
three months ended March 31, 2015
. The
increase
was primarily due to new originations and renewals outpacing paydowns and sales. Real estate construction and land development exposure represented 13 percent of the total real estate industry committed exposure at both
March 31, 2015
and
December 31, 2014
. For more information on the commercial real estate and related portfolios, see
Commercial Portfolio Credit Risk Management – Commercial Real Estate
on page
87
.
The following changes in our industry concentrations occurred during the
three months ended March 31, 2015
. Committed exposure to healthcare equipment and services industry
decreased
$3.4 billion
, or
seven percent
, primarily driven by repayment of bridge financing for acquisitions. Banking committed exposure
increased
$3.4 billion
, or
seven percent
, primarily reflecting growth in mortgage banking exposure driven by increases in residential and commercial mortgage origination volume. Pharmaceuticals and biotechnology committed exposure
increased
$3.3 billion
, or
25 percent
, primarily reflecting a bridge commitment for an acquisition. Energy committed exposure
decreased
$2.3 billion
, or
five percent
, primarily due to repayment of bridge financing.
Our committed state and municipal exposure of $39.4 billion at
March 31, 2015
consisted of $32.3 billion of commercial utilized exposure (including $19.1 billion of funded loans, $6.4 billion of SBLCs and $2.6 billion of derivative assets) and $7.1 billion of unfunded commercial exposure (primarily unfunded loan commitments and letters of credit) and is reported in the government and public education industry in Table
54
. With the U.S. economy gradually strengthening, most state and local governments are experiencing improved fiscal circumstances and continue to honor debt obligations as agreed. While historical default rates have been low, as part of our overall and ongoing risk management processes, we continually monitor these exposures through a rigorous review process. Additionally, internal communications are regularly circulated such that exposure levels are maintained in compliance with established concentration guidelines.
92
|
Table 54
|
|||||||||||||||
|
Commercial Credit Exposure by Industry
(1)
|
|||||||||||||||
|
|
Commercial
Utilized
|
Total Commercial
Committed
|
|||||||||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
|||||||||||
|
Diversified financials
|
$
|
65,579
|
|
$
|
63,306
|
|
$
|
111,306
|
|
$
|
103,528
|
|
|||
|
Real estate
(2)
|
57,930
|
|
53,834
|
|
78,357
|
|
76,153
|
|
|||||||
|
Retailing
|
34,612
|
|
33,683
|
|
58,701
|
|
58,043
|
|
|||||||
|
Capital goods
|
29,254
|
|
29,028
|
|
54,171
|
|
54,653
|
|
|||||||
|
Banking
|
46,539
|
|
42,330
|
|
51,732
|
|
48,353
|
|
|||||||
|
Government and public education
|
42,894
|
|
42,095
|
|
51,066
|
|
49,937
|
|
|||||||
|
Healthcare equipment and services
|
31,636
|
|
32,923
|
|
49,022
|
|
52,450
|
|
|||||||
|
Materials
|
24,586
|
|
23,664
|
|
46,503
|
|
45,821
|
|
|||||||
|
Energy
|
22,174
|
|
23,830
|
|
45,416
|
|
47,667
|
|
|||||||
|
Food, beverage and tobacco
|
17,100
|
|
16,131
|
|
35,083
|
|
34,465
|
|
|||||||
|
Consumer services
|
21,987
|
|
21,657
|
|
34,094
|
|
33,269
|
|
|||||||
|
Commercial services and supplies
|
18,473
|
|
17,997
|
|
30,623
|
|
30,451
|
|
|||||||
|
Utilities
|
10,559
|
|
9,399
|
|
25,679
|
|
25,235
|
|
|||||||
|
Transportation
|
18,050
|
|
17,538
|
|
25,655
|
|
24,541
|
|
|||||||
|
Media
|
11,615
|
|
11,128
|
|
21,596
|
|
21,502
|
|
|||||||
|
Individuals and trusts
|
16,723
|
|
16,749
|
|
21,568
|
|
21,195
|
|
|||||||
|
Pharmaceuticals and biotechnology
|
5,956
|
|
5,707
|
|
16,800
|
|
13,493
|
|
|||||||
|
Software and services
|
5,542
|
|
5,927
|
|
15,052
|
|
14,071
|
|
|||||||
|
Technology hardware and equipment
|
5,158
|
|
5,489
|
|
14,125
|
|
12,350
|
|
|||||||
|
Consumer durables and apparel
|
6,457
|
|
6,111
|
|
10,827
|
|
10,613
|
|
|||||||
|
Automobiles and components
|
5,203
|
|
4,114
|
|
10,479
|
|
9,683
|
|
|||||||
|
Telecommunication services
|
3,991
|
|
3,814
|
|
10,407
|
|
9,295
|
|
|||||||
|
Insurance, including monolines
|
4,758
|
|
5,204
|
|
10,402
|
|
11,252
|
|
|||||||
|
Food and staples retailing
|
3,812
|
|
3,848
|
|
7,482
|
|
7,418
|
|
|||||||
|
Religious and social organizations
|
4,692
|
|
4,881
|
|
6,215
|
|
6,548
|
|
|||||||
|
Other
|
7,249
|
|
6,255
|
|
12,704
|
|
10,415
|
|
|||||||
|
Total commercial credit exposure by industry
|
$
|
522,529
|
|
$
|
506,642
|
|
$
|
855,065
|
|
$
|
832,401
|
|
|||
|
Net credit default protection purchased on total commitments
(3)
|
|
|
$
|
(6,720
|
)
|
$
|
(7,302
|
)
|
|||||||
|
(1)
|
Includes U.S. small business commercial exposure.
|
|
(2)
|
Industries are viewed from a variety of perspectives to best isolate the perceived risks. For purposes of this table, the real estate industry is defined based on the borrowers' or counterparties' primary business activity using operating cash flows and primary source of repayment as key factors.
|
|
(3)
|
Represents net notional credit protection purchased. For additional information, see
Commercial Portfolio Credit Risk Management – Risk Mitigation
on page
94
.
|
93
|
Risk Mitigation
|
We purchase credit protection to cover the funded portion as well as the unfunded portion of certain credit exposures. To lower the cost of obtaining our desired credit protection levels, we may add credit exposure within an industry, borrower or counterparty group by selling protection.
At
March 31, 2015
and
December 31, 2014
, net notional credit default protection purchased in our credit derivatives portfolio to hedge our funded and unfunded exposures for which we elected the fair value option, as well as certain other credit exposures, was
$6.7 billion
and
$7.3 billion
. We recorded net losses of $71 million for the
three months ended March 31, 2015
compared to net losses of $29 million for the
same period in 2014
on these positions. The gains and losses on these instruments were offset by gains and losses on the related exposures. The Value-at-Risk (VaR) results for these exposures are included in the fair value option portfolio information in
Table 62
. For additional information, see
Trading Risk Management
on page
103
.
Tables
55
and
56
present the maturity profiles and the credit exposure debt ratings of the net credit default protection portfolio at
March 31, 2015
and
December 31, 2014
.
|
Table 55
|
|||||
|
Net Credit Default Protection by Maturity
|
|||||
|
March 31
2015 |
December 31
2014 |
||||
|
Less than or equal to one year
|
40
|
%
|
43
|
%
|
|
|
Greater than one year and less than or equal to five years
|
58
|
|
55
|
|
|
|
Greater than five years
|
2
|
|
2
|
|
|
|
Total net credit default protection
|
100
|
%
|
100
|
%
|
|
|
Table 56
|
|||||||||||||
|
Net Credit Default Protection by Credit Exposure Debt Rating
|
|||||||||||||
|
(Dollars in millions)
|
March 31, 2015
|
December 31, 2014
|
|||||||||||
|
Ratings
(1, 2)
|
Net
Notional
(3)
|
Percent of
Total
|
Net
Notional
(3)
|
Percent of
Total
|
|||||||||
|
A
|
$
|
(1,363
|
)
|
20.3
|
%
|
$
|
(1,310
|
)
|
17.9
|
%
|
|||
|
BBB
|
(3,603
|
)
|
53.6
|
|
(4,207
|
)
|
57.6
|
|
|||||
|
BB
|
(1,011
|
)
|
15.0
|
|
(1,001
|
)
|
13.7
|
|
|||||
|
B
|
(569
|
)
|
8.5
|
|
(643
|
)
|
8.8
|
|
|||||
|
CCC and below
|
(168
|
)
|
2.5
|
|
(131
|
)
|
1.8
|
|
|||||
|
NR
(4)
|
(6
|
)
|
0.1
|
|
(10
|
)
|
0.2
|
|
|||||
|
Total net credit default protection
|
$
|
(6,720
|
)
|
100.0
|
%
|
$
|
(7,302
|
)
|
100.0
|
%
|
|||
|
(1)
|
Ratings are refreshed on a quarterly basis.
|
|
(2)
|
Ratings of BBB- or higher are considered to meet the definition of investment grade.
|
|
(3)
|
Represents net credit default protection (purchased) sold.
|
|
(4)
|
NR is comprised of index positions held and any names that have not been rated.
|
In addition to our net notional credit default protection purchased to cover the funded and unfunded portion of certain credit exposures, credit derivatives are used for market-making activities for clients and establishing positions intended to profit from directional or relative value changes. We execute the majority of our credit derivative trades in the OTC market with large, multinational financial institutions, including broker-dealers and, to a lesser degree, with a variety of other investors. Because these transactions are executed in the OTC market, we are subject to settlement risk. We are also subject to credit risk in the event that these counterparties fail to perform under the terms of these contracts. In most cases, credit derivative transactions are executed on a daily margin basis. Therefore, events such as a credit downgrade, depending on the ultimate rating level, or a breach of credit covenants would typically require an increase in the amount of collateral required by the counterparty, where applicable, and/or allow us to take additional protective measures such as early termination of all trades.
94
Table
57
presents the total contract/notional amount of credit derivatives outstanding and includes both purchased and written credit derivatives. The credit risk amounts are measured as net asset exposure by counterparty, taking into consideration all contracts with the counterparty. For more information on our written credit derivatives, see
Note 2 – Derivatives
to the Consolidated Financial Statements
.
The credit risk amounts discussed above and presented in Table
57
take into consideration the effects of legally enforceable master netting agreements while amounts disclosed in
Note 2 – Derivatives
to the Consolidated Financial Statements
are shown on a gross basis. Credit risk reflects the potential benefit from offsetting exposure to non-credit derivative products with the same counterparties that may be netted upon the occurrence of certain events, thereby reducing our overall exposure.
|
Table 57
|
|||||||||||||||
|
Credit Derivatives
|
|||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||
|
(Dollars in millions)
|
Contract/
Notional
|
Credit Risk
|
Contract/
Notional
|
Credit Risk
|
|||||||||||
|
Purchased credit derivatives:
|
|
|
|
|
|||||||||||
|
Credit default swaps
|
$
|
1,054,657
|
|
$
|
3,925
|
|
$
|
1,094,796
|
|
$
|
3,833
|
|
|||
|
Total return swaps/other
|
43,763
|
|
138
|
|
44,333
|
|
510
|
|
|||||||
|
Total purchased credit derivatives
|
$
|
1,098,420
|
|
$
|
4,063
|
|
$
|
1,139,129
|
|
$
|
4,343
|
|
|||
|
Written credit derivatives:
|
|
|
|
|
|
||||||||||
|
Credit default swaps
|
$
|
1,032,418
|
|
n/a
|
|
$
|
1,073,101
|
|
n/a
|
|
|||||
|
Total return swaps/other
|
61,834
|
|
n/a
|
|
61,031
|
|
n/a
|
|
|||||||
|
Total written credit derivatives
|
$
|
1,094,252
|
|
n/a
|
|
$
|
1,134,132
|
|
n/a
|
|
|||||
|
Counterparty Credit Risk Valuation Adjustments
|
We record counterparty credit risk valuation adjustments on certain derivative assets, including our credit default protection purchased, in order to properly reflect the credit risk of the counterparty, as presented in
Table 58
. We calculate CVA based on a modeled expected exposure that incorporates current market risk factors including changes in market spreads and non-credit related market factors that affect the value of a derivative. The exposure also takes into consideration credit mitigants such as legally enforceable master netting agreements and collateral. For additional information, see
Note 2 – Derivatives
to the Consolidated Financial Statements
.
|
Table 58
|
|||||||||||||||||||||||
|
Credit Valuation Gains and Losses
|
|||||||||||||||||||||||
|
Gains (Losses)
|
Three Months Ended March 31
|
||||||||||||||||||||||
|
2015
|
2014
|
||||||||||||||||||||||
|
(Dollars in millions)
|
Gross
|
Hedge
|
Net
|
Gross
|
|
Hedge
|
|
Net
|
|||||||||||||||
|
Credit valuation
|
$
|
8
|
|
$
|
116
|
|
$
|
124
|
|
$
|
52
|
|
$
|
(12
|
)
|
$
|
40
|
|
|||||
95
|
Non-U.S. Portfolio
|
Our non-U.S. credit and trading portfolios are subject to country risk. We define country risk as the risk of loss from unfavorable economic and political conditions, currency fluctuations, social instability and changes in government policies. A risk management framework is in place to measure, monitor and manage non-U.S. risk and exposures. Management oversight of country risk, including cross-border risk, is the responsibility of a subcommittee of the MRC. In addition to the direct risk of doing business in a country, we also are exposed to indirect country risks (e.g., related to the collateral received on secured financing transactions or related to client clearing activities). These indirect exposures are managed in the normal course of business through credit, market and operational risk governance, rather than through country risk governance.
Table 59
presents our 20 largest non-U.S. country exposures at
March 31, 2015
. These exposures accounted for
87 percent
of our total non-U.S. exposure at
March 31, 2015
and
88 percent
at
December 31, 2014
. Net country exposure for these 20 countries
increased
$1.5 billion
from
December 31, 2014
driven by higher derivatives exposure in the United Kingdom, Brazil and Germany, and reductions in hedges in the United Kingdom, France, Spain and Japan. These increases were partially offset by reductions in funded and unfunded loans and loan equivalents exposure in Germany, Japan, France, China and Russia, and decreases in securities exposure in the United Kingdom, Italy and Taiwan.
Non-U.S. exposure is presented on an internal risk management basis and includes sovereign and non-sovereign credit exposure, securities and other investments issued by or domiciled in countries other than the U.S. The risk assignments by country can be adjusted for external guarantees and certain collateral types. Exposures that are subject to external guarantees are reported under the country of the guarantor. Exposures with tangible collateral are reflected in the country where the collateral is held. For securities received, other than cross-border resale agreements, outstandings are assigned to the domicile of the issuer of the securities.
Funded loans and loan equivalents include loans, leases, and other extensions of credit and funds, including letters of credit and due from placements, which have not been reduced by collateral, hedges or credit default protection. Funded loans and loan equivalents are reported net of charge-offs but prior to any allowance for loan and lease losses. Unfunded commitments are the undrawn portion of legally binding commitments related to loans and loan equivalents.
Net counterparty exposure includes the fair value of derivatives, including the counterparty risk associated with credit default swaps (CDS), and secured financing transactions. Derivatives exposures are presented net of collateral, which is predominantly cash, pledged under legally enforceable master netting agreements. Secured financing transaction exposures are presented net of eligible cash or securities pledged as collateral.
Securities and other investments are carried at fair value and long securities exposures are netted against short exposures with the same underlying issuer to, but not below, zero (i.e., negative issuer exposures are reported as
zero
). Other investments include our GPI portfolio and strategic investments.
96
Net country exposure represents country exposure less hedges and credit default protection purchased, net of credit default protection sold. We hedge certain of our country exposures with credit default protection primarily in the form of single-name, as well as indexed and tranched CDS. The exposures associated with these hedges represent the amount that would be realized upon the isolated default of an individual issuer in the relevant country assuming a zero recovery rate for that individual issuer, and are calculated based on the CDS notional amount adjusted for any fair value receivable or payable. Changes in the assumption of an isolated default can produce different results in a particular tranche.
|
Table 59
|
|||||||||||||||||||||||||||||||
|
Top 20 Non-U.S. Countries Exposure
|
|||||||||||||||||||||||||||||||
|
(Dollars in millions)
|
Funded Loans and Loan Equivalents
|
Unfunded Loan Commitments
|
Net Counterparty Exposure
|
Securities/
Other
Investments
|
Country Exposure at March 31
2015 |
Hedges and Credit Default Protection
|
Net Country Exposure at March 31
2015 |
Increase (Decrease) from December 31
2014 |
|||||||||||||||||||||||
|
United Kingdom
|
$
|
24,140
|
|
$
|
10,921
|
|
$
|
8,414
|
|
$
|
6,134
|
|
$
|
49,609
|
|
$
|
(3,285
|
)
|
$
|
46,324
|
|
$
|
777
|
|
|||||||
|
Canada
|
6,139
|
|
6,922
|
|
2,007
|
|
4,307
|
|
19,375
|
|
(1,798
|
)
|
17,577
|
|
(963
|
)
|
|||||||||||||||
|
Brazil
|
10,400
|
|
777
|
|
1,198
|
|
4,437
|
|
16,812
|
|
(330
|
)
|
16,482
|
|
1,498
|
|
|||||||||||||||
|
Japan
|
11,068
|
|
482
|
|
4,127
|
|
1,546
|
|
17,223
|
|
(929
|
)
|
16,294
|
|
(440
|
)
|
|||||||||||||||
|
Germany
|
4,902
|
|
4,788
|
|
4,159
|
|
4,996
|
|
18,845
|
|
(3,435
|
)
|
15,410
|
|
2,851
|
|
|||||||||||||||
|
India
|
6,496
|
|
369
|
|
247
|
|
4,622
|
|
11,734
|
|
(292
|
)
|
11,442
|
|
856
|
|
|||||||||||||||
|
China
|
9,698
|
|
600
|
|
795
|
|
1,242
|
|
12,335
|
|
(912
|
)
|
11,423
|
|
(869
|
)
|
|||||||||||||||
|
France
|
2,590
|
|
4,956
|
|
1,370
|
|
4,625
|
|
13,541
|
|
(3,501
|
)
|
10,040
|
|
(398
|
)
|
|||||||||||||||
|
Netherlands
|
3,076
|
|
3,808
|
|
1,320
|
|
1,556
|
|
9,760
|
|
(1,145
|
)
|
8,615
|
|
480
|
|
|||||||||||||||
|
Hong Kong
|
6,037
|
|
380
|
|
1,009
|
|
719
|
|
8,145
|
|
(13
|
)
|
8,132
|
|
(476
|
)
|
|||||||||||||||
|
South Korea
|
3,607
|
|
1,081
|
|
956
|
|
2,596
|
|
8,240
|
|
(670
|
)
|
7,570
|
|
1,121
|
|
|||||||||||||||
|
Australia
|
3,415
|
|
1,598
|
|
809
|
|
2,070
|
|
7,892
|
|
(675
|
)
|
7,217
|
|
(456
|
)
|
|||||||||||||||
|
Switzerland
|
2,933
|
|
3,402
|
|
1,084
|
|
707
|
|
8,126
|
|
(999
|
)
|
7,127
|
|
596
|
|
|||||||||||||||
|
Italy
|
3,151
|
|
930
|
|
2,430
|
|
501
|
|
7,012
|
|
(2,672
|
)
|
4,340
|
|
(1,059
|
)
|
|||||||||||||||
|
Singapore
|
2,207
|
|
215
|
|
780
|
|
959
|
|
4,161
|
|
(55
|
)
|
4,106
|
|
102
|
|
|||||||||||||||
|
Spain
|
2,202
|
|
827
|
|
222
|
|
1,280
|
|
4,531
|
|
(546
|
)
|
3,985
|
|
369
|
|
|||||||||||||||
|
Mexico
|
3,032
|
|
256
|
|
198
|
|
644
|
|
4,130
|
|
(336
|
)
|
3,794
|
|
(477
|
)
|
|||||||||||||||
|
Russia
|
3,648
|
|
83
|
|
353
|
|
100
|
|
4,184
|
|
(1,360
|
)
|
2,824
|
|
(785
|
)
|
|||||||||||||||
|
Turkey
|
2,602
|
|
130
|
|
24
|
|
54
|
|
2,810
|
|
(141
|
)
|
2,669
|
|
181
|
|
|||||||||||||||
|
Taiwan
|
2,078
|
|
20
|
|
245
|
|
112
|
|
2,455
|
|
(2
|
)
|
2,453
|
|
(1,412
|
)
|
|||||||||||||||
|
Total top 20 non-U.S. countries exposure
|
$
|
113,421
|
|
$
|
42,545
|
|
$
|
31,747
|
|
$
|
43,207
|
|
$
|
230,920
|
|
$
|
(23,096
|
)
|
$
|
207,824
|
|
$
|
1,496
|
|
|||||||
Russian intervention in Ukraine during
2014
significantly increased regional geopolitical tensions. The Russian economy continues to slow due to the negative impacts of weak oil prices, ongoing economic sanctions and high interest rates resulting from Russian central bank actions taken to counter ruble depreciation. Net exposure to Russia was reduced to
$2.8 billion
at
March 31, 2015
, concentrated in oil and gas companies and commercial banks. Our exposure to Ukraine was minimal. In response to Russian actions, U.S. and European governments have imposed sanctions on a limited number of Russian individuals and business entities. Geopolitical and economic conditions remain fluid with potential for further escalation of tensions, increased severity of sanctions against Russian interests, sustained low oil prices and rating agency downgrades.
Certain European countries, including Italy, Spain, Ireland, Greece and Portugal, have experienced varying degrees of financial stress in recent years. While market conditions have improved in Europe, policymakers continue to address fundamental challenges of competitiveness, growth, deflation and high unemployment. A return of political stress or financial instability in these countries could disrupt financial markets and have a detrimental impact on global economic conditions and sovereign and non-sovereign debt in these countries. Net exposure at
March 31, 2015
to Italy and Spain was $4.3 billion and $4.0 billion as presented in
Table 59
. Net exposure at
March 31, 2015
for Ireland, Greece and Portugal was $1.7 billion, $386 million and $168 million, respectively. We expect to continue to support client activities in the region and our exposures may vary over time as we monitor the situation and manage our risk profile.
97
|
Provision for Credit Losses
|
The provision for credit losses
decreased
$244 million
to
$765 million
for the
three months ended March 31, 2015
compared to the
same period in 2014
. The provision for credit losses was
$429 million
lower than net charge-offs for the
three months ended March 31, 2015
, resulting in a reduction in the allowance for credit losses. This compared to a reduction of
$379 million
in the allowance for credit losses for the
three months ended March 31, 2014
. We expect reserve releases to be lower than the first quarter for the remaining quarters of 2015.
The provision for credit losses for the consumer portfolio
decreased
$31 million
to
$619 million
for the
three months ended March 31, 2015
compared to the
same period in 2014
. The decrease was primarily due to improvement in the credit card portfolios primarily driven by lower unemployment levels as well as a provision
benefit
of
$50 million
related to the PCI loan portfolio for the
three months ended March 31, 2015
compared to no provision for the
same period in 2014
. These were partially offset by a slower pace of credit quality improvement in the consumer real estate portfolio.
The provision for credit losses for the commercial portfolio, including unfunded lending commitments,
decreased
$213 million
to
$146 million
for the
three months ended March 31, 2015
compared to the
same period in 2014
, primarily in the U.S. commercial portfolio.
|
Allowance for Credit Losses
|
|
Allowance for Loan and Lease Losses
|
The allowance for loan and lease losses is comprised of two components. The first component covers nonperforming commercial loans and TDRs. The second component covers loans and leases on which there are incurred losses that are not yet individually identifiable, as well as incurred losses that may not be represented in the loss forecast models. We evaluate the adequacy of the allowance for loan and lease losses based on the total of these two components, each of which is described in more detail below. The allowance for loan and lease losses excludes LHFS and loans accounted for under the fair value option as the fair value reflects a credit risk component.
The first component of the allowance for loan and lease losses covers both nonperforming commercial loans and all TDRs within the consumer and commercial portfolios. These loans are subject to impairment measurement based on the present value of projected future cash flows discounted at the loan's original effective interest rate, or in certain circumstances, impairment may also be based upon the collateral value or the loan's observable market price if available. Impairment measurement for the renegotiated consumer credit card, small business credit card and unsecured consumer TDR portfolios is based on the present value of projected cash flows discounted using the average portfolio contractual interest rate, excluding promotionally priced loans, in effect prior to restructuring. For purposes of computing this specific loss component of the allowance, larger impaired loans are evaluated individually and smaller impaired loans are evaluated as a pool using historical experience for the respective product types and risk ratings of the loans.
The second component of the allowance for loan and lease losses covers the remaining consumer and commercial loans and leases that have incurred losses that are not yet individually identifiable. The allowance for consumer and certain homogeneous commercial loan and lease products is based on aggregated portfolio evaluations, generally by product type. Loss forecast models are utilized that consider a variety of factors including, but not limited to, historical loss experience, estimated defaults or foreclosures based on portfolio trends, delinquencies, economic trends and credit scores. Our consumer real estate loss forecast model estimates the portion of loans that will default based on individual loan attributes, the most significant of which are refreshed LTV or CLTV, and borrower credit score as well as vintage and geography, all of which are further broken down into current delinquency status. Additionally, we incorporate the delinquency status of underlying first-lien loans on our junior-lien home equity portfolio in our allowance process. Incorporating refreshed LTV and CLTV into our probability of default allows us to factor the impact of changes in home prices into our allowance for loan and lease losses. These loss forecast models are updated on a quarterly basis to incorporate information reflecting the current economic environment. As of
March 31, 2015
, the loss forecast process resulted in reductions in the allowance for all major consumer portfolios compared to
December 31, 2014
.
The allowance for commercial loan and lease losses is established by product type after analyzing historical loss experience, internal risk rating, current economic conditions, industry performance trends, geographic and obligor concentrations within each portfolio and any other pertinent information. The statistical models for commercial loans are generally updated annually and utilize our historical database of actual defaults and other data. The loan risk ratings and composition of the commercial portfolios used to calculate the allowance are updated quarterly to incorporate the most recent data reflecting the current economic environment. For risk-rated commercial loans, we estimate the probability of default and the LGD based on our historical experience of defaults and credit losses. Factors considered when assessing the internal risk rating include the value of the underlying collateral, if applicable, the industry in which the obligor operates, the obligor's liquidity and other financial indicators, and other quantitative and qualitative factors relevant to the obligor's credit
98
risk. As of
March 31, 2015
, the allowance increased for the U.S. commercial, commercial real estate and non-U.S. commercial portfolios compared to
December 31, 2014
.
Also included within the second component of the allowance for loan and lease losses are reserves to cover losses that are incurred but, in our assessment, may not be adequately represented in the historical loss data used in the loss forecast models. For example, factors that we consider include, among others, changes in lending policies and procedures, changes in economic and business conditions, changes in the nature and size of the portfolio, changes in portfolio concentrations, changes in the volume and severity of past due loans and nonaccrual loans, the effect of external factors such as competition, and legal and regulatory requirements. We also consider factors that are applicable to unique portfolio segments. For example, we consider the risk of uncertainty in our loss forecasting models related to junior-lien home equity loans that are current, but have first-lien loans that we do not service that are 30 days or more past due. In addition, we consider the increased risk of default associated with our interest-only loans that have yet to enter the amortization period. Further, we consider the inherent uncertainty in mathematical models that are built upon historical data.
During the
three months ended March 31, 2015
, the factors that impacted the allowance for loan and lease losses included overall improvements in the credit quality of the portfolios driven by continuing improvements in the U.S. economy and labor markets, continuing proactive credit risk management initiatives and the impact of recent higher credit quality originations. Additionally, the resolution of uncertainties through current recognition of net charge-offs has impacted the amount of reserve needed in certain portfolios. Evidencing the improvements in the U.S. economy and labor markets are modest growth in consumer spending, improvements in unemployment levels and a decrease in the absolute level and our share of national consumer bankruptcy filings. In addition to these improvements, returns to performing status, charge-offs, sales, paydowns and transfers to foreclosed properties continued to outpace new nonaccrual loans.
We monitor differences between estimated and actual incurred loan and lease losses. This monitoring process includes periodic assessments by senior management of loan and lease portfolios and the models used to estimate incurred losses in those portfolios.
Additions to, or reductions of, the allowance for loan and lease losses generally are recorded through charges or credits to the provision for credit losses. Credit exposures deemed to be uncollectible are charged against the allowance for loan and lease losses. Recoveries of previously charged off amounts are credited to the allowance for loan and lease losses.
The allowance for loan and lease losses for the consumer portfolio, as presented in Table
61
, was
$9.2 billion
at
March 31, 2015
, a
decrease
of
$803 million
from
December 31, 2014
. The
decrease
was primarily in the residential mortgage and home equity portfolios due to improved residential mortgage delinquencies, a decrease in consumer loan balances, as well as the utilization of reserves built as a part of the settlement with the DoJ. Further, the residential mortgage and home equity allowance declined due to write-offs in our PCI loan portfolio. These write-offs decreased the PCI valuation allowance included as part of the allowance for loan and lease losses.
The
decrease
in the allowance related to the U.S. credit card and unsecured consumer lending portfolios in
Consumer Banking
was primarily due to improvement in delinquencies and more generally in unemployment levels. For example, in the U.S. credit card portfolio, accruing loans 30 days or more past due
decreased
to
$1.6 billion
at
March 31, 2015
from
$1.7 billion
(to
1.81 percent
from
1.85 percent
of outstanding U.S. credit card loans) at
December 31, 2014
, and accruing loans 90 days or more past due
decreased
to
$795 million
at
March 31, 2015
from
$866 million
(to
0.91 percent
from
0.94 percent
of outstanding U.S. credit card loans) at
December 31, 2014
.
See Tables
29
,
30
,
39
and
41
for additional details on key credit statistics for the credit card and other unsecured consumer lending portfolios.
The allowance for loan and lease losses for the commercial portfolio, as presented in Table
61
, was
$4.5 billion
at
March 31, 2015
, an
increase
of
$60 million
from
December 31, 2014
. The commercial utilized reservable criticized exposure
increased
to
$12.3 billion
at
March 31, 2015
from
$11.6 billion
(to
2.85 percent
from
2.74 percent
of total commercial utilized reservable exposure) at
December 31, 2014
. Nonperforming commercial loans
decreased
to
$996 million
at
March 31, 2015
from
$1.1 billion
(to
0.25 percent
from
0.29 percent
of outstanding commercial loans) at
December 31, 2014
. Commercial loans and leases outstanding increased to $403.5 billion at March 31, 2015 from $392.8 billion at December 31, 2014. See Tables
45
,
46
and
48
for additional details on key commercial credit statistics.
The allowance for loan and lease losses as a percentage of total loans and leases outstanding was
1.57 percent
at
March 31, 2015
compared to
1.65 percent
at
December 31, 2014
. The
decrease
in the ratio was primarily due to improved credit quality driven by improved economic conditions, write-offs in the PCI loan portfolio and utilization of reserves related to the settlement with the DoJ. The
March 31, 2015
and
December 31, 2014
ratios above include the PCI loan portfolio. Excluding the PCI loan portfolio, the allowance for loan and lease losses as a percentage of total loans and leases outstanding was
1.45 percent
at
March 31, 2015
compared to
1.50 percent
at
December 31, 2014
.
99
Table
60
presents a rollforward of the allowance for credit losses, which includes the allowance for loan and lease losses and the reserve for unfunded lending commitments, for the
three months ended March 31, 2015 and 2014
.
|
Table 60
|
|||||||
|
Allowance for Credit Losses
|
|||||||
|
Three Months Ended March 31
|
|||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Allowance for loan and lease losses, January 1
|
$
|
14,419
|
|
$
|
17,428
|
|
|
|
Loans and leases charged off
|
|||||||
|
Residential mortgage
|
(300
|
)
|
(202
|
)
|
|||
|
Home equity
|
(252
|
)
|
(394
|
)
|
|||
|
U.S. credit card
|
(729
|
)
|
(826
|
)
|
|||
|
Non-U.S. credit card
|
(70
|
)
|
(98
|
)
|
|||
|
Direct/Indirect consumer
|
(106
|
)
|
(135
|
)
|
|||
|
Other consumer
|
(59
|
)
|
(69
|
)
|
|||
|
Total consumer charge-offs
|
(1,516
|
)
|
(1,724
|
)
|
|||
|
U.S. commercial
(1)
|
(109
|
)
|
(116
|
)
|
|||
|
Commercial real estate
|
(13
|
)
|
(7
|
)
|
|||
|
Commercial lease financing
|
(7
|
)
|
(1
|
)
|
|||
|
Non-U.S. commercial
|
—
|
|
(20
|
)
|
|||
|
Total commercial charge-offs
|
(129
|
)
|
(144
|
)
|
|||
|
Total loans and leases charged off
|
(1,645
|
)
|
(1,868
|
)
|
|||
|
Recoveries of loans and leases previously charged off
|
|
||||||
|
Residential mortgage
|
103
|
|
75
|
|
|||
|
Home equity
|
80
|
|
92
|
|
|||
|
U.S. credit card
|
108
|
|
108
|
|
|||
|
Non-U.S. credit card
|
26
|
|
22
|
|
|||
|
Direct/Indirect consumer
|
72
|
|
77
|
|
|||
|
Other consumer
|
10
|
|
11
|
|
|||
|
Total consumer recoveries
|
399
|
|
385
|
|
|||
|
U.S. commercial
(2)
|
40
|
|
47
|
|
|||
|
Commercial real estate
|
8
|
|
44
|
|
|||
|
Commercial lease financing
|
2
|
|
3
|
|
|||
|
Non-U.S. commercial
|
2
|
|
1
|
|
|||
|
Total commercial recoveries
|
52
|
|
95
|
|
|||
|
Total recoveries of loans and leases previously charged off
|
451
|
|
480
|
|
|||
|
Net charge-offs
|
(1,194
|
)
|
(1,388
|
)
|
|||
|
Write-offs of PCI loans
|
(288
|
)
|
(391
|
)
|
|||
|
Provision for loan and lease losses
|
756
|
|
984
|
|
|||
|
Other
(3)
|
(17
|
)
|
(15
|
)
|
|||
|
Allowance for loan and lease losses, March 31
|
13,676
|
|
16,618
|
|
|||
|
Reserve for unfunded lending commitments, January 1
|
528
|
|
484
|
|
|||
|
Provision for unfunded lending commitments
|
9
|
|
25
|
|
|||
|
Reserve for unfunded lending commitments, March 31
|
537
|
|
509
|
|
|||
|
Allowance for credit losses, March 31
|
$
|
14,213
|
|
$
|
17,127
|
|
|
|
(1)
|
Includes U.S. small business commercial charge-offs of
$78 million
and
$79 million
for the
three months ended March 31, 2015 and 2014
.
|
|
(2)
|
Includes U.S. small business commercial recoveries of
$16 million
and
$15 million
for the
three months ended March 31, 2015 and 2014
.
|
|
(3)
|
Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, and foreign currency translation adjustments.
|
100
|
Table 60
|
|||||||
|
Allowance for Credit Losses (continued)
|
|||||||
|
Three Months Ended March 31
|
|||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Loan and allowance ratios:
|
|||||||
|
Loans and leases outstanding at March 31
(4)
|
$
|
869,490
|
|
$
|
905,154
|
|
|
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at March 31
(4)
|
1.57
|
%
|
1.84
|
%
|
|||
|
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at March 31
(5)
|
1.94
|
|
2.38
|
|
|||
|
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at March 31
(6)
|
1.13
|
|
1.11
|
|
|||
|
Average loans and leases outstanding
(4)
|
$
|
863,536
|
|
$
|
909,265
|
|
|
|
Annualized net charge-offs as a percentage of average loans and leases outstanding
(4, 7)
|
0.56
|
%
|
0.62
|
%
|
|||
|
Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding
(4)
|
0.70
|
|
0.79
|
|
|||
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at March 31
(4, 8)
|
122
|
|
97
|
|
|||
|
Ratio of the allowance for loan and lease losses at March 31 to annualized net charge-offs
(7)
|
2.82
|
|
2.95
|
|
|||
|
Ratio of the allowance for loan and lease losses at March 31 to annualized net charge-offs and PCI write-offs
|
2.28
|
|
2.30
|
|
|||
|
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at March 31
(9)
|
$
|
5,492
|
|
$
|
7,143
|
|
|
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases at March 31
(4, 9)
|
73
|
%
|
55
|
%
|
|||
|
Loan and allowance ratios excluding PCI loans and the related valuation allowance:
(10)
|
|
||||||
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at March 31
(4)
|
1.45
|
%
|
1.65
|
%
|
|||
|
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at March 31
(5)
|
1.74
|
|
2.07
|
|
|||
|
Annualized net charge-offs as a percentage of average loans and leases outstanding
(4)
|
0.57
|
|
0.64
|
|
|||
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at March 31
(4, 8)
|
110
|
|
85
|
|
|||
|
Ratio of the allowance for loan and lease losses at March 31 to annualized net charge-offs
|
2.55
|
|
2.58
|
|
|||
|
(4)
|
Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of
$8.5 billion
and
$11.1 billion
at
March 31, 2015 and 2014
. Average loans accounted for under the fair value option were
$8.9 billion
and
$10.2 billion
for the
three months ended March 31, 2015 and 2014
.
|
|
(5)
|
Excludes consumer loans accounted for under the fair value option of
$2.1 billion
at both
March 31, 2015 and 2014
.
|
|
(6)
|
Excludes commercial loans accounted for under the fair value option of
$6.4 billion
and
$8.9 billion
at
March 31, 2015 and 2014
.
|
|
(7)
|
Net charge-offs exclude
$288 million
and
$391 million
of write-offs in the PCI loan portfolio for the
three months ended March 31, 2015 and 2014
. These write-offs decreased the PCI valuation allowance included as part of the allowance for loan and lease losses. For more information on PCI write-offs, see
Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio
on page
77
.
|
|
(8)
|
For more information on our definition of nonperforming loans, see pages
82
and
91
.
|
|
(9)
|
Primarily includes amounts allocated to U.S. credit card and unsecured consumer lending portfolios in
Consumer Banking
, PCI loans and the non-U.S. credit card portfolio in
All Other
.
|
|
(10)
|
For more information on the PCI loan portfolio and the valuation allowance for PCI loans, see
Note 4 – Outstanding Loans and Leases
and
Note 5 – Allowance for Credit Losses
to the Consolidated Financial Statements
.
|
101
For reporting purposes, we allocate the allowance for credit losses across products. However, the allowance is generally available to absorb any credit losses without restriction. Table
61
presents our allocation by product type.
|
Table 61
|
|||||||||||||||||||
|
Allocation of the Allowance for Credit Losses by Product Type
|
|||||||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||||||
|
(Dollars in millions)
|
Amount
|
Percent of
Total |
Percent of
Loans and Leases Outstanding (1) |
Amount
|
Percent of
Total |
Percent of
Loans and Leases Outstanding (1) |
|||||||||||||
|
Allowance for loan and lease losses
|
|
|
|
|
|
|
|||||||||||||
|
Residential mortgage
|
$
|
2,426
|
|
17.74
|
%
|
1.17
|
%
|
$
|
2,900
|
|
20.11
|
%
|
1.34
|
%
|
|||||
|
Home equity
|
2,824
|
|
20.65
|
|
3.38
|
|
3,035
|
|
21.05
|
|
3.54
|
|
|||||||
|
U.S. credit card
|
3,252
|
|
23.78
|
|
3.73
|
|
3,320
|
|
23.03
|
|
3.61
|
|
|||||||
|
Non-U.S. credit card
|
343
|
|
2.51
|
|
3.55
|
|
369
|
|
2.56
|
|
3.53
|
|
|||||||
|
Direct/Indirect consumer
|
282
|
|
2.06
|
|
0.34
|
|
299
|
|
2.07
|
|
0.37
|
|
|||||||
|
Other consumer
|
52
|
|
0.38
|
|
2.79
|
|
59
|
|
0.41
|
|
3.15
|
|
|||||||
|
Total consumer
|
9,179
|
|
67.12
|
|
1.94
|
|
9,982
|
|
69.23
|
|
2.05
|
|
|||||||
|
U.S. commercial
(2)
|
2,633
|
|
19.25
|
|
1.11
|
|
2,619
|
|
18.16
|
|
1.12
|
|
|||||||
|
Commercial real estate
|
1,031
|
|
7.54
|
|
2.09
|
|
1,016
|
|
7.05
|
|
2.13
|
|
|||||||
|
Commercial lease financing
|
150
|
|
1.10
|
|
0.61
|
|
153
|
|
1.06
|
|
0.62
|
|
|||||||
|
Non-U.S. commercial
|
683
|
|
4.99
|
|
0.80
|
|
649
|
|
4.50
|
|
0.81
|
|
|||||||
|
Total commercial
(3)
|
4,497
|
|
32.88
|
|
1.13
|
|
4,437
|
|
30.77
|
|
1.15
|
|
|||||||
|
Allowance for loan and lease losses
(4)
|
13,676
|
|
100.00
|
%
|
1.57
|
|
14,419
|
|
100.00
|
%
|
1.65
|
|
|||||||
|
Reserve for unfunded lending commitments
|
537
|
|
528
|
|
|||||||||||||||
|
Allowance for credit losses
|
$
|
14,213
|
|
$
|
14,947
|
|
|||||||||||||
|
(1)
|
Ratios are calculated as allowance for loan and lease losses as a percentage of loans and leases outstanding excluding loans accounted for under the fair value option. Consumer loans accounted for under the fair value option included residential mortgage loans of
$1.9 billion
at both
March 31, 2015
and
December 31, 2014
and home equity loans of
$205 million
and
$196 million
at
March 31, 2015
and
December 31, 2014
. Commercial loans accounted for under the fair value option included U.S. commercial loans of
$2.0 billion
and
$1.9 billion
and non-U.S. commercial loans of
$4.5 billion
and
$4.7 billion
at
March 31, 2015
and
December 31, 2014
.
|
|
(2)
|
Includes allowance for loan and lease losses for U.S. small business commercial loans of
$533 million
and
$536 million
at
March 31, 2015
and
December 31, 2014
.
|
|
(3)
|
Includes allowance for loan and lease losses for impaired commercial loans of
$155 million
and
$159 million
at
March 31, 2015
and
December 31, 2014
.
|
|
(4)
|
Includes
$1.3 billion
and
$1.7 billion
of valuation allowance presented with the allowance for loan and lease losses related to PCI loans at
March 31, 2015
and
December 31, 2014
.
|
|
Reserve for Unfunded Lending Commitments
|
In addition to the allowance for loan and lease losses, we also estimate probable losses related to unfunded lending commitments such as letters of credit, financial guarantees, unfunded bankers' acceptances and binding loan commitments, excluding commitments accounted for under the fair value option. Unfunded lending commitments are subject to the same assessment as funded loans, including estimates of probability of default and LGD. Due to the nature of unfunded commitments, the estimate of probable losses must also consider utilization. To estimate the portion of these undrawn commitments that is likely to be drawn by a borrower at the time of estimated default, analyses of the Corporation's historical experience are applied to the unfunded commitments to estimate the funded EAD. The expected loss for unfunded lending commitments is the product of the probability of default, the LGD and the EAD, adjusted for any qualitative factors including economic uncertainty and inherent imprecision in models.
The reserve for unfunded lending commitments was
$537 million
at
March 31, 2015
, an
increase
of
$9 million
from
December 31, 2014
.
102
|
Market Risk Management
|
Market risk is the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. This risk is inherent in the financial instruments associated with our operations, primarily within our
Global Markets
segment. We are also exposed to these risks in other areas of the Corporation (e.g., our ALM activities). In the event of market stress, these risks could have a material impact on the results of the Corporation. For additional information, see
Interest Rate Risk Management for Non-trading Activities
on page
108
.
Our traditional banking loan and deposit products are non-trading positions and are generally reported at amortized cost for assets or the amount owed for liabilities (historical cost). However, these positions are still subject to changes in economic value based on varying market conditions, with one of the primary risks being changes in the levels of interest rates. The risk of adverse changes in the economic value of our non-trading positions arising from changes in interest rates is managed through our ALM activities. We have elected to account for certain assets and liabilities under the fair value option.
Our trading positions are reported at fair value with changes reflected in income. Trading positions are subject to various changes in market-based risk factors. The majority of this risk is generated by our activities in the interest rate, foreign exchange, credit, equity and commodities markets. In addition, the values of assets and liabilities could change due to market liquidity, correlations across markets and expectations of market volatility. We seek to manage these risk exposures by using a variety of techniques that encompass a broad range of financial instruments. The key risk management techniques are discussed in more detail in the Trading Risk Management section.
A subcommittee has been designated by the MRC as the primary risk governance authority for
Global Markets
(Global Markets,
or GM subcommittee).
The GM subcommittee's focus is to take a forward-looking view of the primary credit, market and operational risks impacting
Global Markets
and prioritize those that need a proactive risk mitigation strategy.
Global Markets Risk Management is responsible for providing senior management with a clear and comprehensive understanding of the trading risks to which the Corporation is exposed. These responsibilities include ownership of market risk policy, developing and maintaining quantitative risk models, calculating aggregated risk measures, establishing and monitoring position limits consistent with risk appetite, conducting daily reviews and analysis of trading inventory, approving material risk exposures and fulfilling regulatory requirements. Market risks that impact businesses outside of
Global Markets
are monitored and governed by their respective governance functions.
Quantitative risk models, such as VaR, are an essential component in evaluating the market risks within a portfolio. A subcommittee of the MRC is responsible for providing management oversight and approval of model risk management and governance (Risk Management, or RM subcommittee). The RM subcommittee defines model risk standards, consistent with the Corporation's risk framework and risk appetite, prevailing regulatory guidance and industry best practice. Models must meet certain validation criteria, including effective challenge of the model development process and a sufficient demonstration of developmental evidence incorporating a comparison of alternative theories and approaches. The RM subcommittee ensures model standards are consistent with model risk requirements and monitors the effective challenge in the model validation process across the Corporation. In addition, the relevant stakeholders must agree on any required actions or restrictions to the models and maintain a stringent monitoring process to ensure continued compliance.
For more information on the fair value of certain financial assets and liabilities, see
Note 14 – Fair Value Measurements
to the Consolidated Financial Statements
. For more information on our market risk management process, see page
99
of the MD&A of the Corporation's 2014 Annual Report on Form 10-K
.
|
Trading Risk Management
|
To evaluate risk in our trading activities, we focus on the actual and potential volatility of revenues generated by individual positions as well as portfolios of positions. Various techniques and procedures are utilized to enable the most complete understanding of these risks. Quantitative measures of market risk are evaluated on a daily basis from a single position to the portfolio of the Corporation. These measures include sensitivities of positions to various market risk factors, such as the potential impact on revenue from a one basis point change in interest rates, and statistical measures utilizing both actual and hypothetical market moves, such as VaR and stress testing. Periods of extreme market stress influence the reliability of these techniques to varying degrees. Qualitative evaluations of market risk utilize the suite of quantitative risk measures while understanding each of their respective limitations. Additionally, risk managers independently evaluate the risk of the portfolios under the current market environment and potential future environments.
103
VaR is a common statistic used to measure market risk as it allows the aggregation of market risk factors, including the effects of portfolio diversification. A VaR model simulates the value of a portfolio under a range of scenarios in order to generate a distribution of potential gains and losses. VaR represents the loss a portfolio is not expected to exceed more than a certain number of times per period, based on a specified holding period, confidence level and window of historical data. We use one VaR model consistently across the trading portfolios and it uses a historical simulation approach based on a three-year window of historical data. Our primary VaR statistic is equivalent to a 99 percent confidence level. This means that for a VaR with a one-day holding period, there should not be losses in excess of VaR, on average, 99 out of 100 trading days.
Within any VaR model, there are significant and numerous assumptions that will differ from company to company. The accuracy of a VaR model depends on the availability and quality of historical data for each of the risk factors in the portfolio. A VaR model may require additional modeling assumptions for new products that do not have the necessary historical market data or for less liquid positions for which accurate daily prices are not consistently available. For positions with insufficient historical data for the VaR calculation, the process for establishing an appropriate proxy is based on fundamental and statistical analysis of the new product or less liquid position. This analysis identifies reasonable alternatives that replicate both the expected volatility and correlation to other market risk factors that the missing data would be expected to experience.
VaR may not be indicative of realized revenue volatility as changes in market conditions or in the composition of the portfolio can have a material impact on the results. In particular, the historical data used for the VaR calculation might indicate higher or lower levels of portfolio diversification than will be experienced. In order for the VaR model to reflect current market conditions, we update the historical data underlying our VaR model on a weekly basis, or more frequently during periods of market stress, and regularly review the assumptions underlying the model. A relatively minor portion of risks related to our trading positions are not included in VaR. These risks are reviewed as part of our ICAAP.
Global Markets Risk Management continually reviews, evaluates and enhances our VaR model so that it reflects the material risks in our trading portfolio. Changes to the VaR model are reviewed and approved prior to implementation and any material changes are reported to management through the appropriate management committees.
Trading limits on quantitative risk measures, including VaR, are monitored on a daily basis. These trading limits are independently set by Global Markets Risk Management and reviewed on a regular basis to ensure they remain relevant and within our overall risk appetite for market risks. Trading limits are reviewed in the context of market liquidity, volatility and strategic business priorities. Trading limits are set at both a granular level to ensure extensive coverage of risks as well as at aggregated portfolios to account for correlations among risk factors. All trading limits are approved at least annually and the MRC has given authority to the GM subcommittee to approve changes to trading limits throughout the year. Approved trading limits are stored and tracked in a centralized limits management system. Trading limit excesses are communicated to management for review. Certain quantitative market risk measures and corresponding limits have been identified as critical in the Corporation's Risk Appetite Statement. These risk appetite limits are monitored on a daily basis and are approved at least annually by the ERC and the Board.
In periods of market stress, the GM subcommittee members communicate daily to discuss losses, key risk positions and any limit excesses. As a result of this process, the businesses may selectively reduce risk.
Table 62
presents the total market-based trading portfolio VaR which is the combination of the covered positions trading portfolio and the impact from less liquid trading exposures. Covered positions are defined by regulatory standards as trading assets and liabilities, both on- and off-balance sheet, that meet a defined set of specifications. These specifications identify the most liquid trading positions which are intended to be held for a
short-term horizon and where the Corporation is able to hedge the material risk elements in a two-way market. Positions in less liquid markets, or where there are restrictions on the ability to trade the positions, typically do not qualify as covered positions. Foreign exchange and commodity positions are always considered covered positions, except for structural foreign currency positions that we choose to exclude with prior regulatory approval. In addition,
Table 62
presents our fair value option portfolio, which includes the funded and unfunded exposures for which we elect the fair value option and their corresponding hedges. The fair value option portfolio combined with the total market-based trading portfolio VaR represents the Corporation's total market-based portfolio VaR. Additionally, market risk VaR for trading activities as presented in
Table 62
differs from VaR used for regulatory capital calculations due to the holding period used. The holding period for VaR used for regulatory capital calculations is 10 days, while for the market risk VaR presented below, it is one day. Both measures utilize the same process and methodology.
The total market-based portfolio VaR results in
Table 62
include market risk from all business segments to which the Corporation is exposed. The majority of this portfolio is within the
Global Markets
segment.
104
Table 62
presents period-end, average, high and low daily trading VaR for the
three months ended March 31, 2015
,
December 31, 2014
and
March 31, 2014
using a 99 percent confidence level.
|
Table 62
|
||||||||||||||||||||||||||||||||||||||
|
Market Risk VaR for Trading Activities
|
||||||||||||||||||||||||||||||||||||||
|
Three Months Ended
|
||||||||||||||||||||||||||||||||||||||
|
March 31, 2015
|
December 31, 2014
|
March 31, 2014
|
||||||||||||||||||||||||||||||||||||
|
(Dollars in millions)
|
Period End
|
Average
|
High
(1)
|
Low
(1)
|
Period End
|
Average
|
High
(1)
|
Low
(1)
|
Period End
|
Average
|
High
(1)
|
Low
(1)
|
||||||||||||||||||||||||||
|
Foreign exchange
|
$
|
10
|
|
$
|
10
|
|
$
|
17
|
|
$
|
6
|
|
$
|
13
|
|
$
|
12
|
|
$
|
22
|
|
$
|
8
|
|
$
|
20
|
|
$
|
18
|
|
$
|
24
|
|
$
|
13
|
|
||
|
Interest rate
|
32
|
|
30
|
|
42
|
|
22
|
|
24
|
|
27
|
|
49
|
|
21
|
|
43
|
|
35
|
|
49
|
|
19
|
|
||||||||||||||
|
Credit
|
44
|
|
41
|
|
46
|
|
37
|
|
43
|
|
39
|
|
43
|
|
32
|
|
45
|
|
62
|
|
71
|
|
45
|
|
||||||||||||||
|
Equity
|
10
|
|
13
|
|
22
|
|
9
|
|
16
|
|
19
|
|
32
|
|
11
|
|
15
|
|
17
|
|
24
|
|
11
|
|
||||||||||||||
|
Commodity
|
6
|
|
6
|
|
8
|
|
5
|
|
8
|
|
8
|
|
9
|
|
6
|
|
7
|
|
7
|
|
9
|
|
6
|
|
||||||||||||||
|
Portfolio diversification
|
(40
|
)
|
(46
|
)
|
—
|
|
—
|
|
(56
|
)
|
(60
|
)
|
—
|
|
—
|
|
(84
|
)
|
(77
|
)
|
—
|
|
—
|
|
||||||||||||||
|
Total covered positions trading portfolio
|
62
|
|
54
|
|
66
|
|
40
|
|
48
|
|
45
|
|
64
|
|
34
|
|
46
|
|
62
|
|
86
|
|
45
|
|
||||||||||||||
|
Impact from less liquid exposures
|
9
|
|
8
|
|
—
|
|
—
|
|
7
|
|
6
|
|
—
|
|
—
|
|
3
|
|
9
|
|
—
|
|
—
|
|
||||||||||||||
|
Total market-based trading portfolio
|
71
|
|
62
|
|
74
|
|
52
|
|
55
|
|
51
|
|
67
|
|
38
|
|
49
|
|
71
|
|
101
|
|
48
|
|
||||||||||||||
|
Fair value option loans
|
28
|
|
31
|
|
36
|
|
26
|
|
35
|
|
31
|
|
40
|
|
22
|
|
30
|
|
32
|
|
38
|
|
27
|
|
||||||||||||||
|
Fair value option hedges
|
14
|
|
17
|
|
22
|
|
11
|
|
21
|
|
16
|
|
23
|
|
8
|
|
12
|
|
14
|
|
17
|
|
11
|
|
||||||||||||||
|
Fair value option portfolio diversification
|
(27
|
)
|
(31
|
)
|
—
|
|
—
|
|
(37
|
)
|
(29
|
)
|
—
|
|
—
|
|
(21
|
)
|
(23
|
)
|
—
|
|
—
|
|
||||||||||||||
|
Total fair value option portfolio
|
15
|
|
17
|
|
19
|
|
15
|
|
19
|
|
18
|
|
19
|
|
15
|
|
21
|
|
23
|
|
28
|
|
21
|
|
||||||||||||||
|
Portfolio diversification
|
(8
|
)
|
(8
|
)
|
—
|
|
—
|
|
(7
|
)
|
(10
|
)
|
—
|
|
—
|
|
(11
|
)
|
(10
|
)
|
—
|
|
—
|
|
||||||||||||||
|
Total market-based portfolio
|
$
|
78
|
|
$
|
71
|
|
$
|
85
|
|
$
|
60
|
|
$
|
67
|
|
$
|
59
|
|
$
|
73
|
|
$
|
46
|
|
$
|
59
|
|
$
|
84
|
|
$
|
120
|
|
$
|
56
|
|
||
|
(1)
|
The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio diversification, which is the difference between the total portfolio and the sum of the individual components, are not relevant.
|
The average total market-based trading portfolio VaR increased for the
three months ended March 31, 2015
compared to the three months ended
December 31, 2014
primarily due to a reduction in portfolio diversification largely driven by changes in the equity risk profile as well as increased credit risk in order to facilitate client transactions.
The graph below presents the daily total market-based trading portfolio VaR for the previous five quarters, corresponding to the data in
Table 62
.
Additional VaR statistics produced within the Corporation's single VaR model are provided in
Table 63
at the same level of detail as in
Table 62
. Evaluating VaR with additional statistics allows for an increased understanding of the risks in the portfolio as the historical market data used in the VaR calculation does not necessarily follow a predefined statistical distribution.
Table 63
presents average trading VaR statistics for 99 percent and 95 percent confidence levels for the
three months ended March 31, 2015
,
December 31, 2014
and
March 31, 2014
.
105
|
Table 63
|
||||||||||||||||||||
|
Average Market Risk VaR for Trading Activities – 99 Percent and 95 Percent VaR Statistics
|
||||||||||||||||||||
|
Three Months Ended
|
||||||||||||||||||||
|
March 31, 2015
|
December 31, 2014
|
March 31, 2014
|
||||||||||||||||||
|
(Dollars in millions)
|
99 percent
|
95 percent
|
99 percent
|
95 percent
|
99 percent
|
95 percent
|
||||||||||||||
|
Foreign exchange
|
$
|
10
|
|
$
|
6
|
|
$
|
12
|
|
$
|
7
|
|
$
|
18
|
|
$
|
11
|
|
||
|
Interest rate
|
30
|
|
20
|
|
27
|
|
17
|
|
35
|
|
21
|
|
||||||||
|
Credit
|
41
|
|
22
|
|
39
|
|
20
|
|
62
|
|
33
|
|
||||||||
|
Equity
|
13
|
|
7
|
|
19
|
|
10
|
|
17
|
|
9
|
|
||||||||
|
Commodity
|
6
|
|
4
|
|
8
|
|
4
|
|
7
|
|
4
|
|
||||||||
|
Portfolio diversification
|
(46
|
)
|
(31
|
)
|
(60
|
)
|
(36
|
)
|
(77
|
)
|
(46
|
)
|
||||||||
|
Total covered positions trading portfolio
|
54
|
|
28
|
|
45
|
|
22
|
|
62
|
|
32
|
|
||||||||
|
Impact from less liquid exposures
|
8
|
|
2
|
|
6
|
|
2
|
|
9
|
|
5
|
|
||||||||
|
Total market-based trading portfolio
|
62
|
|
30
|
|
51
|
|
24
|
|
71
|
|
37
|
|
||||||||
|
Fair value option loans
|
31
|
|
18
|
|
31
|
|
17
|
|
32
|
|
14
|
|
||||||||
|
Fair value option hedges
|
17
|
|
11
|
|
16
|
|
11
|
|
14
|
|
9
|
|
||||||||
|
Fair value option portfolio diversification
|
(31
|
)
|
(19
|
)
|
(29
|
)
|
(19
|
)
|
(23
|
)
|
(12
|
)
|
||||||||
|
Total fair value option portfolio
|
17
|
|
10
|
|
18
|
|
9
|
|
23
|
|
11
|
|
||||||||
|
Portfolio diversification
|
(8
|
)
|
(7
|
)
|
(10
|
)
|
(7
|
)
|
(10
|
)
|
(7
|
)
|
||||||||
|
Total market-based portfolio
|
$
|
71
|
|
$
|
33
|
|
$
|
59
|
|
$
|
26
|
|
$
|
84
|
|
$
|
41
|
|
||
|
Backtesting
|
The accuracy of the VaR methodology is evaluated by backtesting, which compares the daily VaR results, utilizing a one-day holding period, against a comparable subset of trading revenue. A backtesting excess occurs when a trading loss exceeds the VaR for the corresponding day. These excesses are evaluated to understand the positions and market moves that produced the trading loss and to ensure that the VaR methodology accurately represents those losses. As our primary VaR statistic used for backtesting is based on a 99 percent confidence level and a one-day holding period, we expect one trading loss in excess of VaR every 100 days, or between two to three trading losses in excess of VaR over the course of a year. The number of backtesting excesses observed can differ from the statistically expected number of excesses if the current level of market volatility is materially different than the level of market volatility that existed during the three years of historical data used in the VaR calculation.
