Receivables

Receivables consisted of the following:



At December 31,	2012			2011
	(in millions)
Real estate secured:
First lien	$	29,301		$	38,235
Second lien	3,638			4,478
Total real estate secured	32,939			42,713
Personal non-credit card	—			5,196
Other	—			3
Total receivables	32,939			47,912
HSBC acquisition purchase accounting fair value adjustments	43			57
Accrued finance income	909			1,184
Credit loss reserve for owned receivables	(4,607		)	(5,952		)
Total receivables, net	$	29,284		$	43,201

The decrease in receivables since December 31, 2011 reflects, in part, the transfer of our entire portfolio of personal non-credit card receivables and a portion of our real estate secured receivables to receivables held for sale. See Note 7, "Receivables Held for Sale," for additional information.

HSBC acquisition purchase accounting fair value adjustments represent adjustments which have been “pushed down” to record our receivables at fair value at the date of acquisition by HSBC.

Net deferred origination fees totaled $221 million and $254 million at December 31, 2012 and 2011, respectively, and are included in the receivable balance.

Net unamortized premium on our receivables totaled $127 million and $169 million at December 31, 2012 and 2011, respectively. Unearned income on personal non-credit card receivables totaled $8 million at December 31, 2011 and is included in the receivable balance in the table above. As discussed more fully in Note 7, "Receivables Held for Sale," during the second quarter of 2012, we moved our entire portfolio of personal non-credit card receivables as well as certain real estate secured receivables to receivables held for sale.

Collateralized funding transactions Secured financings previously issued under public trusts with a balance of $2.9 billion at December 31, 2012 are secured by $4.9 billion of closed-end real estate secured receivables. Secured financings previously issued under public trusts with a balance of $3.3 billion at December 31, 2011 were secured by $5.3 billion of closed-end real estate secured receivables.

Age Analysis of Past Due Receivables The following tables summarize the past due status of our receivables at December 31, 2012 and 2011. The aging of past due amounts is determined based on the contractual delinquency status of payments made under the receivable. An account is generally considered to be contractually delinquent when payments have not been made in accordance with the loan terms. Delinquency status may be affected by customer account management policies and practices such as re-age or modification. Additionally, delinquency status is also impacted by payment percentage requirements which vary between servicing platforms.



	Days Past Due						Total Past Due				Total Receivables⁽¹⁾
December 31, 2012	1 – 29 days		30 – 89 days		90+ days		Total Past Due		Current		Total Receivables⁽¹⁾
	(in millions)
Real estate secured:
First lien	$	4,644	$	2,759	$	2,748	$	10,151	$	19,150	$	29,301
Second lien	652		316		239		1,207		2,431		3,638
Total real estate secured receivables⁽²⁾	$	5,296	$	3,075	$	2,987	$	11,358	$	21,581	$	32,939



	Days Past Due						Total Past Due				Total Receivables⁽¹⁾
December 31, 2011	1 – 29 days		30 – 89 days		90+ days		Total Past Due		Current		Total Receivables⁽¹⁾
	(in millions)
Real estate secured:
First lien	$	5,828	$	4,028	$	6,248	$	16,104	$	22,131	$	38,235
Second lien	754		416		329		1,499		2,979		4,478
Total real estate secured⁽²⁾	6,582		4,444		6,577		17,603		25,110		42,713
Personal non-credit card	686		388		315		1,389		3,807		5,196
Other	—		—		—		—		3		3
Total receivables	$	7,268	$	4,832	$	6,892	$	18,992	$	28,920	$	47,912

⁽¹⁾

The receivable balances included in this table reflects the principal amount outstanding on the loan and certain basis adjustments to the loan such as deferred fees and costs on originated loans, purchase accounting fair value adjustments and premiums or discounts on purchased loans. However, these basis adjustments on the loans are excluded in other presentations regarding delinquent account balances.

⁽²⁾

Our real estate secured receivables are currently maintained on two mortgage loan servicing platforms. One platform (representing approximately two-thirds of our outstanding real estate secured receivables) establishes a qualifying payment as a payment that is within $10 of the required payment. The other platform (representing approximately one-third of our outstanding real estate secured receivables) establishes a qualifying payment as a payment that, on a life-to-date basis, leaves the total less than 50 percent of one required payment unpaid.

