Receivables

Receivables consisted of the following:



	June 30, 2013			December 31, 2012
	(in millions)
Real estate secured:
First lien	$	25,798		$	29,301
Second lien	3,314			3,638
Total real estate secured receivables	29,112			32,939
HSBC acquisition purchase accounting fair value adjustments	40			43
Accrued finance income	879			909
Credit loss reserve for receivables	(4,098		)	(4,607		)
Total receivables, net	$	25,933		$	29,284

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 and costs totaled $205 million and $221 million at June 30, 2013 and December 31, 2012, respectively, and are included in the receivable balance. Net unamortized premium on our receivables totaled $114 million and $127 million at June 30, 2013 and December 31, 2012, respectively.

Collateralized funding transactions Secured financings previously issued under public trusts with a balance of $2.6 billion at June 30, 2013 are secured by $4.6 billion of closed-end real estate secured receivables. Secured financings previously issued under public trusts with a balance of $2.9 billion at December 31, 2012 were secured by $4.9 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 June 30, 2013 and December 31, 2012. 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.



	Days Past Due				Total Past Due				Total Receivables⁽²⁾
June 30, 2013	30 – 89 days		90+ days		Total Past Due		Current⁽¹⁾		Total Receivables⁽²⁾
	(in millions)
Real estate secured:
First lien	$	2,563	$	1,522	$	4,085	$	21,713	$	25,798
Second lien	258		186		444		2,870		3,314
Total real estate secured receivables⁽³⁾	$	2,821	$	1,708	$	4,529	$	24,583	$	29,112



	Days Past Due				Total Past Due				Total Receivables⁽²⁾
December 31, 2012	30 – 89 days		90+ days		Total Past Due		Current⁽¹⁾		Total Receivables⁽²⁾
	(in millions)
Real estate secured:
First lien	$	2,759	$	2,748	$	5,507	$	23,794	$	29,301
Second lien	316		239		555		3,083		3,638
Total real estate secured receivables⁽³⁾	$	3,075	$	2,987	$	6,062	$	26,877	$	32,939


⁽¹⁾	Receivables less than 30 days past due are presented as current.

⁽²⁾

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 of dollars of two-months-and-over contractual delinquency and nonperforming receivable account balances.

⁽³⁾

Our real estate secured receivables have historically been maintained on two mortgage loan servicing platforms which resulted in differences relating to how contractual delinquency is measured. In April 2013, we moved all closed-end real estate secured receivables onto one platform which resulted in the substantial majority of our real estate secured receivables utilizing the same platform. While we experienced an increase in dollars of two-months-and-over contractual delinquency as of June 30, 2013 for the receivables that were moved to the different platform, much of the increase has been offset by improvements in credit quality in other parts of our real estate secured receivable portfolio.

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.



	June 30, 2013		December 31, 2012
	(in millions)
Nonaccrual receivable portfolios:
Real estate secured⁽¹⁾	$	1,579	$	3,032
Receivables held for sale	3,726		2,161
Total nonaccrual receivables	$	5,305	$	5,193

⁽¹⁾

At June 30, 2013 and December 31, 2012, nonaccrual real estate secured receivables held for investment include $642 million and $1.7 billion, respectively, of receivables that are carried at the lower of amortized cost or fair value of the collateral less cost to sell. See Note 6, "Receivables Held for Sale," for discussion of a transfer of a pool of real estate secured receivables that are carried at the lower of amortized cost or fair value of the collateral less cost to sell to held for sale during the second quarter of 2013.

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



Six Months Ended June 30,	2013		2012
	(in millions)
Interest income that would have been recorded if the nonaccrual receivable had been current in accordance with contractual terms during the period	$	405	$	462
Interest income that was recorded on nonaccrual receivables included in interest income on nonaccrual loans during the period	55		80

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 at less than a market rate of interest for new receivables 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.

The following table presents information about receivables and receivables held for sale which as a result of any account management action taken during the three and six months ended June 30, 2013 and 2012 became classified as TDR Loans.



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in millions)
Real estate secured:
First lien	$	492	$	779	$	988	$	2,010
Second lien	43		70		94		215
Total real estate secured	535		849		1,082		2,225
Personal non-credit card⁽¹⁾	—		93		28		240
Total⁽²⁾	$	535	$	942	$	1,110	$	2,465


⁽¹⁾	As discussed more fully in Note 6, "Receivables Held for Sale," we sold our personal non-credit card receivable portfolio on April 1, 2013.


⁽²⁾	The following summarizes the actions taken during the three and six months ended June 30, 2013 and 2012 which resulted in the above receivables being classified as a TDR Loan.



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in millions)
Interest rate modification	$	173	$	497	$	392	$	1,225
Re-age of past due account	362		445		718		1,240
Total	$	535	$	942	$	1,110	$	2,465

The decrease in the volume of new TDR Loans during the first half of 2013 is due to the fact that most of the account management actions taken during the three and six months ended June 30, 2013 were on accounts that were already classified as TDR Loans.

The following table presents information about receivables and receivables held for sale reported as TDR Loans as of June 30, 2013 and December 31, 2012.