We conduct daily backtesting on our portfolios, ranging from the total market-based portfolio to individual trading areas. Additionally, we conduct daily backtesting on the VaR results used for regulatory capital calculations as well as the VaR results for key legal entities, regions and risk factors. These results are reported to senior market risk management. Senior management regularly reviews and evaluates the results of these tests.
The trading revenue used for backtesting is defined by regulatory agencies in order to most closely align with the VaR component of the regulatory capital calculation. This revenue differs from total trading-related revenue in that it excludes revenue from trading activities that either do not generate market risk or the market risk cannot be included in VaR. Some examples of the types of revenue excluded for backtesting are fees, commissions, reserves, net interest income and intraday trading revenues.
During the
three months ended March 31, 2015
, there were no days in which there was a backtesting excess for our total market-based portfolio, utilizing a one-day holding period. There were no backtesting excesses for the VaR results used for regulatory capital calculations, utilizing a one-day holding period.
106
|
Total Trading-related Revenue
|
Total trading-related revenue, excluding brokerage fees, represents the total amount earned from trading positions, including market-based net interest income, which are taken in a diverse range of financial instruments and markets. Trading account assets and liabilities are reported at fair value. For more information on fair value, see
Note 14 – Fair Value Measurements
to the Consolidated Financial Statements
. Trading-related revenues can be volatile and are largely driven by general market conditions and customer demand. Also, trading-related revenues are dependent on the volume and type of transactions, the level of risk assumed, and the volatility of price and rate movements at any given time within the ever-changing market environment. Significant daily revenues by business are monitored and the primary drivers of these are reviewed. When it is deemed material, an explanation of these revenues is provided to the GM subcommittee.
The histogram below is a graphic depiction of trading volatility and illustrates the daily level of trading-related revenue for the
three months ended March 31, 2015
compared to the three months ended
December 31, 2014
. During the
three months ended March 31, 2015
, positive trading-related revenue was recorded for 97 percent of the trading days, of which 86 percent were daily trading gains of over $25 million and the largest loss was $3 million. This compares to the three months ended
December 31, 2014
, where positive trading-related revenue was recorded for 86 percent of the trading days, of which 55 percent were daily trading gains of over $25 million and the largest loss was $17 million.
107
|
Trading Portfolio Stress Testing
|
Because the very nature of a VaR model suggests results can exceed our estimates and it is dependent on a limited historical window, we also stress test our portfolio using scenario analysis. This analysis estimates the change in value of our trading portfolio that may result from abnormal market movements.
A set of scenarios, categorized as either historical or hypothetical, are computed daily for the overall trading portfolio and individual businesses. These scenarios include shocks to underlying market risk factors that may be well beyond the shocks found in the historical data used to calculate VaR. Historical scenarios simulate the impact of the market moves that occurred during a period of extended historical market stress. Generally, a 10-business day window or longer representing the most severe point during a crisis is selected for each historical scenario. Hypothetical scenarios provide simulations of the estimated portfolio impact from potential future market stress events. Scenarios are reviewed and updated in response to changing positions and new economic or political information. In addition, new or ad hoc scenarios are developed to address specific potential market events or particular vulnerabilities in the portfolio. The stress tests are reviewed on a regular basis and the results are presented to senior management.
Stress testing for the trading portfolio is integrated with enterprise-wide stress testing and incorporated into the limits framework. The macroeconomic scenarios used for enterprise-wide stress testing purposes differ from the typical trading portfolio scenarios in that they have a longer time horizon and the results are forecasted over multiple periods for use in consolidated capital and liquidity planning. For additional information, see
Managing Risk
on page
46
.
|
Interest Rate Risk Management for Nontrading Activities
|
The following discussion presents net interest income excluding the impact of trading-related activities.
Interest rate risk represents the most significant market risk exposure to our non-trading balance sheet. Interest rate risk is measured as the potential change in net interest income caused by movements in market interest rates. Client-facing activities, primarily lending and deposit-taking, create interest rate sensitive positions on our balance sheet.
We prepare forward-looking forecasts of net interest income. The baseline forecast takes into consideration expected future business growth, ALM positioning and the direction of interest rate movements as implied by the market-based forward curve. We then measure and evaluate the impact that alternative interest rate scenarios have on the baseline forecast in order to assess interest rate sensitivity under varied conditions. The net interest income forecast is frequently updated for changing assumptions and differing outlooks based on economic trends, market conditions and business strategies. Thus, we continually monitor our balance sheet position in order to maintain an acceptable level of exposure to interest rate changes.
The interest rate scenarios that we analyze incorporate balance sheet assumptions such as loan and deposit growth and pricing, changes in funding mix, product repricing and maturity characteristics. Our overall goal is to manage interest rate risk so that movements in interest rates do not significantly adversely affect earnings and capital.
Table 64
presents the spot and 12-month forward rates used in our baseline forecasts at
March 31, 2015
and
December 31, 2014
.
|
Table 64
|
|||||||||||||||||
|
Forward Rates
|
|||||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||||
|
|
Federal Funds
|
Three-month
LIBOR |
10-Year Swap
|
Federal Funds
|
Three-month
LIBOR |
10-Year Swap
|
|||||||||||
|
Spot rates
|
0.25
|
%
|
0.27
|
%
|
2.02
|
%
|
0.25
|
%
|
0.26
|
%
|
2.28
|
%
|
|||||
|
12-month forward rates
|
0.75
|
|
0.83
|
|
2.26
|
|
0.75
|
|
0.91
|
|
2.55
|
|
|||||
Table 65
shows the pretax dollar impact to forecasted net interest income over the next 12 months from
March 31, 2015
and
December 31, 2014
, resulting from instantaneous parallel and non-parallel shocks to the market-based forward curve. Periodically we evaluate the scenarios presented to ensure that they are meaningful in the context of the current rate environment. For more information on net interest income excluding the impact of trading-related activities, see page
17
.
108
The asset sensitivity of our balance sheet increased in the quarter primarily due to the low rate environment. We continue to be asset sensitive to both a parallel move in interest rates and a long-end led steepening of the yield curve. Additionally, rising interest rates impact the fair value of debt securities and, accordingly, for debt securities classified as AFS, may adversely affect accumulated OCI and thus capital levels under the Basel 3 capital rules. Under instantaneous upward parallel shifts, the near term adverse impact to accumulated OCI and Basel 3 capital is reduced over time by offsetting positive impacts to net interest income. For more information on the phase-in provisions of Basel 3 including accumulated OCI, see
Capital Management – Regulatory Capital
on page
47
.
|
Table 65
|
|||||||||||||
|
Estimated Net Interest Income Excluding Trading-related Net Interest Income
|
|||||||||||||
|
(Dollars in millions)
Curve Change
|
Short Rate (bps)
|
Long Rate (bps)
|
March 31
2015 |
December 31
2014 |
|||||||||
|
Parallel shifts
|
|||||||||||||
|
+100 bps instantaneous shift
|
+100
|
|
+100
|
|
$
|
4,551
|
|
$
|
3,685
|
|
|||
|
-50 bps instantaneous shift
|
-50
|
|
-50
|
|
(3,478
|
)
|
(3,043
|
)
|
|||||
|
Flatteners
|
|
|
|
||||||||||
|
Short-end instantaneous change
|
+100
|
|
—
|
|
2,219
|
|
1,966
|
|
|||||
|
Long-end instantaneous change
|
—
|
|
-50
|
|
(2,105
|
)
|
(1,772
|
)
|
|||||
|
Steepeners
|
|
|
|
||||||||||
|
Short-end instantaneous change
|
-50
|
|
—
|
|
(1,361
|
)
|
(1,261
|
)
|
|||||
|
Long-end instantaneous change
|
—
|
|
+100
|
|
2,422
|
|
1,782
|
|
|||||
The sensitivity analysis in
Table 65
assumes that we take no action in response to these rate shocks and does not assume any change in other macroeconomic variables normally correlated with changes in interest rates. As part of our ALM activities, we use securities, residential mortgages, and interest rate and foreign exchange derivatives in managing interest rate sensitivity.
The behavior of our deposit portfolio in the baseline forecast and in alternate interest rate scenarios is a key assumption in our projected estimates of net interest income. The sensitivity analysis in
Table 65
assumes no change in deposit portfolio size or mix from the baseline forecast in alternate rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher-yielding deposits or market-based funding would reduce the Corporation's benefit in those scenarios.
|
Securities
|
The securities portfolio is an integral part of our interest rate risk management, which includes our ALM positioning, and is primarily comprised of debt securities including MBS and U.S. Treasury securities. As part of the ALM positioning, we use derivatives to hedge interest rate and duration risk. At
March 31, 2015
and
December 31, 2014
, our debt securities portfolio had a carrying value of
$384.0 billion
and
$380.5 billion
.
During the
three months ended March 31, 2015 and 2014
, we purchased debt securities of $55.7 billion and $65.1 billion, sold
$38.5 billion
and
$30.7 billion
, and had maturities and received paydowns of $19.4 billion and $19.2 billion, respectively. We also exchanged $5.2 billion of loans supported by long-term standby agreements with FNMA into debt securities guaranteed by FNMA. We realized
$268 million
and
$377 million
in net gains on sales of AFS debt securities.
At
March 31, 2015
, accumulated OCI included after-tax net unrealized
gains
of
$2.7 billion
on AFS debt securities and after-tax net unrealized
gains
of
$36 million
on AFS marketable equity securities compared to after-tax net unrealized
losses
of
$2.0 billion
and
$12 million
at
March 31, 2014
. For more information on accumulated OCI, see
Note 12 – Accumulated Other Comprehensive Income (Loss)
to the Consolidated Financial Statements
. The pretax net amounts in accumulated OCI related to AFS debt securities
increased
$2.1 billion
during the
three months ended March 31, 2015
to a
$4.3 billion
net unrealized
gain
primarily due to the impact of interest rates. For more information on our securities portfolio, see
Note 3 – Securities
to the Consolidated Financial Statements
.
109
|
Residential Mortgage Portfolio
|
At
March 31, 2015
and
December 31, 2014
, our residential mortgage portfolio was
$207.9 billion
and
$216.2 billion
excluding
$1.9 billion
of consumer residential mortgage loans accounted for under the fair value option at each period end. For more information on consumer fair value option loans, see
Consumer Portfolio Credit Risk Management – Consumer Loans Accounted for Under the Fair Value Option
on page
81
. The
$8.3 billion
decrease
in the
three months ended March 31, 2015
was primarily due to
loan sales including $5.3 billion of loans with standby insurance agreements and $1.0 billion of nonperforming and other delinquent loans, and to a lesser extent, runoff outpacing the retention of new originations. These declines were partially offset by repurchases of delinquent loans pursuant to our servicing agreements with GNMA, which are part of our mortgage banking activities.
During the
three months ended March 31, 2015
, Consumer Banking
and
GWIM
originated $8.1 billion of first-lien mortgages that we retained compared to $4.6 billion in the
same period in 2014
. We received paydowns of $10.0 billion compared to $9.0 billion in the
same period in 2014
. We repurchased $1.1 billion of loans pursuant to our servicing agreements with GNMA and redelivered $548 million, primarily FHA-insured loans, compared to repurchases of $1.3 billion and redeliveries of $1.4 billion in the
same period in 2014
. Sales of loans, excluding redelivered FHA-insured loans, were $6.3 billion compared to $740 million in the
same period in 2014
. Gains recognized on the sales of residential mortgages were $233 million compared to $12 million in the
same period in 2014
.
|
Interest Rate and Foreign Exchange Derivative Contracts
|
Interest rate and foreign exchange derivative contracts are utilized in our ALM activities and serve as an efficient tool to manage our interest rate and foreign exchange risk. We use derivatives to hedge the variability in cash flows or changes in fair value on our balance sheet due to interest rate and foreign exchange components. For more information on our hedging activities, see
Note 2 – Derivatives
to the Consolidated Financial Statements
.
Our interest rate contracts are generally non-leveraged generic interest rate and foreign exchange basis swaps, options, futures and forwards. In addition, we use foreign exchange contracts, including cross-currency interest rate swaps, foreign currency futures contracts, foreign currency forward contracts and options to mitigate the foreign exchange risk associated with foreign currency-denominated assets and liabilities.
Changes to the composition of our derivatives portfolio during the
three months ended March 31, 2015
reflect actions taken for interest rate and foreign exchange rate risk management. The decisions to reposition our derivatives portfolio are based on the current assessment of economic and financial conditions including the interest rate and foreign currency environments, balance sheet composition and trends, and the relative mix of our cash and derivative positions.
110
Table 66
presents derivatives utilized in our ALM activities including those designated as accounting and economic hedging instruments and shows the notional amount, fair value, weighted-average receive-fixed and pay-fixed rates, expected maturity and average estimated durations of our open ALM derivatives at
March 31, 2015
and
December 31, 2014
. These amounts do not include derivative hedges on our MSRs.
|
Table 66
|
||||||||||||||||||||||||||||||||||
|
Asset and Liability Management Interest Rate and Foreign Exchange Contracts
|
||||||||||||||||||||||||||||||||||
|
|
|
|
March 31, 2015
|
|
||||||||||||||||||||||||||||||
|
|
|
|
Expected Maturity
|
|
||||||||||||||||||||||||||||||
|
(Dollars in millions, average estimated duration in years)
|
Fair
Value
|
Total
|
Remainder of 2015
|
2016
|
2017
|
2018
|
2019
|
Thereafter
|
Average
Estimated
Duration
|
|||||||||||||||||||||||||
|
Receive-fixed interest rate swaps
(1, 2)
|
$
|
8,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.53
|
|
|||||||||||||||
|
Notional amount
|
|
|
$
|
116,407
|
|
$
|
10,156
|
|
$
|
15,339
|
|
$
|
21,453
|
|
$
|
17,049
|
|
$
|
10,233
|
|
$
|
42,177
|
|
|
|
|||||||||
|
Weighted-average fixed-rate
|
|
|
3.30
|
%
|
3.32
|
%
|
3.12
|
%
|
3.64
|
%
|
3.78
|
%
|
2.37
|
%
|
3.23
|
%
|
|
|
||||||||||||||||
|
Pay-fixed interest rate swaps
(1, 2)
|
(1,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.73
|
|
||||||||||||||||
|
Notional amount
|
|
|
$
|
14,668
|
|
$
|
520
|
|
$
|
1,025
|
|
$
|
1,527
|
|
$
|
2,908
|
|
$
|
425
|
|
$
|
8,263
|
|
|
|
|||||||||
|
Weighted-average fixed-rate
|
|
|
2.40
|
%
|
2.30
|
%
|
1.65
|
%
|
1.84
|
%
|
1.62
|
%
|
1.78
|
%
|
2.91
|
%
|
|
|
||||||||||||||||
|
Same-currency basis swaps
(3)
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Notional amount
|
|
|
$
|
84,783
|
|
$
|
9,563
|
|
$
|
15,691
|
|
$
|
20,810
|
|
$
|
11,026
|
|
$
|
6,789
|
|
$
|
20,904
|
|
|
|
|||||||||
|
Foreign exchange basis swaps
(2, 4, 5)
|
(4,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Notional amount
|
|
|
152,635
|
|
17,870
|
|
24,948
|
|
27,067
|
|
13,720
|
|
11,986
|
|
57,044
|
|
|
|
||||||||||||||||
|
Option products
(6)
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Notional amount
(7)
|
|
|
942
|
|
928
|
|
—
|
|
—
|
|
—
|
|
—
|
|
14
|
|
|
|
||||||||||||||||
|
Foreign exchange contracts
(2, 5, 8)
|
3,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Notional amount
(7)
|
|
|
(20,707
|
)
|
(26,554
|
)
|
(2,438
|
)
|
5,324
|
|
(2,270
|
)
|
2,113
|
|
3,118
|
|
|
|
||||||||||||||||
|
Futures and forward rate contracts
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Notional amount
(7)
|
|
|
(14,943
|
)
|
(14,943
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
||||||||||||||||
|
Net ALM contracts
|
$
|
6,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
|
December 31, 2014
|
|
||||||||||||||||||||||||||||||
|
|
|
|
Expected Maturity
|
|
||||||||||||||||||||||||||||||
|
(Dollars in millions, average estimated duration in years)
|
Fair
Value
|
Total
|
2015
|
2016
|
2017
|
2018
|
2019
|
Thereafter
|
Average
Estimated
Duration
|
|||||||||||||||||||||||||
|
Receive-fixed interest rate swaps
(1, 2)
|
$
|
7,626
|
|
|
|
|
|
|
|
|
4.34
|
|
||||||||||||||||||||||
|
Notional amount
|
|
$
|
113,766
|
|
$
|
11,785
|
|
$
|
15,339
|
|
$
|
21,453
|
|
$
|
15,299
|
|
$
|
10,233
|
|
$
|
39,657
|
|
|
|||||||||||
|
Weighted-average fixed-rate
|
|
2.98
|
%
|
3.56
|
%
|
3.12
|
%
|
3.64
|
%
|
4.07
|
%
|
0.49
|
%
|
2.63
|
%
|
|
||||||||||||||||||
|
Pay-fixed interest rate swaps
(1, 2)
|
(829
|
)
|
|
|
|
|
|
|
|
8.05
|
|
|||||||||||||||||||||||
|
Notional amount
|
|
$
|
14,668
|
|
$
|
520
|
|
$
|
1,025
|
|
$
|
1,527
|
|
$
|
2,908
|
|
$
|
425
|
|
$
|
8,263
|
|
|
|||||||||||
|
Weighted-average fixed-rate
|
|
2.27
|
%
|
2.30
|
%
|
1.65
|
%
|
1.84
|
%
|
1.62
|
%
|
0.09
|
%
|
2.77
|
%
|
|
||||||||||||||||||
|
Same-currency basis swaps
(3)
|
(74
|
)
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Notional amount
|
|
$
|
94,413
|
|
$
|
18,881
|
|
$
|
15,691
|
|
$
|
21,068
|
|
$
|
11,026
|
|
$
|
6,787
|
|
$
|
20,960
|
|
|
|||||||||||
|
Foreign exchange basis swaps
(2, 4, 5)
|
(2,352
|
)
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Notional amount
|
|
161,196
|
|
27,629
|
|
26,118
|
|
27,026
|
|
14,255
|
|
12,359
|
|
53,809
|
|
|
||||||||||||||||||
|
Option products
(6)
|
11
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Notional amount
(7)
|
|
980
|
|
964
|
|
—
|
|
—
|
|
—
|
|
—
|
|
16
|
|
|
||||||||||||||||||
|
Foreign exchange contracts
(2, 5, 8)
|
3,700
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Notional amount
(7)
|
|
(22,572
|
)
|
(29,931
|
)
|
(2,036
|
)
|
6,134
|
|
(2,335
|
)
|
2,359
|
|
3,237
|
|
|
||||||||||||||||||
|
Futures and forward rate contracts
|
(129
|
)
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Notional amount
(7)
|
|
(14,949
|
)
|
(14,949
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
||||||||||||||||||
|
Net ALM contracts
|
$
|
7,953
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
|
(1)
|
There were no forward starting receive-fixed interest rate swap positions at both
March 31, 2015
and
December 31, 2014
. There were
no
forward starting pay-fixed swap positions at both
March 31, 2015
and
December 31, 2014
.
|
|
(2)
|
Does not include basis adjustments on either fixed-rate debt issued by the Corporation or AFS debt securities, which are hedged using derivatives designated as fair value hedging instruments, that substantially offset the fair values of these derivatives.
|
|
(3)
|
At
March 31, 2015
and
December 31, 2014
, the notional amount of same-currency basis swaps was comprised of
$84.8 billion
and
$94.4 billion
in both foreign currency and U.S. Dollar-denominated basis swaps in which both sides of the swap are in the same currency.
|
|
(4)
|
Foreign exchange basis swaps consisted of cross-currency variable interest rate swaps used separately or in conjunction with receive-fixed interest rate swaps.
|
|
(5)
|
Does not include foreign currency translation adjustments on certain non-U.S. debt issued by the Corporation that substantially offset the fair values of these derivatives.
|
|
(6)
|
The notional amount of option products of
$942 million
at
March 31, 2015
was comprised of
$928 million
in foreign exchange options and
$14 million
in purchased caps/floors. Option products of
$980 million
at
December 31, 2014
were comprised of
$974 million
in foreign exchange options,
$16 million
in purchased caps/floors and
$(10) million
in swaptions.
|
|
(7)
|
Reflects the net of long and short positions. Amounts shown as negative reflect a net short position.
|
|
(8)
|
The notional amount of foreign exchange contracts of
$(20.7) billion
at
March 31, 2015
was comprised of
$19.3 billion
in foreign currency-denominated and cross-currency receive-fixed swaps,
$(34.2) billion
in net foreign currency forward rate contracts,
$(7.5) billion
in foreign currency-denominated pay-fixed swaps and
$1.7 billion
in net foreign currency futures contracts. Foreign exchange contracts of
$(22.6) billion
at
December 31, 2014
were comprised of
$21.0 billion
in foreign currency-denominated and cross-currency receive-fixed swaps,
$(36.4) billion
in net foreign currency forward rate contracts,
$(8.3) billion
in foreign currency-denominated pay-fixed swaps and
$1.1 billion
in foreign currency futures contracts.
|
111
We use interest rate derivative instruments to hedge the variability in the cash flows of our assets and liabilities and other forecasted transactions (collectively referred to as cash flow hedges). The net losses on both open and terminated cash flow hedge derivative instruments recorded in accumulated OCI were
$2.6 billion
and
$2.7 billion
, on a pretax basis, at
March 31, 2015
and
December 31, 2014
. These net losses are expected to be reclassified into earnings in the same period as the hedged cash flows affect earnings and will decrease income or increase expense on the respective hedged cash flows. Assuming no change in open cash flow derivative hedge positions and no changes in prices or interest rates beyond what is implied in forward yield curves at
March 31, 2015
, the pretax net losses are expected to be reclassified into earnings as follows:
$863 million
, or 33 percent, within the next year, 43 percent in years two through five, and 16 percent in years six through ten, with the remaining eight percent thereafter. For more information on derivatives designated as cash flow hedges, see
Note 2 – Derivatives
to the Consolidated Financial Statements
.
We hedge our net investment in non-U.S. operations determined to have functional currencies other than the U.S. Dollar using forward foreign exchange contracts that typically settle in less than 180 days, cross-currency basis swaps and foreign exchange options. We recorded net after-tax losses on derivatives in accumulated OCI associated with net investment hedges which were offset by gains on our net investments in consolidated non-U.S. entities at
March 31, 2015
.
|
Mortgage Banking Risk Management
|
We originate, fund and service mortgage loans, which subject us to credit, liquidity and interest rate risks, among others. We determine whether loans will be HFI or held-for-sale at the time of commitment and manage credit and liquidity risks by selling or securitizing a portion of the loans we originate.
Interest rate risk and market risk can be substantial in the mortgage business. Fluctuations in interest rates drive consumer demand for new mortgages and the level of refinancing activity, which in turn, affects total origination and servicing income. Hedging the various sources of interest rate risk in mortgage banking is a complex process that requires complex modeling and ongoing monitoring. Typically, an increase in mortgage interest rates will lead to a decrease in mortgage originations and related fees. IRLCs and the related residential first mortgage LHFS are subject to interest rate risk between the date of the IRLC and the date the loans are sold to the secondary market, as an increase in mortgage interest rates will typically lead to a decrease in the value of these instruments.
MSRs are nonfinancial assets created when the underlying mortgage loan is sold to investors and we retain the right to service the loan. Typically, an increase in mortgage rates will lead to an increase in the value of the MSRs driven by lower prepayment expectations. This increase in value from increases in mortgage rates is opposite of, and therefore offsets, the risk described for IRLCs and LHFS. Previously we hedged MSRs separately from the IRLCs and first mortgage LHFS assets. Because the interest rate risks of these two hedged items offset, we combined them into one overall hedged item with one combined economic hedge portfolio.
Interest rate and certain market risks of IRLCs and residential mortgage LHFS are economically hedged in combination with MSRs. To hedge these combined assets, we use certain derivatives such as interest rate options, interest rate swaps, forward sale commitments, eurodollar and U.S. Treasury futures, and mortgage TBAs, as well as other securities including agency MBS, principal-only and interest-only MBS and U.S. Treasury securities. For the
three months ended March 31, 2015
, we recorded in mortgage banking income gains of $242 million related to the change in fair value of the derivative contracts and other securities used to hedge the market risks of the MSRs and loan basis compared to gains of $317 million for the
same period in 2014
. For more information on MSRs, see
Note 17 – Mortgage Servicing Rights
to the Consolidated Financial Statements
and for more information on mortgage banking income, see
Consumer Banking
on page
23
.
112
|
Compliance Risk Management
|
Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the reputation of the Corporation in the event of the failure of the Corporation to comply with the requirements of applicable laws, rules, regulations, related self-regulatory organization standards and codes of conduct (collectively, applicable laws, rules and regulations). Global Compliance independently assesses compliance risk, and evaluates adherence to applicable laws, rules and regulations, including identifying compliance issues and risks, performing monitoring and testing, and reporting on the state of compliance activities across the Corporation. Additionally, Global Compliance works with Front Line Units (FLUs) and control functions so that day-to-day activities operate in a compliant manner. For more information on FLUs and control functions, see page
55
of the MD&A of the Corporation's 2014 Annual Report on Form 10-K
.
The Corporation's approach to the management of compliance risk is further described in the Global Compliance Policy, which outlines the requirements of the Corporation's global compliance program, and defines roles and responsibilities related to the implementation, execution and management of the compliance program by Global Compliance. The requirements work together to drive a comprehensive risk-based approach for the proactive identification, management and escalation of compliance risks throughout the Corporation.
The Global Compliance Policy sets the requirements for reporting compliance risk information to executive management as well as the Board or appropriate Board-level committees with an outline for conducting objective oversight of the Corporation's compliance risk management activities. The Board provides oversight of compliance risks through its Audit Committee and ERC.
|
Operational Risk Management
|
The Corporation defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk may occur anywhere in the Corporation, including third-party business processes, and is not limited to operations functions. Effects may extend beyond financial losses and may result in reputational risk impacts. Operational risk includes legal risk. Successful operational risk management is particularly important to diversified financial services companies because of the nature, volume and complexity of the financial services business. Operational risk is a significant component in the calculation of total risk-weighted assets used in the Basel 3 capital estimate under the Advanced approaches. For more information on Basel 3 Advanced approaches, see
Capital Management – Advanced Approaches
on page
49
.
We approach operational risk management from two perspectives within the structure of the Corporation: (1) at the enterprise level to provide independent, integrated management of operational risk across the organization, and (2) at the business and control function levels to address operational risk in revenue producing and non-revenue producing units. The Operational Risk Management Program addresses the overarching processes for identifying, measuring, monitoring and controlling operational risk, and reporting operational risk information to management and the Board. A sound internal governance structure enhances the effectiveness of the Corporation's Operational Risk Management Program and is accomplished at the enterprise level through formal oversight by the Board, the ERC, the Chief Risk Officer and a variety of management committees and risk oversight groups aligned to the Corporation's overall risk governance framework and practices. Of these, the MRC oversees the Corporation's policies and processes for sound operational risk management. The MRC also serves as an escalation point for critical operational risk matters within the Corporation. The MRC reports operational risk activities to the ERC. The independent operational risk management teams oversee the businesses and control functions to monitor adherence to the Operational Risk Management Program and advise and challenge operational risk exposures.
Within the Global Risk Management organization, the Corporate Operational Risk team develops and guides the strategies, enterprise-wide policies, practices, controls and monitoring tools for assessing and managing operational risks across the organization and reports results to businesses, control functions, senior management, governance committees, and the ERC and the Board.
The businesses and control functions are responsible for assessing, monitoring and managing all the risks within their units, including operational risks. In addition to enterprise risk management tools such as loss reporting, scenario analysis and Risk and Control Self Assessments (RCSAs), operational risk executives, working in conjunction with senior business executives, have developed key tools to help identify, measure, monitor and control risk in each business and control function. Examples of these include personnel management practices; data reconciliation processes; fraud management units; cybersecurity controls, processes and systems; transaction processing, monitoring and analysis; business recovery planning; and new product introduction processes. The business and control functions are also responsible for consistently implementing and monitoring adherence to corporate practices.
113
Business and control function management uses the enterprise RCSA process to capture the identification and assessment of operational risk exposures and evaluate the status of risk and control issues including mitigation plans, as appropriate. The goals of this process are to assess changing market and business conditions, evaluate key risks impacting each business and control function, and assess the controls in place to mitigate the risks. Key operational risk indicators have been developed and are used to assist in identifying trends and issues on an enterprise, business and control function level. Independent review and challenge to the Corporation's overall operational risk management framework is performed by the Corporate Operational Risk Program Adherence Team and reported through the operational risk governance committees and management routines.
Where appropriate, insurance policies are purchased to mitigate the impact of operational losses. These insurance policies are explicitly incorporated in the structural features of operational risk evaluation. As insurance recoveries, especially given recent market events, are subject to legal and financial uncertainty, the inclusion of these insurance policies is subject to reductions in their expected mitigating benefits.
|
Complex Accounting Estimates
|
Our significant accounting principles, as described in
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
, are essential in understanding the MD&A. Many of our significant accounting principles require complex judgments to estimate the values of assets and liabilities. We have procedures and processes in place to facilitate making these judgments.
The more judgmental estimates impacting results for the
three months ended March 31, 2015
are summarized in the following discussion. We have identified and described the development of the variables most important in the estimation processes that involve mathematical models to derive the estimates. In many cases, there are numerous alternative judgments that could be used in the process of determining the inputs to the models. Where alternatives exist, we have used the factors that we believe represent the most reasonable value in developing the inputs. Actual performance that differs from our estimates of the key variables could impact our results of operations. Separate from the possible future impact to our results of operations from input and model variables, the value of our lending portfolio and market-sensitive assets and liabilities may change subsequent to the balance sheet date, often significantly, due to the nature and magnitude of future credit and market conditions. Such credit and market conditions may change quickly and in unforeseen ways and the resulting volatility could have a significant, negative effect on future operating results. These fluctuations would not be indicative of deficiencies in our models or inputs.
For additional information, see Complex Accounting Estimates on page
109
of the MD&A of the Corporation's 2014 Annual Report on Form 10-K
.
|
Fair Value of Financial Instruments
|
We classify the fair values of financial instruments based on the fair value hierarchy established under applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Applicable accounting guidance establishes three levels of inputs used to measure fair value. For additional information, see
Note 14 – Fair Value Measurements
and
Note 15 – Fair Value Option
to the Consolidated Financial Statements
, and
Complex Accounting Estimates
on page
109
of the MD&A of the Corporation's 2014 Annual Report on Form 10-K
.
|
Level 3 Assets and Liabilities
|
Financial assets and liabilities where values are based on valuation techniques that require inputs that are both unobservable and are significant to the overall fair value measurement are classified as Level 3 under the fair value hierarchy established in applicable accounting guidance. The Level 3 financial assets and liabilities include certain loans, MBS, ABS, collateralized debt obligations, CLOs and structured liabilities, as well as highly structured, complex or long-dated derivative contracts, private equity investments and consumer MSRs. The fair value of these Level 3 financial assets and liabilities is determined using pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value requires significant management judgment or estimation.
114
|
Table 67
|
|||||||||||||||||||
|
Recurring Level 3 Asset and Liability Summary
|
|||||||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||||||
|
(Dollars in millions)
|
Level 3
Fair Value
|
As a %
of Total Level 3
Assets
|
As a %
of Total
Assets
|
Level 3
Fair Value
|
As a %
of Total Level 3
Assets
|
As a %
of Total
Assets
|
|||||||||||||
|
Trading account assets
|
$
|
5,714
|
|
26.47
|
%
|
0.27
|
%
|
$
|
6,259
|
|
28.12
|
%
|
0.30
|
%
|
|||||
|
Derivative assets
|
7,450
|
|
34.51
|
|
0.35
|
|
6,851
|
|
30.77
|
|
0.33
|
|
|||||||
|
AFS debt securities
|
1,684
|
|
7.80
|
|
0.08
|
|
2,555
|
|
11.48
|
|
0.12
|
|
|||||||
|
Mortgage servicing rights
|
3,394
|
|
15.72
|
|
0.16
|
|
3,530
|
|
15.86
|
|
0.17
|
|
|||||||
|
All other Level 3 assets at fair value
|
3,344
|
|
15.50
|
|
0.15
|
|
3,067
|
|
13.77
|
|
0.14
|
|
|||||||
|
Total Level 3 assets at fair value
(1)
|
$
|
21,586
|
|
100.00
|
%
|
1.01
|
%
|
$
|
22,262
|
|
100.00
|
%
|
1.06
|
%
|
|||||
|
|
Level 3
Fair Value
|
As a %
of Total Level 3
Liabilities
|
As a %
of Total
Liabilities
|
Level 3
Fair Value
|
As a %
of Total Level 3
Liabilities
|
As a %
of Total
Liabilities
|
|||||||||||||
|
Derivative liabilities
|
$
|
8,531
|
|
74.81
|
%
|
0.45
|
%
|
$
|
7,771
|
|
76.34
|
%
|
0.42
|
%
|
|||||
|
Long-term debt
|
2,806
|
|
24.61
|
|
0.15
|
|
2,362
|
|
23.20
|
|
0.13
|
|
|||||||
|
All other Level 3 liabilities at fair value
|
66
|
|
0.58
|
|
—
|
|
46
|
|
0.46
|
|
—
|
|
|||||||
|
Total Level 3 liabilities at fair value
(1)
|
$
|
11,403
|
|
100.00
|
%
|
0.60
|
%
|
$
|
10,179
|
|
100.00
|
%
|
0.55
|
%
|
|||||
|
(1)
|
Level 3 total assets and liabilities are shown before the impact of cash collateral and counterparty netting related to our derivative positions.
|
Level 3 financial instruments may be hedged with derivatives classified as Level 1 or 2; therefore, gains or losses associated with Level 3 financial instruments may be offset by gains or losses associated with financial instruments classified in other levels of the fair value hierarchy. The Level 3 gains and losses recorded in earnings did not have a significant impact on our liquidity or capital resources. We conduct a review of our fair value hierarchy classifications on a quarterly basis. Transfers into or out of Level 3 are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities became unobservable or observable, respectively, in the current marketplace. These transfers are considered to be effective as of the beginning of the quarter in which they occur. For more information on the significant transfers into and out of Level 3 during the
three months ended March 31, 2015
, see
Note 14 – Fair Value Measurements
to the Consolidated Financial Statements
.
|
Goodwill and Intangible Assets
|
Effective January 1, 2015, the Corporation realigned its reporting segments. See
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements
for additional information. As part of the realignment, the Corporation moved a portion of the Business Banking business, including $1.6 billion of goodwill, from the former
Consumer & Business Banking
segment to
Global Banking
. This business constitutes a new reporting unit, Business Banking Regions, within the
Global Banking
segment. The remaining portion of the Business Banking business will be evaluated with Deposits as a single reporting unit within
Consumer Banking
. Prior periods were reclassified to conform to current period presentation. The realignment triggered a test for goodwill impairment, which was performed both immediately before and after the realignment. In performing the goodwill impairment test, we compared the fair value of the affected reporting units with their carrying value as measured by allocated equity. As of January 1, 2015, the fair value as a percentage of the carrying value for Business Banking Regions and Deposits was 150.3% and 128.5%, respectively. As the fair value of the affected reporting units exceeded their carrying value, no goodwill impairment resulted from the realignment. See
Note 1 – Summary of Significant Accounting Principles
and
Note 8 – Goodwill and Intangible Assets
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
for additional information regarding testing goodwill for impairment.
115
|
Glossary
|
Alt-A Mortgage
– A type of U.S. mortgage that, for various reasons, is considered riskier than A-paper, or "prime," and less risky than "subprime," the riskiest category. Alt-A interest rates, which are determined by credit risk, therefore tend to be between those of prime and subprime consumer real estate loans. Typically, Alt-A mortgages are characterized by borrowers with less than full documentation, lower credit scores and higher LTVs.
Assets in Custody
– Consist largely of custodial and non-discretionary trust assets excluding brokerage assets administered for clients. Trust assets encompass a broad range of asset types including real estate, private company ownership interest, personal property and investments.
Assets Under Management (AUM)
– The total market value of assets under the investment advisory and discretion of
GWIM
which generate asset management fees based on a percentage of the assets' market values. AUM reflects assets that are generally managed for institutional, high net worth and retail clients, and are distributed through various investment products including mutual funds, other commingled vehicles and separate accounts. AUM is classified in two categories, Liquidity AUM and Long-term AUM. Liquidity AUM are assets under advisory and discretion of
GWIM
in which the investment strategy seeks to maximize income while maintaining liquidity and capital preservation. The duration of these strategies is primarily less than one year. Long-term AUM are assets under advisory and discretion of
GWIM
in which the duration of investment strategy is longer than one year.
Carrying Value (with respect to loans)
– The amount at which a loan is recorded on the balance sheet. For loans recorded at amortized cost, carrying value is the unpaid principal balance net of unamortized deferred loan origination fees and costs, and unamortized purchase premium or discount. For loans that are or have been on nonaccrual status, the carrying value is also reduced by any net charge-offs that have been recorded and the amount of interest payments applied as a reduction of principal under the cost recovery method. For PCI loans, the carrying value equals fair value upon acquisition adjusted for subsequent cash collections and yield accreted to date. For credit card loans, the carrying value also includes interest that has been billed to the customer. For loans classified as held-for-sale, carrying value is the lower of carrying value as described in the sentences above, or fair value. For loans for which we have elected the fair value option, the carrying value is fair value.
Client Brokerage Assets
– Include client assets which are held in brokerage accounts. This includes non-discretionary brokerage and fee-based assets which generate brokerage income and asset management fee revenue.
Committed Credit Exposure
– Includes any funded portion of a facility plus the unfunded portion of a facility on which the lender is legally bound to advance funds during a specified period under prescribed conditions.
Credit Derivatives
– Contractual agreements that provide protection against a credit event on one or more referenced obligations. The nature of a credit event is established by the protection purchaser and protection seller at the inception of the transaction, and such events generally include bankruptcy or insolvency of the referenced credit entity, failure to meet payment obligations when due, as well as acceleration of indebtedness and payment repudiation or moratorium. The purchaser of the credit derivative pays a periodic fee in return for a payment by the protection seller upon the occurrence, if any, of such a credit event. A credit default swap is a type of a credit derivative.
Credit Valuation Adjustment (CVA)
– A portfolio adjustment required to properly reflect the counterparty credit risk exposure as part of the fair value of derivative instruments.
Debit Valuation Adjustment (DVA)
– A portfolio adjustment required to properly reflect the Corporation's own credit risk exposure as part of the fair value of derivative instruments and/or structured liabilities.
Funding Valuation Adjustment (FVA)
– A portfolio adjustment required to include funding costs on uncollateralized derivatives and derivatives where the Corporation is not permitted to use the collateral it receives.
Interest Rate Lock Commitment (IRLC)
– Commitment with a loan applicant in which the loan terms, including interest rate and price, are guaranteed for a designated period of time subject to credit approval.
Letter of Credit
– A document issued on behalf of a customer to a third party promising to pay the third party upon presentation of specified documents. A letter of credit effectively substitutes the issuer's credit for that of the customer.
116
Loan-to-value (LTV)
– A commonly used credit quality metric that is reported in terms of ending and average LTV. Ending LTV is calculated as the outstanding carrying value of the loan at the end of the period divided by the estimated value of the property securing the loan. An additional metric related to LTV is
combined loan-to-value (CLTV)
which is similar to the LTV metric, yet combines the outstanding balance on the residential mortgage loan and the outstanding carrying value on the home equity loan or available line of credit, both of which are secured by the same property, divided by the estimated value of the property. A LTV of 100 percent reflects a loan that is currently secured by a property valued at an amount exactly equal to the carrying value or available line of the loan. Estimated property values are generally determined through the use of automated valuation models (AVMs) or the CoreLogic Case-Shiller Index. An AVM is a tool that estimates the value of a property by reference to large volumes of market data including sales of comparable properties and price trends specific to the MSA in which the property being valued is located. CoreLogic Case-Shiller is a widely used index based on data from repeat sales of single family homes. CoreLogic Case-Shiller indexed-based values are reported on a three-month or one-quarter lag.
Margin Receivable
–
An extension of credit secured by eligible securities in certain brokerage accounts.
Market-related Adjustments
–
Include
a
djustments to premium amortization or discount accretion on debt securities when a decrease in long-term rates shortens (or an increase extends) the estimated lives of mortgage-related debt securities. Also included in market-related adjustments is hedge ineffectiveness that impacts net interest income.
Matched Book –
Repurchase and resale agreements and securities borrowed and loaned transactions entered into to accommodate customers and earn interest rate spreads.
Mortgage Servicing Right (MSR) –
The right to service a mortgage loan when the underlying loan is sold or securitized. Servicing includes collections for principal, interest and escrow payments from borrowers and accounting for and remitting principal and interest payments to investors.
Net Interest Yield
– Net interest income divided by average total interest-earning assets.
Nonperforming Loans and Leases
– Include loans and leases that have been placed on nonaccrual status, including nonaccruing loans whose contractual terms have been restructured in a manner that grants a concession to a borrower experiencing financial difficulties (TDRs). Loans accounted for under the fair value option, PCI loans and LHFS are not reported as nonperforming loans and leases. Consumer credit card loans, business card loans, consumer loans secured by personal property (except for certain secured consumer loans, including those that have been modified in a TDR), and consumer loans secured by real estate that are insured by the FHA or through long-term credit protection agreements with FNMA and FHLMC (fully-insured loan portfolio) are not placed on nonaccrual status and are, therefore, not reported as nonperforming loans and leases.
Purchased Credit-impaired (PCI) Loan
– A loan purchased as an individual loan, in a portfolio of loans or in a business combination with evidence of deterioration in credit quality since origination for which it is probable, upon acquisition, that the investor will be unable to collect all contractually required payments. These loans are recorded at fair value upon acquisition.
Subprime Loans
– Although a standard industry definition for subprime loans (including subprime mortgage loans) does not exist, the Corporation defines subprime loans as specific product offerings for higher risk borrowers, including individuals with one or a combination of high credit risk factors, such as low FICO scores, high debt to income ratios and inferior payment history.
Value-at-Risk (VaR)
– VaR is a model that simulates the value of a portfolio under a range of hypothetical scenarios in order to generate a distribution of potential gains and losses. VaR represents the loss the portfolio is expected to experience with a given confidence level based on historical data. A VaR model is an effective tool in estimating ranges of potential gains and losses on our trading portfolios.
117
|
Acronyms
|
||
|
ABS
|
Asset-backed securities
|
|
|
AFS
|
Available-for-sale
|
|
|
ALM
|
Asset and liability management
|
|
|
ARM
|
Adjustable-rate mortgage
|
|
|
AUM
|
Assets under management
|
|
|
BHC
|
Bank holding company
|
|
|
CCAR
|
Comprehensive Capital Analysis and Review
|
|
|
CDO
|
Collateralized debt obligation
|
|
|
CLO
|
Collateralized loan obligation
|
|
|
CRA
|
Community Reinvestment Act
|
|
|
CVA
|
Credit valuation adjustment
|
|
|
DVA
|
Debit valuation adjustment
|
|
|
EAD
|
Exposure at default
|
|
|
ERC
|
Enterprise Risk Committee
|
|
|
FHA
|
Federal Housing Administration
|
|
|
FHLB
|
Federal Home Loan Bank
|
|
|
FHLMC
|
Freddie Mac
|
|
|
FICC
|
Fixed-income, currencies and commodities
|
|
|
FICO
|
Fair Isaac Corporation (credit score)
|
|
|
FLUs
|
Front line units
|
|
|
FNMA
|
Fannie Mae
|
|
|
FSB
|
Financial Stability Board
|
|
|
FTE
|
Fully taxable-equivalent
|
|
|
FVA
|
Funding valuation adjustment
|
|
|
GAAP
|
Accounting principles generally accepted in the United States of America
|
|
|
GNMA
|
Government National Mortgage Association
|
|
|
GSE
|
Government-sponsored enterprise
|
|
|
HELOC
|
Home equity lines of credit
|
|
|
HFI
|
Held-for-investment
|
|
|
HQLA
|
High Quality Liquid Assets
|
|
|
HUD
|
U.S. Department of Housing and Urban Development
|
|
|
LCR
|
Liquidity Coverage Ratio
|
|
|
LGD
|
Loss-given default
|
|
|
LHFS
|
Loans held-for-sale
|
|
|
LIBOR
|
London InterBank Offered Rate
|
|
|
LTV
|
Loan-to-value
|
|
|
MBS
|
Mortgage-backed securities
|
|
|
MD&A
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
MI
|
Mortgage insurance
|
|
|
MRC
|
Management Risk Committee
|
|
|
MSR
|
Mortgage servicing right
|
|
|
NSFR
|
Net Stable Funding Ratio
|
|
|
OCI
|
Other comprehensive income
|
|
|
OTC
|
Over-the-counter
|
|
|
OTTI
|
Other-than-temporary impairment
|
|
|
PCI
|
Purchased credit-impaired
|
|
|
PPI
|
Payment protection insurance
|
|
|
RCSAs
|
Risk and Control Self Assessments
|
|
|
RMBS
|
Residential mortgage-backed securities
|
|
|
SEC
|
Securities and Exchange Commission
|
|
|
SLR
|
Supplementary leverage ratio
|
|
|
TDR
|
Troubled debt restructurings
|
|
|
VIE
|
Variable interest entity
|
|
118
|
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
See
Market Risk Management
on page
103
in the MD&A and the sections referenced therein for Quantitative and Qualitative Disclosures about Market Risk.
|
Item 4. CONTROLS AND PROCEDURES
|
|
Evaluation of Disclosure Controls and Procedures
|
As of the end of the period covered by this report and pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (Exchange Act), the Corporation's management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness and design of the Corporation's disclosure controls and procedures (as that term is defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Corporation's Chief Executive Officer and Chief Financial Officer concluded that the Corporation's disclosure controls and procedures were effective, as of the end of the period covered by this report, in recording, processing, summarizing and reporting information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act, within the time periods specified in the Securities and Exchange Commission's rules and forms.
|
Changes in Internal Controls
|
There have been no changes in the Corporation's internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended
March 31, 2015
that have materially affected or are reasonably likely to materially affect the Corporation's internal control over financial reporting.
119
|
|
|||||||
|
|
|||||||
|
Bank of America Corporation and Subsidiaries
|
|||||||
|
|
|||||||
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions, except per share information)
|
2015
|
2014
|
|||||
|
Interest income
|
|
|
|||||
|
Loans and leases
|
$
|
8,036
|
|
$
|
8,760
|
|
|
|
Debt securities
|
1,887
|
|
1,997
|
|
|||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
231
|
|
265
|
|
|||
|
Trading account assets
|
1,083
|
|
1,177
|
|
|||
|
Other interest income
|
726
|
|
736
|
|
|||
|
Total interest income
|
11,963
|
|
12,935
|
|
|||
|
Interest expense
|
|||||||
|
Deposits
|
220
|
|
291
|
|
|||
|
Short-term borrowings
|
606
|
|
609
|
|
|||
|
Trading account liabilities
|
373
|
|
435
|
|
|||
|
Long-term debt
|
1,313
|
|
1,515
|
|
|||
|
Total interest expense
|
2,512
|
|
2,850
|
|
|||
|
Net interest income
|
9,451
|
|
10,085
|
|
|||
|
Noninterest income
|
|
||||||
|
Card income
|
1,394
|
|
1,393
|
|
|||
|
Service charges
|
1,764
|
|
1,826
|
|
|||
|
Investment and brokerage services
|
3,378
|
|
3,269
|
|
|||
|
Investment banking income
|
1,487
|
|
1,542
|
|
|||
|
Equity investment income
|
27
|
|
784
|
|
|||
|
Trading account profits
|
2,247
|
|
2,467
|
|
|||
|
Mortgage banking income
|
694
|
|
412
|
|
|||
|
Gains on sales of debt securities
|
268
|
|
377
|
|
|||
|
Other income
|
492
|
|
411
|
|
|||
|
Total noninterest income
|
11,751
|
|
12,481
|
|
|||
|
Total revenue, net of interest expense
|
21,202
|
|
22,566
|
|
|||
|
Provision for credit losses
|
765
|
|
1,009
|
|
|||
|
Noninterest expense
|
|
||||||
|
Personnel
|
9,614
|
|
9,749
|
|
|||
|
Occupancy
|
1,027
|
|
1,115
|
|
|||
|
Equipment
|
512
|
|
546
|
|
|||
|
Marketing
|
440
|
|
442
|
|
|||
|
Professional fees
|
421
|
|
558
|
|
|||
|
Amortization of intangibles
|
213
|
|
239
|
|
|||
|
Data processing
|
852
|
|
833
|
|
|||
|
Telecommunications
|
171
|
|
370
|
|
|||
|
Other general operating
|
2,445
|
|
8,386
|
|
|||
|
Total noninterest expense
|
15,695
|
|
22,238
|
|
|||
|
Income (loss) before income taxes
|
4,742
|
|
(681
|
)
|
|||
|
Income tax expense (benefit)
|
1,385
|
|
(405
|
)
|
|||
|
Net income (loss)
|
$
|
3,357
|
|
$
|
(276
|
)
|
|
|
Preferred stock dividends
|
382
|
|
238
|
|
|||
|
Net income (loss) applicable to common shareholders
|
$
|
2,975
|
|
$
|
(514
|
)
|
|
|
Per common share information
|
|
||||||
|
Earnings (loss)
|
$
|
0.28
|
|
$
|
(0.05
|
)
|
|
|
Diluted earnings (loss)
|
0.27
|
|
(0.05
|
)
|
|||
|
Dividends paid
|
0.05
|
|
0.01
|
|
|||
|
Average common shares issued and outstanding (in thousands)
|
10,518,790
|
|
10,560,518
|
|
|||
|
Average diluted common shares issued and outstanding (in thousands)
|
11,266,511
|
|
10,560,518
|
|
|||
See accompanying Notes to Consolidated Financial Statements.
120
|
Bank of America Corporation and Subsidiaries
Consolidated Statement of Comprehensive Income
|
|||||||
|
Three Months Ended March 31
|
|||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Net income (loss)
|
$
|
3,357
|
|
$
|
(276
|
)
|
|
|
Other comprehensive income (loss), net-of-tax:
|
|||||||
|
Net change in available-for-sale debt and marketable equity securities
|
1,336
|
|
1,289
|
|
|||
|
Net change in derivatives
|
43
|
|
208
|
|
|||
|
Employee benefit plan adjustments
|
25
|
|
49
|
|
|||
|
Net change in foreign currency translation adjustments
|
(51
|
)
|
(126
|
)
|
|||
|
Other comprehensive income
|
1,353
|
|
1,420
|
|
|||
|
Comprehensive income
|
$
|
4,710
|
|
$
|
1,144
|
|
|
See accompanying Notes to Consolidated Financial Statements.
121
|
Bank of America Corporation and Subsidiaries
Consolidated Balance Sheet
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
Assets
|
|||||||
|
Cash and due from banks
|
$
|
30,106
|
|
$
|
33,118
|
|
|
|
Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks
|
132,437
|
|
105,471
|
|
|||
|
Cash and cash equivalents
|
162,543
|
|
138,589
|
|
|||
|
Time deposits placed and other short-term investments
|
7,418
|
|
7,510
|
|
|||
|
Federal funds sold and securities borrowed or purchased under agreements to resell (includes
$60,451
and $62,182 measured at fair value)
|
206,708
|
|
191,823
|
|
|||
|
Trading account assets (includes
$111,298
and $110,923 pledged as collateral)
|
186,860
|
|
191,785
|
|
|||
|
Derivative assets
|
61,331
|
|
52,682
|
|
|||
|
Debt securities:
|
|||||||
|
Carried at fair value (includes
$45,082
and $46,976 pledged as collateral)
|
324,174
|
|
320,695
|
|
|||
|
Held-to-maturity, at cost (fair value –
$59,889
and $59,641;
$16,488
and $17,124 pledged as collateral)
|
59,815
|
|
59,766
|
|
|||
|
Total debt securities
|
383,989
|
|
380,461
|
|
|||
|
Loans and leases (includes
$8,466
and $8,681 measured at fair value and
$51,219
and $52,959 pledged as collateral)
|
877,956
|
|
881,391
|
|
|||
|
Allowance for loan and lease losses
|
(13,676
|
)
|
(14,419
|
)
|
|||
|
Loans and leases, net of allowance
|
864,280
|
|
866,972
|
|
|||
|
Premises and equipment, net
|
9,833
|
|
10,049
|
|
|||
|
Mortgage servicing rights (includes
$3,394
and $3,530 measured at fair value)
|
3,394
|
|
3,530
|
|
|||
|
Goodwill
|
69,776
|
|
69,777
|
|
|||
|
Intangible assets
|
4,391
|
|
4,612
|
|
|||
|
Loans held-for-sale (includes
$7,690
and $6,801 measured at fair value)
|
9,732
|
|
12,836
|
|
|||
|
Customer and other receivables
|
63,716
|
|
61,845
|
|
|||
|
Other assets (includes
$14,114
and $13,873 measured at fair value)
|
109,574
|
|
112,063
|
|
|||
|
Total assets
|
$
|
2,143,545
|
|
$
|
2,104,534
|
|
|
|
Assets of consolidated variable interest entities included in total assets above (isolated to settle the liabilities of the variable interest entities)
|
|||||||
|
Trading account assets
|
$
|
5,182
|
|
$
|
6,890
|
|
|
|
Derivative assets
|
5
|
|
6
|
|
|||
|
Loans and leases
|
89,771
|
|
95,187
|
|
|||
|
Allowance for loan and lease losses
|
(1,869
|
)
|
(1,968
|
)
|
|||
|
Loans and leases, net of allowance
|
87,902
|
|
93,219
|
|
|||
|
Loans held-for-sale
|
1,226
|
|
1,822
|
|
|||
|
All other assets
|
2,948
|
|
2,763
|
|
|||
|
Total assets of consolidated variable interest entities
|
$
|
97,263
|
|
$
|
104,700
|
|
|
See accompanying Notes to Consolidated Financial Statements.
122
|
Bank of America Corporation and Subsidiaries
Consolidated Balance Sheet (continued)
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
Liabilities
|
|||||||
|
Deposits in U.S. offices:
|
|||||||
|
Noninterest-bearing
|
$
|
412,902
|
|
$
|
393,102
|
|
|
|
Interest-bearing (includes
$1,275
and $1,469 measured at fair value)
|
673,431
|
|
660,161
|
|
|||
|
Deposits in non-U.S. offices:
|
|||||||
|
Noninterest-bearing
|
8,473
|
|
7,230
|
|
|||
|
Interest-bearing
|
58,362
|
|
58,443
|
|
|||
|
Total deposits
|
1,153,168
|
|
1,118,936
|
|
|||
|
Federal funds purchased and securities loaned or sold under agreements to repurchase (includes
$27,129
and $35,357 measured at fair value)
|
203,758
|
|
201,277
|
|
|||
|
Trading account liabilities
|
74,791
|
|
74,192
|
|
|||
|
Derivative liabilities
|
52,234
|
|
46,909
|
|
|||
|
Short-term borrowings (includes
$2,893
and $2,697 measured at fair value)
|
33,270
|
|
31,172
|
|
|||
|
Accrued expenses and other liabilities (includes
$12,664
and $12,055 measured at fair value and
$537
and $528 of reserve for unfunded lending commitments)
|
138,278
|
|
145,438
|
|
|||
|
Long-term debt (includes
$32,875
and $36,404 measured at fair value)
|
237,858
|
|
243,139
|
|
|||
|
Total liabilities
|
1,893,357
|
|
1,861,063
|
|
|||
|
Commitments and contingencies (
|
|
|
|
|
|||
|
Shareholders' equity
|
|||||||
|
Preferred stock, $0.01 par value; authorized –
100,000,000
shares; issued and outstanding –
3,767,790
and 3,647,790 shares
|
22,273
|
|
19,309
|
|
|||
|
Common stock and additional paid-in capital, $0.01 par value; authorized –
12,800,000,000
shares; issued and outstanding –
10,520,400,507
and 10,516,542,476 shares
|
153,410
|
|
153,458
|
|
|||
|
Retained earnings
|
77,472
|
|
75,024
|
|
|||
|
Accumulated other comprehensive income (loss)
|
(2,967
|
)
|
(4,320
|
)
|
|||
|
Total shareholders' equity
|
250,188
|
|
243,471
|
|
|||
|
Total liabilities and shareholders' equity
|
$
|
2,143,545
|
|
$
|
2,104,534
|
|
|
|
Liabilities of consolidated variable interest entities included in total liabilities above
|
|||||||
|
Short-term borrowings
|
$
|
630
|
|
$
|
1,032
|
|
|
|
Long-term debt (includes
$12,457
and $11,943 of non-recourse debt)
|
13,942
|
|
13,307
|
|
|||
|
All other liabilities (includes
$91
and $84 of non-recourse liabilities)
|
123
|
|
138
|
|
|||
|
Total liabilities of consolidated variable interest entities
|
$
|
14,695
|
|
$
|
14,477
|
|
|
See accompanying Notes to Consolidated Financial Statements.