Contractual maturities Contractual maturities of our receivables were as follows:



	2013		2014		2015		2016		2017		Thereafter		Total
	(in millions)
Real estate secured:
First lien	$	101	$	45	$	58	$	91	$	125	$	28,881	$	29,301
Second lien	98		20		20		38		43		3,419		3,638
Total real estate secured receivables	$	199	$	65	$	78	$	129	$	168	$	32,300	$	32,939

As a substantial portion of consumer receivables, based on our experience, will be repaid prior to contractual maturity, the above maturity schedule should not be regarded as a forecast of future cash collections.

The following table summarizes contractual maturities of receivables due after one year by repricing characteristic:



At December 31, 2012	Over 1 But Within 5 Years		Over 5 Years
	(in millions)
Receivables at predetermined interest rates	$	394	$	30,854
Receivables at floating or adjustable rates	46		1,446
Total	$	440	$	32,300

Nonaccrual receivables Nonaccrual consumer receivables and nonaccrual receivables held for sale are all receivables which are 90 or more days contractually delinquent as well as second lien loans (regardless of delinquency status) where the first lien loan that we own or service is 90 or more days contractually delinquent. Nonaccrual receivables do not include receivables which have made qualifying payments and have been re-aged such that the contractual delinquency status has been reset to current. If a re-aged loan subsequently experiences payment default and becomes 90 or more days contractually delinquent, it will be reported as nonaccrual. Nonaccrual receivables and nonaccrual receivables held for sale are summarized in the following table.



At December 31,	2012		2011
	(dollars are in millions)
Nonaccrual receivable portfolios:
Real estate secured⁽¹⁾	$	3,032	$	6,544
Personal non-credit card	—		330
Nonaccrual receivables held for sale	2,161		—
Total nonaccrual receivables	$	5,193	$	6,874


⁽¹⁾	At December 31, 2012 and 2011, nonaccrual real estate secured receivables held for investment include $1.7 billion and $4.7 billion, respectively, of receivables that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.

The significant decrease in total nonaccrual receivables as compared to December 31, 2011 reflects the impact of the transfer of our entire portfolio of personal non-credit card receivables and a portion of our real estate secured receivables to receivables held for sale as these receivables are now carried at the lower of amortized cost or fair value. See Note 7, "Receivables Held for Sale," for additional information.

The following table provides additional information on our total nonaccrual receivables:



Year Ended December 31,	2012		2011		2010
	(in millions)
Interest income that would have been recorded if the nonaccrual receivable had been current in accordance with contractual terms during the period	$	1,100	$	1,161	$	1,295
Interest income that was recorded on nonaccrual receivables included in interest income on nonaccrual loans during the period	331		462		625

Troubled Debt Restructurings Troubled debt restructurings ("TDR Loans") represent receivables for which the original contractual terms have been modified to provide for terms that are less than what we would be willing to accept for new receivables with comparable risk because of deterioration in the borrower’s financial status.

Modifications for real estate secured and personal non-credit card receivables may include changes to one or more terms of the loan, including, but not limited to, a change in interest rate, an extension of the amortization period, a reduction in payment amount and partial forgiveness or deferment of principal. A substantial amount of our modifications involve interest rate reductions which lower the amount of finance income we are contractually entitled to receive in future periods. By lowering the interest rate and making other changes to the loan terms, we believe we are able to increase the amount of cash flow that will ultimately be collected from the loan, given the borrower's financial condition. Re-aging is an account management action that results in the resetting of the contractual delinquency status of an account to current which generally requires the receipt of two qualifying payments. TDR Loans are reserved for based on the present value of expected future cash flows discounted at the loans' original effective interest rate which generally results in a higher reserve requirement for these loans.