	June 30, 2013		December 31, 2012
	(in millions)
TDR Loans:^(1)(2)(3)
Real estate secured:
First lien	$	14,813	$	14,607
Second lien	1,145		1,205
Total real estate secured⁽⁴⁾	15,958		15,812
Personal non-credit card	—		592
Total TDR Loans	$	15,958	$	16,404

Credit loss reserves for TDR Loans:
Real estate secured:
First lien	$	2,826	$	3,104
Second lien	458		523
Total credit loss reserves for real estate secured TDR Loans⁽³⁾⁽⁵⁾	$	3,284	$	3,627


⁽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:



	June 30, 2013		December 31, 2012
	(in millions)
Real estate secured:
First lien	$	18,102	$	18,451
Second lien	1,289		1,345
Total real estate secured	19,391		19,796
Personal non-credit card	—		1,139
Total TDR Loans	$	19,391	$	20,935


⁽³⁾	At June 30, 2013 and December 31, 2012, $3.5 billion of real estate secured receivables and $2.5 billion (of which $1.9 billion are real estate secured receivables) 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.


⁽⁴⁾	At June 30, 2013 and December 31, 2012, TDR Loans held for investment totaling $726 million and $1.5 billion, respectively, are recorded at the lower of amortized cost or fair value of the collateral less cost to sell.


⁽⁵⁾	Included in credit loss reserves.

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 the three and six months ended June 30, 2013 and 2012.



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in millions)
Real estate secured:
First lien	$	290	$	608	$	630	$	1,430
Second lien	28		70		64		155
Total real estate secured	318		678		694		1,585
Personal non-credit card	—		75		21		202
Total	$	318	$	753	$	715	$	1,787

The volume of TDR Loans which were classified as TDR Loans during the previous 12 months and became sixty days or greater contractually delinquent during the three and six months ended June 30, 2012 was directly impacted by the trailing 12 months of volume of new TDR Loans which increased significantly in 2011 as accounts which were re-aged from 60 days or greater past due or which were 60 or more days past due at the time of re-age were considered new TDR Loans for the first time as a result of the adoption of new accounting guidance for TDR Loans which took place during the third quarter of 2011. As a result, the volume of defaulted TDR Loans is not comparable between the periods presented above.

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in millions)
Average balance of TDR Loans:
Real estate secured:
First lien	$	14,784	$	14,021	$	14,755	$	13,864
Second lien	1,159		1,155		1,175		1,143
Total real estate secured	15,943		15,176		15,930		15,007
Personal non-credit card	—		1,200		—		1,278
Total average balance of TDR Loans	$	15,943	$	16,376	$	15,930	$	16,285
Interest income recognized on TDR Loans:
Real estate secured:
First lien	$	243	$	226	$	485	$	402
Second lien	28		27		56		48
Total real estate secured	271		253		541		450
Personal non-credit card	—		46		40		88
Total interest income recognized on TDR Loans	$	271	$	299	$	581	$	538

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:



	June 30, 2013				December 31, 2012
	Dollars of Delinquency		Delinquency Ratio		Dollars of Delinquency		Delinquency Ratio
	(dollars are in millions)
Real estate secured:
First lien⁽¹⁾	$	6,041	19.62	%	$	5,821	18.01	%
Second lien	274		8.25		349		9.59
Total real estate secured	6,315		18.52		6,170		17.16
Personal non-credit card	—		—		103		3.24
Total	$	6,315	18.52	%	$	6,273	16.03	%


⁽¹⁾	Dollars of delinquency for first lien real estate secured receivables includes $3.8 billion and $2.2 billion of real estate secured receivables classified as held for sale at June 30, 2013 and December 31, 2012, respectively.

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



	Accruing Loans		Nonaccrual Loans		Total
	(in millions)
At June 30, 2013
Real estate secured⁽¹⁾⁽²⁾	$	27,533	$	1,579	$	29,112
Receivables held for sale	1,265		3,726		4,991
Total	$	28,798	$	5,305	$	34,103
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	$	33,949	$	5,193	$	39,142


⁽¹⁾	At June 30, 2013 and December 31, 2012, nonaccrual real estate secured receivables held for investment include $642 million and $1.7 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 June 30, 2013 and December 31, 2012, nonaccrual real estate secured receivables held for investment include $1.2 billion and $2.1 billion, respectively, of TDR Loans, some of which may also be carried at fair value of the collateral less cost to sell.

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

Concentration of Credit Risk A concentration of credit risk is defined as a significant credit exposure with an individual or group engaged in similar activities or having similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.

We have historically served non-prime consumers. Such customers are individuals who have limited credit histories, modest incomes, high debt-to-income ratios or have experienced credit problems evidenced by occasional delinquencies, prior charge-offs, bankruptcy or other credit related actions. The substantial majority of our secured receivables have high loan-to-value ratios.

Because we primarily lend to individual consumers, we do not have receivables from any industry group that equal or exceed 10 percent of total receivables at June 30, 2013 or December 31, 2012. The following table reflects the percentage of consumer receivables by state which individually account for 5 percent or greater of our portfolio.



	Percentage of Receivables at						Percentage of Receivables at
	June 30, 2013						December 31, 2012
	Real Estate Secured		Personal Non-Credit Card		Total		Real Estate Secured		Personal Non-Credit Card		Total
California	9.4	%	—	%	9.4	%	9.4	%	4.5	%	9.0	%
New York	7.4		—		7.4		7.4		6.8		7.4
Pennsylvania	6.2		—		6.2		6.2		7.0		6.3
Florida	6.0		—		6.0		5.8		5.8		5.8
Ohio	5.6		—		5.6		5.5		6.5		5.6
Virginia	5.2		—		5.2		5.3		3.1		5.1