123
|
Bank of America Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
|
|||||||||||||||||
|
Preferred
Stock |
Common Stock and Additional Paid-in Capital
|
Retained
Earnings |
Accumulated
Other Comprehensive Income (Loss) |
Total
Shareholders' Equity |
|||||||||||||
|
(Dollars in millions, shares in thousands)
|
Shares
|
Amount
|
|||||||||||||||
|
Balance, December 31, 2013
|
$
|
13,352
|
|
10,591,808
|
|
$
|
155,293
|
|
$
|
72,497
|
|
$
|
(8,457
|
)
|
$
|
232,685
|
|
|
Net loss
|
(276
|
)
|
(276
|
)
|
|||||||||||||
|
Net change in available-for-sale debt and marketable equity securities
|
1,289
|
|
1,289
|
|
|||||||||||||
|
Net change in derivatives
|
208
|
|
208
|
|
|||||||||||||
|
Employee benefit plan adjustments
|
49
|
|
49
|
|
|||||||||||||
|
Net change in foreign currency translation adjustments
|
(126
|
)
|
(126
|
)
|
|||||||||||||
|
Dividends paid:
|
|
|
|
|
|||||||||||||
|
Common
|
(106
|
)
|
(106
|
)
|
|||||||||||||
|
Preferred
|
(238
|
)
|
(238
|
)
|
|||||||||||||
|
Common stock issued under employee plans and related tax effects
|
24,925
|
|
(155
|
)
|
(155
|
)
|
|||||||||||
|
Common stock repurchased
|
(86,688
|
)
|
(1,442
|
)
|
(1,442
|
)
|
|||||||||||
|
Balance, March 31, 2014
|
$
|
13,352
|
|
10,530,045
|
|
$
|
153,696
|
|
$
|
71,877
|
|
$
|
(7,037
|
)
|
$
|
231,888
|
|
|
Balance, December 31, 2014
|
$
|
19,309
|
|
10,516,542
|
|
$
|
153,458
|
|
$
|
75,024
|
|
$
|
(4,320
|
)
|
$
|
243,471
|
|
|
Net income
|
3,357
|
|
3,357
|
|
|||||||||||||
|
Net change in available-for-sale debt and marketable equity securities
|
1,336
|
|
1,336
|
|
|||||||||||||
|
Net change in derivatives
|
43
|
|
43
|
|
|||||||||||||
|
Employee benefit plan adjustments
|
25
|
|
25
|
|
|||||||||||||
|
Net change in foreign currency translation adjustments
|
(51
|
)
|
(51
|
)
|
|||||||||||||
|
Dividends paid:
|
|||||||||||||||||
|
Common
|
(527
|
)
|
(527
|
)
|
|||||||||||||
|
Preferred
|
(382
|
)
|
(382
|
)
|
|||||||||||||
|
Issuance of preferred stock
|
2,964
|
|
2,964
|
|
|||||||||||||
|
Common stock issued under employee plans and related tax effects
|
3,859
|
|
(48
|
)
|
(48
|
)
|
|||||||||||
|
Balance, March 31, 2015
|
$
|
22,273
|
|
10,520,401
|
|
$
|
153,410
|
|
$
|
77,472
|
|
$
|
(2,967
|
)
|
$
|
250,188
|
|
See accompanying Notes to Consolidated Financial Statements.
124
|
Bank of America Corporation and Subsidiaries
|
|||||||
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Operating activities
|
|
|
|||||
|
Net income (loss)
|
$
|
3,357
|
|
$
|
(276
|
)
|
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|||||||
|
Provision for credit losses
|
765
|
|
1,009
|
|
|||
|
Gains on sales of debt securities
|
(268
|
)
|
(377
|
)
|
|||
|
Depreciation and premises improvements amortization
|
395
|
|
390
|
|
|||
|
Amortization of intangibles
|
213
|
|
239
|
|
|||
|
Net amortization of premium/discount on debt securities
|
978
|
|
667
|
|
|||
|
Deferred income taxes
|
228
|
|
(732
|
)
|
|||
|
Loans held-for-sale:
|
|||||||
|
Originations and purchases
|
(10,587
|
)
|
(10,024
|
)
|
|||
|
Proceeds from sales and paydowns of loans originally classified as held-for-sale
|
11,213
|
|
8,026
|
|
|||
|
Net change in:
|
|||||||
|
Trading and derivative instruments
|
3,222
|
|
13,536
|
|
|||
|
Other assets
|
(5,344
|
)
|
(3,319
|
)
|
|||
|
Accrued expenses and other liabilities
|
(7,232
|
)
|
13,337
|
|
|||
|
Other operating activities, net
|
(1,632
|
)
|
247
|
|
|||
|
Net cash provided by (used in) operating activities
|
(4,692
|
)
|
22,723
|
|
|||
|
Investing activities
|
|
|
|||||
|
Net change in:
|
|||||||
|
Time deposits placed and other short-term investments
|
92
|
|
(1,253
|
)
|
|||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
(14,885
|
)
|
(24,971
|
)
|
|||
|
Debt securities carried at fair value:
|
|||||||
|
Proceeds from sales
|
38,808
|
|
31,106
|
|
|||
|
Proceeds from paydowns and maturities
|
16,446
|
|
17,870
|
|
|||
|
Purchases
|
(52,387
|
)
|
(63,679
|
)
|
|||
|
Held-to-maturity debt securities:
|
|||||||
|
Proceeds from paydowns and maturities
|
2,973
|
|
1,326
|
|
|||
|
Purchases
|
(3,354
|
)
|
(1,447
|
)
|
|||
|
Loans and leases:
|
|||||||
|
Proceeds from sales
|
5,781
|
|
4,508
|
|
|||
|
Purchases
|
(3,582
|
)
|
(2,473
|
)
|
|||
|
Other changes in loans and leases, net
|
1,634
|
|
8,767
|
|
|||
|
Net purchases of premises and equipment
|
(179
|
)
|
(266
|
)
|
|||
|
Proceeds from sales of foreclosed properties
|
170
|
|
164
|
|
|||
|
Proceeds from sales of investments
|
36
|
|
994
|
|
|||
|
Other investing activities, net
|
(128
|
)
|
(61
|
)
|
|||
|
Net cash used in investing activities
|
(8,575
|
)
|
(29,415
|
)
|
|||
|
Financing activities
|
|
|
|||||
|
Net change in:
|
|||||||
|
Deposits
|
34,232
|
|
14,379
|
|
|||
|
Federal funds purchased and securities loaned or sold under agreements to repurchase
|
2,481
|
|
5,002
|
|
|||
|
Short-term borrowings
|
2,098
|
|
5,410
|
|
|||
|
Long-term debt:
|
|||||||
|
Proceeds from issuance
|
9,254
|
|
19,245
|
|
|||
|
Retirement of long-term debt
|
(11,678
|
)
|
(15,255
|
)
|
|||
|
Proceeds from issuance of preferred stock
|
2,964
|
|
—
|
|
|||
|
Common stock repurchased
|
—
|
|
(1,442
|
)
|
|||
|
Cash dividends paid
|
(846
|
)
|
(344
|
)
|
|||
|
Excess tax benefits on share-based payments
|
16
|
|
34
|
|
|||
|
Other financing activities, net
|
(9
|
)
|
(12
|
)
|
|||
|
Net cash provided by financing activities
|
38,512
|
|
27,017
|
|
|||
|
Effect of exchange rate changes on cash and cash equivalents
|
(1,291
|
)
|
(2
|
)
|
|||
|
Net increase in cash and cash equivalents
|
23,954
|
|
20,323
|
|
|||
|
Cash and cash equivalents at January 1
|
138,589
|
|
131,322
|
|
|||
|
Cash and cash equivalents at March 31
|
$
|
162,543
|
|
$
|
151,645
|
|
|
See accompanying Notes to Consolidated Financial Statements.
125
|
Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements
|
|
|
Bank of America Corporation (together with its consolidated subsidiaries, the Corporation), a bank holding company and a financial holding company, provides a diverse range of financial services and products throughout the U.S. and in certain international markets. The term "the Corporation" as used herein may refer to Bank of America Corporation individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation's subsidiaries or affiliates.
|
Principles of Consolidation and Basis of Presentation
|
The Consolidated Financial Statements include the accounts of the Corporation and its majority-owned subsidiaries, and those variable interest entities (VIEs) where the Corporation is the primary beneficiary. Intercompany accounts and transactions have been eliminated. Results of operations of acquired companies are included from the dates of acquisition and for VIEs, from the dates that the Corporation became the primary beneficiary. Assets held in an agency or fiduciary capacity are not included in the Consolidated Financial Statements. The Corporation accounts for investments in companies for which it owns a voting interest and for which it has the ability to exercise significant influence over operating and financing decisions using the equity method of accounting. These investments are included in other assets. Equity method investments are subject to impairment testing and the Corporation's proportionate share of income or loss is included in equity investment income.
In the Annual Report on Form 10-K for the year ended December 31, 2014, the Corporation reported its results of operations through five business segments:
Consumer & Business Banking (CBB)
,
Consumer Real Estate Services (CRES)
,
Global Wealth & Investment Management (GWIM)
,
Global Banking
and
Global Markets
, with the remaining operations recorded in
All Other
. Effective January 1, 2015, to align the segments with how the Corporation manages the businesses in 2015, it changed its basis of presentation, and following such change, reports its results of operations through the following
five
business segments:
Consumer Banking
,
Global Wealth & Investment Management (GWIM)
,
Global Banking
,
Global Markets
and
Legacy Assets & Servicing (LAS)
, with the remaining operations recorded in
All Other
. The Home Loans business, which was included in the former
CRES
segment, is now included in
Consumer Banking
, and
LAS
(also in the former
CRES
segment) has become a separate segment. A portion of the Business Banking business, based on the size of the client, was moved from the former
CBB
segment to
Global Banking
, and the former
CBB
segment was renamed
Consumer Banking
. Also, the Corporation's merchant services joint venture moved from the former
CBB
segment to
All Other
. In addition, certain management accounting methodologies, including the treatment of intersegment assets and liabilities, and related allocations were refined. Prior periods have been reclassified to conform to the current period presentation.
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and disclosures. Realized results could differ from those estimates and assumptions.
These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K. The nature of the Corporation's business is such that the results of any interim period are not necessarily indicative of results for a full year. In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim period results have been made. The Corporation evaluates subsequent events through the date of filing with the Securities and Exchange Commission (SEC). Certain prior-period amounts have been reclassified to conform to current period presentation.
|
New Accounting Pronouncements
|
In February 2015, the Financial Accounting Standards Board (FASB) issued new accounting guidance that amends the criteria for determining whether limited partnerships and similar entities are VIEs, clarifies when a general partner or asset manager should consolidate an entity and eliminates the indefinite deferral of certain aspects of VIE accounting guidance for investments in certain investment funds. Money market funds registered under Rule 2a-7 of the Investment Company Act and similar funds are exempt from consolidation under the new guidance. The new accounting guidance is effective beginning on January 1, 2016. Early adoption is permitted; however, the Corporation does not expect to adopt this new guidance early. The Corporation does not expect the new guidance to have a material impact on its consolidated financial position or results of operations.
126
In August 2014, the FASB issued new accounting guidance on classification and measurement of foreclosed mortgage loans that are government guaranteed. This new guidance states that certain foreclosed properties should be classified as receivables and measured based on the amount of the loan balance expected to be recovered from the guarantor. The new guidance is effective beginning on January 1, 2015 using either a prospective or modified retrospective transition method. The Corporation adopted the modified retrospective transition method which did not have a material impact on the Corporation's consolidated financial position or results of operations.
In June 2014, the FASB issued new guidance on accounting and disclosure of repurchase-to-maturity (RTM) transactions and repurchase financings (repos). Under this new accounting guidance, RTMs are accounted for as secured borrowings rather than sales of an asset, and transfers of financial assets with a contemporaneous repo are no longer evaluated to determine whether they should be accounted for on a combined basis as forward contracts. The new guidance also prescribes additional disclosures particularly on the nature of collateral pledged in repos accounted for as secured borrowings. The new guidance was effective beginning on January 1, 2015 and did not have a material impact on the Corporation's consolidated financial position or results of operations. For the additional disclosures under this guidance, see
Note 2 – Derivatives
.
In May 2014, the FASB issued new accounting guidance to clarify the principles for recognizing revenue from contracts with customers. The new accounting guidance, which does not apply to financial instruments, is effective on a retrospective basis beginning on January 1, 2017; however, the FASB has issued a proposal to extend the effective date by one year. The Corporation is assessing the impact of this new guidance on its consolidated financial position and results of operations.
In January 2014, the FASB issued new guidance on accounting for qualified affordable housing projects which permits entities to make an accounting policy election to apply the proportional amortization method when specific conditions are met. The new accounting guidance is effective on a retrospective basis beginning on January 1, 2015 with early adoption permitted. The Corporation did not adopt the proportional amortization method.
127
|
|
|
Derivative Balances
|
Derivatives are entered into on behalf of custmers, for trading, or to support risk management activities. Derivatives used in risk management activities include derivatives that may or may not be designated in qualifying hedge accounting relationships. Derivatives that are not designated in qualifying hedge accounting relationships are referred to as other risk management derivatives. For more information on the Corporation's derivatives and hedging activities, see
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
. The following tables present derivative instruments included on the Consolidated Balance Sheet in derivative assets and liabilities at
March 31, 2015
and
December 31, 2014
. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and have been reduced by the cash collateral received or paid.
|
|
March 31, 2015
|
||||||||||||||||||||||||||
|
|
|
Gross Derivative Assets
|
Gross Derivative Liabilities
|
||||||||||||||||||||||||
|
(Dollars in billions)
|
Contract/
Notional
(1)
|
Trading and Other Risk Management Derivatives
|
Qualifying
Accounting
Hedges
|
Total
|
Trading and Other Risk Management Derivatives
|
Qualifying
Accounting
Hedges
|
Total
|
||||||||||||||||||||
|
Interest rate contracts
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Swaps
|
$
|
22,171.7
|
|
$
|
621.3
|
|
$
|
9.3
|
|
$
|
630.6
|
|
$
|
616.0
|
|
$
|
1.1
|
|
$
|
617.1
|
|
||||||
|
Futures and forwards
|
10,511.9
|
|
2.4
|
|
—
|
|
2.4
|
|
2.8
|
|
—
|
|
2.8
|
|
|||||||||||||
|
Written options
|
1,680.5
|
|
—
|
|
—
|
|
—
|
|
93.9
|
|
—
|
|
93.9
|
|
|||||||||||||
|
Purchased options
|
1,678.3
|
|
93.9
|
|
—
|
|
93.9
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Swaps
|
2,135.2
|
|
55.8
|
|
0.7
|
|
56.5
|
|
60.6
|
|
2.6
|
|
63.2
|
|
|||||||||||||
|
Spot, futures and forwards
|
4,379.5
|
|
76.9
|
|
1.5
|
|
78.4
|
|
78.2
|
|
0.2
|
|
78.4
|
|
|||||||||||||
|
Written options
|
643.9
|
|
—
|
|
—
|
|
—
|
|
17.8
|
|
—
|
|
17.8
|
|
|||||||||||||
|
Purchased options
|
633.0
|
|
17.1
|
|
—
|
|
17.1
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Equity contracts
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Swaps
|
191.8
|
|
3.4
|
|
—
|
|
3.4
|
|
3.9
|
|
—
|
|
3.9
|
|
|||||||||||||
|
Futures and forwards
|
71.8
|
|
1.8
|
|
—
|
|
1.8
|
|
2.2
|
|
—
|
|
2.2
|
|
|||||||||||||
|
Written options
|
367.9
|
|
—
|
|
—
|
|
—
|
|
27.8
|
|
—
|
|
27.8
|
|
|||||||||||||
|
Purchased options
|
342.4
|
|
29.1
|
|
—
|
|
29.1
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Commodity contracts
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Swaps
|
67.0
|
|
4.8
|
|
—
|
|
4.8
|
|
8.3
|
|
—
|
|
8.3
|
|
|||||||||||||
|
Futures and forwards
|
416.1
|
|
4.0
|
|
—
|
|
4.0
|
|
1.1
|
|
—
|
|
1.1
|
|
|||||||||||||
|
Written options
|
106.8
|
|
—
|
|
—
|
|
—
|
|
9.4
|
|
—
|
|
9.4
|
|
|||||||||||||
|
Purchased options
|
122.0
|
|
8.9
|
|
—
|
|
8.9
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Credit derivatives
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Purchased credit derivatives:
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Credit default swaps
|
1,054.7
|
|
10.9
|
|
—
|
|
10.9
|
|
23.0
|
|
—
|
|
23.0
|
|
|||||||||||||
|
Total return swaps/other
|
43.8
|
|
0.2
|
|
—
|
|
0.2
|
|
1.2
|
|
—
|
|
1.2
|
|
|||||||||||||
|
Written credit derivatives:
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Credit default swaps
|
1,032.4
|
|
23.9
|
|
—
|
|
23.9
|
|
9.6
|
|
—
|
|
9.6
|
|
|||||||||||||
|
Total return swaps/other
|
61.8
|
|
0.1
|
|
—
|
|
0.1
|
|
0.3
|
|
—
|
|
0.3
|
|
|||||||||||||
|
Gross derivative assets/liabilities
|
$
|
954.5
|
|
$
|
11.5
|
|
$
|
966.0
|
|
$
|
956.1
|
|
$
|
3.9
|
|
$
|
960.0
|
|
|||||||||
|
Less: Legally enforceable master netting agreements
|
|
(852.0
|
)
|
|
|
(852.0
|
)
|
||||||||||||||||||||
|
Less: Cash collateral received/paid
|
|
|
(52.7
|
)
|
|
|
(55.8
|
)
|
|||||||||||||||||||
|
Total derivative assets/liabilities
|
|
|
$
|
61.3
|
|
|
|
$
|
52.2
|
|
|||||||||||||||||
|
(1)
|
Represents the total contract/notional amount of derivative assets and liabilities outstanding.
|
128
|
|
December 31, 2014
|
||||||||||||||||||||||||||
|
|
|
Gross Derivative Assets
|
Gross Derivative Liabilities
|
||||||||||||||||||||||||
|
(Dollars in billions)
|
Contract/
Notional
(1)
|
Trading and Other Risk Management Derivatives
|
Qualifying
Accounting
Hedges
|
Total
|
Trading and Other Risk Management Derivatives
|
Qualifying
Accounting
Hedges
|
Total
|
||||||||||||||||||||
|
Interest rate contracts
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Swaps
|
$
|
29,445.4
|
|
$
|
658.5
|
|
$
|
8.5
|
|
$
|
667.0
|
|
$
|
658.2
|
|
$
|
0.5
|
|
$
|
658.7
|
|
||||||
|
Futures and forwards
|
10,159.4
|
|
1.7
|
|
—
|
|
1.7
|
|
2.0
|
|
—
|
|
2.0
|
|
|||||||||||||
|
Written options
|
1,725.2
|
|
—
|
|
—
|
|
—
|
|
85.4
|
|
—
|
|
85.4
|
|
|||||||||||||
|
Purchased options
|
1,739.8
|
|
85.6
|
|
—
|
|
85.6
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Swaps
|
2,159.1
|
|
51.5
|
|
0.8
|
|
52.3
|
|
54.6
|
|
1.9
|
|
56.5
|
|
|||||||||||||
|
Spot, futures and forwards
|
4,226.4
|
|
68.9
|
|
1.5
|
|
70.4
|
|
72.4
|
|
0.2
|
|
72.6
|
|
|||||||||||||
|
Written options
|
600.7
|
|
—
|
|
—
|
|
—
|
|
16.0
|
|
—
|
|
16.0
|
|
|||||||||||||
|
Purchased options
|
584.6
|
|
15.1
|
|
—
|
|
15.1
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Equity contracts
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Swaps
|
193.7
|
|
3.2
|
|
—
|
|
3.2
|
|
4.0
|
|
—
|
|
4.0
|
|
|||||||||||||
|
Futures and forwards
|
69.5
|
|
2.1
|
|
—
|
|
2.1
|
|
1.8
|
|
—
|
|
1.8
|
|
|||||||||||||
|
Written options
|
341.0
|
|
—
|
|
—
|
|
—
|
|
26.0
|
|
—
|
|
26.0
|
|
|||||||||||||
|
Purchased options
|
318.4
|
|
27.9
|
|
—
|
|
27.9
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Commodity contracts
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Swaps
|
74.3
|
|
5.8
|
|
—
|
|
5.8
|
|
8.5
|
|
—
|
|
8.5
|
|
|||||||||||||
|
Futures and forwards
|
376.5
|
|
4.5
|
|
—
|
|
4.5
|
|
1.8
|
|
—
|
|
1.8
|
|
|||||||||||||
|
Written options
|
129.5
|
|
—
|
|
—
|
|
—
|
|
11.5
|
|
—
|
|
11.5
|
|
|||||||||||||
|
Purchased options
|
141.3
|
|
10.7
|
|
—
|
|
10.7
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Credit derivatives
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Purchased credit derivatives:
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Credit default swaps
|
1,094.8
|
|
13.3
|
|
—
|
|
13.3
|
|
23.4
|
|
—
|
|
23.4
|
|
|||||||||||||
|
Total return swaps/other
|
44.3
|
|
0.2
|
|
—
|
|
0.2
|
|
1.4
|
|
—
|
|
1.4
|
|
|||||||||||||
|
Written credit derivatives:
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Credit default swaps
|
1,073.1
|
|
24.5
|
|
—
|
|
24.5
|
|
11.9
|
|
—
|
|
11.9
|
|
|||||||||||||
|
Total return swaps/other
|
61.0
|
|
0.5
|
|
—
|
|
0.5
|
|
0.3
|
|
—
|
|
0.3
|
|
|||||||||||||
|
Gross derivative assets/liabilities
|
$
|
974.0
|
|
$
|
10.8
|
|
$
|
984.8
|
|
$
|
979.2
|
|
$
|
2.6
|
|
$
|
981.8
|
|
|||||||||
|
Less: Legally enforceable master netting agreements
|
|
(884.8
|
)
|
|
|
(884.8
|
)
|
||||||||||||||||||||
|
Less: Cash collateral received/paid
|
|
|
(47.3
|
)
|
|
|
(50.1
|
)
|
|||||||||||||||||||
|
Total derivative assets/liabilities
|
|
|
$
|
52.7
|
|
|
|
$
|
46.9
|
|
|||||||||||||||||
|
(1)
|
Represents the total contract/notional amount of derivative assets and liabilities outstanding.
|
|
Offsetting of Derivatives
|
The Corporation enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Corporation's derivative counterparties. Where legally enforceable, these master netting agreements give the Corporation, in the event of default by the counterparty, the right to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. For purposes of the Consolidated Balance Sheet, the Corporation offsets derivative assets and liabilities and cash collateral held with the same counterparty where it has such a legally enforceable master netting agreement.
The Offsetting of Derivatives table presents derivative instruments included in derivative assets and liabilities on the Consolidated Balance Sheet at
March 31, 2015
and
December 31, 2014
by primary risk (e.g., interest rate risk) and the platform, where applicable, on which these derivatives are transacted. Exchange-traded derivatives include listed options transacted on an exchange. Over-the-counter (OTC) derivatives include bilateral transactions between the Corporation and a particular counterparty. OTC-cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total gross derivative assets and liabilities
129
are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements which includes reducing the balance for counterparty netting and cash collateral received or paid.
Other gross derivative assets and liabilities in the table represent derivatives entered into under master netting agreements where uncertainty exists as to the enforceability of these agreements under bankruptcy laws in some countries or industries and, accordingly, receivables and payables with counterparties in these countries or industries are reported on a gross basis.
Also included in the table is financial instrument collateral related to legally enforceable master netting agreements that represents securities collateral received or pledged and customer cash collateral held at third-party custodians. These amounts are not offset on the Consolidated Balance Sheet but are shown as a reduction to total derivative assets and liabilities in the table to derive net derivative assets and liabilities.
For more information on offsetting of securities financing agreements, see
Note 9 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings
.
|
Offsetting of Derivatives
|
|||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||
|
(Dollars in billions)
|
Derivative
Assets
|
Derivative
Liabilities
|
Derivative
Assets
|
Derivative
Liabilities
|
|||||||||||
|
Interest rate contracts
|
|
|
|||||||||||||
|
Over-the-counter
|
$
|
401.5
|
|
$
|
387.9
|
|
$
|
386.6
|
|
$
|
373.2
|
|
|||
|
Exchange-traded
|
0.1
|
|
0.1
|
|
0.1
|
|
0.1
|
|
|||||||
|
Over-the-counter cleared
|
318.1
|
|
319.0
|
|
365.7
|
|
368.7
|
|
|||||||
|
Foreign exchange contracts
|
|||||||||||||||
|
Over-the-counter
|
146.2
|
|
153.8
|
|
133.0
|
|
139.9
|
|
|||||||
|
Over-the-counter cleared
|
0.1
|
|
0.1
|
|
—
|
|
—
|
|
|||||||
|
Equity contracts
|
|
|
|
|
|||||||||||
|
Over-the-counter
|
19.7
|
|
17.3
|
|
19.5
|
|
16.7
|
|
|||||||
|
Exchange-traded
|
8.8
|
|
8.7
|
|
8.6
|
|
7.8
|
|
|||||||
|
Commodity contracts
|
|||||||||||||||
|
Over-the-counter
|
8.3
|
|
11.2
|
|
10.2
|
|
11.9
|
|
|||||||
|
Exchange-traded
|
5.8
|
|
6.0
|
|
7.4
|
|
7.7
|
|
|||||||
|
Over-the-counter cleared
|
0.1
|
|
0.1
|
|
0.1
|
|
0.6
|
|
|||||||
|
Credit derivatives
|
|
|
|
|
|
|
|
|
|||||||
|
Over-the-counter
|
27.1
|
|
26.8
|
|
30.8
|
|
30.2
|
|
|||||||
|
Over-the-counter cleared
|
7.4
|
|
7.2
|
|
7.0
|
|
6.8
|
|
|||||||
|
Total gross derivative assets/liabilities, before netting
|
|
|
|
|
|||||||||||
|
Over-the-counter
|
602.8
|
|
597.0
|
|
580.1
|
|
571.9
|
|
|||||||
|
Exchange-traded
|
14.7
|
|
14.8
|
|
16.1
|
|
15.6
|
|
|||||||
|
Over-the-counter cleared
|
325.7
|
|
326.4
|
|
372.8
|
|
376.1
|
|
|||||||
|
Less: Legally enforceable master netting agreements and cash collateral received/paid
|
|||||||||||||||
|
Over-the-counter
|
(566.7
|
)
|
(568.7
|
)
|
(545.7
|
)
|
(545.5
|
)
|
|||||||
|
Exchange-traded
|
(12.8
|
)
|
(12.8
|
)
|
(13.9
|
)
|
(13.9
|
)
|
|||||||
|
Over-the-counter cleared
|
(325.2
|
)
|
(326.3
|
)
|
(372.5
|
)
|
(375.5
|
)
|
|||||||
|
Derivative assets/liabilities, after netting
|
38.5
|
|
30.4
|
|
36.9
|
|
28.7
|
|
|||||||
|
Other gross derivative assets/liabilities
|
22.8
|
|
21.8
|
|
15.8
|
|
18.2
|
|
|||||||
|
Total derivative assets/liabilities
|
61.3
|
|
52.2
|
|
52.7
|
|
46.9
|
|
|||||||
|
Less: Financial instruments collateral
(1)
|
(12.3
|
)
|
(8.4
|
)
|
(13.3
|
)
|
(8.9
|
)
|
|||||||
|
Total net derivative assets/liabilities
|
$
|
49.0
|
|
$
|
43.8
|
|
$
|
39.4
|
|
$
|
38.0
|
|
|||
|
(1)
|
These amounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged.
|
130
|
ALM and Risk Management Derivatives
|
The Corporation's asset and liability management (ALM) and risk management activities include the use of derivatives to mitigate risk to the Corporation including derivatives designated in qualifying hedge accounting relationships and derivatives used in other risk management activities. Interest rate, foreign exchange, equity, commodity and credit contracts are utilized in the Corporation's ALM and risk management activities.
The Corporation maintains an overall interest rate risk management strategy that incorporates the use of interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options, futures and forwards, to minimize significant fluctuations in earnings caused by interest rate volatility. The Corporation's goal is to manage interest rate sensitivity and volatility so that movements in interest rates do not significantly adversely affect earnings or capital. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities appreciate or depreciate in fair value. Gains or losses on the derivative instruments that are linked to the hedged fixed-rate assets and liabilities are expected to substantially offset this unrealized appreciation or depreciation.
Market risk, including interest rate risk, can be substantial in the mortgage business. Market risk is the risk that values of mortgage assets or revenues will be adversely affected by changes in market conditions such as interest rate movements. To mitigate the interest rate risk in mortgage banking production income, the Corporation utilizes forward loan sale commitments and other derivative instruments, including purchased options, and certain debt securities. The Corporation also utilizes derivatives such as interest rate options, interest rate swaps, forward settlement contracts and eurodollar futures to hedge certain market risks of mortgage servicing rights (MSRs). For more information on MSRs, see
Note 17 – Mortgage Servicing Rights
.
The Corporation uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities, as well as the Corporation's investments in non-U.S. subsidiaries. Foreign exchange contracts, which include spot and forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Exposure to loss on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.
The Corporation enters into derivative commodity contracts such as futures, swaps, options and forwards as well as non-derivative commodity contracts to provide price risk management services to customers or to manage price risk associated with its physical and financial commodity positions. The non-derivative commodity contracts and physical inventories of commodities expose the Corporation to earnings volatility. Cash flow and fair value accounting hedges provide a method to mitigate a portion of this earnings volatility.
The Corporation purchases credit derivatives to manage credit risk related to certain funded and unfunded credit exposures. Credit derivatives include credit default swaps (CDS), total return swaps and swaptions. These derivatives are recorded on the Consolidated Balance Sheet at fair value with changes in fair value recorded in other income.
131
|
Derivatives Designated as Accounting Hedges
|
The Corporation uses various types of interest rate, commodity and foreign exchange derivative contracts to protect against changes in the fair value of its assets and liabilities due to fluctuations in interest rates, commodity prices and exchange rates (fair value hedges). The Corporation also uses these types of contracts and equity derivatives to protect against changes in the cash flows of its assets and liabilities, and other forecasted transactions (cash flow hedges). The Corporation hedges its net investment in consolidated non-U.S. operations determined to have functional currencies other than the U.S. Dollar using forward exchange contracts and cross-currency basis swaps, and by issuing foreign currency-denominated debt (net investment hedges).
Fair Value Hedges
The table below summarizes information related to fair value hedges for the
three months ended March 31, 2015 and 2014
, including hedges of interest rate risk on long-term debt that were acquired as part of a business combination and redesignated. At redesignation, the fair value of the derivatives was positive. As the derivatives mature, the fair value will approach zero. As a result, ineffectiveness will occur and the fair value changes in the derivatives and the long-term debt being hedged may be directionally the same in certain scenarios. Based on a regression analysis, the derivatives continue to be highly effective at offsetting changes in the fair value of the long-term debt attributable to interest rate risk.
|
Derivatives Designated as Fair Value Hedges
|
|||||||||||
|
Gains (Losses)
|
Three Months Ended March 31
|
||||||||||
|
2015
|
|||||||||||
|
(Dollars in millions)
|
Derivative
|
Hedged
Item
|
Hedge
Ineffectiveness
|
||||||||
|
Interest rate risk on long-term debt
(1)
|
$
|
1,096
|
|
$
|
(1,292
|
)
|
$
|
(196
|
)
|
||
|
Interest rate and foreign currency risk on long-term debt
(1)
|
(1,644
|
)
|
1,588
|
|
(56
|
)
|
|||||
|
Interest rate risk on available-for-sale securities
(2)
|
43
|
|
(45
|
)
|
(2
|
)
|
|||||
|
Price risk on commodity inventory
(3)
|
11
|
|
(7
|
)
|
4
|
|
|||||
|
Total
|
$
|
(494
|
)
|
$
|
244
|
|
$
|
(250
|
)
|
||
|
|
2014
|
||||||||||
|
Interest rate risk on long-term debt
(1)
|
$
|
366
|
|
$
|
(560
|
)
|
$
|
(194
|
)
|
||
|
Interest rate and foreign currency risk on long-term debt
(1)
|
118
|
|
(144
|
)
|
(26
|
)
|
|||||
|
Interest rate risk on available-for-sale securities
(2)
|
2
|
|
(3
|
)
|
(1
|
)
|
|||||
|
Price risk on commodity inventory
(3)
|
2
|
|
5
|
|
7
|
|
|||||
|
Total
|
$
|
488
|
|
$
|
(702
|
)
|
$
|
(214
|
)
|
||
|
(1)
|
Amounts are recorded in interest expense on long-term debt and in other income.
|
|
(2)
|
Amounts are recorded in interest income on debt securities.
|
|
(3)
|
Amounts relating to commodity inventory are recorded in trading account profits.
|
132
Cash Flow and Net Investment Hedges
The table below summarizes certain information related to cash flow hedges and net investment hedges for the
three months ended March 31, 2015 and 2014
. Of the
$1.6 billion
net loss (after-tax) on derivatives in accumulated other comprehensive income (OCI) at
March 31, 2015
,
$863 million
(
$540 million
after-tax) is expected to be reclassified into earnings in the next 12 months. These net losses reclassified into earnings are expected to primarily reduce net interest income related to the respective hedged items. Amounts related to price risk on restricted stock awards reclassified from accumulated OCI are recorded in personnel expense.
|
Derivatives Designated as Cash Flow and Net Investment Hedges
|
|||||||||||
|
|
Three Months Ended March 31
|
||||||||||
|
2015
|
|||||||||||
|
(Dollars in millions, amounts pretax)
|
Gains (Losses) Recognized in Accumulated OCI on Derivatives
|
Gains (Losses) in Income Reclassified from Accumulated OCI
|
Hedge Ineffectiveness and Amounts Excluded from Effectiveness Testing
(1)
|
||||||||
|
Cash flow hedges
|
|||||||||||
|
Interest rate risk on variable-rate portfolios
|
$
|
24
|
|
$
|
(255
|
)
|
$
|
(1
|
)
|
||
|
Price risk on restricted stock awards
(2)
|
(210
|
)
|
(1
|
)
|
—
|
|
|||||
|
Total
|
$
|
(186
|
)
|
$
|
(256
|
)
|
$
|
(1
|
)
|
||
|
Net investment hedges
|
|
|
|
||||||||
|
Foreign exchange risk
|
$
|
1,982
|
|
$
|
—
|
|
$
|
(98
|
)
|
||
|
2014
|
|||||||||||
|
Cash flow hedges
|
|||||||||||
|
Interest rate risk on variable-rate portfolios
|
$
|
17
|
|
$
|
(281
|
)
|
$
|
—
|
|
||
|
Price risk on restricted stock awards
(2)
|
156
|
|
150
|
|
—
|
|
|||||
|
Total
|
$
|
173
|
|
$
|
(131
|
)
|
$
|
—
|
|
||
|
Net investment hedges
|
|
|
|
||||||||
|
Foreign exchange risk
|
$
|
(181
|
)
|
$
|
(2
|
)
|
$
|
(58
|
)
|
||
|
(1)
|
Amounts related to derivatives designated as cash flow hedges represent hedge ineffectiveness and amounts related to net investment hedges represent amounts excluded from effectiveness testing.
|
|
(2)
|
The hedge gain (loss) recognized in accumulated OCI is primarily related to the change in the Corporation's stock price for the period.
|
133
|
Other Risk Management Derivatives
|
Other risk management derivatives are used by the Corporation to reduce certain risk exposures. These derivatives are not qualifying accounting hedges because either they did not qualify for or were not designated as accounting hedges. The table below presents gains (losses) on these derivatives for the
three months ended March 31, 2015 and 2014
. These gains (losses) are largely offset by the income or expense that is recorded on the hedged item.
|
Other Risk Management Derivatives
|
|||||||
|
Gains (Losses)
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Interest rate risk on mortgage banking income
(1)
|
$
|
296
|
|
$
|
180
|
|
|
|
Credit risk on loans
(2)
|
(27
|
)
|
(6
|
)
|
|||
|
Interest rate and foreign currency risk on ALM activities
(3)
|
(319
|
)
|
(598
|
)
|
|||
|
Price risk on restricted stock awards
(4)
|
(470
|
)
|
364
|
|
|||
|
Other
|
13
|
|
(3
|
)
|
|||
|
(1)
|
Net gains (losses) on these derivatives are recorded in mortgage banking income as they are used to mitigate the interest rate risk related to MSRs, interest rate lock commitments and mortgage loans held-for-sale, all of which are measured at fair value with changes in fair value recorded in mortgage banking income. The net gains on interest rate lock commitments related to the origination of mortgage loans that are held-for-sale, which are not included in the table but are considered derivative instruments, were
$260 million
and
$173 million
for the
three months ended March 31, 2015 and 2014
.
|
|
(2)
|
Net gains (losses) on these derivatives are recorded in other income.
|
|
(3)
|
Primarily related to hedges of debt securities carried at fair value and hedges of foreign currency-denominated debt. Gains (losses) on these derivatives and the related hedged items are recorded in other income.
|
|
(4)
|
Gains (losses) on these derivatives are recorded in personnel expense.
|
|
Transfers of Financial Assets with Risk Retained through Derivatives
|
The Corporation enters into certain transactions involving the transfer of financial assets that are accounted for as sales where substantially all of the economic exposure to the transferred financial assets is retained by the Corporation through a derivative agreement with the initial transferee. These transactions are accounted for as sales because the Corporation does not retain control over the assets transferred.
Through
March 31, 2015
, the Corporation transferred
$8.8 billion
of non-U.S. government-guaranteed mortgage-backed securities (MBS) and non-U.S. government securities primarily to a trust created by a third party. The Corporation received gross cash proceeds of
$8.8 billion
at the transfer dates. The Corporation simultaneously entered into derivatives with those counterparties whereby the Corporation retained certain economic exposures to those securities (e.g., interest rate and/or credit risk). Generally, the maturity of the derivatives is the same as the maturity of assets initially transferred. A derivative asset of
$107 million
and a liability of
$22 million
were recorded at
March 31, 2015
and are included in credit derivatives in the derivative instruments table on page
128
. At
March 31, 2015
, the fair value of the securities previously transferred was
$8.9 billion
. The economic exposure retained by the Corporation, which is primarily interest rate risk and prepayment risk, is typically hedged with interest rate swaps and interest rate swaptions and, to a lesser extent, total return swaps.
|
Sales and Trading Revenue
|
The Corporation enters into trading derivatives to facilitate client transactions and to manage risk exposures arising from trading account assets and liabilities. It is the Corporation's policy to include these derivative instruments in its trading activities which include derivatives and non-derivative cash instruments. The resulting risk from these derivatives is managed on a portfolio basis as part of the Corporation's
Global Markets
business segment. The related sales and trading revenue generated within
Global Markets
is recorded in various income statement line items including trading account profits and net interest income as well as other revenue categories.
Sales and trading revenue includes changes in the fair value and realized gains and losses on the sales of trading and other assets, net interest income, and fees primarily from commissions on equity securities. Revenue is generated by the difference in the client price for an instrument and the price at which the trading desk can execute the trade in the dealer market. For equity securities, commissions related to purchases and sales are recorded in the "Other" column in the Sales and Trading Revenue table. Changes in the fair value of these securities are included in trading account profits. For debt securities, revenue, with the exception of interest associated with the debt securities, is typically included in trading account profits. Unlike commissions for equity securities, the initial revenue related to broker-dealer services for debt securities is typically included in the pricing of the instrument rather than being charged through separate
134
fee arrangements. Therefore, this revenue is recorded in trading account profits as part of the initial mark to fair value. For derivatives, the majority of revenue is included in trading account profits. In transactions where the Corporation acts as agent, which include exchange-traded futures and options, fees are recorded in other income.
The table below, which includes both derivatives and non-derivative cash instruments, identifies the amounts in the respective income statement line items attributable to the Corporation's sales and trading revenue in
Global Markets
, categorized by primary risk, for the
three months ended March 31, 2015 and 2014
. The difference between total trading account profits in the table below and in the Consolidated Statement of Income represents trading activities in business segments other than
Global Markets
. This table includes debit valuation and funding valuation adjustment (DVA/FVA) gains (losses).
Global Markets
results in
Note 18 – Business Segment Information
are presented on a fully taxable-equivalent (FTE) basis. The table below is not presented on an FTE basis.
|
Sales and Trading Revenue
|
|||||||||||||||
|
|
Three Months Ended March 31
|
||||||||||||||
|
2015
|
|||||||||||||||
|
(Dollars in millions)
|
Trading
Account
Profits
|
Net Interest Income
|
Other
(1)
|
Total
|
|||||||||||
|
Interest rate risk
|
$
|
510
|
|
$
|
306
|
|
$
|
89
|
|
$
|
905
|
|
|||
|
Foreign exchange risk
|
446
|
|
(2
|
)
|
(31
|
)
|
413
|
|
|||||||
|
Equity risk
|
570
|
|
13
|
|
577
|
|
1,160
|
|
|||||||
|
Credit risk
|
444
|
|
587
|
|
167
|
|
1,198
|
|
|||||||
|
Other risk
|
157
|
|
(22
|
)
|
56
|
|
191
|
|
|||||||
|
Total sales and trading revenue
|
$
|
2,127
|
|
$
|
882
|
|
$
|
858
|
|
$
|
3,867
|
|
|||
|
2014
|
|||||||||||||||
|
Interest rate risk
|
$
|
369
|
|
$
|
279
|
|
$
|
138
|
|
$
|
786
|
|
|||
|
Foreign exchange risk
|
237
|
|
2
|
|
(30
|
)
|
209
|
|
|||||||
|
Equity risk
|
601
|
|
(14
|
)
|
604
|
|
1,191
|
|
|||||||
|
Credit risk
|
1,027
|
|
699
|
|
155
|
|
1,881
|
|
|||||||
|
Other risk
|
133
|
|
(90
|
)
|
67
|
|
110
|
|
|||||||
|
Total sales and trading revenue
|
$
|
2,367
|
|
$
|
876
|
|
$
|
934
|
|
$
|
4,177
|
|
|||
|
(1)
|
Represents amounts in investment and brokerage services and other income that are recorded in
Global Markets
and included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of
$562 million
and
$561 million
for the
three months ended March 31, 2015 and 2014
.
|
|
Credit Derivatives
|
The Corporation enters into credit derivatives primarily to facilitate client transactions and to manage credit risk exposures. Credit derivatives derive value based on an underlying third-party referenced obligation or a portfolio of referenced obligations and generally require the Corporation, as the seller of credit protection, to make payments to a buyer upon the occurrence of a pre-defined credit event. Such credit events generally include bankruptcy of the referenced credit entity and failure to pay under the obligation, as well as acceleration of indebtedness and payment repudiation or moratorium. For credit derivatives based on a portfolio of referenced credits or credit indices, the Corporation may not be required to make payment until a specified amount of loss has occurred and/or may only be required to make payment up to a specified amount.
135
Credit derivative instruments where the Corporation is the seller of credit protection and their expiration are summarized in the table below. These instruments are classified as investment and non-investment grade based on the credit quality of the underlying referenced obligation. The Corporation considers ratings of BBB- or higher as investment grade. Non-investment grade includes non-rated credit derivative instruments. The Corporation discloses internal categorizations of investment grade and non-investment grade consistent with how risk is managed for these instruments.
|
Credit Derivative Instruments
|
|||||||||||||||||||
|
|
March 31, 2015
|
||||||||||||||||||
|
|
Carrying Value
|
||||||||||||||||||
|
(Dollars in millions)
|
Less than
One Year
|
One to
Three Years
|
Three to
Five Years
|
Over Five
Years
|
Total
|
||||||||||||||
|
Credit default swaps:
|
|
|
|
|
|
||||||||||||||
|
Investment grade
|
$
|
27
|
|
$
|
286
|
|
$
|
760
|
|
$
|
688
|
|
$
|
1,761
|
|
||||
|
Non-investment grade
|
306
|
|
1,732
|
|
1,727
|
|
4,058
|
|
7,823
|
|
|||||||||
|
Total
|
333
|
|
2,018
|
|
2,487
|
|
4,746
|
|
9,584
|
|
|||||||||
|
Total return swaps/other:
|
|
|
|
|
|
||||||||||||||
|
Investment grade
|
26
|
|
—
|
|
—
|
|
—
|
|
26
|
|
|||||||||
|
Non-investment grade
|
169
|
|
113
|
|
8
|
|
—
|
|
290
|
|
|||||||||
|
Total
|
195
|
|
113
|
|
8
|
|
—
|
|
316
|
|
|||||||||
|
Total credit derivatives
|
$
|
528
|
|
$
|
2,131
|
|
$
|
2,495
|
|
$
|
4,746
|
|
$
|
9,900
|
|
||||
|
Credit-related notes:
|
|
|
|
|
|
||||||||||||||
|
Investment grade
|
$
|
3
|
|
$
|
361
|
|
$
|
583
|
|
$
|
2,460
|
|
$
|
3,407
|
|
||||
|
Non-investment grade
|
8
|
|
151
|
|
66
|
|
1,442
|
|
1,667
|
|
|||||||||
|
Total credit-related notes
|
$
|
11
|
|
$
|
512
|
|
$
|
649
|
|
$
|
3,902
|
|
$
|
5,074
|
|
||||
|
|
Maximum Payout/Notional
|
||||||||||||||||||
|
Credit default swaps:
|
|
|
|
|
|
||||||||||||||
|
Investment grade
|
$
|
125,169
|
|
$
|
323,858
|
|
$
|
210,676
|
|
$
|
48,022
|
|
$
|
707,725
|
|
||||
|
Non-investment grade
|
51,770
|
|
170,382
|
|
77,803
|
|
24,738
|
|
324,693
|
|
|||||||||
|
Total
|
176,939
|
|
494,240
|
|
288,479
|
|
72,760
|
|
1,032,418
|
|
|||||||||
|
Total return swaps/other:
|
|
|
|
|
|
||||||||||||||
|
Investment grade
|
26,442
|
|
—
|
|
—
|
|
—
|
|
26,442
|
|
|||||||||
|
Non-investment grade
|
25,449
|
|
9,685
|
|
152
|
|
106
|
|
35,392
|
|
|||||||||
|
Total
|
51,891
|
|
9,685
|
|
152
|
|
106
|
|
61,834
|
|
|||||||||
|
Total credit derivatives
|
$
|
228,830
|
|
$
|
503,925
|
|
$
|
288,631
|
|
$
|
72,866
|
|
$
|
1,094,252
|
|
||||
|
December 31, 2014
|
|||||||||||||||||||
|
Carrying Value
|
|||||||||||||||||||
|
Credit default swaps:
|
|
|
|
|
|
||||||||||||||
|
Investment grade
|
$
|
100
|
|
$
|
714
|
|
$
|
1,455
|
|
$
|
939
|
|
$
|
3,208
|
|
||||
|
Non-investment grade
|
916
|
|
2,107
|
|
1,338
|
|
4,301
|
|
8,662
|
|
|||||||||
|
Total
|
1,016
|
|
2,821
|
|
2,793
|
|
5,240
|
|
11,870
|
|
|||||||||
|
Total return swaps/other:
|
|
|
|
|
|
||||||||||||||
|
Investment grade
|
24
|
|
—
|
|
—
|
|
—
|
|
24
|
|
|||||||||
|
Non-investment grade
|
64
|
|
247
|
|
2
|
|
—
|
|
313
|
|
|||||||||
|
Total
|
88
|
|
247
|
|
2
|
|
—
|
|
337
|
|
|||||||||
|
Total credit derivatives
|
$
|
1,104
|
|
$
|
3,068
|
|
$
|
2,795
|
|
$
|
5,240
|
|
$
|
12,207
|
|
||||
|
Credit-related notes:
|
|
|
|
|
|
||||||||||||||
|
Investment grade
|
$
|
2
|
|
$
|
365
|
|
$
|
568
|
|
$
|
2,634
|
|
$
|
3,569
|
|
||||
|
Non-investment grade
|
5
|
|
141
|
|
85
|
|
1,443
|
|
1,674
|
|
|||||||||
|
Total credit-related notes
|
$
|
7
|
|
$
|
506
|
|
$
|
653
|
|
$
|
4,077
|
|
$
|
5,243
|
|
||||
|
|
Maximum Payout/Notional
|
||||||||||||||||||
|
Credit default swaps:
|
|
|
|
|
|
||||||||||||||
|
Investment grade
|
$
|
132,974
|
|
$
|
342,914
|
|
$
|
242,728
|
|
$
|
28,982
|
|
$
|
747,598
|
|
||||
|
Non-investment grade
|
54,326
|
|
170,580
|
|
80,011
|
|
20,586
|
|
325,503
|
|
|||||||||
|
Total
|
187,300
|
|
513,494
|
|
322,739
|
|
49,568
|
|
1,073,101
|
|
|||||||||
|
Total return swaps/other:
|
|
|
|
|
|
||||||||||||||
|
Investment grade
|
22,645
|
|
—
|
|
—
|
|
—
|
|
22,645
|
|
|||||||||
|
Non-investment grade
|
23,839
|
|
10,792
|
|
3,268
|
|
487
|
|
38,386
|
|
|||||||||
|
Total
|
46,484
|
|
10,792
|
|
3,268
|
|
487
|
|
61,031
|
|
|||||||||
|
Total credit derivatives
|
$
|
233,784
|
|
$
|
524,286
|
|
$
|
326,007
|
|
$
|
50,055
|
|
$
|
1,134,132
|
|
||||
136
The notional amount represents the maximum amount payable by the Corporation for most credit derivatives. However, the Corporation does not monitor its exposure to credit derivatives based solely on the notional amount because this measure does not take into consideration the probability of occurrence. As such, the notional amount is not a reliable indicator of the Corporation's exposure to these contracts. Instead, a risk framework is used to define risk tolerances and establish limits to help ensure that certain credit risk-related losses occur within acceptable, predefined limits.
The Corporation manages its market risk exposure to credit derivatives by entering into a variety of offsetting derivative contracts and security positions. For example, in certain instances, the Corporation may purchase credit protection with identical underlying referenced names to offset its exposure. The carrying value and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names and terms were
$4.6 billion
and
$799.3 billion
at
March 31, 2015
, and
$5.7 billion
and
$880.6 billion
at
December 31, 2014
.
Credit-related notes in the table on page
136
include investments in securities issued by collateralized debt obligation (CDO), collateralized loan obligation (CLO) and credit-linked note vehicles. These instruments are primarily classified as trading securities. The carrying value of these instruments equals the Corporation's maximum exposure to loss. The Corporation is not obligated to make any payments to the entities under the terms of the securities owned.
|
Credit-related Contingent Features and Collateral
|
The Corporation executes the majority of its derivative contracts in the OTC market with large, international financial institutions, including broker-dealers and, to a lesser degree, with a variety of non-financial companies. Substantially all of the derivative transactions are executed on a daily margin basis. Therefore, events such as a credit rating downgrade (depending on the ultimate rating level) or a breach of credit covenants would typically require an increase in the amount of collateral required of the counterparty, where applicable, and/or allow the Corporation to take additional protective measures such as early termination of all trades. Further, as previously discussed on page
128
, the Corporation enters into legally enforceable master netting agreements which reduce risk by permitting the closeout and netting of transactions with the same counterparty upon the occurrence of certain events.
A majority of the Corporation's derivative contracts contain credit risk-related contingent features, primarily in the form of ISDA master netting agreements and credit support documentation that enhance the creditworthiness of these instruments compared to other obligations of the respective counterparty with whom the Corporation has transacted. These contingent features may be for the benefit of the Corporation as well as its counterparties with respect to changes in the Corporation's creditworthiness and the mark-to-market exposure under the derivative transactions. At
March 31, 2015
and
December 31, 2014
, the Corporation held cash and securities collateral of
$85.5 billion
and
$82.0 billion
, and posted cash and securities collateral of
$72.6 billion
and
$67.7 billion
in the normal course of business under derivative agreements.
In connection with certain OTC derivative contracts and other trading agreements, the Corporation can be required to provide additional collateral or to terminate transactions with certain counterparties in the event of a downgrade of the senior debt ratings of the Corporation or certain subsidiaries. The amount of additional collateral required depends on the contract and is usually a fixed incremental amount and/or the market value of the exposure.
At
March 31, 2015
, the amount of collateral, calculated based on the terms of the contracts, that the Corporation and certain subsidiaries could be required to post to counterparties but had not yet posted to counterparties was approximately
$1.3 billion
, including $
675 million
for Bank of America, N.A. (BANA).
Some counterparties are currently able to unilaterally terminate certain contracts, or the Corporation or certain subsidiaries may be required to take other action such as find a suitable replacement or obtain a guarantee. At
March 31, 2015
, the current liability recorded for these derivative contracts was
$103 million
, against which the Corporation and certain subsidiaries had posted approximately
$54 million
of collateral.
137
The table below
presents the amount of additional collateral that would have been contractually required by derivative contracts and other trading agreements at
March 31, 2015
if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch.
|
Additional Collateral Required to Be Posted Upon Downgrade
|
|||||||
|
March 31, 2015
|
|||||||
|
(Dollars in millions)
|
One incremental notch
|
Second incremental notch
|
|||||
|
Bank of America Corporation
|
$
|
1,358
|
|
$
|
2,714
|
|
|
|
Bank of America, N.A. and subsidiaries
(1)
|
1,087
|
|
1,877
|
|
|||
|
(1)
|
Included in Bank of America Corporation collateral requirements in this table.
|
The table below
presents the derivative liabilities that would be subject to unilateral termination by counterparties and the amounts of collateral that would have been contractually required at
March 31, 2015
if the long-term senior debt ratings for the Corporation or certain subsidiaries had been lower by one incremental notch and by an additional second incremental notch.
|
Derivative Liabilities Subject to Unilateral Termination Upon Downgrade
|
|||||||
|
March 31, 2015
|
|||||||
|
(Dollars in millions)
|
One incremental notch
|
Second incremental notch
|
|||||
|
Derivative liabilities
|
$
|
1,364
|
|
$
|
4,724
|
|
|
|
Collateral posted
|
1,106
|
|
3,922
|
|
|||
138
|
Valuation Adjustments on Derivatives
|
The Corporation records credit risk valuation adjustments on derivatives in order to properly reflect the credit quality of the counterparties and its own credit quality. The Corporation calculates valuation adjustments on derivatives based on a modeled expected exposure that incorporates current market risk factors. The exposure also takes into consideration credit mitigants such as enforceable master netting agreements and collateral. CDS spread data is used to estimate the default probabilities and severities that are applied to the exposures. Where no observable credit default data is available for counterparties, the Corporation uses proxies and other market data to estimate default probabilities and severity.
Valuation adjustments on derivatives are affected by changes in market spreads, non-credit-related market factors such as interest rate and currency changes that affect the expected exposure, and other factors like changes in collateral arrangements and partial payments. Credit spreads and non-credit factors can move independently. For example, for an interest rate swap, changes in interest rates may increase the expected exposure, which would increase the counterparty credit valuation adjustment (CVA). Independently, counterparty credit spreads may tighten, which would result in an offsetting decrease to CVA.
In the fourth quarter of 2014, the Corporation adopted FVA into valuation estimates primarily to include funding costs on uncollateralized derivatives and derivatives where the Corporation is not permitted to use the collateral it receives. The Corporation calculates this valuation adjustment based on modeled expected exposure profiles discounted for the funding risk premium inherent in these derivatives. FVA related to derivative assets and liabilities is the effect of funding costs on the fair value of these derivatives.
The Corporation enters into risk management activities to offset market driven exposures. The Corporation often hedges the counterparty spread risk in CVA with CDS. The Corporation hedges other market risks in both CVA and debit valuation adjustment (DVA) primarily with currency and interest rate swaps. In certain instances, the net-of-hedge amounts in the table below move in the same direction as the gross amount or may move in the opposite direction. This is a consequence of the complex interaction of the risks being hedged resulting in limitations in the ability to perfectly hedge all of the market exposures at all times.
The table below presents CVA, DVA and FVA gains (losses) on derivatives, which are recorded in trading account profits, on a gross and net of hedge basis for the
three months ended March 31, 2015 and 2014
. CVA gains reduce the cumulative CVA thereby increasing the derivative assets balance. DVA gains increase the cumulative DVA thereby decreasing the derivative liabilities balance. CVA and DVA losses have the opposite impact. FVA gains related to derivative assets reduce the cumulative FVA thereby increasing the derivative assets balance. FVA gains related to derivative liabilities increase the cumulative FVA thereby decreasing the derivative liabilities balance.
|
Valuation Adjustments on Derivatives
|
|||||||||||||
|
Gains (Losses)
|
Three Months Ended March 31
|
||||||||||||
|
2015
|
2014
|
||||||||||||
|
(Dollars in millions)
|
Gross
|
Net
|
Gross
|
Net
|
|||||||||
|
Derivative assets (CVA)
(1)
|
$
|
8
|
|
$
|
124
|
|
$
|
52
|
|
$
|
40
|
|
|
|
Derivative assets (FVA)
(2)
|
34
|
|
34
|
|
—
|
|
—
|
|
|||||
|
Derivative liabilities (DVA)
(3)
|
23
|
|
(46
|
)
|
(82
|
)
|
(85
|
)
|
|||||
|
Derivative liabilities (FVA)
(2)
|
(28
|
)
|
(28
|
)
|
—
|
|
—
|
|
|||||
|
(1)
|
At both
March 31, 2015
and
December 31, 2014
, the cumulative CVA reduced the derivative assets balance by
$1.6 billion
.
|
|
(2)
|
At
March 31, 2015
, the cumulative FVA reduced the net derivatives balances by
$491 million
.
|
|
(3)
|
At both
March 31, 2015
and
December 31, 2014
, the cumulative DVA reduced the derivative liabilities balance by
$0.8 billion
.
|
139
|
|
The table below presents the amortized cost, gross unrealized gains and losses, and fair value of available-for-sale (AFS) debt securities, other debt securities carried at fair value, HTM debt securities and AFS marketable equity securities at
March 31, 2015
and
December 31, 2014
.
|
Debt Securities and Available-for-Sale Marketable Equity Securities
|
|||||||||||||||
|
March 31, 2015
|
|||||||||||||||
|
(Dollars in millions)
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
|||||||||||
|
Available-for-sale debt securities
|
|
|
|
|
|||||||||||
|
U.S. Treasury and agency securities
|
$
|
58,501
|
|
$
|
1,018
|
|
$
|
(3
|
)
|
$
|
59,516
|
|
|||
|
Mortgage-backed securities:
|
|
||||||||||||||
|
Agency
|
179,255
|
|
2,858
|
|
(275
|
)
|
181,838
|
|
|||||||
|
Agency-collateralized mortgage obligations
|
13,696
|
|
296
|
|
(31
|
)
|
13,961
|
|
|||||||
|
Non-agency residential
(1)
|
3,791
|
|
295
|
|
(60
|
)
|
4,026
|
|
|||||||
|
Commercial
|
3,853
|
|
137
|
|
(1
|
)
|
3,989
|
|
|||||||
|
Non-U.S. securities
|
5,923
|
|
32
|
|
(3
|
)
|
5,952
|
|
|||||||
|
Corporate/Agency bonds
|
356
|
|
10
|
|
(1
|
)
|
365
|
|
|||||||
|
Other taxable securities, substantially all asset-backed securities
|
9,554
|
|
42
|
|
(18
|
)
|
9,578
|
|
|||||||
|
Total taxable securities
|
274,929
|
|
4,688
|
|
(392
|
)
|
279,225
|
|
|||||||
|
Tax-exempt securities
|
9,725
|
|
11
|
|
(19
|
)
|
9,717
|
|
|||||||
|
Total available-for-sale debt securities
|
284,654
|
|
4,699
|
|
(411
|
)
|
288,942
|
|
|||||||
|
Other debt securities carried at fair value
|
35,166
|
|
264
|
|
(198
|
)
|
35,232
|
|
|||||||
|
Total debt securities carried at fair value
|
319,820
|
|
4,963
|
|
(609
|
)
|
324,174
|
|
|||||||
|
Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
|
59,815
|
|
496
|
|
(422
|
)
|
59,889
|
|
|||||||
|
Total debt securities
|
$
|
379,635
|
|
$
|
5,459
|
|
$
|
(1,031
|
)
|
$
|
384,063
|
|
|||
|
Available-for-sale marketable equity securities
(2)
|
$
|
336
|
|
$
|
59
|
|
$
|
—
|
|
$
|
395
|
|
|||
|
December 31, 2014
|
|||||||||||||||
|
Available-for-sale debt securities
|
|||||||||||||||
|
U.S. Treasury and agency securities
|
$
|
69,267
|
|
$
|
360
|
|
$
|
(32
|
)
|
$
|
69,595
|
|
|||
|
Mortgage-backed securities:
|
|
|
|
||||||||||||
|
Agency
|
163,592
|
|
2,040
|
|
(593
|
)
|
165,039
|
|
|||||||
|
Agency-collateralized mortgage obligations
|
14,175
|
|
152
|
|
(79
|
)
|
14,248
|
|
|||||||
|
Non-agency residential
(1)
|
4,244
|
|
287
|
|
(77
|
)
|
4,454
|
|
|||||||
|
Commercial
|
3,931
|
|
69
|
|
—
|
|
4,000
|
|
|||||||
|
Non-U.S. securities
|
6,208
|
|
33
|
|
(11
|
)
|
6,230
|
|
|||||||
|
Corporate/Agency bonds
|
361
|
|
9
|
|
(2
|
)
|
368
|
|
|||||||
|
Other taxable securities, substantially all asset-backed securities
|
10,774
|
|
39
|
|
(22
|
)
|
10,791
|
|
|||||||
|
Total taxable securities
|
272,552
|
|
2,989
|
|
(816
|
)
|
274,725
|
|
|||||||
|
Tax-exempt securities
|
9,556
|
|
12
|
|
(19
|
)
|
9,549
|
|
|||||||
|
Total available-for-sale debt securities
|
282,108
|
|
3,001
|
|
(835
|
)
|
284,274
|
|
|||||||
|
Other debt securities carried at fair value
|
36,524
|
|
261
|
|
(364
|
)
|
36,421
|
|
|||||||
|
Total debt securities carried at fair value
|
318,632
|
|
3,262
|
|
(1,199
|
)
|
320,695
|
|
|||||||
|
Held-to-maturity debt securities, substantially all U.S. agency mortgage-backed securities
|
59,766
|
|
486
|
|
(611
|
)
|
59,641
|
|
|||||||
|
Total debt securities
|
$
|
378,398
|
|
$
|
3,748
|
|
$
|
(1,810
|
)
|
$
|
380,336
|
|
|||
|
Available-for-sale marketable equity securities
(2)
|
$
|
336
|
|
$
|
27
|
|
$
|
—
|
|
$
|
363
|
|
|||
|
(1)
|
At both
March 31, 2015
and
December 31, 2014
, the underlying collateral type included approximately
76 percent
prime,
14 percent
Alt-A and
10 percent
subprime.
|
|
(2)
|
Classified in other assets on the Consolidated Balance Sheet.
|
140
At
March 31, 2015
, the accumulated net unrealized
gain
on AFS debt securities included in accumulated OCI was
$2.7 billion
, net of the related income tax
expense
of
$1.6 billion
. At
March 31, 2015
and
December 31, 2014
, the Corporation had nonperforming AFS debt securities of
$177 million
and
$161 million
.