As disclosed previously, during the third quarter of 2012 we began evaluating recently issued regulatory guidance requiring receivables discharged under Chapter 7 bankruptcy and not re-affirmed to be classified as TDR Loan balances. During the fourth quarter of 2012, we completed our analysis and now classify these receivables as TDR Loans which resulted in an increase in TDR Loans of $1.0 billion at December 31, 2012, of which 37 percent had been carried at the lower of amortized cost or fair value of the collateral less cost to sell. Excluding the receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell, these receivables are now reserved for using a discounted cash flow analysis which resulted in an increase in credit loss reserves during the fourth quarter of 2012 of approximately $40 million. For the receivables carried at the lower of amortized cost or fair value of the collateral less cost to sell, there was no change in the reserves.

During the third quarter of 2011 we adopted a new Accounting Standards Update which provided additional guidance to determine whether a restructuring of a receivable meets the criteria to be considered a TDR Loan. Under this new guidance, we determined that substantially all receivables modified as a result of a financial difficulty, regardless of whether the modification was permanent or temporary, including all modifications with trial periods, should be reported as TDR Loans. Additionally, we determined that all re-ages, except first time early stage delinquency re-ages where the customer has not been granted a prior re-age or modification since the first quarter of 2007, should be considered TDR Loans, as we believe that multiple or later stage delinquency re-ages or a need for a modification to any of the loan terms other than to provide a market rate of interest provides evidence the borrower is experiencing financial difficulty and a concession has been granted that is more than insignificant. As required, the new guidance was applied retrospectively to restructurings occurring on or after January 1, 2011 and resulted in the reporting of an additional $4.1 billion of real estate secured receivables and an additional $717 million of personal non-credit card receivables as TDR Loans during the third quarter of 2011 with credit loss reserves of $1.3 billion associated with these receivables at September 30, 2011.

The following summarizes the drivers of the additional TDR Loans reported as a result of the new Accounting Standards Update:



New TDR Loan Volume Upon Adoption of New Accounting Standards Update	2011
	(in billions)
Interest rate loan modifications less than 12 months in duration during January 1, 2011 through September 30, 2011	$	1.4
Trial modifications during January 1, 2011 through September 30, 2011	.2
Re-ages during January 1, 2011 through September 30, 2011, excluding first-time early stage delinquency re-ages	3.2
Total	$	4.8

An incremental loan loss provision for these receivables using a discounted cash flow analysis of approximately $925 million was recorded during the third quarter of 2011. This discounted cash flow analysis, in addition to considering all expected future cash flows, also takes into consideration the time value of money and the difference between the current interest rate and the original effective interest rate on the loan. This methodology generally results in a higher reserve requirement for TDR Loans than loans for which credit loss reserves are established using a roll rate migration analysis that only considers incurred credit losses. The TDR Loan balances and related credit loss reserves for consumer receivables reported as of December 31, 2010 use our previous definition of TDR Loans and as such, are not directly comparable to the current period balances.

Prior to the adoption of the Accounting Standards Update, we did not view re-ages or temporary rate reductions (generally less than 12 months) as TDR Loans. We considered paragraph 5(c) of FASB Statement No. 15, “Accounting by Debtors and Creditors for Troubled Debt Restructurings” (“FAS 15”), codified in paragraph 15-9(c) of Accounting Standards Codification (“ASC”) Subtopic 310-40, “Troubled Debt Restructurings by Creditors,” which provides guidance on when the modification of the terms of a loan contract represents a concession that may result in a modification qualifying as a TDR Loan (the other criterion being the borrower experiencing financial difficulty). In applying paragraph 5(c) of FAS 15 or paragraph 15-9(c) of ASC Subtopic 310-40, we focused on whether re-ages or modifications resulted in reducing the interest rate on the loan for its remaining life. Accordingly, under our previous policy, although such concessions were an indication that the borrower was experiencing financial difficulty, we considered re-ages and temporary rate reductions (generally less than 12 months) granted to help borrowers overcome an unexpected financial difficulty not to be concessions. However, we viewed loans for which we granted a 12-month or longer or two or more consecutive six-month interest modifications as permanent modifications and, accordingly, concessions. Applying the clarifications in the Accounting Standards Update, including the examples in the implementation guidance, caused us to conclude that interest rate modifications of less than 12-months and re-ages (other than first-time early stage delinquency re-ages) were concessions to borrowers experiencing financial difficulty that were not insignificant and should be reported as TDR Loans.