The table below presents the components of other debt securities carried at fair value
where the changes in fair value are
reported in other income. In
the three months ended
March 31, 2015
, the Corporation recorded unrealized mark-to-market net gains of
$189 million
and realized net gains of
$4 million
, compared to unrealized net gains of
$444 million
and realized net losses of
$17 million
in the three months ended March 31, 2014. These amounts exclude hedge results.
|
Other Debt Securities Carried at Fair Value
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
U.S. Treasury and agency securities
|
$
|
1,272
|
|
$
|
1,541
|
|
|
|
Mortgage-backed securities:
|
|||||||
|
Agency
|
15,670
|
|
15,704
|
|
|||
|
Non-agency residential
|
3,869
|
|
3,745
|
|
|||
|
Non-U.S. securities
(1)
|
14,124
|
|
15,132
|
|
|||
|
Other taxable securities, substantially all asset-backed securities
|
297
|
|
299
|
|
|||
|
Total
|
$
|
35,232
|
|
$
|
36,421
|
|
|
|
(1)
|
These securities are primarily used to satisfy certain international regulatory liquidity requirements.
|
The gross realized gains and losses on sales of AFS debt securities for the
three months ended March 31, 2015 and 2014
are presented in the table below.
|
Gains and Losses on Sales of AFS Debt Securities
|
|||||||
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Gross gains
|
$
|
275
|
|
$
|
378
|
|
|
|
Gross losses
|
(7
|
)
|
(1
|
)
|
|||
|
Net gains on sales of AFS debt securities
|
$
|
268
|
|
$
|
377
|
|
|
|
Income tax expense attributable to realized net gains on sales of AFS debt securities
|
$
|
102
|
|
$
|
143
|
|
|
The table below presents the amortized cost and fair value of the Corporation's debt securities carried at fair value and HTM debt securities from Fannie Mae (FNMA), the Government National Mortgage Association (GNMA), U.S. Treasury and Freddie Mac (FHLMC), where the investment exceeded 10 percent of consolidated shareholders' equity at
March 31, 2015
and
December 31, 2014
.
|
Selected Securities Exceeding 10 Percent of Shareholders' Equity
|
|||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||
|
(Dollars in millions)
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
|||||||||||
|
Fannie Mae
|
$
|
139,741
|
|
$
|
141,589
|
|
$
|
130,725
|
|
$
|
131,418
|
|
|||
|
Government National Mortgage Association
|
95,293
|
|
95,958
|
|
98,278
|
|
98,633
|
|
|||||||
|
U.S. Treasury
|
57,571
|
|
58,539
|
|
68,481
|
|
68,801
|
|
|||||||
|
Freddie Mac
|
37,298
|
|
37,887
|
|
28,288
|
|
28,556
|
|
|||||||
141
The table below presents the fair value and the associated gross unrealized losses on AFS debt securities and whether these securities have had gross unrealized losses for less than 12 months or for 12 months or longer as of
March 31, 2015
and
December 31, 2014
.
|
Temporarily Impaired and Other-than-temporarily Impaired AFS Debt Securities
|
|||||||||||||||||||||||
|
March 31, 2015
|
|||||||||||||||||||||||
|
Less than Twelve Months
|
Twelve Months or Longer
|
Total
|
|||||||||||||||||||||
|
(Dollars in millions)
|
Fair
Value
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
Fair
Value
|
Gross
Unrealized
Losses
|
|||||||||||||||||
|
Temporarily impaired AFS debt securities
|
|
|
|
|
|
|
|||||||||||||||||
|
U.S. Treasury and agency securities
|
$
|
289
|
|
$
|
(1
|
)
|
$
|
300
|
|
$
|
(2
|
)
|
$
|
589
|
|
$
|
(3
|
)
|
|||||
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|||||||||||||||||
|
Agency
|
19,107
|
|
(51
|
)
|
17,169
|
|
(224
|
)
|
36,276
|
|
(275
|
)
|
|||||||||||
|
Agency-collateralized mortgage obligations
|
1,266
|
|
(6
|
)
|
1,981
|
|
(25
|
)
|
3,247
|
|
(31
|
)
|
|||||||||||
|
Non-agency residential
|
660
|
|
(5
|
)
|
77
|
|
(42
|
)
|
737
|
|
(47
|
)
|
|||||||||||
|
Commercial
|
14
|
|
(1
|
)
|
—
|
|
—
|
|
14
|
|
(1
|
)
|
|||||||||||
|
Non-U.S. securities
|
19
|
|
(2
|
)
|
30
|
|
(1
|
)
|
49
|
|
(3
|
)
|
|||||||||||
|
Corporate/Agency bonds
|
—
|
|
—
|
|
93
|
|
(1
|
)
|
93
|
|
(1
|
)
|
|||||||||||
|
Other taxable securities, substantially all asset-backed securities
|
679
|
|
(3
|
)
|
981
|
|
(15
|
)
|
1,660
|
|
(18
|
)
|
|||||||||||
|
Total taxable securities
|
22,034
|
|
(69
|
)
|
20,631
|
|
(310
|
)
|
42,665
|
|
(379
|
)
|
|||||||||||
|
Tax-exempt securities
|
594
|
|
(1
|
)
|
1,004
|
|
(18
|
)
|
1,598
|
|
(19
|
)
|
|||||||||||
|
Total temporarily impaired AFS debt securities
|
22,628
|
|
(70
|
)
|
21,635
|
|
(328
|
)
|
44,263
|
|
(398
|
)
|
|||||||||||
|
Other-than-temporarily impaired AFS debt securities
(1)
|
|
|
|
|
|
|
|||||||||||||||||
|
Non-agency residential mortgage-backed securities
|
301
|
|
(13
|
)
|
—
|
|
—
|
|
301
|
|
(13
|
)
|
|||||||||||
|
Total temporarily impaired and other-than-temporarily impaired AFS debt securities
|
$
|
22,929
|
|
$
|
(83
|
)
|
$
|
21,635
|
|
$
|
(328
|
)
|
$
|
44,564
|
|
$
|
(411
|
)
|
|||||
|
December 31, 2014
|
|||||||||||||||||||||||
|
Temporarily impaired AFS debt securities
|
|||||||||||||||||||||||
|
U.S. Treasury and agency securities
|
$
|
10,121
|
|
$
|
(22
|
)
|
$
|
667
|
|
$
|
(10
|
)
|
$
|
10,788
|
|
$
|
(32
|
)
|
|||||
|
Mortgage-backed securities:
|
|
|
|
|
|
||||||||||||||||||
|
Agency
|
1,366
|
|
(8
|
)
|
43,118
|
|
(585
|
)
|
44,484
|
|
(593
|
)
|
|||||||||||
|
Agency-collateralized mortgage obligations
|
2,242
|
|
(19
|
)
|
3,075
|
|
(60
|
)
|
5,317
|
|
(79
|
)
|
|||||||||||
|
Non-agency residential
|
307
|
|
(3
|
)
|
809
|
|
(41
|
)
|
1,116
|
|
(44
|
)
|
|||||||||||
|
Non-U.S. securities
|
157
|
|
(9
|
)
|
32
|
|
(2
|
)
|
189
|
|
(11
|
)
|
|||||||||||
|
Corporate/Agency bonds
|
43
|
|
(1
|
)
|
93
|
|
(1
|
)
|
136
|
|
(2
|
)
|
|||||||||||
|
Other taxable securities, substantially all asset-backed securities
|
575
|
|
(3
|
)
|
1,080
|
|
(19
|
)
|
1,655
|
|
(22
|
)
|
|||||||||||
|
Total taxable securities
|
14,811
|
|
(65
|
)
|
48,874
|
|
(718
|
)
|
63,685
|
|
(783
|
)
|
|||||||||||
|
Tax-exempt securities
|
980
|
|
(1
|
)
|
680
|
|
(18
|
)
|
1,660
|
|
(19
|
)
|
|||||||||||
|
Total temporarily impaired AFS debt securities
|
15,791
|
|
(66
|
)
|
49,554
|
|
(736
|
)
|
65,345
|
|
(802
|
)
|
|||||||||||
|
Other-than-temporarily impaired AFS debt securities
(1)
|
|
|
|
|
|
|
|||||||||||||||||
|
Non-agency residential mortgage-backed securities
|
555
|
|
(33
|
)
|
—
|
|
—
|
|
555
|
|
(33
|
)
|
|||||||||||
|
Total temporarily impaired and other-than-temporarily impaired AFS debt securities
|
$
|
16,346
|
|
$
|
(99
|
)
|
$
|
49,554
|
|
$
|
(736
|
)
|
$
|
65,900
|
|
$
|
(835
|
)
|
|||||
|
(1)
|
Includes other-than-temporarily impaired AFS debt securities on which an OTTI loss, primarily related to changes in interest, remains in accumulated OCI.
|
The Corporation recorded other-than-temporary impairment (OTTI) losses on AFS debt securities for the
three months ended March 31, 2015 and 2014
as presented in the Net Credit-related Impairment Losses Recognized in Earnings table. Substantially all OTTI losses in the
three months ended March 31, 2015 and 2014
consisted of credit losses on non-agency residential mortgage-backed securities (RMBS) and were recorded in other income in the Consolidated Statement of Income. The credit losses on the RMBS during the
three months ended March 31, 2015
were driven by decreases in the estimated RMBS cash flows primarily due to a model change resulting in the refinement of the expected cash flows. A debt security is impaired when its fair value is less than its amortized cost. If the Corporation intends or will more-likely-than-not be required to sell a debt security prior to recovery, the entire impairment loss is recorded in the Consolidated Statement of Income. For AFS debt securities the Corporation does not intend or will not more-likely-than-not be required
142
to sell, an analysis is performed to determine if any of the impairment is due to credit or whether it is due to other factors (e.g., interest rate). Credit losses are considered unrecoverable and are recorded in the Consolidated Statement of Income with the remaining unrealized losses recorded in OCI. In certain instances, the credit loss on a debt security may exceed the total impairment, in which case, the excess of the credit loss over the total impairment is recorded as an unrealized gain in OCI.
|
Net Credit-related Impairment Losses Recognized in Earnings
|
|||||||
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Total OTTI losses
|
$
|
(74
|
)
|
$
|
(1
|
)
|
|
|
Less: non-credit portion of total OTTI losses recognized in OCI
|
4
|
|
—
|
|
|||
|
Net credit-related impairment credit losses recognized in earnings
|
$
|
(70
|
)
|
$
|
(1
|
)
|
|
The table below presents a rollforward of the credit losses recognized in earnings for the
three months ended March 31, 2015 and 2014
on AFS debt securities that the Corporation does not have the intent to sell or will not more-likely-than-not be required to sell.
|
Rollforward of OTTI Credit Losses Recognized
|
|||||||
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Balance, beginning of period
|
$
|
201
|
|
$
|
184
|
|
|
|
Additions for credit losses recognized on AFS debt securities that had no previous impairment losses
|
14
|
|
—
|
|
|||
|
Additions for credit losses recognized on AFS debt securities that had previously incurred impairment losses
|
56
|
|
1
|
|
|||
|
Reductions for AFS debt securities matured, sold or intended to be sold
|
(15
|
)
|
—
|
|
|||
|
Balance, March 31
|
$
|
256
|
|
$
|
185
|
|
|
The Corporation estimates the portion of a loss on a security that is attributable to credit using a discounted cash flow model and estimates the expected cash flows of the underlying collateral using internal credit, interest rate and prepayment risk models that incorporate management's best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Assumptions used for the underlying loans that support the MBS can vary widely from loan to loan and are influenced by such factors as loan interest rate, geographic location of the borrower, borrower characteristics and collateral type. Based on these assumptions, the Corporation then determines how the underlying collateral cash flows will be distributed to each MBS issued from the applicable special purpose entity. Expected principal and interest cash flows on an impaired AFS debt security are discounted using the effective yield of each individual impaired AFS debt security.
Significant assumptions used in estimating the expected cash flows for measuring credit losses on non-agency RMBS were as follows at
March 31, 2015
.
|
Significant Assumptions
|
||||||||
|
|
|
Range
(1)
|
||||||
|
Weighted-
average
|
10th
Percentile
(2)
|
90th
Percentile
(2)
|
||||||
|
Annual prepayment speed
|
11.8
|
%
|
3.5
|
%
|
23.7
|
%
|
||
|
Loss severity
|
40.8
|
|
13.8
|
|
51.2
|
|
||
|
Life default rate
|
36.3
|
|
1.5
|
|
97.6
|
|
||
|
(1)
|
Represents the range of inputs/assumptions based upon the underlying collateral.
|
|
(2)
|
The value of a variable below which the indicated percentile of observations will fall.
|
Annual constant prepayment speed and loss severity rates are projected considering collateral characteristics such as loan-to-value (LTV), creditworthiness of borrowers as measured using FICO scores, and geographic concentrations. The weighted-average severity by collateral type was
37.7 percent
for prime,
39.2 percent
for Alt-A and
52.4 percent
for subprime at
March 31, 2015
. Additionally, default rates are projected by considering collateral characteristics including, but not limited to, LTV, FICO and geographic concentration. Weighted-average life default rates by collateral type were
22.9 percent
for prime,
38.5 percent
for Alt-A and
39.6 percent
for subprime at
March 31, 2015
.
143
The expected maturity distribution of the Corporation's MBS, the contractual maturity distribution of the Corporation's other debt securities carried at fair value and HTM debt securities, and the yields on the Corporation's debt securities carried at fair value and HTM debt securities at
March 31, 2015
are summarized in the table below. Actual maturities may differ from the contractual or expected maturities since borrowers may have the right to prepay obligations with or without prepayment penalties.
|
Maturities of Debt Securities Carried at Fair Value and Held-to-maturity Debt Securities
|
|||||||||||||||||||||||||||||
|
|
March 31, 2015
|
||||||||||||||||||||||||||||
|
Due in One
Year or Less
|
Due after One Year
through Five Years
|
Due after Five
Years through Ten Years
|
Due after
Ten Years
|
Total
|
|||||||||||||||||||||||||
|
(Dollars in millions)
|
Amount
|
Yield
(1)
|
Amount
|
Yield
(1)
|
Amount
|
Yield
(1)
|
Amount
|
Yield
(1)
|
Amount
|
Yield
(1)
|
|||||||||||||||||||
|
Amortized cost of debt securities carried at fair value
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
U.S. Treasury and agency securities
|
$
|
581
|
|
0.39
|
%
|
$
|
51,591
|
|
1.60
|
%
|
$
|
6,327
|
|
2.20
|
%
|
$
|
1,242
|
|
2.70
|
%
|
$
|
59,741
|
|
1.69
|
%
|
||||
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Agency
|
36
|
|
4.50
|
|
51,571
|
|
2.50
|
|
142,841
|
|
2.80
|
|
444
|
|
2.90
|
|
194,892
|
|
2.70
|
|
|||||||||
|
Agency-collateralized mortgage obligations
|
653
|
|
0.50
|
|
7,815
|
|
2.40
|
|
5,227
|
|
2.80
|
|
1
|
|
0.60
|
|
13,696
|
|
2.50
|
|
|||||||||
|
Non-agency residential
|
500
|
|
4.10
|
|
1,620
|
|
4.79
|
|
1,180
|
|
4.48
|
|
4,362
|
|
7.99
|
|
7,662
|
|
6.48
|
|
|||||||||
|
Commercial
|
111
|
|
7.43
|
|
593
|
|
2.22
|
|
3,146
|
|
2.80
|
|
3
|
|
2.83
|
|
3,853
|
|
2.88
|
|
|||||||||
|
Non-U.S. securities
|
18,213
|
|
0.96
|
|
1,828
|
|
3.28
|
|
6
|
|
2.93
|
|
—
|
|
—
|
|
20,047
|
|
1.37
|
|
|||||||||
|
Corporate/Agency bonds
|
58
|
|
2.98
|
|
101
|
|
3.94
|
|
101
|
|
3.71
|
|
96
|
|
1.31
|
|
356
|
|
3.01
|
|
|||||||||
|
Other taxable securities, substantially all asset-backed securities
|
2,393
|
|
1.18
|
|
5,378
|
|
1.31
|
|
1,330
|
|
1.94
|
|
747
|
|
3.75
|
|
9,848
|
|
1.98
|
|
|||||||||
|
Total taxable securities
|
22,545
|
|
1.24
|
|
120,497
|
|
2.16
|
|
160,158
|
|
2.70
|
|
6,895
|
|
6.14
|
|
310,095
|
|
2.48
|
|
|||||||||
|
Tax-exempt securities
|
1,108
|
|
0.78
|
|
3,565
|
|
1.08
|
|
3,638
|
|
1.04
|
|
1,414
|
|
0.94
|
|
9,725
|
|
1.03
|
|
|||||||||
|
Total amortized cost of debt securities carried at fair value
|
$
|
23,653
|
|
1.23
|
|
$
|
124,062
|
|
2.13
|
|
$
|
163,796
|
|
2.66
|
|
$
|
8,309
|
|
5.25
|
|
$
|
319,820
|
|
2.44
|
|
||||
|
Amortized cost of HTM debt securities
(2)
|
$
|
58
|
|
1.34
|
|
$
|
27,843
|
|
2.30
|
|
$
|
31,878
|
|
2.20
|
|
$
|
36
|
|
4.37
|
|
$
|
59,815
|
|
2.30
|
|
||||
|
Debt securities carried at fair value
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
U.S. Treasury and agency securities
|
$
|
582
|
|
|
$
|
52,450
|
|
|
$
|
6,481
|
|
|
$
|
1,275
|
|
|
$
|
60,788
|
|
|
|||||||||
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Agency
|
37
|
|
|
52,587
|
|
|
144,437
|
|
|
447
|
|
|
197,508
|
|
|
||||||||||||||
|
Agency-collateralized mortgage obligations
|
655
|
|
|
7,926
|
|
|
5,379
|
|
|
1
|
|
|
13,961
|
|
|
||||||||||||||
|
Non-agency residential
|
523
|
|
|
1,610
|
|
|
1,265
|
|
|
4,497
|
|
|
7,895
|
|
|
||||||||||||||
|
Commercial
|
111
|
|
|
602
|
|
|
3,273
|
|
|
3
|
|
|
3,989
|
|
|
||||||||||||||
|
Non-U.S. securities
|
18,199
|
|
|
1,871
|
|
|
6
|
|
|
—
|
|
|
20,076
|
|
|
||||||||||||||
|
Corporate/Agency bonds
|
58
|
|
|
107
|
|
|
105
|
|
|
95
|
|
|
365
|
|
|
||||||||||||||
|
Other taxable securities, substantially all asset-backed securities
|
2,396
|
|
|
5,381
|
|
|
1,350
|
|
|
748
|
|
|
9,875
|
|
|
||||||||||||||
|
Total taxable securities
|
22,561
|
|
|
122,534
|
|
|
162,296
|
|
|
7,066
|
|
|
314,457
|
|
|
||||||||||||||
|
Tax-exempt securities
|
1,109
|
|
|
3,566
|
|
|
3,634
|
|
|
1,408
|
|
|
9,717
|
|
|
||||||||||||||
|
Total debt securities carried at fair value
|
$
|
23,670
|
|
|
$
|
126,100
|
|
|
$
|
165,930
|
|
|
$
|
8,474
|
|
|
$
|
324,174
|
|
|
|||||||||
|
Fair value of HTM debt securities
(2)
|
$
|
58
|
|
$
|
28,178
|
|
$
|
31,618
|
|
$
|
35
|
|
$
|
59,889
|
|
||||||||||||||
|
(1)
|
Average yield is computed using the effective yield of each security at the end of the period, weighted based on the amortized cost of each security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and excludes the effect of related hedging derivatives.
|
|
(2)
|
Substantially all U.S. agency MBS.
|
|
Certain Corporate and Strategic Investments
|
The Corporation's
49 percent
investment in a merchant services joint venture, which is recorded in other assets on the Consolidated Balance Sheet and in
All Other,
had a carrying value of
$3.1 billion
at both
March 31, 2015
and
December 31, 2014
. For additional information, see
Note 10 – Commitments and Contingencies
.
144
|
|
The following tables present total outstanding loans and leases and an aging analysis for the Corporation's Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at
March 31, 2015
and
December 31, 2014
.
|
|
March 31, 2015
|
|||||||||||||||||||||||
|
(Dollars in millions)
|
30-59 Days
Past Due (1) |
60-89 Days
Past Due (1) |
90 Days or
More
Past Due
(2)
|
Total Past
Due 30 Days or More
|
Total Current or Less Than 30 Days Past Due
(3)
|
Purchased
Credit - impaired (4) |
Loans Accounted for Under the Fair Value Option
|
Total
Outstandings |
||||||||||||||||
|
Consumer real estate
(5)
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Core portfolio
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Residential mortgage
|
$
|
1,727
|
|
$
|
695
|
|
$
|
5,000
|
|
$
|
7,422
|
|
$
|
149,466
|
|
|
$
|
156,888
|
|
|||||
|
Home equity
|
225
|
|
119
|
|
754
|
|
1,098
|
|
49,931
|
|
51,029
|
|
||||||||||||
|
Legacy Assets & Servicing portfolio
|
||||||||||||||||||||||||
|
Residential mortgage
(6)
|
1,764
|
|
919
|
|
8,697
|
|
11,380
|
|
25,472
|
|
$
|
14,185
|
|
51,037
|
|
|||||||||
|
Home equity
|
346
|
|
174
|
|
1,169
|
|
1,689
|
|
25,499
|
|
5,354
|
|
32,542
|
|
||||||||||
|
Credit card and other consumer
|
||||||||||||||||||||||||
|
U.S. credit card
|
468
|
|
318
|
|
795
|
|
1,581
|
|
85,707
|
|
87,288
|
|
||||||||||||
|
Non-U.S. credit card
|
46
|
|
34
|
|
88
|
|
168
|
|
9,492
|
|
9,660
|
|
||||||||||||
|
Direct/Indirect consumer
(7)
|
198
|
|
53
|
|
53
|
|
304
|
|
81,837
|
|
82,141
|
|
||||||||||||
|
Other consumer
(8)
|
10
|
|
2
|
|
1
|
|
13
|
|
1,829
|
|
1,842
|
|
||||||||||||
|
Total consumer
|
4,784
|
|
2,314
|
|
16,557
|
|
23,655
|
|
429,233
|
|
19,539
|
|
|
472,427
|
|
|||||||||
|
Consumer loans accounted for under the fair value option
(9)
|
|
|
|
|
|
|
$
|
2,055
|
|
2,055
|
|
|||||||||||||
|
Total consumer loans and leases
|
4,784
|
|
2,314
|
|
16,557
|
|
23,655
|
|
429,233
|
|
19,539
|
|
2,055
|
|
474,482
|
|
||||||||
|
Commercial
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
U.S. commercial
|
272
|
|
132
|
|
269
|
|
673
|
|
224,408
|
|
|
225,081
|
|
|||||||||||
|
Commercial real estate
(10)
|
42
|
|
1
|
|
137
|
|
180
|
|
49,266
|
|
|
49,446
|
|
|||||||||||
|
Commercial lease financing
|
240
|
|
37
|
|
14
|
|
291
|
|
24,177
|
|
|
24,468
|
|
|||||||||||
|
Non-U.S. commercial
|
3
|
|
3
|
|
—
|
|
6
|
|
84,836
|
|
|
84,842
|
|
|||||||||||
|
U.S. small business commercial
|
82
|
|
38
|
|
84
|
|
204
|
|
13,022
|
|
|
13,226
|
|
|||||||||||
|
Total commercial
|
639
|
|
211
|
|
504
|
|
1,354
|
|
395,709
|
|
|
397,063
|
|
|||||||||||
|
Commercial loans accounted for under the fair value option
(9)
|
|
|
|
|
|
|
6,411
|
|
6,411
|
|
||||||||||||||
|
Total commercial loans and leases
|
639
|
|
211
|
|
504
|
|
1,354
|
|
395,709
|
|
6,411
|
|
403,474
|
|
||||||||||
|
Total loans and leases
|
$
|
5,423
|
|
$
|
2,525
|
|
$
|
17,061
|
|
$
|
25,009
|
|
$
|
824,942
|
|
$
|
19,539
|
|
$
|
8,466
|
|
$
|
877,956
|
|
|
Percentage of outstandings
|
0.62
|
%
|
0.29
|
%
|
1.94
|
%
|
2.85
|
%
|
93.96
|
%
|
2.23
|
%
|
0.96
|
%
|
100.00
|
%
|
||||||||
|
(1)
|
Consumer real estate loans 30-59 days past due includes fully-insured loans of
$1.8 billion
and nonperforming loans of
$392 million
. Consumer real estate loans 60-89 days past due includes fully-insured loans of
$1.0 billion
and nonperforming loans of
$370 million
.
|
|
(2)
|
Consumer real estate includes fully-insured loans of
$9.9 billion
.
|
|
(3)
|
Consumer real estate includes
$3.8 billion
and direct/indirect consumer includes
$27 million
of nonperforming loans.
|
|
(4)
|
PCI loan amounts are shown gross of the valuation allowance.
|
|
(5)
|
Formerly referred to as the Home Loans portfolio segment.
|
|
(6)
|
Total outstandings includes pay option loans of
$2.9 billion
. The Corporation no longer originates this product.
|
|
(7)
|
Total outstandings includes auto and specialty lending loans of
$38.9 billion
, unsecured consumer lending loans of
$1.3 billion
, U.S. securities-based lending loans of
$36.6 billion
, non-U.S. consumer loans of
$4.0 billion
, student loans of
$611 million
and other consumer loans of
$743 million
.
|
|
(8)
|
Total outstandings includes consumer finance loans of
$646 million
, consumer leases of
$1.1 billion
and consumer overdrafts of
$120 million
.
|
|
(9)
|
Consumer loans accounted for under the fair value option were residential mortgage loans of
$1.9 billion
and home equity loans of
$205 million
. Commercial loans accounted for under the fair value option were U.S. commercial loans of
$2.0 billion
and non-U.S. commercial loans of
$4.5 billion
. For additional information, see
Note 14 – Fair Value Measurements
and
Note 15 – Fair Value Option
.
|
|
(10)
|
Total outstandings includes U.S. commercial real estate loans of
$46.7 billion
and non-U.S. commercial real estate loans of
$2.8 billion
.
|
145
|
|
December 31, 2014
|
|||||||||||||||||||||||
|
(Dollars in millions)
|
30-59 Days
Past Due (1) |
60-89 Days
Past Due (1) |
90 Days or
More
Past Due
(2)
|
Total Past
Due 30 Days or More
|
Total Current or Less Than 30 Days Past Due
(3)
|
Purchased
Credit - impaired (4) |
Loans
Accounted
for Under
the Fair
Value Option |
Total
Outstandings |
||||||||||||||||
|
Consumer real estate
(5)
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Core portfolio
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Residential mortgage
|
$
|
1,847
|
|
$
|
700
|
|
$
|
5,561
|
|
$
|
8,108
|
|
$
|
154,112
|
|
|
$
|
162,220
|
|
|||||
|
Home equity
|
218
|
|
105
|
|
744
|
|
1,067
|
|
50,820
|
|
|
51,887
|
|
|||||||||||
|
Legacy Assets & Servicing portfolio
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Residential mortgage
(6)
|
2,008
|
|
1,060
|
|
10,513
|
|
13,581
|
|
25,244
|
|
$
|
15,152
|
|
|
53,977
|
|
||||||||
|
Home equity
|
374
|
|
174
|
|
1,166
|
|
1,714
|
|
26,507
|
|
5,617
|
|
|
33,838
|
|
|||||||||
|
Credit card and other consumer
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
U.S. credit card
|
494
|
|
341
|
|
866
|
|
1,701
|
|
90,178
|
|
|
91,879
|
|
|||||||||||
|
Non-U.S. credit card
|
49
|
|
39
|
|
95
|
|
183
|
|
10,282
|
|
|
10,465
|
|
|||||||||||
|
Direct/Indirect consumer
(7)
|
245
|
|
71
|
|
65
|
|
381
|
|
80,000
|
|
|
80,381
|
|
|||||||||||
|
Other consumer
(8)
|
11
|
|
2
|
|
2
|
|
15
|
|
1,831
|
|
|
1,846
|
|
|||||||||||
|
Total consumer
|
5,246
|
|
2,492
|
|
19,012
|
|
26,750
|
|
438,974
|
|
20,769
|
|
|
486,493
|
|
|||||||||
|
Consumer loans accounted for under the fair value option
(9)
|
$
|
2,077
|
|
2,077
|
|
|||||||||||||||||||
|
Total consumer loans and leases
|
5,246
|
|
2,492
|
|
19,012
|
|
26,750
|
|
438,974
|
|
20,769
|
|
2,077
|
|
488,570
|
|
||||||||
|
Commercial
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
U.S. commercial
|
320
|
|
151
|
|
318
|
|
789
|
|
219,504
|
|
|
220,293
|
|
|||||||||||
|
Commercial real estate
(10)
|
138
|
|
16
|
|
288
|
|
442
|
|
47,240
|
|
|
47,682
|
|
|||||||||||
|
Commercial lease financing
|
121
|
|
41
|
|
42
|
|
204
|
|
24,662
|
|
|
24,866
|
|
|||||||||||
|
Non-U.S. commercial
|
5
|
|
4
|
|
—
|
|
9
|
|
80,074
|
|
|
80,083
|
|
|||||||||||
|
U.S. small business commercial
|
88
|
|
45
|
|
94
|
|
227
|
|
13,066
|
|
|
13,293
|
|
|||||||||||
|
Total commercial
|
672
|
|
257
|
|
742
|
|
1,671
|
|
384,546
|
|
|
386,217
|
|
|||||||||||
|
Commercial loans accounted for under the fair value option
(9)
|
6,604
|
|
6,604
|
|
||||||||||||||||||||
|
Total commercial loans and leases
|
672
|
|
257
|
|
742
|
|
1,671
|
|
384,546
|
|
6,604
|
|
392,821
|
|
||||||||||
|
Total loans and leases
|
$
|
5,918
|
|
$
|
2,749
|
|
$
|
19,754
|
|
$
|
28,421
|
|
$
|
823,520
|
|
$
|
20,769
|
|
$
|
8,681
|
|
$
|
881,391
|
|
|
Percentage of outstandings
|
0.67
|
%
|
0.31
|
%
|
2.24
|
%
|
3.22
|
%
|
93.44
|
%
|
2.36
|
%
|
0.98
|
%
|
100.00
|
%
|
||||||||
|
(1)
|
Consumer real estate loans 30-59 days past due includes fully-insured loans of
$2.1 billion
and nonperforming loans of
$392 million
. Consumer real estate loans 60-89 days past due includes fully-insured loans of
$1.1 billion
and nonperforming loans of
$332 million
.
|
|
(2)
|
Consumer real estate includes fully-insured loans of
$11.4 billion
.
|
|
(3)
|
Consumer real estate includes
$3.6 billion
and direct/indirect consumer includes
$27 million
of nonperforming loans.
|
|
(4)
|
PCI loan amounts are shown gross of the valuation allowance.
|
|
(5)
|
Formerly referred to as the Home Loans portfolio segment.
|
|
(6)
|
Total outstandings includes pay option loans of
$3.2 billion
. The Corporation no longer originates this product.
|
|
(7)
|
Total outstandings includes auto and specialty lending loans of
$37.7 billion
, unsecured consumer lending loans of
$1.5 billion
, U.S. securities-based lending loans of
$35.8 billion
, non-U.S. consumer loans of
$4.0 billion
, student loans of
$632 million
and other consumer loans of
$761 million
.
|
|
(8)
|
Total outstandings includes consumer finance loans of
$676 million
, consumer leases of
$1.0 billion
and consumer overdrafts of
$162 million
.
|
|
(9)
|
Consumer loans accounted for under the fair value option were residential mortgage loans of
$1.9 billion
and home equity loans of
$196 million
. Commercial loans accounted for under the fair value option were U.S. commercial loans of
$1.9 billion
and non-U.S. commercial loans of
$4.7 billion
. For additional information, see
Note 14 – Fair Value Measurements
and
Note 15 – Fair Value Option
.
|
|
(10)
|
Total outstandings includes U.S. commercial real estate loans of
$45.2 billion
and non-U.S. commercial real estate loans of
$2.5 billion
.
|
The Corporation has entered into long-term credit protection agreements with FNMA and FHLMC on loans totaling
$12.3 billion
and
$17.2 billion
at
March 31, 2015
and
December 31, 2014
, providing full credit protection on residential mortgage loans that become severely delinquent. All of these loans are individually insured and therefore the Corporation does not record an allowance for credit losses related to these loans.
|
Nonperforming Loans and Leases
|
The Corporation classifies junior-lien home equity loans as nonperforming when the first-lien loan becomes
90
days past due even if the junior-lien loan is performing. At
March 31, 2015
and
December 31, 2014
,
$657 million
and
$800 million
of such junior-lien home equity loans were included in nonperforming loans.
146
The Corporation classifies consumer real estate loans that have been discharged in Chapter 7 bankruptcy and not reaffirmed by the borrower as troubled debt restructurings (TDRs), irrespective of payment history or delinquency status, even if the repayment terms for the loan have not been otherwise modified. The Corporation continues to have a lien on the underlying collateral. At
March 31, 2015
, nonperforming loans discharged in Chapter 7 bankruptcy with no change in repayment terms were
$1.1 billion
of which
$660 million
were current on their contractual payments, while
$354 million
were 90 days or more past due. Of the contractually current nonperforming loans, nearly
80 percent
were discharged in Chapter 7 bankruptcy more than 12 months ago, and more than
60 percent
were discharged 24 months or more ago. As subsequent cash payments are received on these nonperforming loans that are contractually current, the interest component of the payments is generally recorded as interest income on a cash basis and the principal component is recorded as a reduction in the carrying value of the loan.
During the
three months ended March 31, 2015 and 2014
, the Corporation sold nonperforming and other delinquent consumer real estate loans with a carrying value of
$1.0 billion
and
$730 million
, including
$586 million
and
$454 million
of purchased credit-impaired (PCI) loans. During the
three months ended March 31, 2015
, the Corporation recorded recoveries of
$40 million
and gains on sale of
$35 million
in noninterest income related to these transactions. Gains recorded during the
three months ended March 31, 2014
were immaterial.
The table below presents the Corporation's nonperforming loans and leases including nonperforming TDRs, and loans accruing past due
90 days
or more at
March 31, 2015
and
December 31, 2014
. Nonperforming loans held-for-sale (LHFS) are excluded from nonperforming loans and leases as they are recorded at either fair value or the lower of cost or fair value. For more information on the criteria for classification as nonperforming, see
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
|
Credit Quality
|
|||||||||||||||
|
|
Nonperforming Loans and Leases
(1)
|
Accruing Past Due 90 Days or More
|
|||||||||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
|||||||||||
|
Consumer real estate
|
|
|
|
|
|||||||||||
|
Core portfolio
|
|
|
|
|
|||||||||||
|
Residential mortgage
(2)
|
$
|
2,278
|
|
$
|
2,398
|
|
$
|
3,573
|
|
$
|
3,942
|
|
|||
|
Home equity
|
1,473
|
|
1,496
|
|
—
|
|
—
|
|
|||||||
|
Legacy Assets & Servicing portfolio
|
|
|
|
|
|||||||||||
|
Residential mortgage
(2)
|
4,143
|
|
4,491
|
|
6,339
|
|
7,465
|
|
|||||||
|
Home equity
|
2,286
|
|
2,405
|
|
—
|
|
—
|
|
|||||||
|
Credit card and other consumer
|
|
|
|
|
|||||||||||
|
U.S. credit card
|
n/a
|
|
n/a
|
|
795
|
|
866
|
|
|||||||
|
Non-U.S. credit card
|
n/a
|
|
n/a
|
|
88
|
|
95
|
|
|||||||
|
Direct/Indirect consumer
|
28
|
|
28
|
|
51
|
|
64
|
|
|||||||
|
Other consumer
|
1
|
|
1
|
|
1
|
|
1
|
|
|||||||
|
Total consumer
|
10,209
|
|
10,819
|
|
10,847
|
|
12,433
|
|
|||||||
|
Commercial
|
|
|
|
|
|||||||||||
|
U.S. commercial
|
680
|
|
701
|
|
22
|
|
110
|
|
|||||||
|
Commercial real estate
|
132
|
|
321
|
|
25
|
|
3
|
|
|||||||
|
Commercial lease financing
|
16
|
|
3
|
|
9
|
|
41
|
|
|||||||
|
Non-U.S. commercial
|
79
|
|
1
|
|
—
|
|
—
|
|
|||||||
|
U.S. small business commercial
|
89
|
|
87
|
|
65
|
|
67
|
|
|||||||
|
Total commercial
|
996
|
|
1,113
|
|
121
|
|
221
|
|
|||||||
|
Total loans and leases
|
$
|
11,205
|
|
$
|
11,932
|
|
$
|
10,968
|
|
$
|
12,654
|
|
|||
|
(1)
|
Nonperforming loan balances do not include nonaccruing TDRs removed from the PCI loan portfolio prior to January 1, 2010 of
$86 million
and
$102 million
at
March 31, 2015
and
December 31, 2014
.
|
|
(2)
|
Residential mortgage loans in the Core and Legacy Assets & Servicing portfolios accruing past due 90 days or more are fully-insured loans. At
March 31, 2015
and
December 31, 2014
, residential mortgage includes
$6.2 billion
and
$7.3 billion
of loans on which interest has been curtailed by the FHA, and therefore are no longer accruing interest, although principal is still insured, and
$3.7 billion
and
$4.1 billion
of loans on which interest is still accruing.
|
n/a = not applicable
147
|
Credit Quality Indicators
|
The Corporation monitors credit quality within its Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments based on primary credit quality indicators. For more information on the portfolio segments, see
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
. Within the Consumer Real Estate portfolio segment, the primary credit quality indicators are refreshed LTV and refreshed FICO score. Refreshed LTV measures the carrying value of the loan as a percentage of the value of the property securing the loan, refreshed quarterly. Home equity loans are evaluated using combined loan-to-value (CLTV) which measures the carrying value of the combined loans that have liens against the property and the available line of credit as a percentage of the value of the property securing the loan, refreshed quarterly. FICO score measures the creditworthiness of the borrower based on the financial obligations of the borrower and the borrower's credit history. At a minimum, FICO scores are refreshed quarterly, and in many cases, more frequently. FICO scores are also a primary credit quality indicator for the Credit Card and Other Consumer portfolio segment and the business card portfolio within U.S. small business commercial. Within the Commercial portfolio segment, loans are evaluated using the internal classifications of pass rated or reservable criticized as the primary credit quality indicators. The term reservable criticized refers to those commercial loans that are internally classified or listed by the Corporation as Special Mention, Substandard or Doubtful, which are asset quality categories defined by regulatory authorities. These assets have an elevated level of risk and may have a high probability of default or total loss. Pass rated refers to all loans not considered reservable criticized. In addition to these primary credit quality indicators, the Corporation uses other credit quality indicators for certain types of loans.
148
The following tables present certain credit quality indicators for the Corporation's Consumer Real Estate, Credit Card and Other Consumer, and Commercial portfolio segments, by class of financing receivables, at
March 31, 2015
and
December 31, 2014
.
|
Consumer Real Estate – Credit Quality Indicators
(1)
|
||||||||||||||||||
|
|
March 31, 2015
|
|||||||||||||||||
|
(Dollars in millions)
|
Core Portfolio Residential Mortgage
(2)
|
Legacy Assets & Servicing Residential Mortgage
(2)
|
Residential
Mortgage PCI (3) |
Core Portfolio Home Equity
(2)
|
Legacy Assets & Servicing Home Equity
(2)
|
Home
Equity PCI
|
||||||||||||
|
Refreshed LTV
(4)
|
|
|
|
|
|
|
||||||||||||
|
Less than or equal to 90 percent
|
$
|
101,243
|
|
$
|
17,772
|
|
$
|
9,050
|
|
$
|
44,705
|
|
$
|
16,671
|
|
$
|
1,868
|
|
|
Greater than 90 percent but less than or equal to 100 percent
|
5,004
|
|
2,938
|
|
1,925
|
|
2,347
|
|
3,124
|
|
960
|
|
||||||
|
Greater than 100 percent
|
4,177
|
|
5,095
|
|
3,210
|
|
3,977
|
|
7,393
|
|
2,526
|
|
||||||
|
Fully-insured loans
(5)
|
46,464
|
|
11,047
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
|
Total consumer real estate
|
$
|
156,888
|
|
$
|
36,852
|
|
$
|
14,185
|
|
$
|
51,029
|
|
$
|
27,188
|
|
$
|
5,354
|
|
|
Refreshed FICO score
|
||||||||||||||||||
|
Less than 620
|
$
|
4,122
|
|
$
|
5,988
|
|
$
|
5,350
|
|
$
|
2,158
|
|
$
|
3,352
|
|
$
|
812
|
|
|
Greater than or equal to 620 and less than 680
|
6,142
|
|
3,906
|
|
2,905
|
|
3,613
|
|
4,434
|
|
953
|
|
||||||
|
Greater than or equal to 680 and less than 740
|
22,002
|
|
6,231
|
|
3,288
|
|
10,067
|
|
7,614
|
|
1,578
|
|
||||||
|
Greater than or equal to 740
|
78,158
|
|
9,680
|
|
2,642
|
|
35,191
|
|
11,788
|
|
2,011
|
|
||||||
|
Fully-insured loans
(5)
|
46,464
|
|
11,047
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
|
Total consumer real estate
|
$
|
156,888
|
|
$
|
36,852
|
|
$
|
14,185
|
|
$
|
51,029
|
|
$
|
27,188
|
|
$
|
5,354
|
|
|
(1)
|
Excludes
$2.1 billion
of loans accounted for under the fair value option.
|
|
(2)
|
Excludes PCI loans.
|
|
(3)
|
Includes
$2.5 billion
of pay option loans. The Corporation no longer originates this product.
|
|
(4)
|
Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance.
|
|
(5)
|
Credit quality indicators are not reported for fully-insured loans as principal repayment is insured.
|
|
Credit Card and Other Consumer – Credit Quality Indicators
|
|||||||||||||||
|
|
March 31, 2015
|
||||||||||||||
|
(Dollars in millions)
|
U.S. Credit
Card |
Non-U.S.
Credit Card |
Direct/Indirect
Consumer |
Other
Consumer (1) |
|||||||||||
|
Refreshed FICO score
|
|
|
|
|
|||||||||||
|
Less than 620
|
$
|
4,347
|
|
$
|
—
|
|
$
|
1,355
|
|
$
|
255
|
|
|||
|
Greater than or equal to 620 and less than 680
|
12,325
|
|
—
|
|
1,878
|
|
222
|
|
|||||||
|
Greater than or equal to 680 and less than 740
|
33,958
|
|
—
|
|
10,821
|
|
310
|
|
|||||||
|
Greater than or equal to 740
|
36,658
|
|
—
|
|
26,161
|
|
932
|
|
|||||||
|
Other internal credit metrics
(2, 3, 4)
|
—
|
|
9,660
|
|
41,926
|
|
123
|
|
|||||||
|
Total credit card and other consumer
|
$
|
87,288
|
|
$
|
9,660
|
|
$
|
82,141
|
|
$
|
1,842
|
|
|||
|
(1)
|
Thirty-five percent
of the other consumer portfolio is associated with portfolios from certain consumer finance businesses that the Corporation previously exited.
|
|
(2)
|
Other internal credit metrics may include delinquency status, geography or other factors.
|
|
(3)
|
Direct/indirect consumer includes
$40.5 billion
of securities-based lending which is overcollateralized and therefore has minimal credit risk and
$611 million
of loans the Corporation no longer originates.
|
|
(4)
|
Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At
March 31, 2015
,
98 percent
of this portfolio was current or less than 30 days past due,
one percent
was 30-89 days past due and
one percent
was 90 days or more past due.
|
|
Commercial – Credit Quality Indicators
(1)
|
|||||||||||||||||||
|
|
March 31, 2015
|
||||||||||||||||||
|
(Dollars in millions)
|
U.S.
Commercial |
Commercial
Real Estate
|
Commercial
Lease Financing |
Non-U.S.
Commercial |
U.S. Small
Business Commercial (2) |
||||||||||||||
|
Risk ratings
|
|
|
|
|
|
||||||||||||||
|
Pass rated
|
$
|
217,773
|
|
$
|
48,616
|
|
$
|
23,401
|
|
$
|
83,976
|
|
$
|
675
|
|
||||
|
Reservable criticized
|
7,308
|
|
830
|
|
1,067
|
|
866
|
|
155
|
|
|||||||||
|
Refreshed FICO score
(3)
|
|
|
|
|
|
||||||||||||||
|
Less than 620
|
188
|
|
|||||||||||||||||
|
Greater than or equal to 620 and less than 680
|
537
|
|
|||||||||||||||||
|
Greater than or equal to 680 and less than 740
|
1,621
|
|
|||||||||||||||||
|
Greater than or equal to 740
|
2,981
|
|
|||||||||||||||||
|
Other internal credit metrics
(3, 4)
|
7,069
|
|
|||||||||||||||||
|
Total commercial
|
$
|
225,081
|
|
$
|
49,446
|
|
$
|
24,468
|
|
$
|
84,842
|
|
$
|
13,226
|
|
||||
|
(1)
|
Excludes
$6.4 billion
of loans accounted for under the fair value option.
|
|
(2)
|
U.S. small business commercial includes
$720 million
of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At
March 31, 2015
,
99 percent
of the balances where internal credit metrics are used was current or less than 30 days past due.
|
|
(3)
|
Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio.
|
|
(4)
|
Other internal credit metrics may include delinquency status, application scores, geography or other factors.
|
149
|
Consumer Real Estate – Credit Quality Indicators
(1)
|
||||||||||||||||||
|
|
December 31, 2014
|
|||||||||||||||||
|
(Dollars in millions)
|
Core Portfolio
Residential Mortgage (2) |
Legacy Assets & Servicing
Residential Mortgage (2) |
Residential
Mortgage PCI (3) |
Core Portfolio Home Equity
(2)
|
Legacy Assets & Servicing Home
Equity (2) |
Home
Equity PCI
|
||||||||||||
|
Refreshed LTV
(4)
|
|
|
|
|
|
|
||||||||||||
|
Less than or equal to 90 percent
|
$
|
100,255
|
|
$
|
18,499
|
|
$
|
9,972
|
|
$
|
45,414
|
|
$
|
17,453
|
|
$
|
2,046
|
|
|
Greater than 90 percent but less than or equal to 100 percent
|
4,958
|
|
3,081
|
|
2,005
|
|
2,442
|
|
3,272
|
|
1,048
|
|
||||||
|
Greater than 100 percent
|
4,017
|
|
5,265
|
|
3,175
|
|
4,031
|
|
7,496
|
|
2,523
|
|
||||||
|
Fully-insured loans
(5)
|
52,990
|
|
11,980
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
|
Total consumer real estate
|
$
|
162,220
|
|
$
|
38,825
|
|
$
|
15,152
|
|
$
|
51,887
|
|
$
|
28,221
|
|
$
|
5,617
|
|
|
Refreshed FICO score
|
|
|
|
|
|
|
||||||||||||
|
Less than 620
|
$
|
4,184
|
|
$
|
6,313
|
|
$
|
6,109
|
|
$
|
2,169
|
|
$
|
3,470
|
|
$
|
864
|
|
|
Greater than or equal to 620 and less than 680
|
6,272
|
|
4,032
|
|
3,014
|
|
3,683
|
|
4,529
|
|
995
|
|
||||||
|
Greater than or equal to 680 and less than 740
|
21,946
|
|
6,463
|
|
3,310
|
|
10,231
|
|
7,905
|
|
1,651
|
|
||||||
|
Greater than or equal to 740
|
76,828
|
|
10,037
|
|
2,719
|
|
35,804
|
|
12,317
|
|
2,107
|
|
||||||
|
Fully-insured loans
(5)
|
52,990
|
|
11,980
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||
|
Total consumer real estate
|
$
|
162,220
|
|
$
|
38,825
|
|
$
|
15,152
|
|
$
|
51,887
|
|
$
|
28,221
|
|
$
|
5,617
|
|
|
(1)
|
Excludes
$2.1 billion
of loans accounted for under the fair value option.
|
|
(2)
|
Excludes PCI loans.
|
|
(3)
|
Includes
$2.8 billion
of pay option loans. The Corporation no longer originates this product.
|
|
(4)
|
Refreshed LTV percentages for PCI loans are calculated using the carrying value net of the related valuation allowance.
|
|
(5)
|
Credit quality indicators are not reported for fully-insured loans as principal repayment is insured.
|
|
Credit Card and Other Consumer – Credit Quality Indicators
|
|||||||||||||||
|
|
December 31, 2014
|
||||||||||||||
|
(Dollars in millions)
|
U.S. Credit
Card |
Non-U.S.
Credit Card |
Direct/Indirect
Consumer |
Other
Consumer (1) |
|||||||||||
|
Refreshed FICO score
|
|
|
|
|
|||||||||||
|
Less than 620
|
$
|
4,467
|
|
$
|
—
|
|
$
|
1,296
|
|
$
|
266
|
|
|||
|
Greater than or equal to 620 and less than 680
|
12,177
|
|
—
|
|
1,892
|
|
227
|
|
|||||||
|
Greater than or equal to 680 and less than 740
|
34,986
|
|
—
|
|
10,749
|
|
307
|
|
|||||||
|
Greater than or equal to 740
|
40,249
|
|
—
|
|
25,279
|
|
881
|
|
|||||||
|
Other internal credit metrics
(2, 3, 4)
|
—
|
|
10,465
|
|
41,165
|
|
165
|
|
|||||||
|
Total credit card and other consumer
|
$
|
91,879
|
|
$
|
10,465
|
|
$
|
80,381
|
|
$
|
1,846
|
|
|||
|
(1)
|
Thirty-seven percent
of the other consumer portfolio is associated with portfolios from certain consumer finance businesses that the Corporation previously exited.
|
|
(2)
|
Other internal credit metrics may include delinquency status, geography or other factors.
|
|
(3)
|
Direct/indirect consumer includes
$39.7 billion
of securities-based lending which is overcollateralized and therefore has minimal credit risk and
$632 million
of loans the Corporation no longer originates.
|
|
(4)
|
Non-U.S. credit card represents the U.K. credit card portfolio which is evaluated using internal credit metrics, including delinquency status. At
December 31, 2014
,
98 percent
of this portfolio was current or less than 30 days past due,
one percent
was 30-89 days past due and
one percent
was 90 days or more past due.
|
|
Commercial – Credit Quality Indicators
(1)
|
|||||||||||||||||||
|
|
December 31, 2014
|
||||||||||||||||||
|
(Dollars in millions)
|
U.S.
Commercial |
Commercial
Real Estate
|
Commercial
Lease Financing |
Non-U.S.
Commercial |
U.S. Small
Business Commercial (2) |
||||||||||||||
|
Risk ratings
|
|
|
|
|
|
||||||||||||||
|
Pass rated
|
$
|
213,839
|
|
$
|
46,632
|
|
$
|
23,832
|
|
$
|
79,367
|
|
$
|
751
|
|
||||
|
Reservable criticized
|
6,454
|
|
1,050
|
|
1,034
|
|
716
|
|
182
|
|
|||||||||
|
Refreshed FICO score
(3)
|
|
|
|
|
|
||||||||||||||
|
Less than 620
|
184
|
|
|||||||||||||||||
|
Greater than or equal to 620 and less than 680
|
529
|
|
|||||||||||||||||
|
Greater than or equal to 680 and less than 740
|
1,591
|
|
|||||||||||||||||
|
Greater than or equal to 740
|
2,910
|
|
|||||||||||||||||
|
Other internal credit metrics
(3, 4)
|
7,146
|
|
|||||||||||||||||
|
Total commercial
|
$
|
220,293
|
|
$
|
47,682
|
|
$
|
24,866
|
|
$
|
80,083
|
|
$
|
13,293
|
|
||||
|
(1)
|
Excludes
$6.6 billion
of loans accounted for under the fair value option.
|
|
(2)
|
U.S. small business commercial includes
$762 million
of criticized business card and small business loans which are evaluated using refreshed FICO scores or internal credit metrics, including delinquency status, rather than risk ratings. At
December 31, 2014
,
98 percent
of the balances where internal credit metrics are used was current or less than 30 days past due.
|
|
(3)
|
Refreshed FICO score and other internal credit metrics are applicable only to the U.S. small business commercial portfolio.
|
|
(4)
|
Other internal credit metrics may include delinquency status, application scores, geography or other factors.
|
150
|
Impaired Loans and Troubled Debt Restructurings
|
A loan is considered impaired when, based on current information, it is probable that the Corporation will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans and all consumer and commercial TDRs. Impaired loans exclude nonperforming consumer loans and nonperforming commercial leases unless they are classified as TDRs. Loans accounted for under the fair value option are also excluded. PCI loans are excluded and reported separately on page
161
. For additional information, see
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
Consumer Real Estate
Impaired consumer real estate loans within the Consumer Real Estate portfolio segment consist entirely of TDRs. Excluding PCI loans, most modifications of consumer real estate loans meet the definition of TDRs when a binding offer is extended to a borrower. Modifications of consumer real estate loans are done in accordance with the government's Making Home Affordable Program (modifications under government programs) or the Corporation's proprietary programs (modifications under proprietary programs). These modifications are considered to be TDRs if concessions have been granted to borrowers experiencing financial difficulties. Concessions may include reductions in interest rates, capitalization of past due amounts, principal and/or interest forbearance, payment extensions, principal and/or interest forgiveness, or combinations thereof.
Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers under both government and proprietary programs. Trial modifications generally represent a
three
- to
four
-month period during which the borrower makes monthly payments under the anticipated modified payment terms. Upon successful completion of the trial period, the Corporation and the borrower enter into a permanent modification. Binding trial modifications are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification.
Consumer real estate loans that have been discharged in Chapter 7 bankruptcy with no change in repayment terms of
$2.3 billion
were included in TDRs at
March 31, 2015
, of which
$1.1 billion
were classified as nonperforming and
$996 million
were loans fully-insured by the Federal Housing Administration (FHA). For more information on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.
A consumer real estate loan, excluding PCI loans which are reported separately, is not classified as impaired unless it is a TDR. Once such a loan has been designated as a TDR, it is then individually assessed for impairment. Consumer real estate TDRs are measured primarily based on the net present value of the estimated cash flows discounted at the loan's original effective interest rate, as discussed in the following paragraph. If the carrying value of a TDR exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses. Alternatively, consumer real estate TDRs that are considered to be dependent solely on the collateral for repayment (e.g., due to the lack of income verification) are measured based on the estimated fair value of the collateral and a charge-off is recorded if the carrying value exceeds the fair value of the collateral. Consumer real estate loans that reached
180 days
past due prior to modification had been charged off to their net realizable value, less costs to sell, before they were modified as TDRs in accordance with established policy. Therefore, modifications of consumer real estate loans that are
180
or more days past due as TDRs do not have an impact on the allowance for loan and lease losses nor are additional charge-offs required at the time of modification. Subsequent declines in the fair value of the collateral after a loan has reached
180 days
past due are recorded as charge-offs. Fully-insured loans are protected against principal loss, and therefore, the Corporation does not record an allowance for loan and lease losses on the outstanding principal balance, even after they have been modified in a TDR.