The following table presents information about receivables and receivables held for sale which as a result of any account management action taken during 2012 and 2011 became classified as TDR Loans. During the year ended December 31, 2012 and 2011, substantially all of the actions reflect re-aging of past due accounts or loan modifications involving interest rate reductions.



Year Ended December 31,	2012		2011
	(in millions)
Real estate secured:
First lien	$	3,235	$	6,145
Second lien	329		625
Total real estate secured	3,564		6,770
Personal non-credit card	294		1,058
Total⁽¹⁾	$	3,858	$	7,828


⁽¹⁾	The following summarizes the actions taken during 2012 and 2011 which resulted in the above receivables being classified as a TDR Loan.



Year Ended December 31,	2012		2011
	(in millions)
Interest rate modification	$	1,814	$	3,630
Re-age of past due account	2,044		4,198
	$	3,858	$	7,828

The following table presents information about receivables and receivables held for sale reported as TDR Loans. As discussed more fully in Note 7, “Receivables Held for Sale,” we transferred our entire personal non-credit card portfolio and a substantial majority of our real estate secured receivables which have been written down to the lower of amortized cost or fair value of the collateral less cost to sell as of June 30, 2012 to held for sale during the second quarter of 2012. As a result, these receivables are now carried at the lower of amortized cost or fair value which creates a lack of comparability between TDR Loan balances as of December 31, 2012 and 2011.



At December 31,	2012		2011
	(in millions)
TDR Loans:^(1)(2)(3)
Real estate secured:
First lien⁽⁷⁾	$	14,607	$	13,186
Second lien	1,205		1,057
Total real estate secured⁽⁴⁾⁽⁷⁾	15,812		14,243
Personal non-credit card	592		1,341
Total TDR Loans⁽⁵⁾	$	16,404	$	15,584

Credit loss reserves for TDR Loans:
Real estate secured:
First lien	$	3,104	$	3,169
Second lien	523		534
Total real estate secured⁽⁷⁾	3,627		3,703
Personal non-credit card	—		706
Total credit loss reserves for TDR Loans⁽³⁾⁽⁶⁾	$	3,627	$	4,409


⁽¹⁾	TDR Loans are considered to be impaired loans regardless of accrual status.

⁽²⁾

The TDR Loan balances included in the table above reflect the current carrying amount of TDR Loans and includes all basis adjustments on the loan, such as unearned income, unamortized deferred fees and costs on originated loans and premiums or discounts on purchased loans as well as any charge-off recorded in accordance with our existing charge-off policies. Additionally, the carrying amount of TDR Loans classified as held for sale has been reduced by both the lower of amortized cost or fair value adjustment as well as the credit loss reserves associated with these receivables prior to the transfer. The following table reflects the unpaid principal balance of TDR Loans:



At December 31,	2012		2011
	(in millions)
Real estate secured:
First lien	$	18,451	$	14,813
Second lien	1,345		1,125
Total real estate secured	19,796		15,938
Personal non-credit card	1,139		1,341
Total TDR Loans	$	20,935	$	17,279


⁽³⁾	At December 31, 2012, $2.5 billion of TDR Loans were reported as receivables held for sale for which there are no credit loss reserves as they are carried at the lower of amortized cost or fair value. At December 31, 2011, there were no TDR Loans reported as receivables held for sale


⁽⁴⁾	At December 31, 2012 and 2011, TDR Loans held for investment totaling $1.5 billion and $2.5 billion, respectively, are recorded at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽⁵⁾	TDR Loan balances at December 31, 2012 have been impacted by the transfer of our entire personal non-credit card receivable portfolio and certain real estate secured receivables to held for sale during the second quarter of 2012 and are now carried at the lower of amortized cost or fair value. See Note 7, “Receivables Held for Sale,” for additional information.


⁽⁶⁾	Included in credit loss reserves.