151
The net present value of the estimated cash flows used to measure impairment is based on model-driven estimates of projected payments, prepayments, defaults and loss-given-default (LGD). Using statistical modeling methodologies, the Corporation estimates the probability that a loan will default prior to maturity based on the attributes of each loan. The factors that are most relevant to the probability of default are the refreshed LTV, or in the case of a subordinated lien, refreshed CLTV, borrower credit score, months since origination (i.e., vintage) and geography. Each of these factors is further broken down by present collection status (whether the loan is current, delinquent, in default or in bankruptcy). Severity (or LGD) is estimated based on the refreshed LTV for first mortgages or CLTV for subordinated liens. The estimates are based on the Corporation's historical experience as adjusted to reflect an assessment of environmental factors that may not be reflected in the historical data, such as changes in real estate values, local and national economies, underwriting standards and the regulatory environment. The probability of default models also incorporate recent experience with modification programs including redefaults subsequent to modification, a loan's default history prior to modification and the change in borrower payments post-modification.
At
March 31, 2015
and
December 31, 2014
, remaining commitments to lend additional funds to debtors whose terms have been modified in a consumer real estate TDR were immaterial. Consumer real estate foreclosed properties totaled
$632 million
and
$630 million
at
March 31, 2015
and
December 31, 2014
. The carrying value of consumer real estate loans, including fully-insured and PCI loans, for which formal foreclosure proceedings were in process as of
March 31, 2015
was
$6.9 billion
.
The table below provides the unpaid principal balance, carrying value and related allowance at
March 31, 2015
and
December 31, 2014
, and the average carrying value and interest income recognized for the
three months ended March 31, 2015 and 2014
for impaired loans in the Corporation's Consumer Real Estate portfolio segment and includes primarily loans managed by
LAS
. Certain impaired consumer real estate loans do not have a related allowance as the current valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs.
|
Impaired Loans – Consumer Real Estate
|
|||||||||||||||||||||||||||||
|
Three Months Ended March 31
|
|||||||||||||||||||||||||||||
|
|
March 31, 2015
|
2015
|
2014
|
||||||||||||||||||||||||||
|
(Dollars in millions)
|
Unpaid
Principal Balance |
Carrying
Value |
Related
Allowance |
Average
Carrying Value |
Interest
Income Recognized (1) |
Average
Carrying Value |
Interest
Income Recognized (1) |
||||||||||||||||||||||
|
With no recorded allowance
|
|
|
|||||||||||||||||||||||||||
|
Residential mortgage
|
$
|
18,524
|
|
$
|
14,662
|
|
$
|
—
|
|
$
|
15,393
|
|
$
|
108
|
|
$
|
16,360
|
|
$
|
160
|
|
||||||||
|
Home equity
|
3,636
|
|
1,705
|
|
—
|
|
1,692
|
|
25
|
|
1,401
|
|
22
|
|
|||||||||||||||
|
With an allowance recorded
|
|
||||||||||||||||||||||||||||
|
Residential mortgage
|
$
|
8,058
|
|
$
|
7,892
|
|
$
|
537
|
|
$
|
7,586
|
|
$
|
64
|
|
$
|
12,332
|
|
$
|
131
|
|
||||||||
|
Home equity
|
861
|
|
732
|
|
190
|
|
714
|
|
7
|
|
751
|
|
8
|
|
|||||||||||||||
|
Total
|
|
|
|
|
|
|
|
||||||||||||||||||||||
|
Residential mortgage
|
$
|
26,582
|
|
$
|
22,554
|
|
$
|
537
|
|
$
|
22,979
|
|
$
|
172
|
|
$
|
28,692
|
|
$
|
291
|
|
||||||||
|
Home equity
|
4,497
|
|
2,437
|
|
190
|
|
2,406
|
|
32
|
|
2,152
|
|
30
|
|
|||||||||||||||
|
December 31, 2014
|
|||||||||||||||||||||||||||||
|
With no recorded allowance
|
|||||||||||||||||||||||||||||
|
Residential mortgage
|
$
|
19,710
|
|
$
|
15,605
|
|
$
|
—
|
|
||||||||||||||||||||
|
Home equity
|
3,540
|
|
1,630
|
|
—
|
|
|||||||||||||||||||||||
|
With an allowance recorded
|
|
|
|
||||||||||||||||||||||||||
|
Residential mortgage
|
$
|
7,861
|
|
$
|
7,665
|
|
$
|
531
|
|
||||||||||||||||||||
|
Home equity
|
852
|
|
728
|
|
196
|
|
|||||||||||||||||||||||
|
Total
|
|
|
|
||||||||||||||||||||||||||
|
Residential mortgage
|
$
|
27,571
|
|
$
|
23,270
|
|
$
|
531
|
|
||||||||||||||||||||
|
Home equity
|
4,392
|
|
2,358
|
|
196
|
|
|||||||||||||||||||||||
|
(1)
|
Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible.
|
152
The table below presents the
March 31, 2015 and 2014
unpaid principal balance, carrying value, and average pre- and post-modification interest rates on consumer real estate loans that were modified in TDRs during the
three months ended March 31, 2015 and 2014
, and net charge-offs recorded during the period in which the modification occurred. The following Consumer Real Estate portfolio segment tables include loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period. These TDRs are primarily managed by
LAS
.
|
Consumer Real Estate – TDRs Entered into During the Three Months Ended March 31, 2015 and 2014
(1)
|
|||||||||||||||||
|
March 31, 2015
|
Three Months Ended March 31, 2015
|
||||||||||||||||
|
(Dollars in millions)
|
Unpaid Principal Balance
|
Carrying
Value
|
Pre-Modification Interest Rate
|
Post-Modification Interest Rate
(2)
|
Net Charge-offs
(3)
|
||||||||||||
|
Residential mortgage
|
$
|
1,879
|
|
$
|
1,640
|
|
5.04
|
%
|
4.91
|
%
|
$
|
17
|
|
||||
|
Home equity
|
258
|
|
184
|
|
4.08
|
|
3.55
|
|
11
|
|
|||||||
|
Total
|
$
|
2,137
|
|
$
|
1,824
|
|
4.93
|
|
4.74
|
|
$
|
28
|
|
||||
|
March 31, 2014
|
Three Months Ended March 31, 2014
|
||||||||||||||||
|
Residential mortgage
|
$
|
1,532
|
|
$
|
1,335
|
|
5.09
|
%
|
4.62
|
%
|
$
|
17
|
|
||||
|
Home equity
|
200
|
|
140
|
|
4.50
|
|
3.58
|
|
15
|
|
|||||||
|
Total
|
$
|
1,732
|
|
$
|
1,475
|
|
5.02
|
|
4.50
|
|
$
|
32
|
|
||||
|
(1)
|
TDRs entered into during the
three months ended March 31, 2015
include modifications with principal forgiveness of
$159 million
related to residential mortgage and
$1 million
related to home equity. TDRs entered into during the
three months ended March 31, 2014
include modifications with principal forgiveness of
$17 million
related to residential mortgage and
$0
related to home equity.
|
|
(2)
|
The post-modification interest rate reflects the interest rate applicable only to permanently completed modifications, which exclude loans that are in a trial modification period.
|
|
(3)
|
Net charge-offs include amounts recorded on loans modified during the period that are no longer held by the Corporation at
March 31, 2015 and 2014
due to sales and other dispositions.
|
153
The table below presents the
March 31, 2015 and 2014
carrying value for consumer real estate loans that were modified in a TDR during the
three months ended March 31, 2015 and 2014
by type of modification.
|
Consumer Real Estate – Modification Programs
|
|||||||||||
|
TDRs Entered into During the
Three Months Ended March 31, 2015
|
|||||||||||
|
(Dollars in millions)
|
Residential Mortgage
|
Home
Equity
|
Total Carrying Value
|
||||||||
|
Modifications under government programs
|
|
|
|
||||||||
|
Contractual interest rate reduction
|
$
|
76
|
|
$
|
11
|
|
$
|
87
|
|
||
|
Principal and/or interest forbearance
|
—
|
|
3
|
|
3
|
|
|||||
|
Other modifications
(1)
|
15
|
|
—
|
|
15
|
|
|||||
|
Total modifications under government programs
|
91
|
|
14
|
|
105
|
|
|||||
|
Modifications under proprietary programs
|
|||||||||||
|
Contractual interest rate reduction
|
50
|
|
2
|
|
52
|
|
|||||
|
Capitalization of past due amounts
|
30
|
|
2
|
|
32
|
|
|||||
|
Principal and/or interest forbearance
|
11
|
|
2
|
|
13
|
|
|||||
|
Other modifications
(1)
|
7
|
|
25
|
|
32
|
|
|||||
|
Total modifications under proprietary programs
|
98
|
|
31
|
|
129
|
|
|||||
|
Trial modifications
|
1,340
|
|
96
|
|
1,436
|
|
|||||
|
Loans discharged in Chapter 7 bankruptcy
(2)
|
111
|
|
43
|
|
154
|
|
|||||
|
Total modifications
|
$
|
1,640
|
|
$
|
184
|
|
$
|
1,824
|
|
||
|
TDRs Entered into During the
Three Months Ended March 31, 2014
|
|||||||||||
|
Modifications under government programs
|
|
|
|
||||||||
|
Contractual interest rate reduction
|
$
|
213
|
|
$
|
24
|
|
$
|
237
|
|
||
|
Principal and/or interest forbearance
|
1
|
|
9
|
|
10
|
|
|||||
|
Other modifications
(1)
|
20
|
|
1
|
|
21
|
|
|||||
|
Total modifications under government programs
|
234
|
|
34
|
|
268
|
|
|||||
|
Modifications under proprietary programs
|
|||||||||||
|
Contractual interest rate reduction
|
135
|
|
4
|
|
139
|
|
|||||
|
Capitalization of past due amounts
|
21
|
|
1
|
|
22
|
|
|||||
|
Principal and/or interest forbearance
|
29
|
|
3
|
|
32
|
|
|||||
|
Other modifications
(1)
|
25
|
|
—
|
|
25
|
|
|||||
|
Total modifications under proprietary programs
|
210
|
|
8
|
|
218
|
|
|||||
|
Trial modifications
|
693
|
|
38
|
|
731
|
|
|||||
|
Loans discharged in Chapter 7 bankruptcy
(2)
|
198
|
|
60
|
|
258
|
|
|||||
|
Total modifications
|
$
|
1,335
|
|
$
|
140
|
|
$
|
1,475
|
|
||
|
(1)
|
Includes other modifications such as term or payment extensions and repayment plans.
|
|
(2)
|
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs.
|
154
The table below presents the carrying value of consumer real estate loans that entered into payment default during the
three months ended March 31, 2015 and 2014
that were modified in a TDR during the 12 months preceding payment default. A payment default for consumer real estate TDRs is recognized when a borrower has missed
three
monthly payments (not necessarily consecutively) since modification. Payment defaults on a trial modification where the borrower has not yet met the terms of the agreement are included in the table below if the borrower is
90 days
or more past due three months after the offer to modify is made.
|
Consumer Real Estate – TDRs Entering Payment Default That Were Modified During the Preceding 12 Months
|
|||||||||||
|
Three Months Ended March 31, 2015
|
|||||||||||
|
(Dollars in millions)
|
Residential Mortgage
|
Home
Equity
|
Total Carrying Value
|
||||||||
|
Modifications under government programs
|
$
|
107
|
|
$
|
1
|
|
$
|
108
|
|
||
|
Modifications under proprietary programs
|
40
|
|
12
|
|
52
|
|
|||||
|
Loans discharged in Chapter 7 bankruptcy
(1)
|
71
|
|
10
|
|
81
|
|
|||||
|
Trial modifications
(2)
|
1,768
|
|
24
|
|
1,792
|
|
|||||
|
Total modifications
|
$
|
1,986
|
|
$
|
47
|
|
$
|
2,033
|
|
||
|
Three Months Ended March 31, 2014
|
|||||||||||
|
Modifications under government programs
|
$
|
158
|
|
$
|
1
|
|
$
|
159
|
|
||
|
Modifications under proprietary programs
|
272
|
|
—
|
|
272
|
|
|||||
|
Loans discharged in Chapter 7 bankruptcy
(1)
|
121
|
|
1
|
|
122
|
|
|||||
|
Trial modifications
|
775
|
|
3
|
|
778
|
|
|||||
|
Total modifications
|
$
|
1,326
|
|
$
|
5
|
|
$
|
1,331
|
|
||
|
(1)
|
Includes loans discharged in Chapter 7 bankruptcy with no change in repayment terms that are classified as TDRs.
|
|
(2)
|
Includes
$1.4 billion
of trial modification offers made in connection with the August 2014 Department of Justice settlement to which the customer has not responded.
|
Credit Card and Other Consumer
Impaired loans within the Credit Card and Other Consumer portfolio segment consist entirely of loans that have been modified in TDRs (the renegotiated credit card and other consumer TDR portfolio, collectively referred to as the renegotiated TDR portfolio). The Corporation seeks to assist customers that are experiencing financial difficulty by modifying loans while ensuring compliance with federal, local and international laws and guidelines. Credit card and other consumer loan modifications generally involve reducing the interest rate on the account and placing the customer on a fixed payment plan not exceeding
60 months
, all of which are considered TDRs. In addition, the accounts of non-U.S. credit card customers who do not qualify for a fixed payment plan may have their interest rates reduced, as required by certain local jurisdictions. These modifications, which are also TDRs, tend to experience higher payment default rates given that the borrowers may lack the ability to repay even with the interest rate reduction. In all cases, the customer's available line of credit is canceled. The Corporation makes loan modifications directly with borrowers for debt held only by the Corporation (internal programs). Additionally, the Corporation makes loan modifications for borrowers working with third-party renegotiation agencies that provide solutions to customers' entire unsecured debt structures (external programs). The Corporation classifies other secured consumer loans that have been discharged in Chapter 7 bankruptcy as TDRs which are written down to collateral value and placed on nonaccrual status no later than the time of discharge. For more information on the regulatory guidance on loans discharged in Chapter 7 bankruptcy, see Nonperforming Loans and Leases in this Note.
All credit card and substantially all other consumer loans that have been modified in TDRs remain on accrual status until the loan is either paid in full or charged off, which occurs no later than the end of the month in which the loan becomes
180 days
past due or generally at
120 days
past due for a loan that has been placed on a fixed payment plan.
The allowance for impaired credit card and substantially all other consumer loans is based on the present value of projected cash flows, which incorporates the Corporation's historical payment default and loss experience on modified loans, discounted using the portfolio's average contractual interest rate, excluding promotionally priced loans, in effect prior to restructuring. Credit card and other consumer loans are included in homogeneous pools which are collectively evaluated for impairment. For these portfolios, loss forecast models are utilized that consider a variety of factors including, but not limited to, historical loss experience, delinquency status, economic trends and credit scores.
155
The table below provides the unpaid principal balance, carrying value and related allowance at
March 31, 2015
and
December 31, 2014
, and the average carrying value and interest income recognized for the
three months ended March 31, 2015 and 2014
on the Corporation's renegotiated TDR portfolio in the Credit Card and Other Consumer portfolio segment.
|
Impaired Loans – Credit Card and Other Consumer – Renegotiated TDRs
|
|||||||||||||||||||||||||||||||
|
Three Months Ended March 31
|
|||||||||||||||||||||||||||||||
|
|
March 31, 2015
|
2015
|
2014
|
||||||||||||||||||||||||||||
|
(Dollars in millions)
|
Unpaid
Principal Balance |
Carrying
Value (1) |
Related
Allowance |
Average
Carrying Value |
Interest
Income Recognized (2) |
Average
Carrying Value |
Interest
Income Recognized (2) |
||||||||||||||||||||||||
|
With no recorded allowance
|
|
|
|
||||||||||||||||||||||||||||
|
Direct/Indirect consumer
|
$
|
58
|
|
$
|
25
|
|
$
|
—
|
|
$
|
25
|
|
$
|
—
|
|
$
|
30
|
|
$
|
—
|
|
||||||||||
|
Other consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
34
|
|
1
|
|
|||||||||||||||||
|
With an allowance recorded
|
|||||||||||||||||||||||||||||||
|
U.S. credit card
|
$
|
761
|
|
$
|
779
|
|
$
|
198
|
|
$
|
847
|
|
$
|
13
|
|
$
|
1,407
|
|
$
|
22
|
|
||||||||||
|
Non-U.S. credit card
|
128
|
|
152
|
|
99
|
|
159
|
|
1
|
|
236
|
|
2
|
|
|||||||||||||||||
|
Direct/Indirect consumer
|
57
|
|
64
|
|
17
|
|
82
|
|
1
|
|
259
|
|
3
|
|
|||||||||||||||||
|
Other consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
25
|
|
—
|
|
|||||||||||||||||
|
Total
|
|||||||||||||||||||||||||||||||
|
U.S. credit card
|
$
|
761
|
|
$
|
779
|
|
$
|
198
|
|
$
|
847
|
|
$
|
13
|
|
$
|
1,407
|
|
$
|
22
|
|
||||||||||
|
Non-U.S. credit card
|
128
|
|
152
|
|
99
|
|
159
|
|
1
|
|
236
|
|
2
|
|
|||||||||||||||||
|
Direct/Indirect consumer
|
115
|
|
89
|
|
17
|
|
107
|
|
1
|
|
289
|
|
3
|
|
|||||||||||||||||
|
Other consumer
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
59
|
|
1
|
|
|||||||||||||||||
|
December 31, 2014
|
|||||||||||||||||||||||||||||||
|
With no recorded allowance
|
|||||||||||||||||||||||||||||||
|
Direct/Indirect consumer
|
$
|
59
|
|
$
|
25
|
|
$
|
—
|
|
||||||||||||||||||||||
|
With an allowance recorded
|
|||||||||||||||||||||||||||||||
|
U.S. credit card
|
$
|
804
|
|
$
|
856
|
|
$
|
207
|
|
||||||||||||||||||||||
|
Non-U.S. credit card
|
132
|
|
168
|
|
108
|
|
|||||||||||||||||||||||||
|
Direct/Indirect consumer
|
76
|
|
92
|
|
24
|
|
|||||||||||||||||||||||||
|
Total
|
|||||||||||||||||||||||||||||||
|
U.S. credit card
|
$
|
804
|
|
$
|
856
|
|
$
|
207
|
|
||||||||||||||||||||||
|
Non-U.S. credit card
|
132
|
|
168
|
|
108
|
|
|||||||||||||||||||||||||
|
Direct/Indirect consumer
|
135
|
|
117
|
|
24
|
|
|||||||||||||||||||||||||
|
(1)
|
Includes accrued interest and fees.
|
|
(2)
|
Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible.
|
The table below provides information on the Corporation's primary modification programs for the renegotiated TDR portfolio at
March 31, 2015
and
December 31, 2014
.
|
Credit Card and Other Consumer – Renegotiated TDRs by Program Type
|
||||||||||||||||||||||||||||||||
|
|
Internal Programs
|
External Programs
|
Other
(1)
|
Total
|
Percent of Balances Current or
Less Than 30 Days Past Due |
|||||||||||||||||||||||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
||||||||||||||||||||||
|
U.S. credit card
|
$
|
412
|
|
$
|
450
|
|
$
|
364
|
|
$
|
397
|
|
$
|
3
|
|
$
|
9
|
|
$
|
779
|
|
$
|
856
|
|
85.86
|
%
|
84.99
|
%
|
||||
|
Non-U.S. credit card
|
33
|
|
41
|
|
14
|
|
16
|
|
105
|
|
111
|
|
152
|
|
168
|
|
47.71
|
|
47.56
|
|
||||||||||||
|
Direct/Indirect consumer
|
35
|
|
50
|
|
24
|
|
34
|
|
30
|
|
33
|
|
89
|
|
117
|
|
86.05
|
|
85.21
|
|
||||||||||||
|
Total renegotiated TDRs
|
$
|
480
|
|
$
|
541
|
|
$
|
402
|
|
$
|
447
|
|
$
|
138
|
|
$
|
153
|
|
$
|
1,020
|
|
$
|
1,141
|
|
80.19
|
|
79.51
|
|
||||
(1)
Other TDRs for non-U.S. credit card include modifications of accounts that are ineligible for a fixed payment plan.
156
The table below provides information on the Corporation's renegotiated TDR portfolio including the
March 31, 2015
and
2014
unpaid principal balance, carrying value and average pre- and post-modification interest rates of loans that were modified in TDRs during the
three months ended March 31, 2015 and 2014
, and net charge-offs recorded during the period in which the modification occurred.
|
Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Three Months Ended March 31, 2015 and 2014
|
|||||||||||||||||
|
|
March 31, 2015
|
Three Months Ended March 31, 2015
|
|||||||||||||||
|
(Dollars in millions)
|
Unpaid Principal Balance
|
Carrying
Value
(1)
|
Pre-Modification Interest Rate
|
Post-Modification Interest Rate
|
Net Charge-offs
|
||||||||||||
|
U.S. credit card
|
$
|
69
|
|
$
|
76
|
|
17.07
|
%
|
5.09
|
%
|
$
|
2
|
|
||||
|
Non-U.S. credit card
|
39
|
|
46
|
|
24.11
|
|
0.29
|
|
2
|
|
|||||||
|
Direct/Indirect consumer
|
8
|
|
5
|
|
6.68
|
|
5.74
|
|
3
|
|
|||||||
|
Total
|
$
|
116
|
|
$
|
127
|
|
19.18
|
|
3.38
|
|
$
|
7
|
|
||||
|
March 31, 2014
|
Three Months Ended March 31, 2014
|
||||||||||||||||
|
U.S. credit card
|
$
|
90
|
|
$
|
100
|
|
16.68
|
%
|
5.19
|
%
|
$
|
3
|
|
||||
|
Non-U.S. credit card
|
57
|
|
68
|
|
25.78
|
|
0.51
|
|
2
|
|
|||||||
|
Direct/Indirect consumer
|
12
|
|
9
|
|
9.83
|
|
4.56
|
|
3
|
|
|||||||
|
Other consumer
|
2
|
|
2
|
|
8.51
|
|
4.90
|
|
—
|
|
|||||||
|
Total
|
$
|
161
|
|
$
|
179
|
|
19.67
|
|
3.39
|
|
$
|
8
|
|
||||
|
(1)
|
Includes accrued interest and fees.
|
The table below provides information on the Corporation's primary modification programs for the renegotiated TDR portfolio for loans that were modified in TDRs during the
three months ended March 31, 2015 and 2014
.
|
Credit Card and Other Consumer – Renegotiated TDRs Entered into During the Period by Program Type
|
|||||||||||||||
|
Three Months Ended March 31, 2015
|
|||||||||||||||
|
(Dollars in millions)
|
Internal Programs
|
External Programs
|
Other
(1)
|
Total
|
|||||||||||
|
U.S. credit card
|
$
|
51
|
|
$
|
25
|
|
$
|
—
|
|
$
|
76
|
|
|||
|
Non-U.S. credit card
|
1
|
|
2
|
|
43
|
|
46
|
|
|||||||
|
Direct/Indirect consumer
|
—
|
|
—
|
|
5
|
|
5
|
|
|||||||
|
Total renegotiated TDRs
|
$
|
52
|
|
$
|
27
|
|
$
|
48
|
|
$
|
127
|
|
|||
|
Three Months Ended March 31, 2014
|
|||||||||||||||
|
U.S. credit card
|
$
|
70
|
|
$
|
30
|
|
$
|
—
|
|
$
|
100
|
|
|||
|
Non-U.S. credit card
|
3
|
|
3
|
|
62
|
|
68
|
|
|||||||
|
Direct/Indirect consumer
|
3
|
|
1
|
|
5
|
|
9
|
|
|||||||
|
Other consumer
|
2
|
|
—
|
|
—
|
|
2
|
|
|||||||
|
Total renegotiated TDRs
|
$
|
78
|
|
$
|
34
|
|
$
|
67
|
|
$
|
179
|
|
|||
(1)
Other TDRs for non-U.S. credit card include modifications of accounts that are ineligible for a fixed payment plan.
Credit card and other consumer loans are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows in the calculation of the allowance for loan and lease losses for impaired credit card and other consumer loans. Based on historical experience, the Corporation estimates that
14 percent
of new U.S. credit card TDRs,
83 percent
of new non-U.S. credit card TDRs and
12 percent
of new direct/indirect consumer TDRs may be in payment default within 12 months after modification. Loans that entered into payment default during the
three months ended March 31, 2015 and 2014
that had been modified in a TDR during the preceding 12 months were
$12 million
and
$13 million
for U.S. credit card,
$41 million
and
$56 million
for non-U.S. credit card, and
$1 million
and
$2 million
for direct/indirect consumer.
157
Commercial Loans
Impaired commercial loans, which include nonperforming loans and TDRs (both performing and nonperforming), are primarily measured based on the present value of payments expected to be received, discounted at the loan's original effective interest rate. Commercial impaired loans may also be measured based on observable market prices or, for loans that are solely dependent on the collateral for repayment, the estimated fair value of collateral, less costs to sell. If the carrying value of a loan exceeds this amount, a specific allowance is recorded as a component of the allowance for loan and lease losses.
Modifications of loans to commercial borrowers that are experiencing financial difficulty are designed to reduce the Corporation's loss exposure while providing the borrower with an opportunity to work through financial difficulties, often to avoid foreclosure or bankruptcy. Each modification is unique and reflects the individual circumstances of the borrower. Modifications that result in a TDR may include extensions of maturity at a concessionary (below market) rate of interest, payment forbearances or other actions designed to benefit the customer while mitigating the Corporation's risk exposure. Reductions in interest rates are rare. Instead, the interest rates are typically increased, although the increased rate may not represent a market rate of interest. Infrequently, concessions may also include principal forgiveness in connection with foreclosure, short sale or other settlement agreements leading to termination or sale of the loan.
At the time of restructuring, the loans are remeasured to reflect the impact, if any, on projected cash flows resulting from the modified terms. If there was no forgiveness of principal and the interest rate was not decreased, the modification may have little or no impact on the allowance established for the loan. If a portion of the loan is deemed to be uncollectible, a charge-off may be recorded at the time of restructuring. Alternatively, a charge-off may have already been recorded in a previous period such that no charge-off is required at the time of modification. For more information on modifications for the U.S. small business commercial portfolio, see Credit Card and Other Consumer in this Note.
At
March 31, 2015
and
December 31, 2014
, remaining commitments to lend additional funds to debtors whose terms have been modified in a commercial loan TDR were immaterial. Commercial foreclosed properties totaled
$264 million
and
$67 million
at
March 31, 2015
and
December 31, 2014
.
158
The table below provides the unpaid principal balance, carrying value and related allowance at
March 31, 2015
and
December 31, 2014
, and the average carrying value and interest income recognized for the
three months ended March 31, 2015 and 2014
for impaired loans in the Corporation's Commercial loan portfolio segment. Certain impaired commercial loans do not have a related allowance as the valuation of these impaired loans exceeded the carrying value, which is net of previously recorded charge-offs.
|
Impaired Loans – Commercial
|
|||||||||||||||||||||||||||||||
|
Three Months Ended March 31
|
|||||||||||||||||||||||||||||||
|
|
March 31, 2015
|
2015
|
2014
|
||||||||||||||||||||||||||||
|
(Dollars in millions)
|
Unpaid
Principal Balance |
Carrying
Value |
Related
Allowance |
Average
Carrying Value |
Interest
Income Recognized (1) |
Average
Carrying Value |
Interest
Income Recognized (1) |
||||||||||||||||||||||||
|
With no recorded allowance
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
U.S. commercial
|
$
|
626
|
|
$
|
605
|
|
$
|
—
|
|
$
|
628
|
|
$
|
3
|
|
$
|
519
|
|
$
|
2
|
|
||||||||||
|
Commercial real estate
|
110
|
|
93
|
|
—
|
|
71
|
|
1
|
|
220
|
|
1
|
|
|||||||||||||||||
|
Non-U.S. commercial
|
8
|
|
8
|
|
—
|
|
4
|
|
—
|
|
10
|
|
—
|
|
|||||||||||||||||
|
With an allowance recorded
|
|||||||||||||||||||||||||||||||
|
U.S. commercial
|
$
|
1,061
|
|
$
|
827
|
|
$
|
76
|
|
$
|
818
|
|
$
|
13
|
|
$
|
1,306
|
|
$
|
15
|
|
||||||||||
|
Commercial real estate
|
425
|
|
230
|
|
26
|
|
332
|
|
3
|
|
702
|
|
7
|
|
|||||||||||||||||
|
Non-U.S. commercial
|
123
|
|
114
|
|
18
|
|
66
|
|
1
|
|
71
|
|
1
|
|
|||||||||||||||||
|
U.S. small business commercial
(2)
|
105
|
|
118
|
|
35
|
|
121
|
|
—
|
|
170
|
|
1
|
|
|||||||||||||||||
|
Total
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
U.S. commercial
|
$
|
1,687
|
|
$
|
1,432
|
|
$
|
76
|
|
$
|
1,446
|
|
$
|
16
|
|
$
|
1,825
|
|
$
|
17
|
|
||||||||||
|
Commercial real estate
|
535
|
|
323
|
|
26
|
|
403
|
|
4
|
|
922
|
|
8
|
|
|||||||||||||||||
|
Non-U.S. commercial
|
131
|
|
122
|
|
18
|
|
70
|
|
1
|
|
81
|
|
1
|
|
|||||||||||||||||
|
U.S. small business commercial
(2)
|
105
|
|
118
|
|
35
|
|
121
|
|
—
|
|
170
|
|
1
|
|
|||||||||||||||||
|
December 31, 2014
|
|||||||||||||||||||||||||||||||
|
With no recorded allowance
|
|||||||||||||||||||||||||||||||
|
U.S. commercial
|
$
|
668
|
|
$
|
650
|
|
$
|
—
|
|
||||||||||||||||||||||
|
Commercial real estate
|
60
|
|
48
|
|
—
|
|
|||||||||||||||||||||||||
|
With an allowance recorded
|
|
|
|
||||||||||||||||||||||||||||
|
U.S. commercial
|
$
|
1,139
|
|
$
|
839
|
|
$
|
75
|
|
||||||||||||||||||||||
|
Commercial real estate
|
678
|
|
495
|
|
48
|
|
|||||||||||||||||||||||||
|
Non-U.S. commercial
|
47
|
|
44
|
|
1
|
|
|||||||||||||||||||||||||
|
U.S. small business commercial
(2)
|
133
|
|
122
|
|
35
|
|
|||||||||||||||||||||||||
|
Total
|
|
|
|
||||||||||||||||||||||||||||
|
U.S. commercial
|
$
|
1,807
|
|
$
|
1,489
|
|
$
|
75
|
|
||||||||||||||||||||||
|
Commercial real estate
|
738
|
|
543
|
|
48
|
|
|||||||||||||||||||||||||
|
Non-U.S. commercial
|
47
|
|
44
|
|
1
|
|
|||||||||||||||||||||||||
|
U.S. small business commercial
(2)
|
133
|
|
122
|
|
35
|
|
|||||||||||||||||||||||||
|
(1)
|
Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest cash collections on nonaccruing impaired loans for which the principal is considered collectible.
|
|
(2)
|
Includes U.S. small business commercial renegotiated TDR loans and related allowance.
|
159
The table below presents the
March 31, 2015 and 2014
unpaid principal balance and carrying value of commercial loans that were modified as TDRs during the
three months ended March 31, 2015 and 2014
, and net charge-offs that were recorded during the period in which the modification occurred. The table below includes loans that were initially classified as TDRs during the period and also loans that had previously been classified as TDRs and were modified again during the period.
|
Commercial – TDRs Entered into During the Three Months Ended March 31, 2015 and 2014
|
|||||||||||
|
|
March 31, 2015
|
Three Months Ended March 31, 2015
|
|||||||||
|
(Dollars in millions)
|
Unpaid Principal Balance
|
Carrying
Value
|
Net Charge-offs
|
||||||||
|
U.S. commercial
|
$
|
346
|
|
$
|
327
|
|
$
|
3
|
|
||
|
Commercial real estate
|
34
|
|
33
|
|
—
|
|
|||||
|
Non-U.S. commercial
|
8
|
|
8
|
|
—
|
|
|||||
|
U.S. small business commercial
(1)
|
2
|
|
2
|
|
—
|
|
|||||
|
Total
|
$
|
390
|
|
$
|
370
|
|
$
|
3
|
|
||
|
March 31, 2014
|
Three Months Ended March 31, 2014
|
||||||||||
|
U.S. commercial
|
$
|
443
|
|
$
|
276
|
|
$
|
2
|
|
||
|
Commercial real estate
|
269
|
|
269
|
|
—
|
|
|||||
|
Non-U.S. commercial
|
58
|
|
58
|
|
—
|
|
|||||
|
U.S. small business commercial
(1)
|
2
|
|
2
|
|
—
|
|
|||||
|
Total
|
$
|
772
|
|
$
|
605
|
|
$
|
2
|
|
||
|
(1)
|
U.S. small business commercial TDRs are comprised of renegotiated small business card loans.
|
A commercial TDR is generally deemed to be in payment default when the loan is
90 days
or more past due, including delinquencies that were not resolved as part of the modification. U.S. small business commercial TDRs are deemed to be in payment default during the quarter in which a borrower misses the second of two consecutive payments. Payment defaults are one of the factors considered when projecting future cash flows, along with observable market prices or fair value of collateral when measuring the allowance for loan and lease losses. TDRs that were in payment default had a carrying value of
$110 million
and
$95 million
for U.S. commercial and
$60 million
and
$121 million
for commercial real estate at
March 31, 2015 and 2014
.
160
|
Purchased Credit-impaired Loans
|
The table below shows activity for the accretable yield on PCI loans, which includes the Countrywide Financial Corporation (Countrywide) portfolio and loans repurchased in connection with the settlement with FNMA. For more information on the settlement with FNMA, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
of the Corporation's 2014 Annual Report on Form 10-K
. The amount of accretable yield is affected by changes in credit outlooks, including metrics such as default rates and loss severities, prepayment speeds, which can change the amount and period of time over which interest payments are expected to be received, and the interest rates on variable rate loans. The reclassifications from nonaccretable difference during 2014 were due to lower expected loss rates and a decrease in forecasted prepayment speeds. The reclassifications to nonaccretable difference in the
three months ended March 31, 2015
were due to an increase in forecasted prepayment speeds as a result of lower interest rates. Changes in the prepayment assumption affect the expected remaining life of the portfolio which results in a change to the amount of future interest cash flows.
|
Rollforward of Accretable Yield
|
|||
|
(Dollars in millions)
|
|||
|
Accretable yield, January 1, 2014
|
$
|
6,694
|
|
|
Accretion
|
(1,061
|
)
|
|
|
Disposals/transfers
|
(506
|
)
|
|
|
Reclassifications from nonaccretable difference
|
481
|
|
|
|
Accretable yield, December 31, 2014
|
5,608
|
|
|
|
Accretion
|
(233
|
)
|
|
|
Disposals/transfers
|
(136
|
)
|
|
|
Reclassifications to nonaccretable difference
|
(72
|
)
|
|
|
Accretable yield, March 31, 2015
|
$
|
5,167
|
|
During the
three months ended March 31, 2015 and 2014
, the Corporation sold PCI loans with a carrying value of
$586 million
and
$454 million
, excluding the related allowance of
$110 million
and
$158 million
. For more information on PCI loans, see
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
, and for the carrying value and valuation allowance for PCI loans, see
Note 5 – Allowance for Credit Losses
.
|
Loans Held-for-sale
|
The Corporation had LHFS of
$9.7 billion
and
$12.8 billion
at
March 31, 2015
and
December 31, 2014
. Cash and non-cash proceeds from sales and paydowns of loans originally classified as LHFS were
$11.6 billion
and
$8.3 billion
for the
three months ended March 31, 2015 and 2014
. Cash used for originations and purchases of LHFS totaled
$10.6 billion
and
$10.0 billion
for the
three months ended March 31, 2015 and 2014
.
161
|
|
The table below summarizes the changes in the allowance for credit losses by portfolio segment for the
three months ended March 31, 2015 and 2014
.
|
|
Three Months Ended March 31, 2015
|
||||||||||||||
|
(Dollars in millions)
|
Consumer Real Estate
|
Credit Card
and Other Consumer |
Commercial
|
Total
|
|||||||||||
|
Allowance for loan and lease losses, January 1
|
$
|
5,935
|
|
$
|
4,047
|
|
$
|
4,437
|
|
$
|
14,419
|
|
|||
|
Loans and leases charged off
|
(552
|
)
|
(964
|
)
|
(129
|
)
|
(1,645
|
)
|
|||||||
|
Recoveries of loans and leases previously charged off
|
183
|
|
216
|
|
52
|
|
451
|
|
|||||||
|
Net charge-offs
|
(369
|
)
|
(748
|
)
|
(77
|
)
|
(1,194
|
)
|
|||||||
|
Write-offs of PCI loans
|
(288
|
)
|
—
|
|
—
|
|
(288
|
)
|
|||||||
|
Provision for loan and lease losses
|
(28
|
)
|
647
|
|
137
|
|
756
|
|
|||||||
|
Other
(1)
|
—
|
|
(17
|
)
|
—
|
|
(17
|
)
|
|||||||
|
Allowance for loan and lease losses, March 31
|
5,250
|
|
3,929
|
|
4,497
|
|
13,676
|
|
|||||||
|
Reserve for unfunded lending commitments, January 1
|
—
|
|
—
|
|
528
|
|
528
|
|
|||||||
|
Provision for unfunded lending commitments
|
—
|
|
—
|
|
9
|
|
9
|
|
|||||||
|
Reserve for unfunded lending commitments, March 31
|
—
|
|
—
|
|
537
|
|
537
|
|
|||||||
|
Allowance for credit losses, March 31
|
$
|
5,250
|
|
$
|
3,929
|
|
$
|
5,034
|
|
$
|
14,213
|
|
|||
|
Three Months Ended March 31, 2014
|
|||||||||||||||
|
Allowance for loan and lease losses, January 1
|
$
|
8,518
|
|
$
|
4,905
|
|
$
|
4,005
|
|
$
|
17,428
|
|
|||
|
Loans and leases charged off
|
(596
|
)
|
(1,128
|
)
|
(144
|
)
|
(1,868
|
)
|
|||||||
|
Recoveries of loans and leases previously charged off
|
167
|
|
218
|
|
95
|
|
480
|
|
|||||||
|
Net charge-offs
|
(429
|
)
|
(910
|
)
|
(49
|
)
|
(1,388
|
)
|
|||||||
|
Write-offs of PCI loans
|
(391
|
)
|
—
|
|
—
|
|
(391
|
)
|
|||||||
|
Provision for loan and lease losses
|
(141
|
)
|
791
|
|
334
|
|
984
|
|
|||||||
|
Other
(1)
|
(1
|
)
|
(11
|
)
|
(3
|
)
|
(15
|
)
|
|||||||
|
Allowance for loan and lease losses, March 31
|
7,556
|
|
4,775
|
|
4,287
|
|
16,618
|
|
|||||||
|
Reserve for unfunded lending commitments, January 1
|
—
|
|
—
|
|
484
|
|
484
|
|
|||||||
|
Provision for unfunded lending commitments
|
—
|
|
—
|
|
25
|
|
25
|
|
|||||||
|
Reserve for unfunded lending commitments, March 31
|
—
|
|
—
|
|
509
|
|
509
|
|
|||||||
|
Allowance for credit losses, March 31
|
$
|
7,556
|
|
$
|
4,775
|
|
$
|
4,796
|
|
$
|
17,127
|
|
|||
|
(1)
|
Primarily represents the net impact of portfolio sales, consolidations and deconsolidations, and foreign currency translation adjustments.
|
During the
three months ended March 31, 2015
, for the PCI loan portfolio, the Corporation recorded a
benefit
of
$50 million
in the provision for credit losses with a corresponding decrease in the valuation allowance included as part of the allowance for loan and lease losses. This compared to
no
provision for credit losses in the
same period in 2014
. Write-offs in the PCI loan portfolio totaled
$288 million
with a corresponding decrease in the PCI valuation allowance during the
three months ended March 31, 2015
compared to
$391 million
for the
same period in 2014
. Write-offs included
$110 million
associated with the sale of PCI loans during the
three months ended March 31, 2015
compared to
$158 million
for the
same period in 2014
. The valuation allowance associated with the PCI loan portfolio was
$1.3 billion
and
$1.7 billion
at
March 31, 2015
and
December 31, 2014
.
162
The table below presents the allowance and the carrying value of outstanding loans and leases by portfolio segment at
March 31, 2015
and
December 31, 2014
.
|
Allowance and Carrying Value by Portfolio Segment
|
|||||||||||||||
|
|
March 31, 2015
|
||||||||||||||
|
(Dollars in millions)
|
Consumer Real Estate
|
Credit Card
and Other Consumer |
Commercial
|
Total
|
|||||||||||
|
Impaired loans and troubled debt restructurings
(1)
|
|
|
|||||||||||||
|
Allowance for loan and lease losses
(2)
|
$
|
727
|
|
$
|
314
|
|
$
|
155
|
|
$
|
1,196
|
|
|||
|
Carrying value
(3)
|
24,991
|
|
1,020
|
|
1,995
|
|
28,006
|
|
|||||||
|
Allowance as a percentage of carrying value
|
2.91
|
%
|
30.78
|
%
|
7.77
|
%
|
4.27
|
%
|
|||||||
|
Loans collectively evaluated for impairment
|
|
|
|
|
|||||||||||
|
Allowance for loan and lease losses
|
$
|
3,209
|
|
$
|
3,615
|
|
$
|
4,342
|
|
$
|
11,166
|
|
|||
|
Carrying value
(3, 4)
|
246,966
|
|
179,911
|
|
395,068
|
|
821,945
|
|
|||||||
|
Allowance as a percentage of carrying value
(4)
|
1.30
|
%
|
2.01
|
%
|
1.10
|
%
|
1.36
|
%
|
|||||||
|
Purchased credit-impaired loans
|
|
|
|
||||||||||||
|
Valuation allowance
|
$
|
1,314
|
|
n/a
|
|
n/a
|
|
$
|
1,314
|
|
|||||
|
Carrying value gross of valuation allowance
|
19,539
|
|
n/a
|
|
n/a
|
|
19,539
|
|
|||||||
|
Valuation allowance as a percentage of carrying value
|
6.73
|
%
|
n/a
|
|
n/a
|
|
6.73
|
%
|
|||||||
|
Total
|
|
|
|
|
|||||||||||
|
Allowance for loan and lease losses
|
$
|
5,250
|
|
$
|
3,929
|
|
$
|
4,497
|
|
$
|
13,676
|
|
|||
|
Carrying value
(3, 4)
|
291,496
|
|
180,931
|
|
397,063
|
|
869,490
|
|
|||||||
|
Allowance as a percentage of carrying value
(4)
|
1.80
|
%
|
2.17
|
%
|
1.13
|
%
|
1.57
|
%
|
|||||||
|
|
December 31, 2014
|
||||||||||||||
|
Impaired loans and troubled debt restructurings
(1)
|
|
|
|
|
|||||||||||
|
Allowance for loan and lease losses
(2)
|
$
|
727
|
|
$
|
339
|
|
$
|
159
|
|
$
|
1,225
|
|
|||
|
Carrying value
(3)
|
25,628
|
|
1,141
|
|
2,198
|
|
28,967
|
|
|||||||
|
Allowance as a percentage of carrying value
|
2.84
|
%
|
29.71
|
%
|
7.23
|
%
|
4.23
|
%
|
|||||||
|
Loans collectively evaluated for impairment
|
|
|
|
|
|||||||||||
|
Allowance for loan and lease losses
|
$
|
3,556
|
|
$
|
3,708
|
|
$
|
4,278
|
|
$
|
11,542
|
|
|||
|
Carrying value
(3, 4)
|
255,525
|
|
183,430
|
|
384,019
|
|
822,974
|
|
|||||||
|
Allowance as a percentage of carrying value
(4)
|
1.39
|
%
|
2.02
|
%
|
1.11
|
%
|
1.40
|
%
|
|||||||
|
Purchased credit-impaired loans
|
|
|
|
|
|||||||||||
|
Valuation allowance
|
$
|
1,652
|
|
n/a
|
|
n/a
|
|
$
|
1,652
|
|
|||||
|
Carrying value gross of valuation allowance
|
20,769
|
|
n/a
|
|
n/a
|
|
20,769
|
|
|||||||
|
Valuation allowance as a percentage of carrying value
|
7.95
|
%
|
n/a
|
|
n/a
|
|
7.95
|
%
|
|||||||
|
Total
|
|
|
|
|
|||||||||||
|
Allowance for loan and lease losses
|
$
|
5,935
|
|
$
|
4,047
|
|
$
|
4,437
|
|
$
|
14,419
|
|
|||
|
Carrying value
(3, 4)
|
301,922
|
|
184,571
|
|
386,217
|
|
872,710
|
|
|||||||
|
Allowance as a percentage of carrying value
(4)
|
1.97
|
%
|
2.19
|
%
|
1.15
|
%
|
1.65
|
%
|
|||||||
|
(1)
|
Impaired loans include nonperforming commercial loans and all TDRs, including both commercial and consumer TDRs. Impaired loans exclude nonperforming consumer loans unless they are TDRs, and all consumer and commercial loans accounted for under the fair value option.
|
|
(2)
|
Allowance for loan and lease losses includes
$35 million
related to impaired U.S. small business commercial at both
March 31, 2015
and
December 31, 2014
.
|
|
(3)
|
Amounts are presented gross of the allowance for loan and lease losses.
|
|
(4)
|
Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option of
$8.5 billion
and
$8.7 billion
at
March 31, 2015
and
December 31, 2014
.
|
n/a = not applicable
163
|
|
The Corporation utilizes variable interest entities (VIEs) in the ordinary course of business to support its own and its customers' financing and investing needs. The Corporation routinely securitizes loans and debt securities using VIEs as a source of funding for the Corporation and as a means of transferring the economic risk of the loans or debt securities to third parties. The assets are transferred into a trust or other securitization vehicle such that the assets are legally isolated from the creditors of the Corporation and are not available to satisfy its obligations. These assets can only be used to settle obligations of the trust or other securitization vehicle. The Corporation also administers, structures or invests in other VIEs including CDOs, investment vehicles and other entities. For more information on the Corporation's utilization of VIEs, see
Note 1 – Summary of Significant Accounting Principles
and
Note 6 – Securitizations and Other Variable Interest Entities
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
The tables in this Note present the assets and liabilities of consolidated and unconsolidated VIEs at
March 31, 2015
and
December 31, 2014
, in situations where the Corporation has continuing involvement with transferred assets or if the Corporation otherwise has a variable interest in the VIE. The tables also present the Corporation's maximum loss exposure at
March 31, 2015
and
December 31, 2014
resulting from its involvement with consolidated VIEs and unconsolidated VIEs in which the Corporation holds a variable interest. The Corporation's maximum loss exposure is based on the unlikely event that all of the assets in the VIEs become worthless and incorporates not only potential losses associated with assets recorded on the Consolidated Balance Sheet but also potential losses associated with off-balance sheet commitments such as unfunded liquidity commitments and other contractual arrangements. The Corporation's maximum loss exposure does not include losses previously recognized through write-downs of assets.
The Corporation invests in asset-backed securities (ABS) issued by third-party VIEs with which it has no other form of involvement. These securities are included in
Note 3 – Securities
and
Note 14 – Fair Value Measurements
.
In addition, the Corporation uses VIEs such as trust preferred securities trusts in connection with its funding activities. For additional information, see
Note 11 – Long-term Debt
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
. The Corporation uses VIEs, such as cash funds managed within
Global Wealth & Investment Management (GWIM)
, to provide investment opportunities for clients. These VIEs, which are not consolidated by the Corporation, are not included in the tables in this Note.
Except as described below and in
Note 6 – Securitizations and Other Variable Interest Entities
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
, the Corporation did not provide financial support to consolidated or unconsolidated VIEs during the
three months ended March 31, 2015
or the year ended
December 31, 2014
that it was not previously contractually required to provide, nor does it intend to do so.
|
Mortgage-related Securitizations
|
First-lien Mortgages
As part of its mortgage banking activities, the Corporation securitizes a portion of the first-lien residential mortgage loans it originates or purchases from third parties, generally in the form of RMBS guaranteed by government-sponsored enterprises, FNMA and FHLMC (collectively the GSEs), or GNMA primarily in the case of FHA-insured and U.S. Department of Veterans Affairs (VA)-guaranteed mortgage loans. Securitization usually occurs in conjunction with or shortly after origination or purchase and the Corporation may also securitize loans held in its residential mortgage portfolio. In addition, the Corporation may, from time to time, securitize commercial mortgages it originates or purchases from other entities. The Corporation typically services the loans it securitizes. Further, the Corporation may retain beneficial interests in the securitization trusts including senior and subordinate securities and equity tranches issued by the trusts. Except as described below and in
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
, the Corporation does not provide guarantees or recourse to the securitization trusts other than standard representations and warranties.
164
The table below summarizes select information related to first-lien mortgage securitizations for the
three months ended March 31, 2015 and 2014
.
|
First-lien Mortgage Securitizations
|
|||||||||||||
|
Three Months Ended March 31
|
|||||||||||||
|
Residential Mortgage
|
|||||||||||||
|
|
Agency
|
Commercial Mortgage
|
|||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
2015
|
2014
|
|||||||||
|
Cash proceeds from new securitizations
(1)
|
$
|
7,571
|
|
$
|
7,466
|
|
$
|
2,156
|
|
$
|
704
|
|
|
|
Gain (loss) on securitizations
(2)
|
173
|
|
(11
|
)
|
(7
|
)
|
27
|
|
|||||
|
(1)
|
The Corporation transfers residential mortgage loans to securitizations sponsored by the GSEs or GNMA in the normal course of business and receives RMBS in exchange which may then be sold into the market to third-party investors for cash proceeds.
|
|
(2)
|
A majority of the first-lien residential and commercial mortgage loans securitized are initially classified as LHFS and accounted for under the fair value option. Gains recognized on these LHFS prior to securitization, which totaled
$169 million
and
$198 million
, net of hedges, during the
three months ended March 31, 2015 and 2014
, are not included in the table above.
|
In addition to cash proceeds as reported in the table above, the Corporation received securities with an initial fair value of
$5.4 billion
and
$506 million
in connection with first-lien mortgage securitizations for the
three months ended March 31, 2015 and 2014
. All of these securities were initially classified as Level 2 assets within the fair value hierarchy. During the
three months ended March 31, 2015 and 2014
, there were no changes to the initial classification.
The Corporation recognizes consumer MSRs from the sale or securitization of first-lien mortgage loans. Servicing fee and ancillary fee income on consumer mortgage loans serviced, including securitizations where the Corporation has continuing involvement, were
$389 million
and
$494 million
during the
three months ended March 31, 2015 and 2014
. Servicing advances on consumer mortgage loans, including securitizations where the Corporation has continuing involvement, were
$9.6 billion
and
$10.4 billion
at
March 31, 2015
and
December 31, 2014
. The Corporation may have the option to repurchase delinquent loans out of securitization trusts, which reduces the amount of servicing advances it is required to make. During the
three months ended March 31, 2015 and 2014
,
$1.1 billion
and
$1.3 billion
of loans were repurchased from first-lien securitization trusts primarily as a result of loan delinquencies or to perform modifications. The majority of these loans repurchased were FHA-insured mortgages collateralizing GNMA securities. For more information on MSRs, see
Note 17 – Mortgage Servicing Rights
.
165
The table below summarizes select information related to first-lien mortgage securitization trusts in which the Corporation held a variable interest at
March 31, 2015
and
December 31, 2014
.
|
First-lien Mortgage VIEs
|
||||||||||||||||||||||||||||||||||
|
|
Residential Mortgage
|
|
||||||||||||||||||||||||||||||||
|
|
|
|
Non-agency
|
|
||||||||||||||||||||||||||||||
|
|
Agency
|
Prime
|
Subprime
|
Alt-A
|
Commercial Mortgage
|
|||||||||||||||||||||||||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
||||||||||||||||||||||||
|
Unconsolidated VIEs
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Maximum loss exposure
(1)
|
$
|
19,523
|
|
$
|
14,918
|
|
$
|
1,223
|
|
$
|
1,288
|
|
$
|
3,089
|
|
$
|
3,167
|
|
$
|
654
|
|
$
|
710
|
|
$
|
324
|
|
$
|
352
|
|
||||
|
On-balance sheet assets
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Senior securities held
(2)
:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Trading account assets
|
$
|
526
|
|
$
|
584
|
|
$
|
3
|
|
$
|
3
|
|
$
|
25
|
|
$
|
14
|
|
$
|
49
|
|
$
|
81
|
|
$
|
79
|
|
$
|
54
|
|
||||
|
Debt securities carried at fair value
|
18,178
|
|
13,473
|
|
755
|
|
816
|
|
2,716
|
|
2,811
|
|
378
|
|
383
|
|
14
|
|
76
|
|
||||||||||||||
|
Held-to-maturity securities
|
796
|
|
837
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
37
|
|
42
|
|
||||||||||||||
|
Subordinate securities held
(2)
:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Trading account assets
|
—
|
|
—
|
|
—
|
|
—
|
|
18
|
|
—
|
|
2
|
|
1
|
|
39
|
|
58
|
|
||||||||||||||
|
Debt securities carried at fair value
|
—
|
|
—
|
|
11
|
|
12
|
|
4
|
|
5
|
|
—
|
|
—
|
|
55
|
|
58
|
|
||||||||||||||
|
Held-to-maturity securities
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
13
|
|
15
|
|
||||||||||||||
|
Residual interests held
|
—
|
|
—
|
|
12
|
|
10
|
|
—
|
|
—
|
|
—
|
|
—
|
|
41
|
|
22
|
|
||||||||||||||
|
All other assets
(3)
|
23
|
|
24
|
|
51
|
|
56
|
|
1
|
|
1
|
|
225
|
|
245
|
|
—
|
|
—
|
|
||||||||||||||
|
Total retained positions
|
$
|
19,523
|
|
$
|
14,918
|
|
$
|
832
|
|
$
|
897
|
|
$
|
2,764
|
|
$
|
2,831
|
|
$
|
654
|
|
$
|
710
|
|
$
|
278
|
|
$
|
325
|
|
||||
|
Principal balance outstanding
(4)
|
$
|
386,169
|
|
$
|
397,055
|
|
$
|
19,304
|
|
$
|
20,167
|
|
$
|
31,601
|
|
$
|
32,592
|
|
$
|
48,208
|
|
$
|
50,054
|
|
$
|
25,034
|
|
$
|
20,593
|
|
||||
|
Consolidated VIEs
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Maximum loss exposure
(1)
|
$
|
36,644
|
|
$
|
38,345
|
|
$
|
76
|
|
$
|
77
|
|
$
|
197
|
|
$
|
206
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
On-balance sheet assets
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Trading account assets
|
$
|
1,099
|
|
$
|
1,538
|
|
$
|
—
|
|
$
|
—
|
|
$
|
29
|
|
$
|
30
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Loans and leases
|
34,734
|
|
36,187
|
|
128
|
|
130
|
|
767
|
|
768
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||||
|
Allowance for loan and lease losses
|
(2
|
)
|
(2
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||||
|
All other assets
|
815
|
|
623
|
|
6
|
|
6
|
|
14
|
|
15
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||||
|
Total assets
|
$
|
36,646
|
|
$
|
38,346
|
|
$
|
134
|
|
$
|
136
|
|
$
|
810
|
|
$
|
813
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
On-balance sheet liabilities
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Long-term debt
|
$
|
2
|
|
$
|
1
|
|
$
|
55
|
|
$
|
56
|
|
$
|
770
|
|
$
|
770
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
All other liabilities
|
1
|
|
—
|
|
3
|
|
3
|
|
11
|
|
13
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||||
|
Total liabilities
|
$
|
3
|
|
$
|
1
|
|
$
|
58
|
|
$
|
59
|
|
$
|
781
|
|
$
|
783
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
(1)
|
Maximum loss exposure excludes the liability for representations and warranties obligations and corporate guarantees and also excludes servicing advances and other servicing rights and obligations. For additional information, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
and
Note 17 – Mortgage Servicing Rights
.
|
|
(2)
|
As a holder of these securities, the Corporation receives scheduled principal and interest payments. During the
three months ended March 31, 2015 and 2014
, there were no OTTI losses recorded on those securities classified as AFS debt securities.
|
|
(3)
|
Not included in the table above are all other assets of
$365 million
and
$635 million
, representing the unpaid principal balance of mortgage loans eligible for repurchase from unconsolidated residential mortgage securitization vehicles, principally guaranteed by GNMA, and all other liabilities of
$365 million
and
$635 million
, representing the principal amount that would be payable to the securitization vehicles if the Corporation was to exercise the repurchase option, at
March 31, 2015
and
December 31, 2014
.
|
|
(4)
|
Principal balance outstanding includes loans the Corporation transferred with which it has continuing involvement, which may include servicing the loans.
|
166
Home Equity Loans
The Corporation retains interests in home equity securitization trusts to which it transferred home equity loans. These retained interests include senior and subordinate securities and residual interests. In addition, the Corporation may be obligated to provide subordinate funding to the trusts during a rapid amortization event. The Corporation typically services the loans in the trusts. Except as described below and in
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
, the Corporation does not provide guarantees or recourse to the securitization trusts other than standard representations and warranties. There were no securitizations of home equity loans during the
three months ended March 31, 2015 and 2014
, and all of the home equity trusts that hold revolving home equity lines of credit have entered the rapid amortization phase.
The table below summarizes select information related to home equity loan securitization trusts in which the Corporation held a variable interest at
March 31, 2015
and
December 31, 2014
.
|
Home Equity Loan VIEs
|
|||||||||||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||||||||||
|
(Dollars in millions)
|
Consolidated
VIEs |
Unconsolidated
VIEs |
Total
|
Consolidated
VIEs |
Unconsolidated
VIEs |
Total
|
|||||||||||||||||
|
Maximum loss exposure
(1)
|
$
|
942
|
|
$
|
5,061
|
|
$
|
6,003
|
|
$
|
991
|
|
$
|
5,224
|
|
$
|
6,215
|
|
|||||
|
On-balance sheet assets
|
|
|
|
|
|
|
|||||||||||||||||
|
Trading account assets
|
$
|
—
|
|
$
|
47
|
|
$
|
47
|
|
$
|
—
|
|
$
|
14
|
|
$
|
14
|
|
|||||
|
Debt securities carried at fair value
|
—
|
|
44
|
|
44
|
|
—
|
|
39
|
|
39
|
|
|||||||||||
|
Loans and leases
|
954
|
|
—
|
|
954
|
|
1,014
|
|
—
|
|
1,014
|
|
|||||||||||
|
Allowance for loan and lease losses
|
(52
|
)
|
—
|
|
(52
|
)
|
(56
|
)
|
—
|
|
(56
|
)
|
|||||||||||
|
All other assets
|
40
|
|
—
|
|
40
|
|
33
|
|
—
|
|
33
|
|
|||||||||||
|
Total
|
$
|
942
|
|
$
|
91
|
|
$
|
1,033
|
|
$
|
991
|
|
$
|
53
|
|
$
|
1,044
|
|
|||||
|
On-balance sheet liabilities
|
|
|
|
|
|
|
|||||||||||||||||
|
Long-term debt
|
$
|
995
|
|
$
|
—
|
|
$
|
995
|
|
$
|
1,076
|
|
$
|
—
|
|
$
|
1,076
|
|
|||||
|
Total
|
$
|
995
|
|
$
|
—
|
|
$
|
995
|
|
$
|
1,076
|
|
$
|
—
|
|
$
|
1,076
|
|
|||||
|
Principal balance outstanding
|
$
|
954
|
|
$
|
6,133
|
|
$
|
7,087
|
|
$
|
1,014
|
|
$
|
6,362
|
|
$
|
7,376
|
|
|||||
|
(1)
|
For unconsolidated VIEs, the maximum loss exposure includes outstanding trust certificates issued by trusts in rapid amortization, net of recorded reserves, and excludes the liability for representations and warranties obligations and corporate guarantees.
|
The maximum loss exposure in the table above includes the Corporation's obligation to provide subordinated funding to the consolidated and unconsolidated home equity loan securitizations that have entered a rapid amortization period. During this period, cash payments from borrowers are accumulated to repay outstanding debt securities and the Corporation continues to make advances to borrowers when they draw on their lines of credit. At
March 31, 2015
and
December 31, 2014
, home equity loan securitizations in rapid amortization for which the Corporation has a subordinated funding obligation, including both consolidated and unconsolidated trusts, had
$6.0 billion
and
$6.3 billion
of trust certificates outstanding. This amount is significantly greater than the amount the Corporation expects to fund. The charges that will ultimately be recorded as a result of the rapid amortization events depend on the undrawn available credit on the home equity lines, which totaled
$36 million
and
$39 million
at
March 31, 2015
and
December 31, 2014
, as well as performance of the loans, the amount of subsequent draws and the timing of related cash flows.
167
|
Credit Card Securitizations
|
The Corporation securitizes originated and purchased credit card loans. The Corporation's continuing involvement with the securitization trust includes servicing the receivables, retaining an undivided interest (seller's interest) in the receivables, and holding certain retained interests including senior and subordinate securities, subordinate interests in accrued interest and fees on the securitized receivables, and cash reserve accounts. The seller's interest in the trust, which is pari passu to the investors' interest, is classified in loans and leases.
The table below summarizes select information related to consolidated credit card securitization trusts in which the Corporation held a variable interest at
March 31, 2015
and
December 31, 2014
.
|
Credit Card VIEs
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
Consolidated VIEs
|
|
|
|||||
|
Maximum loss exposure
|
$
|
38,996
|
|
$
|
43,139
|
|
|
|
On-balance sheet assets
|
|
|
|||||
|
Derivative assets
|
$
|
—
|
|
$
|
1
|
|
|
|
Loans and leases
(1)
|
49,927
|
|
53,068
|
|
|||
|
Allowance for loan and lease losses
|
(1,810
|
)
|
(1,904
|
)
|
|||
|
All other assets
(2)
|
389
|
|
391
|
|
|||
|
Total
|
$
|
48,506
|
|
$
|
51,556
|
|
|
|
On-balance sheet liabilities
|
|
|
|||||
|
Long-term debt
|
$
|
9,484
|
|
$
|
8,401
|
|
|
|
All other liabilities
|
26
|
|
16
|
|
|||
|
Total
|
$
|
9,510
|
|
$
|
8,417
|
|
|
|
(1)
|
At
March 31, 2015
and
December 31, 2014
, loans and leases included
$31.1 billion
and
$36.9 billion
of seller's interest.
|
|
(2)
|
At
March 31, 2015
and
December 31, 2014
, all other assets included restricted cash, certain short-term investments, and unbilled accrued interest and fees.
|
During the
three months ended March 31, 2015 and 2014
,
$1.1 billion
and
$1.8 billion
of new senior debt securities were issued to third-party investors from the credit card securitization trust.
The Corporation held subordinate securities issued by the credit card securitization trust with a notional principal amount of
$7.5 billion
and
$7.4 billion
at
March 31, 2015
and
December 31, 2014
. These securities serve as a form of credit enhancement to the senior debt securities and have a stated interest rate of
zero percent
. There were
$178 million
and
$282 million
of these subordinate securities issued during the
three months ended March 31, 2015 and 2014
.
168
|
Other Asset-backed Securitizations
|
Other asset-backed securitizations include resecuritization trusts, municipal bond trusts, and automobile and other securitization trusts. The table below summarizes select information related to other asset-backed securitizations in which the Corporation held a variable interest at
March 31, 2015
and
December 31, 2014
.
|
Other Asset-backed VIEs
|
|||||||||||||||||||||||
|
|
Resecuritization Trusts
|
Municipal Bond Trusts
|
Automobile and Other
Securitization Trusts |
||||||||||||||||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
March 31
2015 |
December 31
2014 |
|||||||||||||||||
|
Unconsolidated VIEs
|
|
|
|
|
|
|
|||||||||||||||||
|
Maximum loss exposure
|
$
|
8,051
|
|
$
|
8,569
|
|
$
|
2,045
|
|
$
|
2,100
|
|
$
|
69
|
|
$
|
77
|
|
|||||
|
On-balance sheet assets
|
|
|
|
|
|
|
|||||||||||||||||
|
Senior securities held
(1, 2)
:
|
|
|
|
|
|
|
|||||||||||||||||
|
Trading account assets
|
$
|
941
|
|
$
|
767
|
|
$
|
2
|
|
$
|
25
|
|
$
|
—
|
|
$
|
6
|
|
|||||
|
Debt securities carried at fair value
|
6,246
|
|
6,945
|
|
—
|
|
—
|
|
59
|
|
61
|
|
|||||||||||
|
Held-to-maturity securities
|
736
|
|
740
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Subordinate securities held
(1, 2)
:
|
|
|
|
|
|
|
|||||||||||||||||
|
Trading account assets
|
52
|
|
37
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Debt securities carried at fair value
|
74
|
|
73
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Residual interests held
(3)
|
2
|
|
7
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
All other assets
|
—
|
|
—
|
|
—
|
|
—
|
|
10
|
|
10
|
|
|||||||||||
|
Total retained positions
|
$
|
8,051
|
|
$
|
8,569
|
|
$
|
2
|
|
$
|
25
|
|
$
|
69
|
|
$
|
77
|
|
|||||
|
Total assets of VIEs
(4)
|
$
|
30,563
|
|
$
|
28,065
|
|
$
|
3,237
|
|
$
|
3,314
|
|
$
|
522
|
|
$
|
1,276
|
|
|||||
|
Consolidated VIEs
|
|
|
|
|
|
|
|||||||||||||||||
|
Maximum loss exposure
|
$
|
200
|
|
$
|
654
|
|
$
|
2,027
|
|
$
|
2,440
|
|
$
|
65
|
|
$
|
92
|
|
|||||
|
On-balance sheet assets
|
|
|
|
|
|
|
|||||||||||||||||
|
Trading account assets
|
$
|
496
|
|
$
|
1,295
|
|
$
|
2,038
|
|
$
|
2,452
|
|
$
|
—
|
|
$
|
—
|
|
|||||
|
Loans held-for-sale
|
—
|
|
—
|
|
—
|
|
—
|
|
495
|
|
555
|
|
|||||||||||
|
All other assets
|
—
|
|
—
|
|
1
|
|
—
|
|
54
|
|
54
|
|
|||||||||||
|
Total assets
|
$
|
496
|
|
$
|
1,295
|
|
$
|
2,039
|
|
$
|
2,452
|
|
$
|
549
|
|
$
|
609
|
|
|||||
|
On-balance sheet liabilities
|
|
|
|
|
|
|
|||||||||||||||||
|
Short-term borrowings
|
$
|
—
|
|
$
|
—
|
|
$
|
630
|
|
$
|
1,032
|
|
$
|
—
|
|
$
|
—
|
|
|||||
|
Long-term debt
|
296
|
|
641
|
|
12
|
|
12
|
|
483
|
|
516
|
|
|||||||||||
|
All other liabilities
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
1
|
|
|||||||||||
|
Total liabilities
|
$
|
296
|
|
$
|
641
|
|
$
|
642
|
|
$
|
1,044
|
|
$
|
484
|
|
$
|
517
|
|
|||||
|
(1)
|
As a holder of these securities, the Corporation receives scheduled principal and interest payments. During the
three months ended March 31, 2015 and 2014
, there were no OTTI losses recorded on those securities classified as AFS debt securities.
|
|
(2)
|
The retained senior and subordinate securities were valued using quoted market prices or observable market inputs (Level 2 of the fair value hierarchy).
|
|
(3)
|
The retained residual interests are carried at fair value which was derived using model valuations (Level 2 of the fair value hierarchy).
|
|
(4)
|
Total assets include loans the Corporation transferred with which the Corporation has continuing involvement, which may include servicing the loan.
|
169
Resecuritization Trusts
The Corporation transfers existing securities, typically MBS, into resecuritization vehicles at the request of customers seeking securities with specific characteristics. The Corporation may also resecuritize securities within its investment portfolio for purposes of improving liquidity and capital, and managing credit or interest rate risk. Generally, there are no significant ongoing activities performed in a resecuritization trust and no single investor has the unilateral ability to liquidate the trust.
The Corporation resecuritized
$6.1 billion
and
$2.3 billion
of securities during the
three months ended March 31, 2015 and 2014
. Securities transferred into resecuritization vehicles during the
three months ended March 31, 2015
and
2014
were classified as trading account assets. As such, changes in fair value were recorded in trading account profits prior to the resecuritization and no gain or loss on sale was recorded.
Municipal Bond Trusts
The Corporation administers municipal bond trusts that hold highly-rated, long-term, fixed-rate municipal bonds. The trusts obtain financing by issuing floating-rate trust certificates that reprice on a weekly or other short-term basis to third-party investors. The Corporation may transfer assets into the trusts and may also serve as remarketing agent and/or liquidity provider for the trusts. The floating-rate investors have the right to tender the certificates at specified dates. Should the Corporation be unable to remarket the tendered certificates, it may be obligated to purchase them at par under standby liquidity facilities. The Corporation also provides credit enhancement to investors in certain municipal bond trusts whereby the Corporation guarantees the payment of interest and principal on floating-rate certificates issued by these trusts in the event of default by the issuer of the underlying municipal bond.
The Corporation's liquidity commitments to unconsolidated municipal bond trusts, including those for which the Corporation was transferor, totaled
$2.0 billion
and
$2.1 billion
at
March 31, 2015
and
December 31, 2014
. The weighted-average remaining life of bonds held in the trusts at
March 31, 2015
was
seven
years. There were no material write-downs or downgrades of assets or issuers during the
three months ended March 31, 2015 and 2014
.
Automobile and Other Securitization Trusts
The Corporation transfers automobile and other loans into securitization trusts, typically to improve liquidity or manage credit risk. At
March 31, 2015
and
December 31, 2014
, the Corporation serviced assets or otherwise had continuing involvement with automobile and other securitization trusts with outstanding balances of
$1.1 billion
and
$1.9 billion
, including trusts collateralized by automobile loans of
$313 million
and
$400 million
, student loans of
$549 million
and
$609 million
, and other loans of
$209 million
and
$876 million
.
170
|
Other Variable Interest Entities
|
The table below summarizes select information related to other VIEs in which the Corporation held a variable interest at
March 31, 2015
and
December 31, 2014
.
|
Other VIEs
|
|||||||||||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||||||||||
|
(Dollars in millions)
|
Consolidated
|
Unconsolidated
|
Total
|
Consolidated
|
Unconsolidated
|
Total
|
|||||||||||||||||
|
Maximum loss exposure
|
$
|
6,731
|
|
$
|
11,392
|
|
$
|
18,123
|
|
$
|
7,981
|
|
$
|
12,391
|
|
$
|
20,372
|
|
|||||
|
On-balance sheet assets
|
|
|
|
|
|
|
|||||||||||||||||
|
Trading account assets
|
$
|
1,520
|
|
$
|
376
|
|
$
|
1,896
|
|
$
|
1,575
|
|
$
|
355
|
|
$
|
1,930
|
|
|||||
|
Derivative assets
|
5
|
|
298
|
|
303
|
|
5
|
|
284
|
|
289
|
|
|||||||||||
|
Debt securities carried at fair value
|
—
|
|
188
|
|
188
|
|
—
|
|
483
|
|
483
|
|
|||||||||||
|
Loans and leases
|
3,261
|
|
2,413
|
|
5,674
|
|
4,020
|
|
2,693
|
|
6,713
|
|
|||||||||||
|
Allowance for loan and lease losses
|
(5
|
)
|
—
|
|
(5
|
)
|
(6
|
)
|
—
|
|
(6
|
)
|
|||||||||||
|
Loans held-for-sale
|
731
|
|
667
|
|
1,398
|
|
1,267
|
|
814
|
|
2,081
|
|
|||||||||||
|
All other assets
|
1,629
|
|
6,239
|
|
7,868
|
|
1,641
|
|
6,374
|
|
8,015
|
|
|||||||||||
|
Total
|
$
|
7,141
|
|
$
|
10,181
|
|
$
|
17,322
|
|
$
|
8,502
|
|
$
|
11,003
|
|
$
|
19,505
|
|
|||||
|
On-balance sheet liabilities
|
|
|
|
|
|
|
|||||||||||||||||
|
Long-term debt
(1)
|
$
|
1,845
|
|
$
|
—
|
|
$
|
1,845
|
|
$
|
1,834
|
|
$
|
—
|
|
$
|
1,834
|
|
|||||
|
All other liabilities
|
81
|
|
2,579
|
|
2,660
|
|
105
|
|
2,643
|
|
2,748
|
|
|||||||||||
|
Total
|
$
|
1,926
|
|
$
|
2,579
|
|
$
|
4,505
|
|
$
|
1,939
|
|
$
|
2,643
|
|
$
|
4,582
|
|
|||||
|
Total assets of VIEs
|
$
|
7,141
|
|
$
|
36,968
|
|
$
|
44,109
|
|
$
|
8,502
|
|
$
|
41,467
|
|
$
|
49,969
|
|
|||||
|
(1)
|
Includes
$780 million
and
$705 million
of long-term debt at
March 31, 2015
and
$780 million
and
$584 million
of long-term debt at
December 31, 2014
issued by consolidated investment vehicles and customer vehicles, respectively, which has recourse to the general credit of the Corporation.
|
Customer Vehicles
Customer vehicles include credit-linked, equity-linked and commodity-linked note vehicles, repackaging vehicles, and asset acquisition vehicles, which are typically created on behalf of customers who wish to obtain market or credit exposure to a specific company, index, commodity or financial instrument. The Corporation may transfer assets to and invest in securities issued by these vehicles. The Corporation typically enters into credit, equity, interest rate, commodity or foreign currency derivatives to synthetically create or alter the investment profile of the issued securities.
The Corporation's maximum loss exposure to consolidated and unconsolidated customer vehicles totaled
$3.6 billion
and
$4.7 billion
at
March 31, 2015
and
December 31, 2014
, including the notional amount of derivatives to which the Corporation is a counterparty, net of losses previously recorded, and the Corporation's investment, if any, in securities issued by the vehicles. The maximum loss exposure has not been reduced to reflect the benefit of offsetting swaps with the customers or collateral arrangements. The Corporation also had liquidity commitments, including written put options and collateral value guarantees, with certain unconsolidated vehicles of
$650 million
and
$658 million
at
March 31, 2015
and
December 31, 2014
, that are included in the table above.
171
Collateralized Debt Obligation Vehicles
The Corporation receives fees for structuring CDO vehicles, which hold diversified pools of fixed-income securities, typically corporate debt or ABS, which they fund by issuing multiple tranches of debt and equity securities. Synthetic CDOs enter into a portfolio of CDS to synthetically create exposure to fixed-income securities. CLOs, which are a subset of CDOs, hold pools of loans, typically corporate loans. CDOs are typically managed by third-party portfolio managers. The Corporation typically transfers assets to these CDOs, holds securities issued by the CDOs and may be a derivative counterparty to the CDOs, including a CDS counterparty for synthetic CDOs. The Corporation has also entered into total return swaps with certain CDOs whereby the Corporation absorbs the economic returns generated by specified assets held by the CDO.
The Corporation's maximum loss exposure to consolidated and unconsolidated CDOs totaled
$732 million
and
$780 million
at
March 31, 2015
and
December 31, 2014
. This exposure is calculated on a gross basis and does not reflect any benefit from insurance purchased from third parties.
At
March 31, 2015
, the Corporation had
$1.2 billion
of aggregate liquidity exposure, included in the Other VIEs table net of previously recorded losses, to unconsolidated CDOs which hold senior CDO debt securities or other debt securities on the Corporation's behalf. For additional information, see
Note 10 – Commitments and Contingencies
.
Investment Vehicles
The Corporation sponsors, invests in or provides financing, which may be in connection with the sale of assets, to a variety of investment vehicles that hold loans, real estate, debt securities or other financial instruments and are designed to provide the desired investment profile to investors or the Corporation. At both
March 31, 2015
and
December 31, 2014
, the Corporation's consolidated investment vehicles had total assets of
$1.1 billion
. The Corporation also held investments in unconsolidated vehicles with total assets of
$8.8 billion
and
$11.2 billion
at
March 31, 2015
and
December 31, 2014
. The Corporation's maximum loss exposure associated with both consolidated and unconsolidated investment vehicles totaled
$4.3 billion
and
$5.1 billion
at
March 31, 2015
and
December 31, 2014
comprised primarily of on-balance sheet assets less non-recourse liabilities.
The Corporation transferred servicing advance receivables to independent third parties in connection with the sale of MSRs. Portions of the receivables were transferred into unconsolidated securitization trusts. The Corporation retained senior interests in such receivables with a maximum loss exposure and funding obligation of
$250 million
and
$660 million
, including a funded balance of
$150 million
and
$431 million
at
March 31, 2015
and
December 31, 2014
, which were classified in other debt securities carried at fair value.
Leveraged Lease Trusts
The Corporation's net investment in consolidated leveraged lease trusts totaled
$3.2 billion
and
$3.3 billion
at
March 31, 2015
and
December 31, 2014
. The trusts hold long-lived equipment such as rail cars, power generation and distribution equipment, and commercial aircraft. The Corporation structures the trusts and holds a significant residual interest. The net investment represents the Corporation's maximum loss exposure to the trusts in the unlikely event that the leveraged lease investments become worthless. Debt issued by the leveraged lease trusts is non-recourse to the Corporation.
Real Estate Vehicles
The Corporation held investments in unconsolidated real estate vehicles with total assets of
$6.2 billion
at both
March 31, 2015
and
December 31, 2014
, which primarily consisted of investments in unconsolidated limited partnerships that finance the construction and rehabilitation of affordable rental housing and commercial real estate. An unrelated third party is typically the general partner and has control over the significant activities of the partnership. The Corporation earns a return primarily through the receipt of tax credits allocated to the real estate projects. The Corporation's risk of loss is mitigated by policies requiring that the project qualify for the expected tax credits prior to making its investment. The Corporation may from time to time be asked to invest additional amounts to support a troubled project. Such additional investments have not been and are not expected to be significant.
172
|
|
|
Background
|
The Corporation securitizes
first-lien residential mortgage loans generally in the form of RMBS guaranteed by the
GSEs or by GNMA in the case of FHA-insured, VA-guaranteed and Rural Housing Service-guaranteed mortgage loans, and sells pools of first-lien residential mortgage loans in the form of whole loans. In addition, in prior years, legacy companies and certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as private-label securitizations (in certain of these securitizations, monoline insurers or other financial guarantee providers insured all or some of the securities) or in the form of whole loans. In connection with these transactions, the Corporation
or certain of
its
subsidiaries or legacy companies make or have made various representations and warranties.
These representations and warranties, as set forth in the agreements, related to, among other things, the ownership of the loan, the validity of the lien securing the loan, the absence of delinquent taxes or liens against the property securing the loan, the process used to select the loan for inclusion in a transaction, the loan's compliance with any applicable loan criteria, including underwriting standards, and the loan's compliance with applicable federal, state and local laws.
Breaches of these representations and warranties have resulted in and may continue to result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other remedies to the GSEs,
U.S. Department of Housing and Urban Development (HUD)
with respect to FHA-insured loans, VA, whole-loan investors, securitization trusts, monoline insurers or other financial guarantors (collectively, repurchases). In all such cases, subsequent to repurchasing the loan,
the Corporation
would be exposed to any credit loss on the repurchased mortgage loans after accounting for any
mortgage insurance (MI)
or mortgage guarantee payments that
it
may receive.
Subject to the requirements and limitations of the applicable sales and securitization agreements, these representations and warranties can be enforced by the GSEs, HUD, VA, the whole-loan investor, the securitization trustee or others as governed by the applicable agreement or, in certain first-lien and home equity securitizations where monoline insurers or other financial guarantee providers have insured all or some of the securities issued, by the monoline insurer or other financial guarantor, where the contract so provides. In the case of private-label securitizations, the applicable agreements may permit investors, which may include the GSEs, with sufficient holdings to direct or influence action by the securitization trustee. In the case of loans sold to parties other than the GSEs or GNMA, the Corporation believes the contractual liability to repurchase typically arises only if there is a breach of the representations and warranties that materially and adversely affects the interest of the investor, or investors, or of the monoline insurer or other financial guarantor (as applicable) in the loan. Contracts with the GSEs do not contain equivalent language. The Corporation believes that the longer a loan performs prior to default, the less likely it is that an alleged underwriting breach of representations and warranties would have a material impact on the loan's performance. Currently, the volume of unresolved repurchase claims from the FHA and VA for loans in GNMA-guaranteed securities is not significant because the claims are typically resolved promptly.
The liability for representations and warranties exposures and the corresponding estimated range of possible loss is based upon currently available information, significant judgment, and a number of factors and assumptions, including those discussed in Liability for Representations and Warranties and Corporate Guarantees in this Note, that are subject to change. Changes to any one of these factors could significantly impact the liability for representations and warranties exposures and the corresponding estimated range of possible loss and could have a material adverse impact on the Corporation's results of operations for any particular period.
Given that these factors vary by counterparty, the Corporation analyzes representations and warranties obligations based on the specific counterparty, or type of counterparty, with whom the sale was made. For additional information, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
|
Settlement Actions
|
The Corporation has
vigorously contested any request for repurchase when
it concludes
that a valid basis for repurchase does not exist and will continue to do so in the future. However, in an effort to resolve these legacy mortgage-related issues,
the Corporation has reached bulk settlements, including various settlements with the GSEs, including settlement amounts which have been significant, with counterparties in lieu of a loan-by-loan review process. These bulk settlements generally did not cover all transactions with the relevant counterparties or all potential claims that may arise, including in some instances securities law, fraud and servicing claims. The Corporation's liability in connection with the transactions and claims not covered by these settlements could be material to the Corporation's results of operations or cash flows for any particular reporting period. The Corporation may reach other settlements in the future if opportunities arise on terms it believes to be advantageous. However, there can be no assurance that the Corporation will reach future settlements or, if it does, that the terms of past settlements can be relied upon to predict the terms of future settlements. The following provides a summary of the settlement with Bank of New York Mellon (BNY Mellon), which remains subject to the satisfaction of certain conditions. For a discussion of other large settlement actions entered into by the Corporation in recent years, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
173
Settlement with the Bank of New York Mellon, as Trustee
On June 28, 2011, the Corporation, BAC Home Loans Servicing, LP (BAC HLS, which was subsequently merged with and into BANA in July 2011), and its Countrywide affiliates entered into a settlement agreement with BNY Mellon (BNY Mellon Settlement), as trustee (the Trustee), to resolve all outstanding and potential claims related to alleged representations and warranties breaches (including repurchase claims), substantially all historical loan servicing claims and certain other historical claims with respect to
525
Countrywide first-lien and
five
second-lien non-GSE residential mortgage-backed securitization trusts (the Covered Trusts) containing loans principally originated between
2004
and
2008
for which BNY Mellon acts as trustee or indenture trustee. The Covered Trusts had an original principal balance of approximately
$424 billion
, of which
$409 billion
was originated between
2004
and
2008
, and total outstanding principal and unpaid principal balance of loans that had defaulted (collectively, unpaid principal balance) of approximately
$220 billion
at June 28, 2011.
The BNY Mellon Settlement provides for a cash payment of
$8.5 billion
to the Trustee for distribution to the Covered Trusts after final approval of the BNY Mellon Settlement. In addition, the Corporation is obligated to pay certain attorneys' fees and costs as well as all fees and expenses incurred by the Trustee related to obtaining final approval of the BNY Mellon Settlement and certain tax rulings.
On March 5, 2015, the New York Appellate Division, First Department issued an order unanimously approving the BNY Mellon Settlement in all respects. The deadline for further appeal has passed. The BNY Mellon Settlement remains subject to certain conditions, including that an Internal Revenue Service private letter ruling be obtained confirming that the settlement will not impact the real estate mortgage investment conduit tax status of the trusts. There can be no assurance as to when or whether such conditions to the BNY Mellon Settlement will be satisfied. If final approval is not obtained by December 31, 2015, the Corporation and Countrywide may withdraw from the BNY Mellon Settlement, if the Trustee consents. If final approval is not obtained, or if the Corporation and Countrywide withdraw from the BNY Mellon Settlement in accordance with its terms, the Corporation's future representations and warranties losses could be substantially different from existing accruals and the estimated range of possible loss over existing accruals described under
Private-label Securitizations and Whole-loan Sales Experience
in this Note.
|
Unresolved Repurchase Claims
|
Unresolved representations and warranties repurchase claims
represent the notional amount of repurchase claims made by counterparties, typically the outstanding principal balance or the unpaid principal balance at the time of default
.
In the case of first-lien mortgages, the claim amount is often significantly greater than the expected loss amount due to the benefit of collateral and, in some cases
, MI or mortgage guarantee payments.
Claims received from a counterparty remain outstanding until the underlying loan is repurchased, the claim is rescinded by the counterparty or the representations and warranties claims with respect to the applicable trust are settled, and fully and finally released. When a claim is denied
and the Corporation does
not receive a response from the counterparty, the claim remains in the unresolved repurchase claims balance until resolution
. Certain of the claims that have been received are duplicate claims which represent more than one claim outstanding related to a particular loan, typically as the result of bulk claims submitted without individual file reviews.
174
The table below presents unresolved repurchase claims at
March 31, 2015
and
December 31, 2014
. The unresolved repurchase claims include only claims where the Corporation believes that the counterparty has the contractual right to submit claims. For additional information, see
Private-label Securitizations and Whole-loan Sales Experience
in this Note
.
|
Unresolved Repurchase Claims by Counterparty and Product Type
|
|
|
|||||
|
(Dollars in millions)
|
March 31
2015 |
December 31 2014
(1)
|
|||||
|
By counterparty
|
|
|
|||||
|
Private-label securitization trustees, whole-loan investors, including third-party securitization sponsors and other
(2, 3)
|
$
|
27,816
|
|
$
|
24,489
|
|
|
|
Monolines
(4)
|
1,546
|
|
1,546
|
|
|||
|
GSEs
|
45
|
|
59
|
|
|||
|
Total gross claims
(3)
|
29,407
|
|
26,094
|
|
|||
|
Duplicate claims
(5)
|
(3,625
|
)
|
(3,248
|
)
|
|||
|
Total unresolved repurchase claims by counterparty, net of duplicate claims
|
$
|
25,782
|
|
$
|
22,846
|
|
|
|
By product type
|
|||||||
|
Prime loans
|
$
|
601
|
|
$
|
587
|
|
|
|
Alt-A
|
2,734
|
|
2,397
|
|
|||
|
Home equity
|
2,649
|
|
2,485
|
|
|||
|
Pay option
|
6,399
|
|
6,294
|
|
|||
|
Subprime
|
16,276
|
|
14,121
|
|
|||
|
Other
|
748
|
|
210
|
|
|||
|
Total
(3)
|
29,407
|
|
26,094
|
|
|||
|
Duplicate claims
(5)
|
(3,625
|
)
|
(3,248
|
)
|
|||
|
Total unresolved repurchase claims by product type, net of duplicate claims
|
$
|
25,782
|
|
$
|
22,846
|
|
|
|
(1)
|
The December 31, 2014 amounts have been updated to reflect additional claims submitted from a single monoline, currently pursuing litigation, served in the fourth quarter of 2014, and addressed by the Corporation in 2015 pursuant to an existing litigation schedule. For more information on bond insurance litigation, see
Note 12 – Commitments and Contingencies
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
|
|
(2)
|
The total notional amount of unresolved repurchase claims does not include repurchase claims related to the trusts covered by the BNY Mellon Settlement.
|
|
(3)
|
Includes
$14.2 billion
and
$14.1 billion
of claims based on individual file reviews and
$13.6 billion
and
$10.4 billion
of claims submitted without individual file reviews at
March 31, 2015
and
December 31, 2014
.
|
|
(4)
|
At
March 31, 2015
, substantially all of the unresolved monoline claims are currently the subject of litigation with a single monoline insurer and predominately pertain to second-lien loans.
|
|
(5)
|
Represents more than one claim outstanding related to a particular loan, typically as the result of bulk claims submitted without individual file reviews. The
March 31, 2015
and
December 31, 2014
amounts include approximately
$3.3 billion
and
$2.9 billion
of duplicate claims related to private-label investors submitted without individual loan file reviews.
|
During the
three months ended March 31, 2015
, the Corporation received
$3.4 billion
in new repurchase claims, including
$3.2 billion
of claims submitted without individual loan file reviews. During the
three months ended March 31, 2015
,
$161 million
in claims were resolved.
The continued increase in the notional amount of unresolved repurchase claims during the
three months ended March 31, 2015
is primarily due to: (1) continued submission of claims by private-label securitization trustees, (2) the level of detail, support and analysis accompanying such claims, which impact overall claim quality and, therefore, claims resolution, (3) the lack of an established process to resolve disputes related to these claims, (4) the submission of claims where
the Corporation believes
the statute of limitations has expired under current law and (5) the submission of duplicate claims, often in multiple submissions, on the same loan
.
For example, claims submitted without individual file reviews generally lack the level of detail and analysis of individual loans found in other claims that is necessary to evaluate a claim
.
Absent any settlements,
the Corporation expects
unresolved repurchase claims related to private-label securitizations to continue to increase
as such claims continue to be submitted and there is not an established process for the ultimate resolution of such claims on which there is a disagreement.
In addition to the unresolved repurchase claims in the Unresolved Repurchase Claims by Counterparty and Product Type table, the Corporation has received notifications indicating that the Corporation may owe indemnity obligations pertaining to loans for which the Corporation has not received a repurchase request from sponsors of third-party securitizations with whom the Corporation engaged in whole-loan transactions. These notifications totaled
$2.0 billion
at both
March 31, 2015
and
December 31, 2014
.
175
The Corporation also from time to time receives correspondence purporting to raise representations and warranties breach issues from entities that do not have contractual standing or ability to bring such claims. The Corporation believes such communications to be procedurally and/or substantively invalid, and generally does not respond to such correspondence.
The presence of repurchase claims on a given trust, receipt of notices of indemnification obligations and receipt of other communications, as discussed above, are all factors that inform the Corporation's liability for obligations under representations and warranties and the corresponding estimated range of possible loss.
|
Government-sponsored Enterprises Experience
|
As a result of various bulk settlements with the GSEs, the Corporation has resolved substantially all outstanding and potential representations and warranties repurchase claims on whole loans sold by legacy Bank of America and Countrywide to FNMA and FHLMC through June 30, 2012 and December 31, 2009, respectively. After these settlements, the Corporation's exposure to representations and warranties liability for loans originated prior to 2009 and sold to the GSEs is limited to loans with an original principal balance of
$18.3 billion
and loans with certain defects excluded from the settlements that the Corporation does not believe will be material, such as certain specified violations of the GSEs' charters, fraud and title defects. As of
March 31, 2015
, of the
$18.3 billion
, approximately
$15.9 billion
in principal has been paid and
$966 million
in principal has defaulted or was severely delinquent. The notional amount of unresolved repurchase claims submitted by the GSEs was
$31 million
related to these vintages.
|
Private-label Securitizations and Whole-loan Sales Experience
|
In private-label securitizations, the applicable contracts contain provisions that investors meet certain presentation thresholds to direct a trustee to assert repurchase claims. However, in certain circumstances, the Corporation believes that trustees have presented repurchase claims without requiring investors to meet contractual voting rights thresholds.
Continued high levels of new private-label claims are primarily related to repurchase requests received from trustees for private-label securitization transactions not included in the BNY Mellon Settlement
.
A December 2013 decision by the New York Appellate Division, First Department held that, under New York law, which governs many RMBS trusts, the six-year statute of limitations starts to run at the time the representations and warranties are made, not the date when the repurchase demand was denied. That decision has been applied by the state and federal courts in several RMBS lawsuits in which the Corporation is not a party, resulting in the dismissal as untimely of claims involving representations and warranties made more than
six years
prior to the initiation of the lawsuit. Unless overturned by New York's highest appellate court, which has taken the case for review and has scheduled arguments for April 30, 2015, this decision would apply to representations and warranties claims and lawsuits brought against the Corporation where New York law governs. A significant amount of representations and warranties claims and/or lawsuits the Corporation has received or may receive involve representations and warranties claims where the statute of limitations has expired under this ruling and has not been tolled by agreement and which the Corporation therefore believes would be untimely. It is possible that in response to the statute of limitations rulings, parties seeking to pursue representations and warranties claims and/or lawsuits with respect to trusts where the statute of limitations for representations and warranties claims against the sponsor and/or issuer has run, may pursue alternate legal theories of recovery and/or assert claims against other contractual parties. For example, in 2014, institutional investors filed lawsuits against trustees alleging failure to pursue representations and warranties claims and servicer defaults based upon alleged contractual, statutory and tort theories of liability. The impact on the Corporation, if any, of such alternative legal theories or assertions is unclear.
176
The Corporation provided representations and warranties in connection with the sale of whole loans and the whole-loan investors may retain the right to make repurchase claims even when the loans were aggregated with other collateral into private-label securitizations sponsored by the whole-loan investors; in other third-party securitizations, the whole-loan investor's rights to enforce the representations and warranties were transferred to the securitization trustees. Private-label securitization investors generally do not have the contractual right to demand repurchase of loans directly or the right to access loan files directly. The majority of the repurchase claims that the Corporation has received and resolved outside of those from the GSEs and monolines are from third-party whole-loan investors. The Corporation reviews properly presented repurchase claims for these whole loans on a loan-by-loan basis. If, after the Corporation's review, it does not believe a claim is valid, it will deny the claim and generally indicate a reason for the denial. When the whole-loan investor agrees with the Corporation's denial of the claim, the whole-loan investor may rescind the claim. When there is disagreement as to the resolution of the claim, meaningful dialogue and negotiation between the parties are generally necessary to reach a resolution on an individual claim. When a claim has been denied and the Corporation does not hear from the counterparty for
six
months, the Corporation views these claims as inactive; however, they remain in the outstanding claims balance until resolution. In the case of private-label securitization trustees and third-party sponsors, there is currently no established process in place for the parties to reach a conclusion on an individual loan if there is a disagreement on the resolution of the claim. For more information on repurchase demands, see Unresolved Repurchase Claims in this Note.
At
March 31, 2015
and
December 31, 2014
, for loans originated between
2004
and
2008
, the notional amount of unresolved repurchase claims, net of duplicate claims, submitted by private-label securitization trustees, whole-loan investors, including third-party securitization sponsors, and others was
$24.1 billion
and
$21.2 billion
. These repurchase claims at
March 31, 2015
and
December 31, 2014
include claims in the amount of
$6.4 billion
and
$4.7 billion
, net of duplicate claims, where the Corporation believes the statute of limitations has expired under current law, and
$4.1 billion
and
$4.0 billion
in claims, net of duplicate claims, related to loans in specific private-label securitization groups or tranches where
the Corporation owns
substantially all of the outstanding securities.
The Corporation has performed an initial review with respect to substantially all of these claims and, although the Corporation does not believe a valid basis for repurchase has been established by the claimant, it considers such claims activity in the computation of its liability for representations and warranties.
|
Monoline Insurers Experience
|
For a description of the Corporation's experience with monoline insurers, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
and
Note 12 – Commitments and Contingencies
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
|
Open Mortgage Insurance Rescission Notices
|
||||
In addition to repurchase claims, the Corporation receives notices from mortgage insurance companies of claim denials, cancellations or coverage rescission (collectively, MI rescission notices). For more information, see
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
|
Liability for Representations and Warranties and Corporate Guarantees
|
The liability for representations and warranties and corporate guarantees is included in accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision is included in mortgage banking income in the Consolidated Statement of Income
. The liability for representations and warranties is established when those obligations are both probable and reasonably estimable.
The Corporation's liability and corresponding estimated range of possible loss at
March 31, 2015
for obligations under representations and warranties given to the GSEs considers a number of factors. These include the Corporation's experience related to actual defaults, projected future defaults, historical loss experience, estimated home prices and other economic conditions. In addition, the liability for representations and warranties and corporate guarantees and corresponding estimated range of possible loss consider such factors as the number of payments made by the borrower prior to default as well as certain other assumptions and judgmental factors.
177
The Corporation's non-GSE representations and warranties liability and the corresponding estimated range of possible loss at
March 31, 2015
considers, among other things, implied repurchase experience based on the BNY Mellon Settlement, adjusted to reflect differences between the Covered Trusts and the remainder of the population of private-label securitizations, and assumes that the conditions to the BNY Mellon Settlement will be met. Since the non-GSE securitization trusts that were included in the BNY Mellon Settlement differ from those that were not included in the BNY Mellon Settlement, the Corporation adjusted the repurchase experience implied in the settlement in order to determine the non-GSE representations and warranties liability and the corresponding estimated range of possible loss. The judgmental adjustments made include consideration of the differences in the mix of products in the subject securitizations, loan originator, likelihood of claims expected, the differences in the number of payments that the borrower has made prior to default and the sponsor of the securitizations. Where relevant, the Corporation also considers more recent experience, such as claim activity, notification of potential indemnification obligations, its experience with various counterparties, recent court decisions related to the statute of limitations as summarized above and other facts and circumstances, such as bulk settlements, as the Corporation believes appropriate.
A factor that impacts the non-GSE representations and warranties liability and the portion of the estimated range of possible loss corresponding to non-GSE representations and warranties exposures is the likelihood that claims will be presented, which is impacted by a number of factors, including contractual provisions that investors meet certain presentation thresholds under the non-GSE securitization agreements. A securitization trustee may investigate or demand repurchase on its own action, and most agreements contain a presentation threshold, for example
25 percent
of the voting rights per trust, that allows investors to declare a servicing event of default under certain circumstances or to request certain action, such as requesting loan files, that the trustee may choose to accept and follow, exempt from liability, provided the trustee is acting in good faith. If there is an uncured servicing event of default and the trustee fails to bring suit during a 60-day period, then, under most agreements, investors may file suit. In addition to this, most agreements allow investors to direct the securitization trustee to investigate loan files or demand the repurchase of loans if security holders hold a specified percentage, for example,
25 percent
, of the voting rights of each tranche of the outstanding securities. However, in certain circumstances the Corporation believes that trustees have presented repurchase claims without requiring investors to meet contractual voting rights thresholds. The population of private-label securitizations included in the BNY Mellon Settlement encompasses almost all Countrywide first-lien private-label securitizations including loans originated principally between
2004
and
2008
. For the remainder of the population of private-label securitizations, claimants have come forward on certain securitizations and the Corporation believes it is probable that other claimants may continue to come forward with claims that meet the contractual requirements of other securitizations. For more information on the representations and warranties liability and the corresponding estimated range of possible loss, see Estimated Range of Possible Loss in this Note.
The table below presents a rollforward of the liability for representations and warranties and corporate guarantees.
|
Representations and Warranties and Corporate Guarantees
|
|||||||
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Liability for representations and warranties and corporate guarantees, January 1
|
$
|
12,081
|
|
$
|
13,282
|
|
|
|
Additions for new sales
|
1
|
|
3
|
|
|||
|
Net reductions
|
(174
|
)
|
(52
|
)
|
|||
|
Provision
|
84
|
|
178
|
|
|||
|
Liability for representations and warranties and corporate guarantees, March 31
|
$
|
11,992
|
|
$
|
13,411
|
|
|
The representations and warranties liability represents the Corporation's best estimate of probable incurred losses as of
March 31, 2015
. However, it is reasonably possible that future representations and warranties losses may occur in excess of the amounts recorded for these exposures. Although the Corporation has not recorded any representations and warranties liability for certain potential private-label securitization and whole-loan exposures where the applicable statute of limitations has expired under current law, these exposures are considered in the determination of the estimated range of possible loss.
178
|
Estimated Range of Possible Loss
|
The Corporation currently estimates
that the range of possible loss for representations and warranties exposures could be up to
$4 billion
over existing accruals at
March 31, 2015
.
The estimated range of possible loss reflects principally non-GSE exposures. It represents a reasonably possible loss, but does not represent a probable loss, and is based on currently available information, significant judgment and a number of assumptions that are subject to change.
The liability for representations and warranties exposures and the corresponding estimated range of possible loss do not consider losses related to servicing (except as such losses are included as potential costs of the BNY Mellon Settlement), including foreclosure and related costs, fraud, indemnity, or claims (including for RMBS) related to securities law or monoline insurance litigations. Losses with respect to one or more of these matters could be material to the Corporation's results of operations or cash flows for any particular reporting period.
Future provisions and/or ranges of possible loss for representations and warranties may be significantly impacted if actual experiences are different from the Corporation's assumptions in predictive models, including, without limitation, ultimate resolution of the BNY Mellon Settlement, estimated repurchase rates, estimated MI rescission rates, economic conditions, estimated home prices, consumer and counterparty behavior, the applicable statute of limitations and a variety of other judgmental factors. Adverse developments with respect to one or more of the assumptions underlying the liability for representations and warranties and the corresponding estimated range of possible loss could result in significant increases to future provisions and/or the estimated range of possible loss. Finally, although the Corporation believes that the representations and warranties typically given in non-GSE transactions are less rigorous than those given in GSE transactions, the Corporation does not have sufficient experience resolving loan-level claims in non-GSE transactions to measure the impact of these differences on the probability that a loan will be required to be repurchased.
|
Cash Payments
|
||||
The Loan Repurchases and Indemnification Payments table presents first-lien and home equity loan repurchases and indemnification payments made by the Corporation to reimburse the investor or securitization trust for losses they incurred, and to resolve repurchase claims. Cash paid for loan repurchases includes the unpaid principal balance of the loan plus past due interest. The amount of loss for loan repurchases is reduced by the fair value of the underlying loan collateral. The repurchase of loans and indemnification payments related to first-lien and home equity repurchase claims generally resulted from material breaches of representations and warranties related to the loans' material compliance with the applicable underwriting standards, including borrower misrepresentation, credit exceptions without sufficient compensating factors and non-compliance with underwriting procedures. The actual representations and warranties made in a sales transaction and the resulting repurchase and indemnification activity can vary by transaction or investor. Loan repurchases or indemnification payments related to first-lien residential mortgages primarily involved the GSEs while repurchases or indemnification payments related to home equity loans primarily involved the monoline insurers.
|
Loan Repurchases and Indemnification Payments (excluding cash payments for settlements)
|
|||||||||||||||||||||||
|
|
Three Months Ended March 31
|
||||||||||||||||||||||
|
|
2015
|
2014
|
|||||||||||||||||||||
|
(Dollars in millions)
|
Unpaid
Principal
Balance
|
Cash Paid
for
Repurchases
|
Loss
|
Unpaid
Principal
Balance
|
Cash Paid
for
Repurchases
|
Loss
|
|||||||||||||||||
|
First-lien
|
|
|
|
|
|
|
|||||||||||||||||
|
Repurchases
|
$
|
35
|
|
$
|
38
|
|
$
|
10
|
|
$
|
46
|
|
$
|
51
|
|
$
|
12
|
|
|||||
|
Indemnification payments
|
99
|
|
23
|
|
23
|
|
101
|
|
28
|
|
28
|
|
|||||||||||
|
Total first-lien
|
134
|
|
61
|
|
33
|
|
147
|
|
79
|
|
40
|
|
|||||||||||
|
Home equity, indemnification payments
|
4
|
|
4
|
|
4
|
|
11
|
|
11
|
|
11
|
|
|||||||||||
|
Total first-lien and home equity
|
$
|
138
|
|
$
|
65
|
|
$
|
37
|
|
$
|
158
|
|
$
|
90
|
|
$
|
51
|
|
|||||
179
|
|
|
Goodwill
|
The table below presents goodwill balances by business segment at
March 31, 2015
and
December 31, 2014
. The reporting units utilized for goodwill impairment testing are the operating segments or one level below. For additional information, see
Note 8 – Goodwill and Intangible Assets
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
|
Goodwill
|
|||||||
|
(Dollars in millions)
|
March 31
2015 |
December 31
2014 |
|||||
|
Consumer Banking
|
$
|
30,123
|
|
$
|
30,123
|
|
|
|
Global Wealth & Investment Management
|
9,698
|
|
9,698
|
|
|||
|
Global Banking
|
23,923
|
|
23,923
|
|
|||
|
Global Markets
|
5,197
|
|
5,197
|
|
|||
|
All Other
|
835
|
|
836
|
|
|||
|
Total goodwill
|
$
|
69,776
|
|
$
|
69,777
|
|
|
For purposes of goodwill impairment testing, the Corporation utilizes allocated equity as a proxy for the carrying value of its reporting units. Allocated equity in the reporting units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit. Allocated capital is based on multiple considerations that include, but are not limited to, risk-weighted assets measured under the Basel 3 Standardized and Advanced approaches, business segment exposures and risk profile, and strategic plans. The goodwill impairment test involves comparing the fair value of each reporting unit with its carrying value, including goodwill, as measured by allocated equity.
Effective January 1, 2015, the Corporation realigned its reporting segments. See
Note 1 – Summary of Significant Accounting Principles
for additional information. As part of the realignment, the Corporation moved a portion of the Business Banking business, including
$1.6 billion
of goodwill, from the former
Consumer & Business Banking
segment to
Global Banking
. This business constitutes a new reporting unit, Business Banking Regions, within the
Global Banking
segment. The remaining portion of the Business Banking business will be evaluated with Deposits as a single reporting unit within
Consumer Banking
. Prior periods have been reclassified to conform to current period presentation. The realignment triggered a test for goodwill impairment, which was performed both immediately before and after the realignment. In performing the goodwill impairment test, the Corporation compared the fair value of the affected reporting units with their carrying value as measured by allocated equity. The fair value of the affected reporting units exceeded their carrying value and, accordingly, no goodwill impairment resulted from the realignment. See
Note 1 – Summary of Significant Accounting Principles
and
Note 8 – Goodwill and Intangible Assets
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
for additional information regarding testing goodwill for impairment.
There was
no
goodwill in
LAS
at
March 31, 2015
and
December 31, 2014
.
180
|
Intangible Assets
|
The table below presents the gross carrying value and accumulated amortization for intangible assets at
March 31, 2015
and
December 31, 2014
.
|
Intangible Assets
(1, 2)
|
|||||||||||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||||||||||
|
(Dollars in millions)
|
Gross
Carrying Value
|
Accumulated
Amortization
|
Net
Carrying Value
|
Gross
Carrying Value
|
Accumulated
Amortization
|
Net
Carrying Value |
|||||||||||||||||
|
Purchased credit card relationships
|
$
|
5,457
|
|
$
|
4,555
|
|
$
|
902
|
|
$
|
5,504
|
|
$
|
4,527
|
|
$
|
977
|
|
|||||
|
Core deposit intangibles
|
1,779
|
|
1,414
|
|
365
|
|
1,779
|
|
1,382
|
|
397
|
|
|||||||||||
|
Customer relationships
|
4,025
|
|
2,735
|
|
1,290
|
|
4,025
|
|
2,648
|
|
1,377
|
|
|||||||||||
|
Affinity relationships
|
1,557
|
|
1,297
|
|
260
|
|
1,565
|
|
1,283
|
|
282
|
|
|||||||||||
|
Other intangibles
|
2,045
|
|
471
|
|
1,574
|
|
2,045
|
|
466
|
|
1,579
|
|
|||||||||||
|
Total intangible assets
|
$
|
14,863
|
|
$
|
10,472
|
|
$
|
4,391
|
|
$
|
14,918
|
|
$
|
10,306
|
|
$
|
4,612
|
|
|||||
|
(1)
|
Excludes fully amortized intangible assets.
|
|
(2)
|
At
March 31, 2015
and
December 31, 2014
, none of the intangible assets were impaired.
|
The table below presents intangible asset amortization expense for the
three months ended March 31, 2015 and 2014
.
|
Amortization Expense
|
|||||||
|
|
Three Months Ended
March 31 |
||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Purchased credit card and Affinity relationships
|
$
|
89
|
|
$
|
105
|
|
|
|
Core deposit intangibles
|
32
|
|
36
|
|
|||
|
Customer relationships
|
87
|
|
91
|
|
|||
|
Other intangibles
|
5
|
|
7
|
|
|||
|
Total amortization expense
|
$
|
213
|
|
$
|
239
|
|
|
The table below presents estimated future intangible asset amortization expense as of
March 31, 2015
.
|
Estimated Future Amortization Expense
|
|||||||||||||||||||||||
|
(Dollars in millions)
|
Remainder of
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
|||||||||||||||||
|
Purchased credit card and Affinity relationships
|
$
|
268
|
|
$
|
299
|
|
$
|
239
|
|
$
|
180
|
|
$
|
121
|
|
$
|
62
|
|
|||||
|
Core deposit intangibles
|
91
|
|
104
|
|
90
|
|
80
|
|
—
|
|
—
|
|
|||||||||||
|
Customer relationships
|
253
|
|
325
|
|
310
|
|
302
|
|
—
|
|
—
|
|
|||||||||||
|
Other intangibles
|
10
|
|
9
|
|
6
|
|
3
|
|
2
|
|
—
|
|
|||||||||||
|
Total estimated future amortization expense
|
$
|
622
|
|
$
|
737
|
|
$
|
645
|
|
$
|
565
|
|
$
|
123
|
|
$
|
62
|
|
|||||
181
|
|
The table below presents federal funds sold or purchased, securities financing agreements, which include securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase, and short-term borrowings.
|
|
Three Months Ended March 31
|
|||||||||||||
|
|
Amount
|
Rate
|
||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
2015
|
2014
|
||||||||||
|
Average during period
|
|
|
|
|
||||||||||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
$
|
213,931
|
|
$
|
212,504
|
|
0.44
|
%
|
0.51
|
%
|
||||
|
Federal funds purchased and securities loaned or sold under agreements to repurchase
|
$
|
214,722
|
|
$
|
204,804
|
|
0.94
|
%
|
1.03
|
%
|
||||
|
Short-term borrowings
|
29,412
|
|
48,168
|
|
1.47
|
|
0.75
|
|
||||||
|
Total
|
$
|
244,134
|
|
$
|
252,972
|
|
1.01
|
|
0.97
|
|
||||
|
Maximum month-end balance during period
|
|
|
|
|
||||||||||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
$
|
226,502
|
|
$
|
219,181
|
|
||||||||
|
Federal funds purchased and securities loaned or sold under agreements to repurchase
|
$
|
219,212
|
|
$
|
216,884
|
|
|
|
||||||
|
Short-term borrowings
|
33,270
|
|
51,409
|
|
|
|
||||||||
|
|
March 31, 2015
|
December 31, 2014
|
||||||||||||
|
|
Amount
|
Rate
|
Amount
|
Rate
|
||||||||||
|
Period-end
|
|
|
||||||||||||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
$
|
206,708
|
|
0.42
|
%
|
$
|
191,823
|
|
0.47
|
%
|
||||
|
Federal funds purchased and securities loaned or sold under agreements to repurchase
|
$
|
203,758
|
|
1.02
|
%
|
$
|
201,277
|
|
0.98
|
%
|
||||
|
Short-term borrowings
|
33,270
|
|
2.00
|
|
31,172
|
|
1.47
|
|
||||||
|
Total
|
$
|
237,028
|
|
1.12
|
|
$
|
232,449
|
|
1.04
|
|
||||
182
|
Offsetting of Securities Financing Agreements
|
Substantially all of the Corporation's repurchase and resale activities are transacted under legally enforceable master repurchase agreements that give the Corporation, in the event of default by the counterparty, the right to liquidate securities held and to offset receivables and payables with the same counterparty. The Corporation offsets repurchase and resale transactions with the same counterparty on the Consolidated Balance Sheet where it has such a legally enforceable master netting agreement and the transactions have the same maturity date.
Substantially all securities borrowing and lending activities are transacted under legally enforceable master securities lending agreements that give the Corporation, in the event of default by the counterparty, the right to liquidate securities held and to offset receivables and payables with the same counterparty. The Corporation offsets securities borrowing and lending transactions with the same counterparty on the Consolidated Balance Sheet where it has such a legally enforceable master netting agreement and the transactions have the same maturity date.
The Securities Financing Agreements table presents securities financing agreements included on the Consolidated Balance Sheet in federal funds sold and securities borrowed or purchased under agreements to resell, and in federal funds purchased and securities loaned or sold under agreements to repurchase at
March 31, 2015
and
December 31, 2014
. Balances are presented on a gross basis, prior to the application of counterparty netting. Gross assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements. For more information on the offsetting of derivatives, see
Note 2 – Derivatives
.
The "Other" amount in the table, which is included on the Consolidated Balance Sheet in accrued expenses and other liabilities, relates to transactions where the Corporation acts as the lender in a securities lending agreement and receives securities that can be pledged or sold as collateral. In these transactions, the Corporation recognizes an asset at fair value, representing the securities received, and a liability, representing the obligation to return those securities.
Gross assets and liabilities in the table include activity where uncertainty exists as to the enforceability of certain master netting agreements under bankruptcy laws in some countries or industries and, accordingly, these are reported on a gross basis.
The column titled "Financial Instruments" in the table includes securities collateral received or pledged under repurchase or securities lending agreements where there is a legally enforceable master netting agreement. These amounts are not offset on the Consolidated Balance Sheet, but are shown as a reduction to the net balance sheet amount in this table to derive a net asset or liability. Securities collateral received or pledged where the legal enforceability of the master netting agreements is not certain is not included.
|
Securities Financing Agreements
|
|||||||||||||||||||
|
March 31, 2015
|
|||||||||||||||||||
|
(Dollars in millions)
|
Gross Assets/Liabilities
|
Amounts Offset
|
Net Balance Sheet Amount
|
Financial Instruments
|
Net Assets/Liabilities
|
||||||||||||||
|
Securities borrowed or purchased under agreements to resell
(1)
|
$
|
343,394
|
|
$
|
(136,686
|
)
|
$
|
206,708
|
|
$
|
(164,058
|
)
|
$
|
42,650
|
|
||||
|
Securities loaned or sold under agreements to repurchase
|
$
|
340,431
|
|
$
|
(136,686
|
)
|
$
|
203,745
|
|
$
|
(165,035
|
)
|
$
|
38,710
|
|
||||
|
Other
|
12,326
|
|
—
|
|
12,326
|
|
(12,326
|
)
|
—
|
|
|||||||||
|
Total
|
$
|
352,757
|
|
$
|
(136,686
|
)
|
$
|
216,071
|
|
$
|
(177,361
|
)
|
$
|
38,710
|
|
||||
|
December 31, 2014
|
|||||||||||||||||||
|
Securities borrowed or purchased under agreements to resell
(1)
|
$
|
316,567
|
|
$
|
(124,744
|
)
|
$
|
191,823
|
|
$
|
(145,573
|
)
|
$
|
46,250
|
|
||||
|
Securities loaned or sold under agreements to repurchase
|
$
|
326,007
|
|
$
|
(124,744
|
)
|
$
|
201,263
|
|
$
|
(164,306
|
)
|
$
|
36,957
|
|
||||
|
Other
|
11,641
|
|
—
|
|
11,641
|
|
(11,641
|
)
|
—
|
|
|||||||||
|
Total
|
$
|
337,648
|
|
$
|
(124,744
|
)
|
$
|
212,904
|
|
$
|
(175,947
|
)
|
$
|
36,957
|
|
||||
|
(1)
|
Excludes repurchase activity of
$7.7 billion
and
$5.6 billion
reported in loans and leases on the Consolidated Balance Sheet at
March 31, 2015
and
December 31, 2014
.
|
183
|
|
In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those instruments recorded on the Consolidated Balance Sheet. For more information on commitments and contingencies, see
Note 12 – Commitments and Contingencies
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
|
Credit Extension Commitments
|
The Corporation enters into commitments to extend credit such as loan commitments, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of its customers. The table below includes the notional amount of unfunded legally binding lending commitments net of amounts distributed (e.g., syndicated) to other financial institutions of
$14.6 billion
and
$15.7 billion
at
March 31, 2015
and
December 31, 2014
. At
March 31, 2015
, the carrying value of these commitments, excluding commitments accounted for under the fair value option, was
$556 million
, including deferred revenue of
$19 million
and a reserve for unfunded lending commitments of
$537 million
. At
December 31, 2014
, the comparable amounts were
$546 million
,
$18 million
and
$528 million
, respectively. The carrying value of these commitments is classified in accrued expenses and other liabilities on the Consolidated Balance Sheet.