⁽⁷⁾	As discussed above, during the fourth quarter of 2012, we began classifying receivables discharged under Chapter 7 bankruptcy and not re-affirmed as TDR Loans. This resulted in an increase in real estate secured TDR Loans of $1.0 billion as of December 31, 2012 with an increase in credit loss reserves of approximately $40 million related to these loans.

The following table discloses receivables and receivables held for sale which were classified as TDR Loans during the previous 12 months which became sixty days or greater contractually delinquent during 2012 and 2011:



Year Ended December 31,	2012		2011
Real estate secured:
First lien	$	2,202	$	1,941
Second lien	259		189
Total real estate secured	2,461		2,130
Personal non-credit card	262		418
Total	$	2,723	$	2,548

Additional information relating to TDR Loans, including TDR Loans held for sale, is presented in the table below:



Year Ended December 31,	2012		2011		2010
	(in millions)
Average balance of TDR Loans:⁽¹⁾
Real estate secured:
First lien	$	14,657	$	11,450	$	8,832
Second lien	1,219		901		702
Total real estate secured	15,876		12,351		9,534
Personal non-credit card	925		1,161		736
Total average balance of TDR Loans	$	16,801	$	13,512	$	10,270
Interest income recognized on TDR Loans:
Real estate secured:
First lien	$	871	$	590	$	407
Second lien	104		62		39
Total real estate secured	975		652		446
Personal non-credit card	174		133		47
Total interest income recognized on TDR Loans	$	1,149	$	785	$	493


⁽¹⁾	The increase in the average balance of TDR Loans during 2011 reflects, in part, the higher levels of receivables considered to be TDR Loans as a result of the adoption of the new accounting guidance as discussed above. These averages assume the new guidelines were adopted January 1, 2011.

Consumer Receivable Credit Quality Indicators Credit quality indicators used for consumer receivables include a loan’s delinquency status, whether the loan is performing and whether the loan is considered a TDR Loan.

Delinquency The following table summarizes dollars of two-months-and-over contractual delinquency and as a percent of total receivables and receivables held for sale (“delinquency ratio”) for our loan portfolio:



	December 31, 2012				December 31, 2011
	Dollars of Delinquency		Delinquency Ratio		Dollars of Delinquency		Delinquency Ratio
	(dollars are in millions)
Real estate secured:
First lien	$	5,821	18.01	%	$	7,605	19.89	%
Second lien	349		9.59		500		11.16
Total real estate secured	6,170		17.16		8,105		18.98
Personal non-credit card	103		3.24		486		9.35
Total	$	6,273	16.03	%	$	8,591	17.93	%

Nonperforming The status of receivables and receivables held for sale is summarized in the following table:



	Performing Loans		Nonaccrual Loans		Total
At December 31, 2012
Real estate secured⁽¹⁾⁽²⁾	$	29,907	$	3,032	$	32,939
Receivables held for sale	4,042		2,161		6,203
Total⁽³⁾	$	33,949	$	5,193	$	39,142
At December 31, 2011
Real estate secured⁽¹⁾⁽²⁾	$	36,169	$	6,544	$	42,713
Personal non-credit card	4,866		330		5,196
Total	$	41,035	$	6,874	$	47,909


⁽¹⁾	At December 31, 2012 and 2011, nonperforming real estate secured receivables held for investment include $1.7 billion and $4.7 billion, respectively, of receivables that are carried at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽²⁾	At December 31, 2012 and 2011, nonperforming real estate secured receivables held for investment include $2.1 billion and $3.0 billion, respectively, of TDR Loans, some of which may also be carried at fair value of the collateral less cost to sell.


⁽³⁾	The decrease since December 31, 2011 reflects, in part, the transfer of our entire portfolio of personal non-credit card receivables and a portion of our real estate secured receivables held for sale as these receivables are now carried at the lower of amortized cost or fair value. See Note 7, "Receivables Held for Sale," for additional information.

The decrease since December 31, 2011 reflects, in part, the transfer of our entire portfolio of personal non-credit card receivables and a portion of our real estate secured receivables to receivables held for sale which are carried at the lower of amortized cost or fair value. See Note 7, “Receivables Held for Sale” for additional information.

Troubled debt restructurings See discussion of TDR Loans above for further details on this credit quality indicator.