The table below also includes the notional amount of commitments of
$8.9 billion
and
$9.9 billion
at
March 31, 2015
and
December 31, 2014
that are accounted for under the fair value option. However, the table below excludes cumulative net fair value adjustments of
$329 million
and
$405 million
on these commitments, which are classified in accrued expenses and other liabilities. For more information regarding the Corporation's loan commitments accounted for under the fair value option, see
Note 15 – Fair Value Option
.
|
Credit Extension Commitments
|
|||||||||||||||||||
|
|
March 31, 2015
|
||||||||||||||||||
|
(Dollars in millions)
|
Expire in
One Year
or Less
|
Expire After
One Year Through
Three Years |
Expire After Three Years Through
Five Years |
Expire After Five Years
|
Total
|
||||||||||||||
|
Notional amount of credit extension commitments
|
|
|
|
|
|
||||||||||||||
|
Loan commitments
|
$
|
76,170
|
|
$
|
103,314
|
|
$
|
143,400
|
|
$
|
26,557
|
|
$
|
349,441
|
|
||||
|
Home equity lines of credit
|
6,440
|
|
20,439
|
|
9,931
|
|
16,551
|
|
53,361
|
|
|||||||||
|
Standby letters of credit and financial guarantees
(1)
|
10,020
|
|
4,290
|
|
931
|
|
18,441
|
|
33,682
|
|
|||||||||
|
Letters of credit
|
1,643
|
|
293
|
|
30
|
|
48
|
|
2,014
|
|
|||||||||
|
Legally binding commitments
|
94,273
|
|
128,336
|
|
154,292
|
|
61,597
|
|
438,498
|
|
|||||||||
|
Credit card lines
(2)
|
369,533
|
|
—
|
|
—
|
|
—
|
|
369,533
|
|
|||||||||
|
Total credit extension commitments
|
$
|
463,806
|
|
$
|
128,336
|
|
$
|
154,292
|
|
$
|
61,597
|
|
$
|
808,031
|
|
||||
|
|
December 31, 2014
|
||||||||||||||||||
|
Notional amount of credit extension commitments
|
|
|
|
|
|
||||||||||||||
|
Loan commitments
|
$
|
79,897
|
|
$
|
97,583
|
|
$
|
146,743
|
|
$
|
18,942
|
|
$
|
343,165
|
|
||||
|
Home equity lines of credit
|
6,292
|
|
19,679
|
|
12,319
|
|
15,417
|
|
53,707
|
|
|||||||||
|
Standby letters of credit and financial guarantees
(1)
|
19,259
|
|
9,106
|
|
4,519
|
|
1,807
|
|
34,691
|
|
|||||||||
|
Letters of credit
|
1,883
|
|
157
|
|
35
|
|
88
|
|
2,163
|
|
|||||||||
|
Legally binding commitments
|
107,331
|
|
126,525
|
|
163,616
|
|
36,254
|
|
433,726
|
|
|||||||||
|
Credit card lines
(2)
|
363,989
|
|
—
|
|
—
|
|
—
|
|
363,989
|
|
|||||||||
|
Total credit extension commitments
|
$
|
471,320
|
|
$
|
126,525
|
|
$
|
163,616
|
|
$
|
36,254
|
|
$
|
797,715
|
|
||||
|
(1)
|
The notional amounts of SBLCs and financial guarantees classified as investment grade and non-investment grade based on the credit quality of the underlying reference name within the instrument were
$25.3 billion
and
$8.0 billion
at
March 31, 2015
, and
$26.1 billion
and
$8.2 billion
at
December 31, 2014
. Amounts include consumer SBLCs of
$373 million
and
$396 million
at
March 31, 2015
and
December 31, 2014
.
|
|
(2)
|
Includes business card unused lines of credit.
|
Legally binding commitments to extend credit generally have specified rates and maturities. Certain of these commitments have adverse change clauses that help to protect the Corporation against deterioration in the borrower's ability to pay.
184
|
Other Commitments
|
At
March 31, 2015
and
December 31, 2014
, the Corporation had commitments to purchase loans (e.g., residential mortgage and commercial real estate) of
$2.2 billion
and
$1.8 billion
, which upon settlement will be included in loans or LHFS.
At
March 31, 2015
and
December 31, 2014
, the Corporation had commitments to enter into forward-dated resale and securities borrowing agreements of
$105.8 billion
and
$73.2 billion
, and commitments to enter into forward-dated repurchase and securities lending agreements of
$85.1 billion
and
$55.8 billion
. These commitments expire within the next 12 months.
The Corporation is a party to operating leases for certain of its premises and equipment. Commitments under these leases are approximately
$1.9 billion
,
$2.3 billion
,
$1.9 billion
,
$1.5 billion
and
$1.3 billion
for the remainder of
2015
and the years through
2019
, respectively, and
$5.1 billion
in the aggregate for all years
thereafter
.
|
Other Guarantees
|
Bank-owned Life Insurance Book Value Protection
The Corporation sells products that offer book value protection to insurance carriers who offer group life insurance policies to corporations, primarily banks. The book value protection is provided on portfolios of intermediate investment-grade fixed-income securities and is intended to cover any shortfall in the event that policyholders surrender their policies and market value is below book value. These guarantees are recorded as derivatives and carried at fair value in the trading portfolio. At both
March 31, 2015
and
December 31, 2014
, the notional amount of these guarantees totaled
$13.6 billion
and the Corporation's maximum exposure related to these guarantees totaled
$3.1 billion
with estimated maturity dates between 2031 and 2039. The net fair value including the fee receivable associated with these guarantees was
$22 million
and
$25 million
at
March 31, 2015
and
December 31, 2014
, and reflects the probability of surrender as well as the multiple structural protection features in the contracts.
Merchant Services
In accordance with credit and debit card association rules, the Corporation sponsors merchant processing servicers that process credit and debit card transactions on behalf of various merchants. In connection with these services, a liability may arise in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder's favor. If the merchant defaults on its obligation to reimburse the cardholder, the cardholder, through its issuing bank, generally has until six months after the date of the transaction to present a chargeback to the merchant processor, which is primarily liable for any losses on covered transactions. However, if the merchant processor fails to meet its obligation to reimburse the cardholder for disputed transactions, then the Corporation, as the sponsor, could be held liable for the disputed amount. For the
three months ended March 31, 2015 and 2014
, the sponsored entities processed and settled
$154.6 billion
and
$149.4 billion
of transactions and recorded losses of
$4 million
in both periods. A significant portion of this activity was processed by a joint venture in which the Corporation holds a
49 percent
ownership. At
March 31, 2015
and
December 31, 2014
, the sponsored merchant processing servicers held as collateral
$143 million
and
$130 million
of merchant escrow deposits which may be used to offset amounts due from the individual merchants.
The Corporation believes the maximum potential exposure for chargebacks would not exceed the total amount of merchant transactions processed through Visa and MasterCard for the last six months, which represents the claim period for the cardholder, plus any outstanding delayed-delivery transactions. As of
March 31, 2015
and
December 31, 2014
, the maximum potential exposure for sponsored transactions totaled
$262.1 billion
and
$269.3 billion
. However, the Corporation believes that the maximum potential exposure is not representative of the actual potential loss exposure and does not expect to make material payments in connection with these guarantees.
Other Derivative Contracts
The Corporation funds selected assets, including securities issued by CDOs and CLOs, through derivative contracts, typically total return swaps, with third parties and VIEs that are not consolidated by the Corporation. The total notional amount of these derivative contracts was
$494 million
and
$527 million
with commercial banks at
March 31, 2015
and
December 31, 2014
and
$1.2 billion
with VIEs at both
March 31, 2015
and
December 31, 2014
. The underlying securities are senior securities and substantially all of the Corporation's exposures are insured. Accordingly, the Corporation's exposure to loss consists principally of counterparty risk to the insurers. In certain circumstances, generally as a result of ratings downgrades, the Corporation may be required to purchase the underlying assets, which would not result in additional gain or loss to the Corporation as such exposure is already reflected in the fair value of the derivative contracts.
185
Other Guarantees
The Corporation has entered into additional guarantee agreements and commitments, including sold risk participation swaps, liquidity facilities, lease-end obligation agreements, partial credit guarantees on certain leases, real estate joint venture guarantees, divested business commitments and sold put options that require gross settlement. The maximum potential future payment under these agreements was approximately
$6.3 billion
and
$6.2 billion
at
March 31, 2015
and
December 31, 2014
. The estimated maturity dates of these obligations extend up to 2040. The Corporation has made no material payments under these guarantees.
In the normal course of business, the Corporation periodically guarantees the obligations of its affiliates in a variety of transactions including ISDA-related transactions and non-ISDA related transactions such as commodities trading, repurchase agreements, prime brokerage agreements and other transactions.
Payment Protection Insurance Claims Matter
In the U.K., the Corporation previously sold payment protection insurance (PPI) through its international card services business to credit card customers and consumer loan customers. PPI covers a consumer's loan or debt repayment if certain events occur such as loss of job or illness. In response to an elevated level of customer complaints across the industry, heightened media coverage and pressure from consumer advocacy groups, the U.K. Financial Services Authority, which has subsequently been replaced by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), investigated and raised concerns about the way some companies have handled complaints related to the sale of these insurance policies. In connection with this matter, the Corporation established a reserve for PPI. The reserve was
$266 million
and
$378 million
at
March 31, 2015
and
December 31, 2014
. The Corporation recorded
no
expense for the
three months ended March 31, 2015
compared to
$141 million
of expense for the
same period in 2014
. It is reasonably possible that the Corporation will incur additional expense related to PPI claims; however, the amount of such additional expense cannot be reasonably estimated.
|
Litigation and Regulatory Matters
|
The following supplements the disclosure in
Note 12 – Commitments and Contingencies
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
(the prior commitments and contingencies disclosure).
In the ordinary course of business, the Corporation and its subsidiaries are routinely defendants in or parties to many pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and proceedings are generally based on alleged violations of consumer protection, securities, environmental, banking, employment, contract and other laws. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Corporation and its subsidiaries.
In the ordinary course of business, the Corporation and its subsidiaries are also subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations, and threatened legal actions and proceedings. For example, certain subsidiaries of the Corporation are registered broker-dealers or investment advisors and are subject to regulation by the SEC, the Financial Industry Regulatory Authority, the European Commission, the PRA, the FCA and other international, federal and state securities regulators. In connection with formal and informal inquiries, the Corporation and its subsidiaries receive numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of the Corporation's regulated activities.
In view of the inherent difficulty of predicting the outcome of such litigation, regulatory and governmental matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Corporation generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter may be.
186
In accordance with applicable accounting guidance, the Corporation establishes an accrued liability for litigation, regulatory and governmental matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. As a litigation, regulatory or governmental matter develops, the Corporation, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. When a loss contingency is not both probable and estimable, the Corporation does not establish an accrued liability. If, at the time of evaluation, the loss contingency related to a litigation, regulatory or governmental matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable. Once the loss contingency related to a litigation, regulatory or governmental matter is deemed to be both probable and estimable, the Corporation will establish an accrued liability with respect to such loss contingency and record a corresponding amount of litigation-related expense. The Corporation continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Excluding expenses of internal or external legal service providers, litigation-related expense of
$370 million
and
$6.0 billion
was recognized for the
three months ended March 31, 2015 and 2014
.
For a limited number of the matters disclosed in this Note, and in the prior commitments and contingencies disclosure, for which a loss, whether in excess of a related accrued liability or where there is no accrued liability, is reasonably possible in future periods, the Corporation is able to estimate a range of possible loss. In determining whether it is possible to estimate a range of possible loss, the Corporation reviews and evaluates its material litigation, regulatory and governmental matters on an ongoing basis, in conjunction with any outside counsel handling the matter, in light of potentially relevant factual and legal developments. These may include information learned through the discovery process, rulings on dispositive motions, settlement discussions, and other rulings by courts, arbitrators or others. In cases in which the Corporation possesses sufficient appropriate information to estimate a range of possible loss, that estimate is aggregated and disclosed below. There may be other disclosed matters for which a loss is probable or reasonably possible but such an estimate of the range of possible loss may not be possible. For those matters where an estimate of the range of possible loss is possible, management currently estimates the aggregate range of possible loss is
$0
to
$2.5 billion
in excess of the accrued liability (if any) related to those matters. This estimated range of possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions, and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate. Those matters for which an estimate is not possible are not included within this estimated range. Therefore, this estimated range of possible loss represents what the Corporation believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Corporation's maximum loss exposure.
Information is provided below, or in the prior commitments and contingencies disclosure, regarding the nature of all of these contingencies and, where specified, the amount of the claim associated with these loss contingencies. Based on current knowledge, management does not believe that loss contingencies arising from pending matters, including the matters described herein and in the prior commitments and contingencies disclosure, will have a material adverse effect on the consolidated financial position or liquidity of the Corporation. However, in light of the inherent uncertainties involved in these matters, some of which are beyond the Corporation's control, and the very large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Corporation's results of operations or cash flows for any particular reporting period.
Interchange and Related Litigation
Following approval of the class settlement agreement, a number of class members opted out of the settlement; the Corporation was named in
two
opt-out suits, as well as in an action brought by cardholders. In the cardholder action, the parties have moved for reconsideration of the court's November 26, 2014 decision dismissing the Sherman Act claim, and have also appealed the decision to the U.S. Court of Appeals for the Second Circuit.
LIBOR, Other Reference Rate and Foreign Exchange (FX) Inquiries and Litigation
In the civil actions filed against the Corporation and other FX market participants, plaintiff in the Foreign Action appealed the dismissal of the action, but voluntarily dismissed the appeal with prejudice on April 24, 2015. In April 2015, the Corporation and BANA agreed to settle the U.S. Action for
$180 million
, which was fully accrued as of March 31, 2015. The agreement is subject to execution of a final settlement agreement and court approval.
187
Mortgage-backed Securities Litigation
Prudential Insurance Litigation
The parties have agreed to resolve Prudential's claims for an amount that is not material to the Corporation's results of operations, and that was fully accrued as of March 31, 2015. Pursuant to the settlement, Prudential has filed stipulations for dismissal of all claims with prejudice.
Ocala Investor Litigation
On March 25, 2015, BANA and Deutsche Bank AG entered into a final agreement to settle the 2009 Actions. On March 30, 2015, BANA and BNP Paribas Mortgage Corporation entered into a final agreement to settle the 2009 Actions. The aggregate amount of the settlements was
$315 million
, which was fully accrued as of December 31, 2014.
O'Donnell Litigation
On February 20, 2015, Countrywide Home Loans, Inc., Countrywide Bank, FSB and BANA appealed the verdict and judgment previously rendered by the U.S. District Court for the Southern District of New York to the U.S. Court of Appeals for the Second Circuit.
Policemen's Annuity Litigation
On March 12, 2015, the court approved the settlement in all respects and issued a final judgment dismissing all claims with prejudice.
188
|
|
|
Common Stock
|
The table below presents the declared quarterly cash dividends on common stock in
2015
and through
April 29, 2015
.
|
Declaration Date
|
Record Date
|
Payment Date
|
Dividend Per Share
|
|
|
April 16, 2015
|
June 5, 2015
|
June 26, 2015
|
$0.05
|
|
|
February 10, 2015
|
March 6, 2015
|
March 27, 2015
|
0.05
|
|
During the
three months ended March 31, 2015
, in connection with employee stock plans, the Corporation issued approximately
7 million
shares and repurchased approximately
3 million
shares of its common stock to satisfy tax withholding obligations. At
March 31, 2015
, the Corporation had reserved
1.8 billion
unissued shares of common stock for future issuances under employee stock plans, common stock warrants, convertible notes and preferred stock.
The Corporation has certain warrants outstanding and exercisable to purchase
150.4 million
shares of its common stock, expiring on January 16, 2019 and warrants outstanding and exercisable to purchase
121.8 million
shares of its common stock, expiring on October 28, 2018. These warrants were originally issued in connection with preferred stock issuances to the U.S. Department of the Treasury in 2009 and 2008, and are listed on the New York Stock Exchange. The exercise price of these warrants is subject to continued adjustment each time the quarterly cash dividend is in excess of
$0.01
per common share to compensate the holders of the warrants for dilution resulting from an increased dividend. As a result of the Corporation's first-quarter 2015 dividend of
$0.05
per common share, the exercise price of the warrants expiring on January 16, 2019 was adjusted to
$13.20
. The warrants expiring on October 28, 2018 also contain this anti-dilution provision except the adjustment is triggered only when the Corporation declares quarterly dividends at a level greater than
$0.32
per common share.
|
Preferred Stock
|
During the three months ended
March 31, 2015
, the Corporation declared
$382 million
of cash dividends on preferred stock, of which
$319 million
was paid during the quarter with the remainder paid in April 2015.
On January 27, 2015, the Corporation issued
44,000
shares of its
6.500%
Non-Cumulative Preferred Stock, Series Y for
$1.1 billion
. Dividends will be paid quarterly commencing on April 27, 2015. On March 17, 2015, the Corporation issued
76,000
shares of its Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series AA for
$1.9 billion
. Dividends will be paid semi-annually commencing on September 17, 2015. Series Y and AA preferred stock have a liquidation preference of
$25,000
per share and are subject to certain restrictions in the event that the Corporation fails to declare and pay full dividends.
|
Restricted Stock Units
|
During the
three months ended March 31, 2015
, the Corporation granted
131 million
restricted stock unit (RSU) awards to certain employees under the Key Associate Stock Plan. Generally, one-third of the RSUs vest on each of the first three anniversaries of the grant date provided that the employee remains continuously employed with the Corporation during that time. Except for
two million
RSUs that are authorized to settle in shares of common stock of the Corporation, the RSUs will be paid in cash to the employees on the vesting date based on the fair value of the Corporation's common stock as of the vesting date. The RSUs are expensed ratably over the vesting period, net of estimated forfeitures, for non-retirement eligible employees based upon the fair value of the Corporation's common stock on the accrual date. For RSUs granted to employees who are retirement eligible or will become retirement eligible during the vesting period, the RSUs are expensed as of the grant date or ratably over the period from the grant date to the date the employee becomes retirement eligible, net of estimated forfeitures. The accrued liability for the RSUs is adjusted to fair value based on changes in the fair value of the Corporation's common stock. The Corporation enters into cash-settled equity derivatives for a significant portion of the RSUs to minimize the change in expense driven by fluctuations in the fair value of the RSUs over the applicable vesting period. For additional information, see
Note 18 – Stock-based Compensation Plans
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
189
|
|
The table below presents the changes in accumulated OCI after-tax for the
three months ended March 31, 2015 and 2014
.
|
(Dollars in millions)
|
Available-for-sale Debt Securities
|
Available-for-sale
Marketable
Equity Securities
|
Derivatives
|
Employee
Benefit Plans
|
Foreign
Currency
(1)
|
Total
|
|||||||||||||||||
|
Balance, December 31, 2013
|
$
|
(3,257
|
)
|
$
|
(4
|
)
|
$
|
(2,277
|
)
|
$
|
(2,407
|
)
|
$
|
(512
|
)
|
$
|
(8,457
|
)
|
|||||
|
Net change
|
1,297
|
|
(8
|
)
|
208
|
|
49
|
|
(126
|
)
|
1,420
|
|
|||||||||||
|
Balance, March 31, 2014
|
$
|
(1,960
|
)
|
$
|
(12
|
)
|
$
|
(2,069
|
)
|
$
|
(2,358
|
)
|
$
|
(638
|
)
|
$
|
(7,037
|
)
|
|||||
|
Balance, December 31, 2014
|
$
|
1,343
|
|
$
|
17
|
|
$
|
(1,661
|
)
|
$
|
(3,350
|
)
|
$
|
(669
|
)
|
$
|
(4,320
|
)
|
|||||
|
Net change
|
1,317
|
|
19
|
|
43
|
|
25
|
|
(51
|
)
|
1,353
|
|
|||||||||||
|
Balance, March 31, 2015
|
$
|
2,660
|
|
$
|
36
|
|
$
|
(1,618
|
)
|
$
|
(3,325
|
)
|
$
|
(720
|
)
|
$
|
(2,967
|
)
|
|||||
|
(1)
|
The net change in fair value represents the impact of changes in spot foreign exchange rates on the Corporation's net investment in non-U.S. operations and related hedges.
|
The table below presents the net change in fair value recorded in accumulated OCI, net realized gains and losses reclassified into earnings and other changes for each component of OCI before- and after-tax for the
three months ended March 31, 2015 and 2014
.
|
Changes in OCI Components Before- and After-tax
|
|||||||||||||||||||||||
|
Three Months Ended March 31
|
|||||||||||||||||||||||
|
2015
|
2014
|
||||||||||||||||||||||
|
(Dollars in millions)
|
Before-tax
|
Tax effect
|
After-tax
|
Before-tax
|
Tax effect
|
After-tax
|
|||||||||||||||||
|
Available-for-sale debt securities:
|
|||||||||||||||||||||||
|
Net increase in fair value
|
$
|
2,320
|
|
$
|
(880
|
)
|
$
|
1,440
|
|
$
|
2,389
|
|
$
|
(859
|
)
|
$
|
1,530
|
|
|||||
|
Net realized gains reclassified into earnings
|
(198
|
)
|
75
|
|
(123
|
)
|
(376
|
)
|
143
|
|
(233
|
)
|
|||||||||||
|
Net change
|
2,122
|
|
(805
|
)
|
1,317
|
|
2,013
|
|
(716
|
)
|
1,297
|
|
|||||||||||
|
Available-for-sale marketable equity securities:
|
|||||||||||||||||||||||
|
Net increase (decrease) in fair value
|
32
|
|
(13
|
)
|
19
|
|
(13
|
)
|
5
|
|
(8
|
)
|
|||||||||||
|
Net change
|
32
|
|
(13
|
)
|
19
|
|
(13
|
)
|
5
|
|
(8
|
)
|
|||||||||||
|
Derivatives:
|
|||||||||||||||||||||||
|
Net increase (decrease) in fair value
|
(186
|
)
|
69
|
|
(117
|
)
|
173
|
|
(47
|
)
|
126
|
|
|||||||||||
|
Net realized losses reclassified into earnings
|
256
|
|
(96
|
)
|
160
|
|
131
|
|
(49
|
)
|
82
|
|
|||||||||||
|
Net change
|
70
|
|
(27
|
)
|
43
|
|
304
|
|
(96
|
)
|
208
|
|
|||||||||||
|
Employee benefit plans:
|
|||||||||||||||||||||||
|
Net decrease in fair value
|
(2
|
)
|
1
|
|
(1
|
)
|
—
|
|
—
|
|
—
|
|
|||||||||||
|
Net realized losses reclassified into earnings
|
42
|
|
(16
|
)
|
26
|
|
13
|
|
(5
|
)
|
8
|
|
|||||||||||
|
Settlements, curtailments and other
|
—
|
|
—
|
|
—
|
|
—
|
|
41
|
|
41
|
|
|||||||||||
|
Net change
|
40
|
|
(15
|
)
|
25
|
|
13
|
|
36
|
|
49
|
|
|||||||||||
|
Foreign currency:
|
|||||||||||||||||||||||
|
Net decrease in fair value
|
462
|
|
(513
|
)
|
(51
|
)
|
(96
|
)
|
(29
|
)
|
(125
|
)
|
|||||||||||
|
Net realized gains reclassified into earnings
|
—
|
|
—
|
|
—
|
|
(2
|
)
|
1
|
|
(1
|
)
|
|||||||||||
|
Net change
|
462
|
|
(513
|
)
|
(51
|
)
|
(98
|
)
|
(28
|
)
|
(126
|
)
|
|||||||||||
|
Total other comprehensive income
|
$
|
2,726
|
|
$
|
(1,373
|
)
|
$
|
1,353
|
|
$
|
2,219
|
|
$
|
(799
|
)
|
$
|
1,420
|
|
|||||
190
The table below presents impacts on net income of significant amounts reclassified out of each component of accumulated OCI before- and after-tax for the
three months ended March 31, 2015 and 2014
. There were no amounts reclassified out of AFS marketable equity securities for the
three months ended March 31, 2015 and 2014
.
|
Reclassifications Out of Accumulated OCI
|
||||||||
|
(Dollars in millions)
|
Three Months Ended March 31
|
|||||||
|
Accumulated OCI Components
|
Income Statement Line Item Impacted
|
2015
|
|
2014
|
||||
|
Available-for-sale debt securities:
|
||||||||
|
Gains on sales of debt securities
|
$
|
268
|
|
$
|
377
|
|
||
|
Other loss
|
(70
|
)
|
(1
|
)
|
||||
|
Income before income taxes
|
198
|
|
376
|
|
||||
|
Income tax expense
|
75
|
|
143
|
|
||||
|
Reclassification to net income
|
123
|
|
233
|
|
||||
|
Derivatives:
|
||||||||
|
Interest rate contracts
|
Net interest income
|
(255
|
)
|
(281
|
)
|
|||
|
Equity compensation contracts
|
Personnel
|
(1
|
)
|
150
|
|
|||
|
Loss before income taxes
|
(256
|
)
|
(131
|
)
|
||||
|
Income tax benefit
|
(96
|
)
|
(49
|
)
|
||||
|
Reclassification to net income
|
(160
|
)
|
(82
|
)
|
||||
|
Employee benefit plans:
|
||||||||
|
Net actuarial losses and prior service costs
|
Personnel
|
(42
|
)
|
(13
|
)
|
|||
|
Loss before income taxes
|
(42
|
)
|
(13
|
)
|
||||
|
Income tax benefit
|
(16
|
)
|
(5
|
)
|
||||
|
Reclassification to net income
|
(26
|
)
|
(8
|
)
|
||||
|
Foreign currency:
|
|
|
|
|||||
|
Insignificant items
|
Other income
|
—
|
|
2
|
|
|||
|
Income before income taxes
|
—
|
|
2
|
|
||||
|
Income tax expense
|
—
|
|
1
|
|
||||
|
Reclassification to net income
|
—
|
|
1
|
|
||||
|
Total reclassification adjustments
|
|
$
|
(63
|
)
|
$
|
144
|
|
|
191
|
|
The calculation of earnings per common share (EPS) and diluted EPS for the
three months ended March 31, 2015 and 2014
is presented below. For more information on the calculation of EPS, see
Note 1 – Summary of Significant Accounting Principles
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
|
|
Three Months Ended March 31
|
||||||
|
(Dollars in millions, except per share information; shares in thousands)
|
2015
|
2014
|
|||||
|
Earnings (loss) per common share
|
|
|
|||||
|
Net income (loss)
|
$
|
3,357
|
|
$
|
(276
|
)
|
|
|
Preferred stock dividends
|
(382
|
)
|
(238
|
)
|
|||
|
Net income (loss) applicable to common shareholders
|
$
|
2,975
|
|
$
|
(514
|
)
|
|
|
Average common shares issued and outstanding
|
10,518,790
|
|
10,560,518
|
|
|||
|
Earnings (loss) per common share
|
$
|
0.28
|
|
$
|
(0.05
|
)
|
|
|
Diluted earnings (loss) per common share
|
|||||||
|
Net income (loss) applicable to common shareholders
|
$
|
2,975
|
|
$
|
(514
|
)
|
|
|
Add preferred stock dividends due to assumed conversions
|
75
|
|
—
|
|
|||
|
Net income (loss) allocated to common shareholders
|
$
|
3,050
|
|
$
|
(514
|
)
|
|
|
Average common shares issued and outstanding
|
10,518,790
|
|
10,560,518
|
|
|||
|
Dilutive potential common shares
(1)
|
747,721
|
|
—
|
|
|||
|
Total diluted average common shares issued and outstanding
|
11,266,511
|
|
10,560,518
|
|
|||
|
Diluted earnings (loss) per common share
|
$
|
0.27
|
|
$
|
(0.05
|
)
|
|
|
(1)
|
Includes incremental dilutive shares from restricted stock units, restricted stock, stock options and warrants. There were no potential common shares that are dilutive for the
three months ended March 31, 2014
because of the net loss.
|
The Corporation previously issued a warrant to purchase
700 million
shares of the Corporation's common stock to the holder of the Series T Preferred Stock. The warrant may be exercised, at the option of the holder, through tendering the Series T Preferred Stock or paying cash. For the
three months ended March 31, 2015
, the
700 million
average dilutive potential common shares were included in the diluted share count under the "if-converted" method. For the
three months ended March 31, 2014
, the
700 million
average dilutive potential common shares were not included in the diluted share count because the result would have been antidilutive under the "if-converted" method.
For the
three months ended March 31, 2015 and 2014
,
62 million
average dilutive potential common shares associated with the
7.25%
Non-Cumulative Perpetual Convertible Preferred Stock, Series L were not included in the diluted share count because the result would have been antidilutive under the "if-converted" method. For the
three months ended March 31, 2015 and 2014
, average options to purchase
73 million
and
101 million
shares of common stock were outstanding but not included in the computation of EPS because the result would have been antidilutive under the treasury stock method. For the
three months ended March 31, 2015 and 2014
, average warrants to purchase
122 million
and
272 million
shares of common stock were outstanding but not included in the computation of EPS because the result would have been antidilutive under the treasury stock method. For the
three months ended March 31, 2015
, average warrants to purchase
150 million
shares of common stock were included in the diluted EPS calculation using the treasury stock method.
192
|
|
Under applicable accounting guidance, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Corporation determines the fair values of its financial instruments based on the fair value hierarchy established under applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value. The Corporation conducts a review of its fair value hierarchy classifications on a quarterly basis. Transfers into or out of fair value hierarchy classifications are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities became unobservable or observable, respectively, in the current marketplace. These transfers are considered to be effective as of the beginning of the quarter in which they occur. For more information regarding the fair value hierarchy and how the Corporation measures fair value, see
Note 1 – Summary of Significant Accounting Principles
and
Note 20 – Fair Value Measurements
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
. The Corporation accounts for certain financial instruments under the fair value option. For additional information, see
Note 15 – Fair Value Option
.
|
Valuation Processes and Techniques
|
The Corporation has various processes and controls in place to ensure that fair value is reasonably estimated. A model validation policy governs the use and control of valuation models used to estimate fair value. This policy requires review and approval of models by personnel who are independent of the front office, and periodic reassessments of models to ensure that they are continuing to perform as designed. In addition, detailed reviews of trading gains and losses are conducted on a daily basis by personnel who are independent of the front office. A price verification group, which is also independent of the front office, utilizes available market information including executed trades, market prices and market-observable valuation model inputs to ensure that fair values are reasonably estimated. The Corporation performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process. Where market information is not available to support internal valuations, independent reviews of the valuations are performed and any material exposures are escalated through a management review process.
While the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
During the
three months ended March 31, 2015
, there were no changes to the valuation techniques that had, or are expected to have, a material impact on the Corporation's consolidated financial position or results of operations.
Level 1, 2 and 3 Valuation Techniques
Financial instruments are considered Level 1 when the valuation is based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or models using inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques, and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation.
193
|
Recurring Fair Value
|
Assets and liabilities carried at fair value on a recurring basis at
March 31, 2015
and
December 31, 2014
, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables.
|
|
March 31, 2015
|
||||||||||||||||||
|
|
Fair Value Measurements
|
|
|
||||||||||||||||
|
(Dollars in millions)
|
Level 1
|
Level 2
|
Level 3
|
Netting
Adjustments
(1)
|
Assets/Liabilities
at Fair Value
|
||||||||||||||
|
Assets
|
|
|
|
|
|
||||||||||||||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
$
|
—
|
|
$
|
60,451
|
|
$
|
—
|
|
$
|
—
|
|
$
|
60,451
|
|
||||
|
Trading account assets:
|
|
|
|
|
|
||||||||||||||
|
U.S. government and agency securities
(2)
|
34,138
|
|
16,729
|
|
—
|
|
—
|
|
50,867
|
|
|||||||||
|
Corporate securities, trading loans and other
|
494
|
|
31,267
|
|
2,760
|
|
—
|
|
34,521
|
|
|||||||||
|
Equity securities
|
34,110
|
|
23,208
|
|
340
|
|
—
|
|
57,658
|
|
|||||||||
|
Non-U.S. sovereign debt
|
17,860
|
|
14,358
|
|
508
|
|
—
|
|
32,726
|
|
|||||||||
|
Mortgage trading loans and ABS
|
—
|
|
8,982
|
|
2,106
|
|
—
|
|
11,088
|
|
|||||||||
|
Total trading account assets
|
86,602
|
|
94,544
|
|
5,714
|
|
—
|
|
186,860
|
|
|||||||||
|
Derivative assets
(3)
|
4,764
|
|
953,847
|
|
7,450
|
|
(904,730
|
)
|
61,331
|
|
|||||||||
|
AFS debt securities:
|
|
|
|
|
|
||||||||||||||
|
U.S. Treasury and agency securities
|
57,422
|
|
2,094
|
|
—
|
|
—
|
|
59,516
|
|
|||||||||
|
Mortgage-backed securities:
|
|
|
|
|
|
||||||||||||||
|
Agency
|
—
|
|
181,838
|
|
—
|
|
—
|
|
181,838
|
|
|||||||||
|
Agency-collateralized mortgage obligations
|
—
|
|
13,961
|
|
—
|
|
—
|
|
13,961
|
|
|||||||||
|
Non-agency residential
|
—
|
|
3,624
|
|
402
|
|
—
|
|
4,026
|
|
|||||||||
|
Commercial
|
—
|
|
3,989
|
|
—
|
|
—
|
|
3,989
|
|
|||||||||
|
Non-U.S. securities
|
2,969
|
|
2,974
|
|
9
|
|
—
|
|
5,952
|
|
|||||||||
|
Corporate/Agency bonds
|
—
|
|
365
|
|
—
|
|
—
|
|
365
|
|
|||||||||
|
Other taxable securities
|
20
|
|
8,868
|
|
690
|
|
—
|
|
9,578
|
|
|||||||||
|
Tax-exempt securities
|
—
|
|
9,134
|
|
583
|
|
—
|
|
9,717
|
|
|||||||||
|
Total AFS debt securities
|
60,411
|
|
226,847
|
|
1,684
|
|
—
|
|
288,942
|
|
|||||||||
|
Other debt securities carried at fair value:
|
|||||||||||||||||||
|
U.S. Treasury and agency securities
|
1,272
|
|
—
|
|
—
|
|
—
|
|
1,272
|
|
|||||||||
|
Mortgage-backed securities:
|
|||||||||||||||||||
|
Agency
|
—
|
|
15,670
|
|
—
|
|
—
|
|
15,670
|
|
|||||||||
|
Non-agency residential
|
—
|
|
3,869
|
|
—
|
|
—
|
|
3,869
|
|
|||||||||
|
Non-U.S. securities
|
12,527
|
|
1,597
|
|
—
|
|
—
|
|
14,124
|
|
|||||||||
|
Other taxable securities
|
—
|
|
297
|
|
—
|
|
—
|
|
297
|
|
|||||||||
|
Total other debt securities carried at fair value
|
13,799
|
|
21,433
|
|
—
|
|
—
|
|
35,232
|
|
|||||||||
|
Loans and leases
|
—
|
|
6,512
|
|
1,954
|
|
—
|
|
8,466
|
|
|||||||||
|
Mortgage servicing rights
|
—
|
|
—
|
|
3,394
|
|
—
|
|
3,394
|
|
|||||||||
|
Loans held-for-sale
|
—
|
|
7,147
|
|
543
|
|
—
|
|
7,690
|
|
|||||||||
|
Other assets
|
12,296
|
|
971
|
|
847
|
|
—
|
|
14,114
|
|
|||||||||
|
Total assets
(4)
|
$
|
177,872
|
|
$
|
1,371,752
|
|
$
|
21,586
|
|
$
|
(904,730
|
)
|
$
|
666,480
|
|
||||
|
Liabilities
|
|
|
|
|
|
||||||||||||||
|
Interest-bearing deposits in U.S. offices
|
$
|
—
|
|
$
|
1,275
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,275
|
|
||||
|
Federal funds purchased and securities loaned or sold under agreements to repurchase
|
—
|
|
27,129
|
|
—
|
|
—
|
|
27,129
|
|
|||||||||
|
Trading account liabilities:
|
|
|
|
|
|
||||||||||||||
|
U.S. government and agency securities
|
19,941
|
|
141
|
|
—
|
|
—
|
|
20,082
|
|
|||||||||
|
Equity securities
|
25,127
|
|
3,898
|
|
—
|
|
—
|
|
29,025
|
|
|||||||||
|
Non-U.S. sovereign debt
|
15,504
|
|
2,259
|
|
—
|
|
—
|
|
17,763
|
|
|||||||||
|
Corporate securities and other
|
212
|
|
7,668
|
|
41
|
|
—
|
|
7,921
|
|
|||||||||
|
Total trading account liabilities
|
60,784
|
|
13,966
|
|
41
|
|
—
|
|
74,791
|
|
|||||||||
|
Derivative liabilities
(3)
|
5,121
|
|
946,351
|
|
8,531
|
|
(907,769
|
)
|
52,234
|
|
|||||||||
|
Short-term borrowings
|
—
|
|
2,878
|
|
15
|
|
—
|
|
2,893
|
|
|||||||||
|
Accrued expenses and other liabilities
|
11,602
|
|
1,052
|
|
10
|
|
—
|
|
12,664
|
|
|||||||||
|
Long-term debt
|
—
|
|
30,069
|
|
2,806
|
|
—
|
|
32,875
|
|
|||||||||
|
Total liabilities
|
$
|
77,507
|
|
$
|
1,022,720
|
|
$
|
11,403
|
|
$
|
(907,769
|
)
|
$
|
203,861
|
|
||||
|
(1)
|
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
|
|
(2)
|
Includes
$16.5 billion
of government-sponsored enterprise obligations.
|
|
(3)
|
For further disaggregation of derivative assets and liabilities, see
Note 2 – Derivatives
.
|
|
(4)
|
During the
three months ended March 31, 2015
, approximately
$327 million
of assets were transferred from Level 2 to Level 1 due to a restriction that was lifted for an equity investment.
|
194
|
|
December 31, 2014
|
||||||||||||||||||
|
|
Fair Value Measurements
|
|
|
||||||||||||||||
|
(Dollars in millions)
|
Level 1
|
Level 2
|
Level 3
|
Netting
Adjustments
(1)
|
Assets/Liabilities
at Fair Value
|
||||||||||||||
|
Assets
|
|
|
|
|
|
||||||||||||||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
$
|
—
|
|
$
|
62,182
|
|
$
|
—
|
|
$
|
—
|
|
$
|
62,182
|
|
||||
|
Trading account assets:
|
|
|
|
|
|||||||||||||||
|
U.S. government and agency securities
(2)
|
33,470
|
|
17,549
|
|
—
|
|
—
|
|
51,019
|
|
|||||||||
|
Corporate securities, trading loans and other
|
243
|
|
31,699
|
|
3,270
|
|
—
|
|
35,212
|
|
|||||||||
|
Equity securities
|
33,518
|
|
22,488
|
|
352
|
|
—
|
|
56,358
|
|
|||||||||
|
Non-U.S. sovereign debt
|
20,348
|
|
15,332
|
|
574
|
|
—
|
|
36,254
|
|
|||||||||
|
Mortgage trading loans and ABS
|
—
|
|
10,879
|
|
2,063
|
|
—
|
|
12,942
|
|
|||||||||
|
Total trading account assets
|
87,579
|
|
97,947
|
|
6,259
|
|
—
|
|
191,785
|
|
|||||||||
|
Derivative assets
(3)
|
4,957
|
|
972,977
|
|
6,851
|
|
(932,103
|
)
|
52,682
|
|
|||||||||
|
AFS debt securities:
|
|
|
|
|
|
||||||||||||||
|
U.S. Treasury and agency securities
|
67,413
|
|
2,182
|
|
—
|
|
—
|
|
69,595
|
|
|||||||||
|
Mortgage-backed securities:
|
|
|
|
|
|
||||||||||||||
|
Agency
|
—
|
|
165,039
|
|
—
|
|
—
|
|
165,039
|
|
|||||||||
|
Agency-collateralized mortgage obligations
|
—
|
|
14,248
|
|
—
|
|
—
|
|
14,248
|
|
|||||||||
|
Non-agency residential
|
—
|
|
4,175
|
|
279
|
|
—
|
|
4,454
|
|
|||||||||
|
Commercial
|
—
|
|
4,000
|
|
—
|
|
—
|
|
4,000
|
|
|||||||||
|
Non-U.S. securities
|
3,191
|
|
3,029
|
|
10
|
|
—
|
|
6,230
|
|
|||||||||
|
Corporate/Agency bonds
|
—
|
|
368
|
|
—
|
|
—
|
|
368
|
|
|||||||||
|
Other taxable securities
|
20
|
|
9,104
|
|
1,667
|
|
—
|
|
10,791
|
|
|||||||||
|
Tax-exempt securities
|
—
|
|
8,950
|
|
599
|
|
—
|
|
9,549
|
|
|||||||||
|
Total AFS debt securities
|
70,624
|
|
211,095
|
|
2,555
|
|
—
|
|
284,274
|
|
|||||||||
|
Other debt securities carried at fair value:
|
|||||||||||||||||||
|
U.S. Treasury and agency securities
|
1,541
|
|
—
|
|
—
|
|
—
|
|
1,541
|
|
|||||||||
|
Mortgage-backed securities:
|
|||||||||||||||||||
|
Agency
|
—
|
|
15,704
|
|
—
|
|
—
|
|
15,704
|
|
|||||||||
|
Non-agency residential
|
—
|
|
3,745
|
|
—
|
|
—
|
|
3,745
|
|
|||||||||
|
Non-U.S. securities
|
13,270
|
|
1,862
|
|
—
|
|
—
|
|
15,132
|
|
|||||||||
|
Other taxable securities
|
—
|
|
299
|
|
—
|
|
—
|
|
299
|
|
|||||||||
|
Total other debt securities carried at fair value
|
14,811
|
|
21,610
|
|
—
|
|
—
|
|
36,421
|
|
|||||||||
|
Loans and leases
|
—
|
|
6,698
|
|
1,983
|
|
—
|
|
8,681
|
|
|||||||||
|
Mortgage servicing rights
|
—
|
|
—
|
|
3,530
|
|
—
|
|
3,530
|
|
|||||||||
|
Loans held-for-sale
|
—
|
|
6,628
|
|
173
|
|
—
|
|
6,801
|
|
|||||||||
|
Other assets
|
11,581
|
|
1,381
|
|
911
|
|
—
|
|
13,873
|
|
|||||||||
|
Total assets
(4)
|
$
|
189,552
|
|
$
|
1,380,518
|
|
$
|
22,262
|
|
$
|
(932,103
|
)
|
$
|
660,229
|
|
||||
|
Liabilities
|
|
|
|
|
|
||||||||||||||
|
Interest-bearing deposits in U.S. offices
|
$
|
—
|
|
$
|
1,469
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,469
|
|
||||
|
Federal funds purchased and securities loaned or sold under agreements to repurchase
|
—
|
|
35,357
|
|
—
|
|
—
|
|
35,357
|
|
|||||||||
|
Trading account liabilities:
|
|
|
|
|
|||||||||||||||
|
U.S. government and agency securities
|
18,514
|
|
446
|
|
—
|
|
—
|
|
18,960
|
|
|||||||||
|
Equity securities
|
24,679
|
|
3,670
|
|
—
|
|
—
|
|
28,349
|
|
|||||||||
|
Non-U.S. sovereign debt
|
16,089
|
|
3,625
|
|
—
|
|
—
|
|
19,714
|
|
|||||||||
|
Corporate securities and other
|
189
|
|
6,944
|
|
36
|
|
—
|
|
7,169
|
|
|||||||||
|
Total trading account liabilities
|
59,471
|
|
14,685
|
|
36
|
|
—
|
|
74,192
|
|
|||||||||
|
Derivative liabilities
(3)
|
4,493
|
|
969,502
|
|
7,771
|
|
(934,857
|
)
|
46,909
|
|
|||||||||
|
Short-term borrowings
|
—
|
|
2,697
|
|
—
|
|
—
|
|
2,697
|
|
|||||||||
|
Accrued expenses and other liabilities
|
10,795
|
|
1,250
|
|
10
|
|
—
|
|
12,055
|
|
|||||||||
|
Long-term debt
|
—
|
|
34,042
|
|
2,362
|
|
—
|
|
36,404
|
|
|||||||||
|
Total liabilities
(4)
|
$
|
74,759
|
|
$
|
1,059,002
|
|
$
|
10,179
|
|
$
|
(934,857
|
)
|
$
|
209,083
|
|
||||
|
(1)
|
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
|
|
(2)
|
Includes
$17.2 billion
of government-sponsored enterprise obligations.
|
|
(3)
|
For further disaggregation of derivative assets and liabilities, see
|
|
(4)
|
During
2014
, the Corporation reclassified certain assets and liabilities within its fair value hierarchy based on a review of its inputs used to measure fair value. Accordingly, approximately
$4.1 billion
of assets related to U.S. government and agency securities, non-U.S. government securities and equity derivatives, and
$570 million
of liabilities related to equity derivatives were transferred from Level 1 to Level 2.
|
195
The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the
three months ended March 31, 2015 and 2014
, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.
|
Level 3 – Fair Value Measurements
(1)
|
||||||||||||||||||||||||||||||
|
|
Three Months Ended March 31, 2015
|
|||||||||||||||||||||||||||||
|
|
Gross
|
|||||||||||||||||||||||||||||
|
(Dollars in millions)
|
Balance
January 1
2015
|
Gains
(Losses) in
Earnings
|
Gains
(Losses) in
OCI
(2)
|
Purchases
|
Sales
|
Issuances
|
Settlements
|
Gross
Transfers
into
Level 3
|
Gross
Transfers
out of
Level 3
|
Balance March 31
2015 |
||||||||||||||||||||
|
Trading account assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Corporate securities, trading loans and other
|
$
|
3,270
|
|
$
|
(21
|
)
|
$
|
—
|
|
$
|
139
|
|
$
|
(95
|
)
|
$
|
—
|
|
$
|
(435
|
)
|
$
|
171
|
|
$
|
(269
|
)
|
$
|
2,760
|
|
|
Equity securities
|
352
|
|
3
|
|
—
|
|
—
|
|
(1
|
)
|
—
|
|
(5
|
)
|
9
|
|
(18
|
)
|
340
|
|
||||||||||
|
Non-U.S. sovereign debt
|
574
|
|
85
|
|
(109
|
)
|
2
|
|
—
|
|
—
|
|
(44
|
)
|
—
|
|
—
|
|
508
|
|
||||||||||
|
Mortgage trading loans and ABS
|
2,063
|
|
60
|
|
—
|
|
319
|
|
(249
|
)
|
—
|
|
(83
|
)
|
9
|
|
(13
|
)
|
2,106
|
|
||||||||||
|
Total trading account assets
|
6,259
|
|
127
|
|
(109
|
)
|
460
|
|
(345
|
)
|
—
|
|
(567
|
)
|
189
|
|
(300
|
)
|
5,714
|
|
||||||||||
|
Net derivative assets
(3)
|
(920
|
)
|
(44
|
)
|
—
|
|
56
|
|
(176
|
)
|
—
|
|
25
|
|
(46
|
)
|
24
|
|
(1,081
|
)
|
||||||||||
|
AFS debt securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Non-agency residential MBS
|
279
|
|
(19
|
)
|
(2
|
)
|
21
|
|
—
|
|
—
|
|
(9
|
)
|
132
|
|
—
|
|
402
|
|
||||||||||
|
Non-U.S. securities
|
10
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1
|
)
|
—
|
|
—
|
|
9
|
|
||||||||||
|
Other taxable securities
|
1,667
|
|
—
|
|
(2
|
)
|
—
|
|
—
|
|
—
|
|
(42
|
)
|
—
|
|
(933
|
)
|
690
|
|
||||||||||
|
Tax-exempt securities
|
599
|
|
—
|
|
(3
|
)
|
—
|
|
—
|
|
—
|
|
(13
|
)
|
—
|
|
—
|
|
583
|
|
||||||||||
|
Total AFS debt securities
|
2,555
|
|
(19
|
)
|
(7
|
)
|
21
|
|
—
|
|
—
|
|
(65
|
)
|
132
|
|
(933
|
)
|
1,684
|
|
||||||||||
|
Loans and leases
(4, 5)
|
1,983
|
|
15
|
|
—
|
|
—
|
|
(1
|
)
|
—
|
|
(43
|
)
|
6
|
|
(6
|
)
|
1,954
|
|
||||||||||
|
Mortgage servicing rights
(5)
|
3,530
|
|
(85
|
)
|
—
|
|
—
|
|
—
|
|
179
|
|
(230
|
)
|
—
|
|
—
|
|
3,394
|
|
||||||||||
|
Loans held-for-sale
(4)
|
173
|
|
(70
|
)
|
—
|
|
406
|
|
(82
|
)
|
21
|
|
(6
|
)
|
138
|
|
(37
|
)
|
543
|
|
||||||||||
|
Other assets
(6)
|
911
|
|
10
|
|
—
|
|
—
|
|
(31
|
)
|
—
|
|
(9
|
)
|
—
|
|
(34
|
)
|
847
|
|
||||||||||
|
Trading account liabilities – Corporate securities and other
|
(36
|
)
|
1
|
|
—
|
|
2
|
|
(8
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(41
|
)
|
||||||||||
|
Short-term borrowings
(4)
|
—
|
|
5
|
|
—
|
|
—
|
|
—
|
|
(21
|
)
|
1
|
|
(4
|
)
|
4
|
|
(15
|
)
|
||||||||||
|
Accrued expenses and other liabilities
|
(10
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(10
|
)
|
||||||||||
|
Long-term debt
(4)
|
(2,362
|
)
|
4
|
|
—
|
|
132
|
|
—
|
|
(90
|
)
|
97
|
|
(713
|
)
|
126
|
|
(2,806
|
)
|
||||||||||
|
(1)
|
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
|
|
(2)
|
Includes unrealized gains (losses) on AFS debt securities and foreign currency translation adjustments.
|
|
(3)
|
Net derivatives include derivative assets of
$7.5 billion
and derivative liabilities of
$8.5 billion
.
|
|
(4)
|
Amounts represent instruments that are accounted for under the fair value option.
|
|
(5)
|
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole-loan sales.
|
|
(6)
|
Other assets is primarily comprised of private equity investments and certain long-term fixed-rate margin loans that are accounted for under the fair value option.
|
During the
three months ended March 31, 2015
, the transfers into Level 3 included
$189 million
of trading account assets,
$132 million
of AFS debt securities,
$138 million
for LHFS and
$713 million
of long-term debt. Transfers into Level 3 for trading account assets were primarily the result of decreased availability of third-party prices for certain corporate debt securities. Transfers into Level 3 for AFS debt securities were primarily due to decreased price observability on certain CLOs. Transfers into Level 3 for LHFS were primarily due to decreased price observability due to a decline in trading activity. Transfers into Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.
During the
three months ended March 31, 2015
, the transfers out of Level 3 included
$300 million
of trading account assets,
$933 million
of AFS debt securities and
$126 million
of long-term debt. Transfers out of Level 3 for trading account assets were primarily the result of increased market liquidity and price observability for certain corporate debt securities. Transfers out of Level 3 for AFS debt securities were primarily due to increased price observability for certain corporate debt securities. Transfers out of Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities.
196
|
Level 3 – Fair Value Measurements
(1)
|
||||||||||||||||||||||||||||||
|
|
Three Months Ended March 31, 2014
|
|||||||||||||||||||||||||||||
|
|
Gross
|
|||||||||||||||||||||||||||||
|
(Dollars in millions)
|
Balance
January 1
2014
|
Gains
(Losses) in
Earnings
|
Gains
(Losses) in
OCI
|
Purchases
|
Sales
|
Issuances
|
Settlements
|
Gross
Transfers
into
Level 3
|
Gross
Transfers
out of
Level 3
|
Balance March 31
2014 |
||||||||||||||||||||
|
Trading account assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Corporate securities, trading loans and other
|
$
|
3,559
|
|
$
|
122
|
|
$
|
—
|
|
$
|
286
|
|
$
|
(354
|
)
|
$
|
—
|
|
$
|
(238
|
)
|
$
|
148
|
|
$
|
(906
|
)
|
$
|
2,617
|
|
|
Equity securities
|
386
|
|
19
|
|
—
|
|
30
|
|
(29
|
)
|
—
|
|
—
|
|
7
|
|
(70
|
)
|
343
|
|
||||||||||
|
Non-U.S. sovereign debt
|
468
|
|
55
|
|
—
|
|
23
|
|
(6
|
)
|
—
|
|
(6
|
)
|
—
|
|
(1
|
)
|
533
|
|
||||||||||
|
Mortgage trading loans and ABS
|
4,631
|
|
78
|
|
—
|
|
366
|
|
(552
|
)
|
—
|
|
(224
|
)
|
—
|
|
(12
|
)
|
4,287
|
|
||||||||||
|
Total trading account assets
|
9,044
|
|
274
|
|
—
|
|
705
|
|
(941
|
)
|
—
|
|
(468
|
)
|
155
|
|
(989
|
)
|
7,780
|
|
||||||||||
|
Net derivative assets
(2)
|
(224
|
)
|
14
|
|
—
|
|
125
|
|
(691
|
)
|
—
|
|
(101
|
)
|
12
|
|
26
|
|
(839
|
)
|
||||||||||
|
AFS debt securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Non-U.S securities
|
107
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(107
|
)
|
—
|
|
—
|
|
—
|
|
||||||||||
|
Other taxable securities
|
3,847
|
|
8
|
|
(2
|
)
|
47
|
|
—
|
|
—
|
|
(463
|
)
|
—
|
|
—
|
|
3,437
|
|
||||||||||
|
Tax-exempt securities
|
806
|
|
1
|
|
1
|
|
—
|
|
—
|
|
—
|
|
(25
|
)
|
—
|
|
—
|
|
783
|
|
||||||||||
|
Total AFS debt securities
|
4,760
|
|
9
|
|
(1
|
)
|
47
|
|
—
|
|
—
|
|
(595
|
)
|
—
|
|
—
|
|
4,220
|
|
||||||||||
|
Loans and leases
(3, 4)
|
3,057
|
|
32
|
|
—
|
|
—
|
|
(3
|
)
|
689
|
|
(723
|
)
|
6
|
|
(5
|
)
|
3,053
|
|
||||||||||
|
Mortgage servicing rights
(4)
|
5,042
|
|
(290
|
)
|
—
|
|
—
|
|
(20
|
)
|
265
|
|
(232
|
)
|
—
|
|
—
|
|
4,765
|
|
||||||||||
|
Loans held-for-sale
(3)
|
929
|
|
12
|
|
—
|
|
—
|
|
(3
|
)
|
—
|
|
(201
|
)
|
—
|
|
(1
|
)
|
736
|
|
||||||||||
|
Other assets
(5)
|
1,669
|
|
(60
|
)
|
—
|
|
—
|
|
(269
|
)
|
—
|
|
(208
|
)
|
—
|
|
—
|
|
1,132
|
|
||||||||||
|
Trading account liabilities – Corporate securities and other
|
(35
|
)
|
1
|
|
—
|
|
3
|
|
(7
|
)
|
—
|
|
—
|
|
—
|
|
2
|
|
(36
|
)
|
||||||||||
|
Accrued expenses and other liabilities
|
(10
|
)
|
1
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1
|
|
(8
|
)
|
||||||||||
|
Long-term debt
(3)
|
(1,990
|
)
|
(67
|
)
|
—
|
|
46
|
|
—
|
|
(9
|
)
|
119
|
|
(144
|
)
|
204
|
|
(1,841
|
)
|
||||||||||
|
(1)
|
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
|
|
(2)
|
Net derivatives include derivative assets of
$6.9 billion
and derivative liabilities of
$7.7 billion
.
|
|
(3)
|
Amounts represent instruments that are accounted for under the fair value option.
|
|
(4)
|
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole-loan sales.
|
|
(5)
|
Other assets is primarily comprised of private equity investments and certain long-term fixed-rate margin loans that are accounted for under the fair value option.
|
During the
three months ended March 31, 2014
, the transfers into Level 3 included
$155 million
of trading account assets and
$144 million
of long-term debt. Transfers into Level 3 for trading account assets were primarily the result of decreased availability of third-party prices for certain corporate loans and securities, primarily municipal bonds. Transfers into Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.
During the
three months ended March 31, 2014
, the transfers out of Level 3 included
$989 million
of trading account assets and
$204 million
of long-term debt. Transfers out of Level 3 for trading account assets were primarily the result of increased market liquidity and availability of third-party prices for certain corporate loans and securities. Transfers out of Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities.
197
The table below summarizes gains (losses) due to changes in fair value, including both realized and unrealized gains (losses), recorded in earnings for Level 3 assets and liabilities during the
three months ended March 31, 2015 and 2014
. These amounts include gains (losses) on loans, LHFS, loan commitments and structured liabilities that are accounted for under the fair value option.
|
Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings
|
|||||||||||||||
|
|
Three Months Ended March 31, 2015
|
||||||||||||||
|
(Dollars in millions)
|
Trading
Account
Profits
(Losses)
|
Mortgage
Banking
Income
(Loss)
(1)
|
Other
(2)
|
Total
|
|||||||||||
|
Trading account assets:
|
|
|
|
|
|||||||||||
|
Corporate securities, trading loans and other
|
$
|
(21
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(21
|
)
|
|||
|
Equity securities
|
3
|
|
—
|
|
—
|
|
3
|
|
|||||||
|
Non-U.S. sovereign debt
|
85
|
|
—
|
|
—
|
|
85
|
|
|||||||
|
Mortgage trading loans and ABS
|
60
|
|
—
|
|
—
|
|
60
|
|
|||||||
|
Total trading account assets
|
127
|
|
—
|
|
—
|
|
127
|
|
|||||||
|
Net derivative assets
|
(351
|
)
|
282
|
|
25
|
|
(44
|
)
|
|||||||
|
AFS debt securities – Non-agency residential MBS
|
—
|
|
—
|
|
(19
|
)
|
(19
|
)
|
|||||||
|
Loans and leases
(3)
|
3
|
|
—
|
|
12
|
|
15
|
|
|||||||
|
Mortgage servicing rights
|
(15
|
)
|
(70
|
)
|
—
|
|
(85
|
)
|
|||||||
|
Loans held-for-sale
(3)
|
(69
|
)
|
—
|
|
(1
|
)
|
(70
|
)
|
|||||||
|
Other assets
|
—
|
|
(21
|
)
|
31
|
|
10
|
|
|||||||
|
Trading account liabilities – Corporate securities and other
|
1
|
|
—
|
|
—
|
|
1
|
|
|||||||
|
Short-term borrowings
(3)
|
5
|
|
—
|
|
—
|
|
5
|
|
|||||||
|
Long-term debt
(3)
|
58
|
|
—
|
|
(54
|
)
|
4
|
|
|||||||
|
Total
|
$
|
(241
|
)
|
$
|
191
|
|
$
|
(6
|
)
|
$
|
(56
|
)
|
|||
|
|
Three Months Ended March 31, 2014
|
||||||||||||||
|
Trading account assets:
|
|
|
|
|
|||||||||||
|
Corporate securities, trading loans and other
|
$
|
122
|
|
$
|
—
|
|
$
|
—
|
|
$
|
122
|
|
|||
|
Equity securities
|
19
|
|
—
|
|
—
|
|
19
|
|
|||||||
|
Non-U.S. sovereign debt
|
55
|
|
—
|
|
—
|
|
55
|
|
|||||||
|
Mortgage trading loans and ABS
|
78
|
|
—
|
|
—
|
|
78
|
|
|||||||
|
Total trading account assets
|
274
|
|
—
|
|
—
|
|
274
|
|
|||||||
|
Net derivative assets
|
(168
|
)
|
173
|
|
9
|
|
14
|
|
|||||||
|
AFS debt securities:
|
|||||||||||||||
|
Other taxable securities
|
—
|
|
—
|
|
8
|
|
8
|
|
|||||||
|
Tax-exempt securities
|
—
|
|
—
|
|
1
|
|
1
|
|
|||||||
|
Total AFS debt securities
|
—
|
|
—
|
|
9
|
|
9
|
|
|||||||
|
Loans and leases
(3)
|
—
|
|
—
|
|
32
|
|
32
|
|
|||||||
|
Mortgage servicing rights
|
(5
|
)
|
(285
|
)
|
—
|
|
(290
|
)
|
|||||||
|
Loans held-for-sale
(3)
|
—
|
|
—
|
|
12
|
|
12
|
|
|||||||
|
Other assets
|
—
|
|
(36
|
)
|
(24
|
)
|
(60
|
)
|
|||||||
|
Trading account liabilities – Corporate securities and other
|
1
|
|
—
|
|
—
|
|
1
|
|
|||||||
|
Accrued expenses and other liabilities
|
—
|
|
—
|
|
1
|
|
1
|
|
|||||||
|
Long-term debt
(3)
|
(53
|
)
|
—
|
|
(14
|
)
|
(67
|
)
|
|||||||
|
Total
|
$
|
49
|
|
$
|
(148
|
)
|
$
|
25
|
|
$
|
(74
|
)
|
|||
|
(1)
|
Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs.
|
|
(2)
|
Amounts included are primarily recorded in other income (loss). Equity investment gains of
$20 million
and losses of
$14 million
recorded on net derivative assets and other assets were also included for the
three months ended March 31, 2015 and 2014
.
|
|
(3)
|
Amounts represent instruments that are accounted for under the fair value option.
|
198
The table below summarizes changes in unrealized gains (losses) recorded in earnings during the
three months ended March 31, 2015 and 2014
for Level 3 assets and liabilities that were still held at
March 31, 2015
and
2014
. These amounts include changes in fair value on loans, LHFS, loan commitments and structured liabilities that are accounted for under the fair value option.
|
Level 3 – Changes in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at Reporting Date
|
|||||||||||||||
|
|
Three Months Ended March 31, 2015
|
||||||||||||||
|
(Dollars in millions)
|
Trading
Account
Profits
(Losses)
|
Mortgage
Banking
Income
(Loss)
(1)
|
Other
(2)
|
Total
|
|||||||||||
|
Trading account assets:
|
|
|
|
|
|||||||||||
|
Corporate securities, trading loans and other
|
$
|
(58
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(58
|
)
|
|||
|
Equity securities
|
(2
|
)
|
—
|
|
—
|
|
(2
|
)
|
|||||||
|
Non-U.S. sovereign debt
|
63
|
|
—
|
|
—
|
|
63
|
|
|||||||
|
Mortgage trading loans and ABS
|
(9
|
)
|
—
|
|
—
|
|
(9
|
)
|
|||||||
|
Total trading account assets
|
(6
|
)
|
—
|
|
—
|
|
(6
|
)
|
|||||||
|
Net derivative assets
|
(363
|
)
|
101
|
|
25
|
|
(237
|
)
|
|||||||
|
Loans and leases
(3)
|
3
|
|
—
|
|
26
|
|
29
|
|
|||||||
|
Mortgage servicing rights
|
(15
|
)
|
(173
|
)
|
—
|
|
(188
|
)
|
|||||||
|
Loans held-for-sale
(3)
|
(64
|
)
|
—
|
|
(1
|
)
|
(65
|
)
|
|||||||
|
Other assets
|
—
|
|
(16
|
)
|
54
|
|
38
|
|
|||||||
|
Trading account liabilities – Corporate securities and other
|
1
|
|
—
|
|
—
|
|
1
|
|
|||||||
|
Short-term borrowings
(3)
|
5
|
|
—
|
|
—
|
|
5
|
|
|||||||
|
Long-term debt
(3)
|
50
|
|
—
|
|
(54
|
)
|
(4
|
)
|
|||||||
|
Total
|
$
|
(389
|
)
|
$
|
(88
|
)
|
$
|
50
|
|
$
|
(427
|
)
|
|||
|
|
Three Months Ended March 31, 2014
|
||||||||||||||
|
Trading account assets:
|
|
|
|
|
|||||||||||
|
Corporate securities, trading loans and other
|
$
|
111
|
|
$
|
—
|
|
$
|
—
|
|
$
|
111
|
|
|||
|
Equity securities
|
17
|
|
—
|
|
—
|
|
17
|
|
|||||||
|
Non-U.S. sovereign debt
|
55
|
|
—
|
|
—
|
|
55
|
|
|||||||
|
Mortgage trading loans and ABS
|
16
|
|
—
|
|
—
|
|
16
|
|
|||||||
|
Total trading account assets
|
199
|
|
—
|
|
—
|
|
199
|
|
|||||||
|
Net derivative assets
|
(212
|
)
|
44
|
|
9
|
|
(159
|
)
|
|||||||
|
Loans and leases
(3)
|
—
|
|
—
|
|
28
|
|
28
|
|
|||||||
|
Mortgage servicing rights
|
(5
|
)
|
(468
|
)
|
—
|
|
(473
|
)
|
|||||||
|
Loans held-for-sale
(3)
|
—
|
|
—
|
|
4
|
|
4
|
|
|||||||
|
Other assets
|
—
|
|
(28
|
)
|
6
|
|
(22
|
)
|
|||||||
|
Trading account liabilities – Corporate securities and other
|
1
|
|
—
|
|
—
|
|
1
|
|
|||||||
|
Accrued expenses and other liabilities
|
—
|
|
—
|
|
1
|
|
1
|
|
|||||||
|
Long-term debt
(3)
|
(53
|
)
|
—
|
|
(14
|
)
|
(67
|
)
|
|||||||
|
Total
|
$
|
(70
|
)
|
$
|
(452
|
)
|
$
|
34
|
|
$
|
(488
|
)
|
|||
|
(1)
|
Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs.
|
|
(2)
|
Amounts included are primarily recorded in other income (loss). Equity investment gains of
$22 million
and
$18 million
recorded on net derivative assets and other assets were also included for the
three months ended March 31, 2015 and 2014
.
|
|
(3)
|
Amounts represent instruments that are accounted for under the fair value option.
|
199
The following tables present information about significant unobservable inputs related to the Corporation's material categories of Level 3 financial assets and liabilities at
March 31, 2015
and
December 31, 2014
.
|
Quantitative Information about Level 3 Fair Value Measurements at March 31, 2015
|
||||||||
|
(Dollars in millions)
|
Inputs
|
|||||||
|
Financial Instrument
|
Fair Value
|
Valuation
Technique
|
Significant Unobservable
Inputs
|
Ranges of
Inputs
|
Weighted Average
|
|||
|
Loans and Securities
(1)
|
||||||||
|
Instruments backed by residential real estate assets
|
$
|
2,386
|
|
Discounted cash flow, Market comparables
|
Yield
|
0% to 25%
|
6
|
%
|
|
Trading account assets – Mortgage trading loans and ABS
|
402
|
|
Prepayment speed
|
0% to 39% CPR
|
16
|
%
|
||
|
Loans and leases
|
1,441
|
|
Default rate
|
0% to 14% CDR
|
6
|
%
|
||
|
Loans held-for-sale
|
543
|
|
Loss severity
|
24% to 100%
|
34
|
%
|
||
|
Commercial loans, debt securities and other
|
$
|
5,902
|
|
Discounted cash flow, Market comparables
|
Yield
|
0% to 40%
|
10
|
%
|
|
Trading account assets – Corporate securities, trading loans and other
|
2,691
|
|
Prepayment speed
|
0% to 30%
|
15
|
%
|
||
|
Trading account assets – Non-U.S. sovereign debt
|
508
|
|
Default rate
|
0% to 5%
|
4
|
%
|
||
|
Trading account assets – Mortgage trading loans and ABS
|
1,704
|
|
Loss severity
|
25% to 50%
|
38
|
%
|
||
|
AFS debt securities – Other taxable securities
|
486
|
|
Duration
|
0 years to 5 years
|
4 years
|
|
||
|
Loans and leases
|
513
|
|
Price
|
$0 to $135
|
$69
|
|||
|
Auction rate securities
|
$
|
856
|
|
Discounted cash flow, Market comparables
|
Price
|
$54 to $100
|
$94
|
|
|
Trading account assets – Corporate securities, trading loans and other
|
69
|
|
||||||
|
AFS debt securities – Other taxable securities
|
204
|
|
||||||
|
AFS debt securities – Tax-exempt securities
|
583
|
|
||||||
|
Structured liabilities
|
||||||||
|
Long-term debt
|
$
|
(2,806
|
)
|
Industry standard derivative pricing
(2, 3)
|
Equity correlation
|
20% to 98%
|
66
|
%
|
|
Long-dated equity volatilities
|
4% to 85%
|
25
|
%
|
|||||
|
Long-dated volatilities (IR)
|
0% to 2%
|
1
|
%
|
|||||
|
Net derivative assets
|
||||||||
|
Credit derivatives
|
$
|
(85
|
)
|
Discounted cash flow, Stochastic recovery correlation model
|
Yield
|
0% to 25%
|
14
|
%
|
|
Upfront points
|
0 points to 100 points
|
66 points
|
|
|||||
|
Spread to index
|
25 bps to 450 bps
|
118 bps
|
|
|||||
|
Credit correlation
|
24% to 99%
|
49
|
%
|
|||||
|
Prepayment speed
|
3% to 20% CPR
|
11
|
%
|
|||||
|
Default rate
|
4% CDR
|
n/a
|
|
|||||
|
Loss severity
|
20% to 35%
|
35
|
%
|
|||||
|
Equity derivatives
|
$
|
(1,773
|
)
|
Industry standard derivative pricing
(2)
|
Equity correlation
|
20% to 98%
|
66
|
%
|
|
Long-dated equity volatilities
|
4% to 85%
|
25
|
%
|
|||||
|
Commodity derivatives
|
$
|
136
|
|
Discounted cash flow, Industry standard derivative pricing
(2)
|
Natural gas forward price
|
$2/MMBtu to $7/MMBtu
|
$5/MMBtu
|
|
|
Correlation
|
66% to 93%
|
87
|
%
|
|||||
|
Volatilities
|
17% to 131%
|
38
|
%
|
|||||
|
Interest rate derivatives
|
$
|
641
|
|
Industry standard derivative pricing
(3)
|
Correlation (IR/IR)
|
21% to 99%
|
50
|
%
|
|
Correlation (FX/IR)
|
-30% to 40%
|
-4
|
%
|
|||||
|
Long-dated inflation rates
|
0% to 3%
|
2
|
%
|
|||||
|
Long-dated inflation volatilities
|
0% to 2%
|
1
|
%
|
|||||
|
Total net derivative assets
|
$
|
(1,081
|
)
|
|||||
|
(1)
|
The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page
194
: Trading account assets – Corporate securities, trading loans and other of
$2.8 billion
, Trading account assets – Non-U.S. sovereign debt of
$508 million
, Trading account assets – Mortgage trading loans and ABS of
$2.1 billion
, AFS debt securities – Other taxable securities of
$690 million
, AFS debt securities – Tax-exempt securities of
$583 million
, Loans and leases of
$2.0 billion
and LHFS of
$543 million
.
|
|
(2)
|
Includes models such as Monte Carlo simulation and Black-Scholes.
|
|
(3)
|
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
|
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable
200
|
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2014
|
|||||||||
|
(Dollars in millions)
|
Inputs
|
||||||||
|
Financial Instrument
|
Fair Value
|
Valuation
Technique
|
Significant Unobservable
Inputs
|
Ranges of
Inputs
|
Weighted Average
|
||||
|
Loans and Securities
(1)
|
|||||||||
|
Instruments backed by residential real estate assets
|
$
|
2,030
|
|
Discounted cash flow, Market comparables
|
Yield
|
0% to 25%
|
|
6
|
%
|
|
Trading account assets – Mortgage trading loans and ABS
|
483
|
|
Prepayment speed
|
0% to 35% CPR
|
|
14
|
%
|
||
|
Loans and leases
|
1,374
|
|
Default rate
|
2% to 15% CDR
|
|
7
|
%
|
||
|
Loans held-for-sale
|
173
|
|
Loss severity
|
26% to 100%
|
|
34
|
%
|
||
|
Commercial loans, debt securities and other
|
$
|
7,203
|
|
Discounted cash flow, Market comparables
|
Yield
|
0% to 40%
|
|
9
|
%
|
|
Trading account assets – Corporate securities, trading loans and other
|
3,224
|
|
Enterprise value/EBITDA multiple
|
0x to 30x
|
|
6x
|
|
||
|
Trading account assets – Non-U.S. sovereign debt
|
574
|
|
Prepayment speed
|
1% to 30%
|
|
12
|
%
|
||
|
Trading account assets – Mortgage trading loans and ABS
|
1,580
|
|
Default rate
|
1% to 5%
|
|
4
|
%
|
||
|
AFS debt securities – Other taxable securities
|
1,216
|
|
Loss severity
|
25% to 40%
|
|
38
|
%
|
||
|
Loans and leases
|
609
|
|
Duration
|
0 years to 5 years
|
|
3 years
|
|
||
|
Price
|
$0 to $107
|
|
$76
|
||||||
|
Auction rate securities
|
$
|
1,096
|
|
Discounted cash flow, Market comparables
|
Price
|
$60 to $100
|
|
$95
|
|
|
Trading account assets – Corporate securities, trading loans and other
|
46
|
|
|||||||
|
AFS debt securities – Other taxable securities
|
451
|
|
|||||||
|
AFS debt securities – Tax-exempt securities
|
599
|
|
|||||||
|
Structured liabilities
|
|||||||||
|
Long-term debt
|
$
|
(2,362
|
)
|
Industry standard derivative pricing
(2, 3)
|
Equity correlation
|
20% to 98%
|
|
65
|
%
|
|
Long-dated equity volatilities
|
6% to 69%
|
|
24
|
%
|
|||||
|
Long-dated volatilities (IR)
|
0% to 2%
|
|
1
|
%
|
|||||
|
Net derivative assets
|
|||||||||
|
Credit derivatives
|
$
|
22
|
|
Discounted cash flow, Stochastic recovery correlation model
|
Yield
|
0% to 25%
|
|
14
|
%
|
|
Upfront points
|
0 points to 100 points
|
|
65 points
|
|
|||||
|
Spread to index
|
25 bps to 450 bps
|
|
119 bps
|
|
|||||
|
Credit correlation
|
24% to 99%
|
|
51
|
%
|
|||||
|
Prepayment speed
|
3% to 20% CPR
|
|
11
|
%
|
|||||
|
Default rate
|
4% CDR
|
|
n/a
|
|
|||||
|
Loss severity
|
35
|
%
|
n/a
|
|
|||||
|
Equity derivatives
|
$
|
(1,560
|
)
|
Industry standard derivative pricing
(2)
|
Equity correlation
|
20% to 98%
|
|
65
|
%
|
|
Long-dated equity volatilities
|
6% to 69%
|
|
24
|
%
|
|||||
|
Commodity derivatives
|
$
|
141
|
|
Discounted cash flow, Industry standard derivative pricing
(2)
|
Natural gas forward price
|
$2/MMBtu to $7/MMBtu
|
|
$5/MMBtu
|
|
|
Correlation
|
82% to 93%
|
|
90
|
%
|
|||||
|
Volatilities
|
16% to 98%
|
|
35
|
%
|
|||||
|
Interest rate derivatives
|
$
|
477
|
|
Industry standard derivative pricing
(3)
|
Correlation (IR/IR)
|
11% to 99%
|
|
55
|
%
|
|
Correlation (FX/IR)
|
-48% to 40%
|
|
-5
|
%
|
|||||
|
Long-dated inflation rates
|
0% to 3%
|
|
1
|
%
|
|||||
|
Long-dated inflation volatilities
|
0% to 2%
|
|
1
|
%
|
|||||
|
Total net derivative assets
|
$
|
(920
|
)
|
||||||
|
(1)
|
The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page
195
: Trading account assets – Corporate securities, trading loans and other of
$3.3 billion
, Trading account assets – Non-U.S. sovereign debt of
$574 million
, Trading account assets – Mortgage trading loans and ABS of
$2.1 billion
, AFS debt securities – Other taxable securities of
$1.7 billion
, AFS debt securities – Tax-exempt securities of
$599 million
, Loans and leases of
$2.0 billion
and LHFS of
$173 million
.
|
|
(2)
|
Includes models such as Monte Carlo simulation and Black-Scholes.
|
|
(3)
|
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
|
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
EBITDA = Earnings before interest, taxes, depreciation and amortization
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable
201
In the tables above, instruments backed by residential real estate assets include RMBS, whole loans and mortgage CDOs. Commercial loans, debt securities and other include corporate CLOs and CDOs, commercial loans and bonds, and securities backed by non-real estate assets. Structured liabilities primarily include equity-linked notes that are accounted for under the fair value option.
The Corporation uses multiple market approaches in valuing certain of its Level 3 financial instruments. For example, market comparables and discounted cash flows are used together. For a given product, such as corporate debt securities, market comparables may be used to estimate some of the unobservable inputs and then these inputs are incorporated into a discounted cash flow model. Therefore, the balances disclosed encompass both of these techniques.
The level of aggregation and diversity within the products disclosed in the tables result in certain ranges of inputs being wide and unevenly distributed across asset and liability categories. At
March 31, 2015
and
December 31, 2014
, weighted averages are disclosed for all loans, securities, structured liabilities and net derivative assets.
For more information on the inputs and techniques used in the valuation of MSRs, see
Note 17 – Mortgage Servicing Rights
.
Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs
Loans and Securities
For instruments backed by residential real estate assets and commercial loans, debt securities and other, a significant increase in market yields, default rates, loss severities or duration would result in a significantly lower fair value for long positions. Short positions would be impacted in a directionally opposite way. The impact of changes in prepayment speeds would have differing impacts depending on the seniority of the instrument and, in the case of CLOs, whether prepayments can be reinvested.
For auction rate securities, a significant increase in price would result in a significantly higher fair value.
Structured Liabilities and Derivatives
For credit derivatives, a significant increase in market yield, including spreads to indices, upfront points (i.e., a single upfront payment made by a protection buyer at inception), default rates or loss severities would result in a significantly lower fair value for protection sellers and higher fair value for protection buyers. The impact of changes in prepayment speeds would have differing impacts depending on the seniority of the instrument and, in the case of CLOs, whether prepayments can be reinvested.
Structured credit derivatives, which include tranched portfolio CDS and derivatives with derivative product company (DPC) and monoline counterparties, are impacted by credit correlation, including default and wrong-way correlation. Default correlation is a parameter that describes the degree of dependence among credit default rates within a credit portfolio that underlies a credit derivative instrument. The sensitivity of this input on the fair value varies depending on the level of subordination of the tranche. For senior tranches that are net purchases of protection, a significant increase in default correlation would result in a significantly higher fair value. Net short protection positions would be impacted in a directionally opposite way. Wrong-way correlation is a parameter that describes the probability that as exposure to a counterparty increases, the credit quality of the counterparty decreases. A significantly higher degree of wrong-way correlation between a DPC counterparty and underlying derivative exposure would result in a significantly lower fair value.
For equity derivatives, commodity derivatives, interest rate derivatives and structured liabilities, a significant change in long-dated rates and volatilities and correlation inputs (e.g., the degree of correlation between an equity security and an index, between two different commodities, between two different interest rates, or between interest rates and foreign exchange rates) would result in a significant impact to the fair value; however, the magnitude and direction of the impact depends on whether the Corporation is long or short the exposure.
202
|
Nonrecurring Fair Value
|
The Corporation holds certain assets that are measured at fair value, but only in certain situations (e.g., impairment) and these measurements are referred to herein as nonrecurring. The amounts below represent assets still held as of the reporting date for which a nonrecurring fair value adjustment was recorded during the
three months ended March 31, 2015 and 2014
.
|
Assets Measured at Fair Value on a Nonrecurring Basis
|
|||||||||||
|
|
March 31, 2015
|
Three Months Ended March 31, 2015
|
|||||||||
|
(Dollars in millions)
|
Level 2
|
Level 3
|
Gains (Losses)
|
||||||||
|
Assets
|
|
|
|
||||||||
|
Loans held-for-sale
|
$
|
565
|
|
$
|
22
|
|
$
|
(33
|
)
|
||
|
Loans and leases
|
5
|
|
1,167
|
|
(231
|
)
|
|||||
|
Foreclosed properties
(1, 2)
|
—
|
|
400
|
|
(15
|
)
|
|||||
|
Other assets
|
200
|
|
—
|
|
(1
|
)
|
|||||
|
|
March 31, 2014
|
Three Months Ended March 31, 2014
|
|||||||||
|
Assets
|
|
|
|
||||||||
|
Loans held-for-sale
|
$
|
4,325
|
|
$
|
104
|
|
$
|
(3
|
)
|
||
|
Loans and leases
|
17
|
|
1,733
|
|
(330
|
)
|
|||||
|
Foreclosed properties
(1, 2)
|
4
|
|
268
|
|
(14
|
)
|
|||||
|
Other assets
|
77
|
|
—
|
|
—
|
|
|||||
|
(1)
|
Amounts are included in other assets on the Consolidated Balance Sheet and represent the carrying value of foreclosed properties that were written down subsequent to their initial classification as foreclosed properties.
|
|
(2)
|
Excludes
$1.2 billion
and
$1.1 billion
of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) as of
March 31, 2015
and
2014
.
|
The table below presents information about significant unobservable inputs related to the Corporation's nonrecurring Level 3 financial assets and liabilities at
March 31, 2015
and
December 31, 2014
.
|
Quantitative Information about Nonrecurring Level 3 Fair Value Measurements
|
||||||||
|
March 31, 2015
|
||||||||
|
(Dollars in millions)
|
Inputs
|
|||||||
|
Financial Instrument
|
Fair Value
|
Valuation
Technique
|
Significant Unobservable
Inputs
|
Ranges of
Inputs
|
Weighted Average
|
|||
|
Instruments backed by residential real estate assets
|
$
|
1,167
|
|
Market comparables
|
OREO discount
|
0% to 26%
|
10
|
%
|
|
Loans and leases
|
1,167
|
|
Cost to sell
|
7% to 16%
|
7
|
%
|
||
|
December 31, 2014
|
||||||||
|
Instruments backed by residential real estate assets
|
$
|
4,636
|
|
Market comparables
|
OREO discount
|
0% to 28%
|
8
|
%
|
|
Loans and leases
|
4,636
|
|
Cost to sell
|
7% to 14%
|
8
|
%
|
||
Instruments backed by residential real estate assets represent residential mortgages where the loan has been written down to the fair value of the underlying collateral. In addition to the instruments disclosed in the table above, the Corporation holds foreclosed residential properties where the fair value is based on unadjusted third-party appraisals or broker price opinions. Appraisals are generally conducted every
90 days
. Factors considered in determining the fair value include geographic sales trends, the value of comparable surrounding properties as well as the condition of the property.
203
|
|
The Corporation elects to account for certain financial instruments under the fair value option. For more information on the primary financial instruments for which the fair value option elections have been made, see
Note 21 – Fair Value Option
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
The table below provides information about the fair value carrying amount and the contractual principal outstanding of assets and liabilities accounted for under the fair value option at
March 31, 2015
and
December 31, 2014
.
|
Fair Value Option Elections
|
|||||||||||||||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||||||||||||||
|
(Dollars in millions)
|
Fair Value
Carrying
Amount
|
Contractual
Principal
Outstanding
|
Fair Value
Carrying
Amount
Less Unpaid
Principal
|
Fair Value
Carrying
Amount
|
Contractual
Principal
Outstanding
|
Fair Value
Carrying
Amount
Less Unpaid
Principal
|
|||||||||||||||||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
$
|
60,451
|
|
$
|
60,142
|
|
$
|
309
|
|
$
|
62,182
|
|
$
|
61,902
|
|
$
|
280
|
|
|||||
|
Loans reported as trading account assets
(1)
|
4,190
|
|
8,028
|
|
(3,838
|
)
|
4,607
|
|
8,487
|
|
(3,880
|
)
|
|||||||||||
|
Trading inventory – other
|
6,869
|
|
n/a
|
|
n/a
|
|
6,865
|
|
n/a
|
|
n/a
|
|
|||||||||||
|
Consumer and commercial loans
|
8,466
|
|
8,605
|
|
(139
|
)
|
8,681
|
|
8,925
|
|
(244
|
)
|
|||||||||||
|
Loans held-for-sale
|
7,690
|
|
8,027
|
|
(337
|
)
|
6,801
|
|
6,920
|
|
(119
|
)
|
|||||||||||
|
Other assets
|
256
|
|
270
|
|
(14
|
)
|
253
|
|
270
|
|
(17
|
)
|
|||||||||||
|
Long-term deposits
|
1,275
|
|
1,154
|
|
121
|
|
1,469
|
|
1,361
|
|
108
|
|
|||||||||||
|
Federal funds purchased and securities loaned or sold under agreements to repurchase
|
27,129
|
|
27,503
|
|
(374
|
)
|
35,357
|
|
35,332
|
|
25
|
|
|||||||||||
|
Unfunded loan commitments
|
329
|
|
n/a
|
|
n/a
|
|
405
|
|
n/a
|
|
n/a
|
|
|||||||||||
|
Short-term borrowings
|
2,893
|
|
2,893
|
|
—
|
|
2,697
|
|
2,697
|
|
—
|
|
|||||||||||
|
Long-term debt
(2)
|
32,875
|
|
32,224
|
|
651
|
|
36,404
|
|
35,815
|
|
589
|
|
|||||||||||
|
(1)
|
A significant portion of the loans reported as trading account assets are distressed loans which trade and were purchased at a deep discount to par, and the remainder are loans with a fair value near contractual principal outstanding.
|
|
(2)
|
Includes structured liabilities with a fair value of
$31.8 billion
and contractual principal outstanding of
$31.0 billion
at
March 31, 2015
compared to
$35.3 billion
and
$34.6 billion
at
December 31, 2014
.
|
n/a = not applicable
204
The table below provides information about where changes in the fair value of assets and liabilities accounted for under the fair value option are included in the Consolidated Statement of Income for the
three months ended March 31, 2015 and 2014
. Of the changes in fair value for LHFS, consumer and commercial loans, and loans reported as trading account assets, gains of
$39 million
, losses of
$28 million
and gains of
$8 million
were attributable to changes in borrower-specific credit risk for the three months ended March 31, 2015, respectively, compared to gains of
$27 million
, gains of
$36 million
and
$0
for the same period in 2014.
|
Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option
|
|||||||||||||||
|
|
Three Months Ended March 31, 2015
|
||||||||||||||
|
(Dollars in millions)
|
Trading
Account
Profits
(Losses)
|
Mortgage
Banking
Income
(Loss)
|
Other
Income
(Loss)
|
Total
|
|||||||||||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
$
|
(64
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(64
|
)
|
|||
|
Loans reported as trading account assets
|
(101
|
)
|
—
|
|
—
|
|
(101
|
)
|
|||||||
|
Trading inventory – other
(1)
|
(14
|
)
|
—
|
|
—
|
|
(14
|
)
|
|||||||
|
Consumer and commercial loans
|
35
|
|
—
|
|
(83
|
)
|
(48
|
)
|
|||||||
|
Loans held-for-sale
(2)
|
(47
|
)
|
192
|
|
63
|
|
208
|
|
|||||||
|
Other assets
|
—
|
|
—
|
|
8
|
|
8
|
|
|||||||
|
Long-term deposits
|
(4
|
)
|
—
|
|
(5
|
)
|
(9
|
)
|
|||||||
|
Federal funds purchased and securities loaned or sold under agreements to repurchase
|
54
|
|
—
|
|
—
|
|
54
|
|
|||||||
|
Unfunded loan commitments
|
—
|
|
—
|
|
118
|
|
118
|
|
|||||||
|
Short-term borrowings
|
(1
|
)
|
—
|
|
—
|
|
(1
|
)
|
|||||||
|
Long-term debt
(3)
|
253
|
|
—
|
|
65
|
|
318
|
|
|||||||
|
Total
|
$
|
111
|
|
$
|
192
|
|
$
|
166
|
|
$
|
469
|
|
|||
|
|
Three Months Ended March 31, 2014
|
||||||||||||||
|
Federal funds sold and securities borrowed or purchased under agreements to resell
|
$
|
(20
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(20
|
)
|
|||
|
Loans reported as trading account assets
|
34
|
|
—
|
|
—
|
|
34
|
|
|||||||
|
Trading inventory – other
(1)
|
(168
|
)
|
—
|
|
—
|
|
(168
|
)
|
|||||||
|
Consumer and commercial loans
|
5
|
|
—
|
|
52
|
|
57
|
|
|||||||
|
Loans held-for-sale
(2)
|
(1
|
)
|
155
|
|
40
|
|
194
|
|
|||||||
|
Other assets
|
—
|
|
—
|
|
(2
|
)
|
(2
|
)
|
|||||||
|
Long-term deposits
|
13
|
|
—
|
|
(9
|
)
|
4
|
|
|||||||
|
Federal funds purchased and securities loaned or sold under agreements to repurchase
|
(2
|
)
|
—
|
|
—
|
|
(2
|
)
|
|||||||
|
Unfunded loan commitments
|
—
|
|
—
|
|
9
|
|
9
|
|
|||||||
|
Short-term borrowings
|
36
|
|
—
|
|
—
|
|
36
|
|
|||||||
|
Long-term debt
(3)
|
(368
|
)
|
—
|
|
197
|
|
(171
|
)
|
|||||||
|
Total
|
$
|
(471
|
)
|
$
|
155
|
|
$
|
287
|
|
$
|
(29
|
)
|
|||
|
(1)
|
The gains (losses) in trading account profits (losses) are primarily offset by gains (losses) on trading liabilities that hedge these assets.
|
|
(2)
|
Includes the value of interest rate lock commitments on loans funded, including those sold during the period.
|
|
(3)
|
The majority of the net gains (losses) in trading account profits (losses) relate to the embedded derivative in structured liabilities and are offset by gains (losses) on derivatives and securities that hedge these liabilities. The net gains (losses) in other income (loss) relate to the impact on structured liabilities of changes in the Corporation's credit spreads.
|
205
|
|
The fair values of financial instruments and their classifications within the fair value hierarchy have been derived using methodologies described in
Note 14 – Fair Value Measurements
. The following disclosures include financial instruments where only a portion of the ending balance at
March 31, 2015
and
December 31, 2014
was carried at fair value on the Consolidated Balance Sheet. For more information on these financial instruments, see
Note 20 – Fair Value Measurements
and
Note 22 – Fair Value of Financial Instruments
to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K
.
Fair Value of Financial Instruments
The carrying values and fair values by fair value hierarchy of certain financial instruments where only a portion of the ending balance was carried at fair value at
March 31, 2015
and
December 31, 2014
are presented in the table below.
|
Fair Value of Financial Instruments
|
|||||||||||||||||||||||||||||||
|
March 31, 2015
|
December 31, 2014
|
||||||||||||||||||||||||||||||
|
|
Fair Value
|
Fair Value
|
|||||||||||||||||||||||||||||
|
(Dollars in millions)
|
Carrying
Value
|
Level 2
|
Level 3
|
Total
|
Carrying
Value
|
Level 2
|
Level 3
|
Total
|
|||||||||||||||||||||||
|
Financial assets
|
|
|
|
||||||||||||||||||||||||||||
|
Loans
|
$
|
839,962
|
|
$
|
80,683
|
|
$
|
780,895
|
|
$
|
861,578
|
|
$
|
842,259
|
|
$
|
87,174
|
|
$
|
776,370
|
|
$
|
863,544
|
|
|||||||
|
Loans held-for-sale
|
9,732
|
|
8,991
|
|
741
|
|
9,732
|
|
12,836
|
|
12,236
|
|
618
|
|
12,854
|
|
|||||||||||||||
|
Financial liabilities
|
|
|
|
|
|||||||||||||||||||||||||||
|
Deposits
|
$
|
1,153,168
|
|
$
|
1,153,707
|
|
$
|
—
|
|
$
|
1,153,707
|
|
$
|
1,118,936
|
|
$
|
1,119,427
|
|
$
|
—
|
|
$
|
1,119,427
|
|
|||||||
|
Long-term debt
|
237,858
|
|
242,920
|
|
2,806
|
|
245,726
|
|
243,139
|
|
249,692
|
|
2,362
|
|
252,054
|
|
|||||||||||||||
Commercial Unfunded Lending Commitments
Fair values were generally determined using a discounted cash flow valuation approach which is applied using market-based CDS or internally developed benchmark credit curves. The Corporation accounts for certain loan commitments under the fair value option.
The carrying values and fair values of the Corporation's commercial unfunded lending commitments were
$866 million
and
$3.5 billion
at
March 31, 2015
, and
$932 million
and
$3.8 billion
at
December 31, 2014
. Commercial unfunded lending commitments are primarily classified as Level 3. The carrying value of these commitments is classified in accrued expenses and other liabilities.
The Corporation does not estimate the fair values of consumer unfunded lending commitments because, in many instances, the Corporation can reduce or cancel these commitments by providing notice to the borrower. For more information on commitments, see
Note 10 – Commitments and Contingencies
.
206
|
|
The Corporation accounts for consumer MSRs at fair value with changes in fair value recorded in mortgage banking income in the Consolidated Statement of Income. The Corporation manages the risk in these MSRs with securities including MBS and U.S. Treasury securities, as well as certain derivatives such as options and interest rate swaps, which are not designated as accounting hedges. The securities used to manage the risk in the MSRs are classified in other assets with changes in the fair value of the securities and the related interest income recorded in mortgage banking income.
The table below presents activity for residential mortgage and home equity MSRs for the
three months ended March 31, 2015 and 2014
.
|
Rollforward of Mortgage Servicing Rights
|
|||||||
|
Three Months Ended
March 31 |
|||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Balance, January 1
|
$
|
3,530
|
|
$
|
5,042
|
|
|
|
Additions
|
179
|
|
265
|
|
|||
|
Sales
|
—
|
|
(20
|
)
|
|||
|
Amortization of expected cash flows
(1)
|
(230
|
)
|
(232
|
)
|
|||
|
Impact of changes in interest rates and other market factors
(2)
|
(176
|
)
|
(317
|
)
|
|||
|
Model and other cash flow assumption changes:
(3)
|
|
|
|||||
|
Projected cash flows, including changes in costs to service loans
|
87
|
|
(36
|
)
|
|||
|
Impact of changes in the Home Price Index
|
(12
|
)
|
(11
|
)
|
|||
|
Impact of changes to the prepayment model
|
9
|
|
160
|
|
|||
|
Other model changes
(4)
|
7
|
|
(86
|
)
|
|||
|
Balance, March 31
(5)
|
$
|
3,394
|
|
$
|
4,765
|
|
|
|
Mortgage loans serviced for investors (in billions)
|
$
|
475
|
|
$
|
542
|
|
|
|
(1)
|
Represents the net change in fair value of the MSR asset due to the recognition of modeled cash flows.
|
|
(2)
|
These amounts reflect the changes in modeled MSR fair value primarily due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve and periodic adjustments to valuation based on third-party price discovery.
|
|
(3)
|
These amounts reflect periodic adjustments to the valuation model to reflect changes in the modeled relationship between inputs and their impact on projected cash flows as well as changes in certain cash flow assumptions such as cost to service and ancillary income per loan.
|
|
(4)
|
These amounts include the impact of periodic recalibrations of the model to reflect changes in the relationship between market interest rate spreads and projected cash flows.
|
|
(5)
|
At
March 31, 2015
, includes
$3.1 billion
of U.S. and
$286 million
of non-U.S. consumer MSR balances compared to
$4.6 billion
and
$188 million
at
March 31, 2014
.
|
The Corporation primarily uses an option-adjusted spread (OAS) valuation approach which factors in prepayment risk to determine the fair value of MSRs. This approach consists of projecting servicing cash flows under multiple interest rate scenarios and discounting these cash flows using risk-adjusted discount rates. In addition to updating the valuation model for interest, discount and prepayment rates, periodic adjustments are made to recalibrate the valuation model for factors used to project cash flows. The changes to the factors capture the effect of variances related to actual versus estimated servicing proceeds.
207
Significant economic assumptions in estimating the fair value of MSRs at
March 31, 2015
and
December 31, 2014
are presented below. The change in fair value as a result of changes in OAS rates is included within "Model and other cash flow assumption changes" in the Rollforward of Mortgage Servicing Rights table. The weighted-average life is not an input in the valuation model but is a product of both changes in market rates of interest and changes in model and other cash flow assumptions. The weighted-average life represents the average period of time that the MSRs' cash flows are expected to be received. Absent other changes, an increase (decrease) to the weighted-average life would generally result in an increase (decrease) in the fair value of the MSRs.
|
Significant Economic Assumptions
|
|||||||||||
|
|
March 31, 2015
|
December 31, 2014
|
|||||||||
|
Fixed
|
Adjustable
|
Fixed
|
Adjustable
|
||||||||
|
Weighted-average OAS
|
4.60
|
%
|
7.76
|
%
|
4.52
|
%
|
7.61
|
%
|
|||
|
Weighted-average life, in years
|
4.26
|
|
3.14
|
|
4.53
|
|
2.95
|
|
|||
The table below presents the sensitivity of the weighted-average lives and fair value of MSRs to changes in modeled assumptions. These sensitivities are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of MSRs that continue to be held by the Corporation is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. The below sensitivities do not reflect any hedge strategies that may be undertaken to mitigate such risk.
|
Sensitivity Impacts
|
|||||||||||||
|
|
March 31, 2015
|
||||||||||||
|
Change in Weighted-average Lives
|
|||||||||||||
|
(Dollars in millions)
|
Fixed
|
Adjustable
|
Change in
Fair Value
|
||||||||||
|
Prepayment rates
|
|
|
|
|
|
||||||||
|
Impact of 10% decrease
|
0.23
|
|
years
|
0.19
|
|
years
|
$
|
226
|
|
||||
|
Impact of 20% decrease
|
0.50
|
|
|
0.40
|
|
|
482
|
|
|||||
|
Impact of 10% increase
|
(0.20
|
)
|
(0.17
|
)
|
(201
|
)
|
|||||||
|
Impact of 20% increase
|
(0.38
|
)
|
(0.32
|
)
|
(381
|
)
|
|||||||
|
OAS level
|
|
|
|
|
|
||||||||
|
Impact of 100 bps decrease
|
|
$
|
140
|
|
|||||||||
|
Impact of 200 bps decrease
|
|
292
|
|
||||||||||
|
Impact of 100 bps increase
|
|
(129
|
)
|
||||||||||
|
Impact of 200 bps increase
|
|
(249
|
)
|
||||||||||
208
|
|
Effective January 1, 2015, to align the segments with how the Corporation manages the businesses in 2015, it changed its basis of presentation, and following such change, reports its results of operations through the following
five
business segments:
Consumer Banking
,
Global Wealth & Investment Management (GWIM)
,
Global Banking
,
Global Markets
and
Legacy Assets & Servicing (LAS)
, with the remaining operations recorded in
All Other
. For more information on the Corporation's segment realignment, see
Note 1 – Summary of Significant Accounting Principles
.
Consumer Banking
Consumer Banking
offers a diversified range of credit, banking and investment products and services to consumers and small businesses.
Consumer Banking
product offerings include
traditional savings accounts, money market savings accounts, CDs and IRAs, noninterest- and interest-bearing checking accounts,
investment accounts and products
, as well as
credit and debit cards, residential mortgages and home equity loans, and direct and indirect loans
to consumers and small businesses in the U.S. Customers and clients
have access to a franchise network that stretches coast to coast through
32
states and the District of Columbia.
The franchise network includes approximately
4,800
financial centers,
15,900
ATMs, nationwide call centers, and online and mobile platforms.
Global Wealth & Investment Management
GWIM
provides a high-touch client experience through a network of financial advisors focused on clients with over $250,000 in total investable assets
, as well as
tailored solutions to meet
clients' needs through a full set of brokerage, banking and retirement products.
GWIM
also
provides comprehensive wealth management solutions targeted to high net worth and ultra high net worth clients, as well as customized solutions to meet clients' wealth structuring, investment management, trust and banking needs, including specialty asset management services.
Global Banking
Global Banking
provides a wide range of lending-related products and services, integrated working capital management and treasury solutions to clients, and underwriting and advisory services through
the Corporation's network
of offices and client relationship teams.
Global Banking's
lending products and services include commercial loans, leases, commitment facilities, trade finance, real estate lending and asset-based lending.
Global Banking's
treasury solutions business includes treasury management, foreign exchange and short-term investing options.
Global Banking
also provides investment banking products to clients such as
debt and equity underwriting and distribution, and merger-related and other advisory services.
The
economics of most investment banking and underwriting activities are shared primarily between
Global Banking
and
Global Markets
based on the activities performed by each segment
.
Global Banking
clients
generally include middle-market companies, commercial real estate firms, auto dealerships
,
not-for-profit companies
,
large global corporations, financial institutions
,
leasing clients
, and
mid-sized U.S.-based businesses requiring customized and integrated financial advice and solutions
.
Global Markets
Global Markets
offers sales and trading services, including research, to institutional clients across fixed-income, credit, currency, commodity and equity businesses.
Global Markets
product coverage includes securities and derivative products in both the primary and secondary markets.
Global Markets
provides market-making, financing, securities clearing, settlement and custody services globally to
institutional investor clients in support of their investing and trading activities.
Global Markets
also works with
commercial and corporate clients to provide risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and mortgage-related products.
As a result of market-making activities in these products,
Global Markets
may be required to manage risk in a broad range of financial products including government securities, equity and equity-linked securities, high-grade and high-yield corporate debt securities,
syndicated loans, MBS, commodities and ABS. In addition, the
economics of most investment banking and underwriting activities are shared primarily between
Global Markets
and
Global Banking
based on the activities performed by each segment
.
209
Legacy Assets & Servicing
LAS
is responsible for
mortgage servicing activities related to residential first mortgage and home equity loans serviced for others and loans held by the Corporation, including loans that have been designated as the
LAS
Portfolios, and manages
certain legacy exposures related to mortgage originations, sales and servicing activities (e.g., litigation, representations and warranties).
LAS
also includes
the results of MSR activities, including net hedge results
. Home equity loans are held on the balance sheet of
LAS
, and residential mortgage loans are included as part of
All Other
.
The financial results of the on-balance sheet loans are reported in the segment that owns the loans or in
All Other
.
All Other
All Other
consists of ALM activities,
equity investments, the international consumer card business, liquidating businesses, residual expense allocations and other. ALM activities encompass residential mortgage securities, interest rate and foreign currency risk management activities including the residual net interest income allocation, the impact of certain allocation methodologies and accounting hedge ineffectiveness.
Additionally,
certain residential mortgage loans that are managed by
LAS
are held in
All Other
.
The results of certain ALM activities are allocated to
the
business segments
.
|
Basis of Presentation
|
The management accounting and reporting process derives segment and business results by utilizing allocation methodologies for revenue and expense. The net income derived for the businesses is dependent upon revenue and cost allocations using an activity-based costing model, funds transfer pricing, and other methodologies and assumptions management believes are appropriate to reflect the results of the business.
Total revenue, net of interest expense, includes net interest income on an FTE basis and noninterest income. The adjustment of net interest income to an FTE basis results in a corresponding increase in income tax expense. The segment results also reflect certain revenue and expense methodologies that are utilized to determine net income. The net interest income of the businesses includes the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. In segments where the total of liabilities and equity exceeds assets, which are generally deposit-taking segments, the Corporation allocates assets to match liabilities. Net interest income of the business segments also includes an allocation of net interest income generated by certain of the Corporation's ALM activities. Further, net interest income on an FTE basis includes market-related adjustments, which
include acceleration of premium amortization (or discount accretion) on debt securities as the decline in long-term interest rates shortened the estimated lives of mortgage-related debt securities
.
Also included in market-related adjustments is hedge ineffectiveness that impacted net interest income
.
In addition, the business segments are impacted by the migration of customers and clients and their deposit, loan and brokerage balances between client-managed businesses. Subsequent to the date of migration, the associated net interest income, noninterest income and noninterest expense are recorded in the business to which the customers or clients migrated.
The Corporation's ALM activities include an overall interest rate risk management strategy that incorporates the use of various derivatives and cash instruments to manage fluctuations in earnings and capital that are caused by interest rate volatility. The Corporation's goal is to manage interest rate sensitivity so that movements in interest rates do not significantly adversely affect earnings and capital. The results of a majority of the Corporation's ALM activities are allocated to the business segments and fluctuate based on the performance of the ALM activities. ALM activities include external product pricing decisions including deposit pricing strategies, the effects of the Corporation's internal funds transfer pricing process and the net effects of other ALM activities.
Certain expenses not directly attributable to a specific business segment are allocated to the segments. The most significant of these expenses include data and item processing costs and certain centralized or shared functions. Data processing costs are allocated to the segments based on equipment usage. Item processing costs are allocated to the segments based on the volume of items processed for each segment. The costs of certain other centralized or shared functions are allocated based on methodologies that reflect utilization.
210
The table below presents net income (loss) and the components thereto (with net interest income on an FTE basis) for the
three months ended March 31, 2015 and 2014
, and total assets at
March 31, 2015
and
2014
for each business segment, as well as
All Other
.
|
Results for Business Segments and All Other
|
|||||||||||||||||||||||
|
At and for the Three Months Ended March 31
|
|||||||||||||||||||||||
|
|
Total Corporation
(1)
|
Consumer Banking
|
Global Wealth &
Investment Management
|
||||||||||||||||||||
|
(Dollars in millions)
|
2015
|
2014
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||||||
|
Net interest income (FTE basis)
|
$
|
9,670
|
|
$
|
10,286
|
|
$
|
4,871
|
|
$
|
5,071
|
|
$
|
1,351
|
|
$
|
1,485
|
|
|||||
|
Noninterest income
|
11,751
|
|
12,481
|
|
2,579
|
|
2,580
|
|
3,166
|
|
3,062
|
|
|||||||||||
|
Total revenue, net of interest expense (FTE basis)
|
21,421
|
|
22,767
|
|
7,450
|
|
7,651
|
|
4,517
|
|
4,547
|
|
|||||||||||
|
Provision for credit losses
|
765
|
|
1,009
|
|
716
|
|
809
|
|
23
|
|
23
|
|
|||||||||||
|
Noninterest expense
|
15,695
|
|
22,238
|
|
4,389
|
|
4,495
|
|
3,459
|
|
3,359
|
|
|||||||||||
|
Income (loss) before income taxes (FTE basis)
|
4,961
|
|
(480
|
)
|
2,345
|
|
2,347
|
|
1,035
|
|
1,165
|
|
|||||||||||
|
Income tax expense (benefit) (FTE basis)
|
1,604
|
|
(204
|
)
|
870
|
|
879
|
|
384
|
|
436
|
|
|||||||||||
|
Net income (loss)
|
$
|
3,357
|
|
$
|
(276
|
)
|
$
|
1,475
|
|
$
|
1,468
|
|
$
|
651
|
|
$
|
729
|
|
|||||
|
Period-end total assets
|
$
|
2,143,545
|
|
$
|
2,149,851
|
|
$
|
613,130
|
|
$
|
586,472
|
|
$
|
272,777
|
|
$
|
271,211
|
|
|||||
|
|
|||||||||||||||||||||||
|
|
Global Banking
|
Global Markets
|
|||||||||||||||||||||
|
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||||||||
|
Net interest income (FTE basis)
|
$
|
2,265
|
|
$
|
2,507
|
|
$
|
1,004
|
|
$
|
1,002
|
|
|||||||||||
|
Noninterest income
|
2,024
|
|
2,028
|
|
3,599
|
|
4,015
|
|
|||||||||||||||
|
Total revenue, net of interest expense (FTE basis)
|
4,289
|
|
4,535
|
|
4,603
|
|
5,017
|
|
|||||||||||||||
|
Provision for credit losses
|
96
|
|
281
|
|
21
|
|
19
|
|
|||||||||||||||
|
Noninterest expense
|
2,022
|
|
2,190
|
|
3,120
|
|
3,075
|
|
|||||||||||||||
|
Income before income taxes (FTE basis)
|
2,171
|
|
2,064
|
|
1,462
|
|
1,923
|
|
|||||||||||||||
|
Income tax expense (FTE basis)
|
806
|
|
773
|
|
517
|
|
610
|
|
|||||||||||||||
|
Net income
|
$
|
1,365
|
|
$
|
1,291
|
|
$
|
945
|
|
$
|
1,313
|
|
|||||||||||
|
Period-end total assets
|
$
|
368,595
|
|
$
|
359,786
|
|
$
|
586,737
|
|
$
|
594,792
|
|
|||||||||||
|
|
|
||||||||||||||||||||||
|
|
Legacy Assets & Servicing
|
All Other
|
|||||||||||||||||||||
|
|
2015
|
2014
|
2015
|
2014
|
|||||||||||||||||||
|
Net interest income (FTE basis)
|
$
|
428
|
|
$
|
377
|
|
$
|
(249
|
)
|
$
|
(156
|
)
|
|||||||||||
|
Noninterest income
|
486
|
|
309
|
|
(103
|
)
|
487
|
|
|||||||||||||||
|
Total revenue, net of interest expense (FTE basis)
|
914
|
|
686
|
|
(352
|
)
|
331
|
|
|||||||||||||||
|
Provision for credit losses
|
91
|
|
12
|
|
(182
|
)
|
(135
|
)
|
|||||||||||||||
|
Noninterest expense
|
1,201
|
|
7,401
|
|
1,504
|
|
1,718
|
|
|||||||||||||||
|
Loss before income taxes (FTE basis)
|
(378
|
)
|
(6,727
|
)
|
(1,674
|
)
|
(1,252
|
)
|
|||||||||||||||
|
Income tax benefit (FTE basis)
|
(140
|
)
|
(1,847
|
)
|
(833
|
)
|
(1,055
|
)
|
|||||||||||||||
|
Net loss
|
$
|
(238
|
)
|
$
|
(4,880
|
)
|
$
|
(841
|
)
|
$
|
(197
|
)
|
|||||||||||
|
Period-end total assets
|
$
|
53,538
|
|
$
|
58,605
|
|
$
|
248,768
|
|
$
|
278,985
|
|
|||||||||||
|
(1)
|
There were no material intersegment revenues.
|
211
The table below presents a reconciliation of the
five
business segments' total revenue, net of interest expense, on an FTE basis, and net income to the Consolidated Statement of Income, and total assets to the Consolidated Balance Sheet. The adjustments presented in the table below include consolidated income, expense and asset amounts not specifically allocated to individual business segments.
|
Business Segment Reconciliations
|
|||||||
|
Three Months Ended March 31
|
|||||||
|
(Dollars in millions)
|
2015
|
2014
|
|||||
|
Segments' total revenue, net of interest expense (FTE basis)
|
$
|
21,773
|
|
$
|
22,436
|
|
|
|
Adjustments:
|
|
|
|||||
|
ALM activities
|
(221
|
)
|
(265
|
)
|
|||
|
Equity investment income
|
1
|
|
696
|
|
|||
|
Liquidating businesses and other
|
(132
|
)
|
(100
|
)
|
|||
|
FTE basis adjustment
|
(219
|
)
|
(201
|
)
|
|||
|
Consolidated revenue, net of interest expense
|
$
|
21,202
|
|
$
|
22,566
|
|
|
|
Segments' total net income (loss)
|
$
|
4,198
|
|
$
|
(79
|
)
|
|
|
Adjustments, net-of-taxes:
|
|
|
|||||
|
ALM activities
|
(238
|
)
|
94
|
|
|||
|
Equity investment income
|
1
|
|
435
|
|
|||
|
Liquidating businesses and other
|
(604
|
)
|
(726
|
)
|
|||
|
Consolidated net income (loss)
|
$
|
3,357
|
|
$
|
(276
|
)
|
|
|
March 31
|
|||||||
|
2015
|
2014
|
||||||
|
Segments' total assets
|
$
|
1,894,777
|
|
$
|
1,870,866
|
|
|
|
Adjustments:
|
|
||||||
|
ALM activities, including securities portfolio
|
692,550
|
|
685,256
|
|
|||
|
Equity investments
|
4,716
|
|
5,323
|
|
|||
|
Liquidating businesses and other
|
67,473
|
|
80,532
|
|
|||
|
Elimination of segment asset allocations to match liabilities
|
(515,971
|
)
|
(492,126
|
)
|
|||
|
Consolidated total assets
|
$
|
2,143,545
|
|
$
|
2,149,851
|
|
|
212
|
|
|
|
See Litigation and Regulatory Matters in
Note 10 – Commitments and Contingencies
to the Consolidated Financial Statements
, which is incorporated by reference in this Item 1, for litigation and regulatory disclosure that supplements the disclosure in
Note 12 – Commitments and Contingencies
to the Consolidated Financial Statements
of the Corporation's 2014 Annual Report on Form 10-K
.
|
|
There are no material changes from the risk factors set forth under Part 1,
Item 1A. Risk Factors of the Corporation's 2014 Annual Report on Form 10-K
.
|
|
The table below presents share repurchase activity for the
three months ended March 31, 2015
. The primary source of funds for cash distributions by the Corporation to its shareholders is dividends received from its banking subsidiaries. Each of the banking subsidiaries is subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. All of the Corporation's preferred stock outstanding has preference over the Corporation's common stock with respect to the payment of dividends.
|
(Dollars in millions, except per share information; shares in thousands)
|
Common Shares
Repurchased
(1)
|
Weighted-Average
Per Share Price
|
Shares Purchased as
Part of Publicly
Announced Programs
|
Remaining Buyback Authority Amounts
(2)
|
|||||||||
|
January 1 - 31, 2015
|
715
|
|
$
|
18.02
|
|
—
|
|
$
|
3,767
|
|
|||
|
February 1 - 28, 2015
|
1,463
|
|
16.56
|
|
—
|
|
3,767
|
|
|||||
|
March 1 - 31, 2015
|
675
|
|
15.82
|
|
—
|
|
3,767
|
|
|||||
|
Three Months Ended March 31, 2015
|
2,853
|
|
16.75
|
|
|
|
|||||||
|
(1)
|
Includes shares of the Corporation's common stock acquired by the Corporation in connection with satisfaction of tax withholding obligations on vested restricted stock or restricted stock units and certain forfeitures and terminations of employment-related awards under equity incentive plans.
|
|
(2)
|
On March 26, 2014, the Corporation announced that its Board of Directors authorized the repurchase of up to $4.0 billion of the Corporation's common stock over four quarters beginning with the second quarter of 2014. On April 28, 2014, the Corporation announced the suspension of this repurchase authorization. Amounts shown in this column reflect the remaining buyback authority under the March 26, 2014 authorization, which expired on March 31, 2015.
|
On March 11, 2015, the Corporation announced that the Federal Reserve had informed the Corporation that it completed its 2015 Comprehensive Capital Analysis and Review and did not object to our 2015 capital plan, which included a request to repurchase up to $4.0 billion of common stock during the period from the second quarter of 2015 through the second quarter of 2016. On March 11, 2015, the Board of Directors authorized the repurchase of up to $4.0 billion of the Corporation's common stock through open market purchases or privately negotiated transactions, including Rule 10b5-1 plans, during the period from April 1, 2015 through June 30, 2016. For additional information, see
Capital Management – CCAR and Capital Planning
on page
47
and
Note 11 – Shareholders' Equity
to the Consolidated Financial Statements.
The Corporation did not have any unregistered sales of its equity securities during the
three months ended March 31, 2015
.
213
|
|
||
|
Exhibit 3(a)
|
Amended and Restated Certificate of Incorporation of the Corporation, as in effect on the date hereof
(1)
|
|
|
Exhibit 3(b)
|
Amended and Restated Bylaws of the Corporation, as in effect on the date hereof, incorporated by reference to Exhibit 3.1 of the Corporation's Current Report on Form 8-K (File No. 1-6523) filed on March 20, 2015
|
|
|
Exhibit 11
|
Earnings Per Share Computation – included in
Note 13 – Earnings Per Common Share
to the Consolidated Financial Statements
(1)
|
|
|
Exhibit 12
|
Ratio of Earnings to Fixed Charges
(1)
Ratio of Earnings to Fixed Charges and Preferred Dividends
(1)
|
|
|
Exhibit 31(a)
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(1)
|
|
|
Exhibit 31(b)
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(1)
|
|
|
Exhibit 32(a)
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)
|
|
|
Exhibit 32(b)
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)
|
|
|
Exhibit 101.INS
|
XBRL Instance Document
(1)
|
|
|
Exhibit 101.SCH
|
XBRL Taxonomy Extension Schema Document
(1)
|
|
|
Exhibit 101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
(1)
|
|
|
Exhibit 101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
(1)
|
|
|
Exhibit 101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
(1)
|
|
|
Exhibit 101.DEF
|
XBRL Taxonomy Extension Definitions Linkbase Document
(1)
|
|
|
(1)
|
Filed herewith
|
214
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Bank of America Corporation
Registrant
|
|
|||
|
Date:
|
April 29, 2015
|
|
/s/ Rudolf A. Bless
|
|
|
|
Rudolf A. Bless
Chief Accounting Officer
|
|||||
215
Bank of America Corporation
Form 10-Q
Index to Exhibits
|
Exhibit
|
Description
|
|
|
Exhibit 3(a)
|
Amended and Restated Certificate of Incorporation of the Corporation, as in effect on the date hereof
(1)
|
|
|
Exhibit 3(b)
|
Amended and Restated Bylaws of the Corporation, as in effect on the date hereof, incorporated by reference to Exhibit 3.1 of the Corporation's Current Report on Form 8-K (File No. 1-6523) filed on March 20, 2015
|
|
|
Exhibit 11
|
Earnings Per Share Computation – included in
|
|
|
Exhibit 12
|
Ratio of Earnings to Fixed Charges
(1)
Ratio of Earnings to Fixed Charges and Preferred Dividends
(1)
|
|
|
Exhibit 31(a)
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(1)
|
|
|
Exhibit 31(b)
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(1)
|
|
|
Exhibit 32(a)
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)
|
|
|
Exhibit 32(b)
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1)
|
|
|
Exhibit 101.INS
|
XBRL Instance Document
(1)
|
|
|
Exhibit 101.SCH
|
XBRL Taxonomy Extension Schema Document
(1)
|
|
|
Exhibit 101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
(1)
|
|
|
Exhibit 101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
(1)
|
|
|
Exhibit 101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
(1)
|
|
|
Exhibit 101.DEF
|
XBRL Taxonomy Extension Definitions Linkbase Document
(1)
|
|
|
(1)
|
Filed herewith
|
216
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsNote 6 Securitizations and Other Variable Interest Entities, Note 7 RepresentationsNote 10 Commitments and Contingencies)Note 1 Summary Of Significant Accounting PrinciplesNote 2 DerivativesNote 2 Derivatives Derivative BalancesNote 9 Federal Funds Sold Or Purchased, Securities Financing Agreements and Short-term BorrowingsNote 17 Mortgage Servicing RightsNote 18 Business Segment InformationNote 3 SecuritiesNote 10 Commitments and ContingenciesNote 4 Outstanding Loans and LeasesNote 14 Fair Value MeasurementsNote 15 Fair Value OptionNote 7 Representations and Warranties Obligations and Corporate GuaranteesNote 5 Allowance For Credit LossesNote 6 Securitizations and Other Variable Interest EntitiesNote 11 Long-term DebtNote 7 Representations and Warranties Obligations and Corporate Guarantees BackgroundNote 12 Commitments and ContingenciesNote 8 Goodwill and Intangible Assets GoodwillNote 8 Goodwill and Intangible AssetsNote 11 Shareholders' Equity Common StockNote 11 Shareholders' EquityNote 18 Stock-based Compensation PlansNote 12 Accumulated Other Comprehensive Income (loss)Note 13 Earnings Per Common ShareNote 20 Fair Value MeasurementsNote 21 Fair Value OptionNote 16 Fair Value Of Financial InstrumentsNote 22 Fair Value Of Financial InstrumentsPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 1A. Risk Factors Of The Corporation's 2014 Annual Report on Form 10-kItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits