Receivables

3 Months Ended

Mar. 31, 2012

Receivables, Credit Loss Reserves [Abstract]

Receivables

4.    Receivables

Receivables consisted of the following:

	March 31, 2012			December 31, 2011
	(in millions)
Real estate secured:
First lien	$	37,021		$	38,235
Second lien		4,222			4,478
Total real estate secured		41,243			42,713
Personal non-credit card		4,794			5,196
Commercial and other		4			27
Total receivables		46,041			47,936
HSBC acquisition purchase accounting fair value adjustments		54			36
Accrued finance income		1,125			1,184
Credit loss reserve for owned receivables		(5,865	)		(5,952	)
Unearned credit insurance premiums and claims reserves		(71	)		(76	)
Total receivables, net	$	41,284		$	43,128

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.

Deferred origination fees totaled $246 million and $254 million at March 31, 2012 and December 31, 2011, respectively.

Net unamortized premium on our receivables totaled $153 million and $169 million at March 31, 2012 and December 31, 2011, respectively. Unearned income on personal non-credit card receivables totaled $5 million and $8 million at March 31, 2012 and December 31, 2011, respectively, and is included in the receivable balance in the table above.

Collateralized funding transactions Secured financings previously issued under public trusts with a balance of $3.2 billion at March 31, 2012 are secured by $5.2 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 March 31, 2012 and December 31, 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)
March 31, 2012	1 – 29 days		30 – 89 days		90+ days				Current
	(in millions)
Real estate secured:
First lien	$	5,201	$	3,167	$	6,278	$	14,646	$	22,375	$	37,021
Second lien		652		321		257		1,230		2,992		4,222
Total real estate secured (2)		5,853		3,488		6,535		15,876		25,367		41,243
Personal non-credit card		552		277		236		1,065		3,729		4,794
Commercial and other		-		-		-		-		4		4
Total receivables	$	6,405	$	3,765	$	6,771	$	16,941	$	29,100	$	46,041

	Days Past Due						Total Past Due				Total Receivables(1)
December 31, 2011	1 – 29 days		30 – 89 days		90+ days				Current
	(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
Commercial and other		-		-		-		-		27		27
Total receivables	$	7,268	$	4,832	$	6,892	$	18,992	$	28,944	$	47,936

⁽¹⁾  The receivable balances included in this table reflects the principal amount outstanding on the loan and various 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 to the loans are excluded in other presentations regarding delinquent account balances.

^{(2 )}  At both March 31, 2012 and December 31, 2011, approximately 57 percent of our real estate secured receivables have been either modified and/or re-aged.

Nonaccrual receivables Nonaccrual consumer receivables are all receivables which are 90 or more days contractually delinquent as well as second lien loans 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 are summarized in the following table.

	March 31, 2012			December 31, 2011
	(in millions)
Nonaccrual receivables:
Real estate secured (1)	$	6,529		$	6,544
Personal non-credit card		247			330
Total nonaccrual receivables	$	6,776		$	6,874
Credit loss reserves as a percent of nonaccrual receivables		86.6	%		86.6	%

⁽¹⁾  At March 31, 2012 and December 31, 2011, nonaccrual real estate secured receivables include $5.0 billion and $4.7 billion, respectively, of receivables that are carried at the lower of amortized cost or fair value less cost to sell.

Interest income on nonaccrual receivables that would have been recorded if the nonaccrual receivables had been current in accordance with contractual terms during the period was approximately $213 million and $190 million during the three months ended March 31, 2012 and 2011, respectively. Interest income that was recorded on these nonaccrual receivables was approximately $19 million and $23 million during the three months ended March 31, 2012 and 2011, respectively, of which portions have been written-off as a result of the process to record receivables greater than 180 days delinquent at the lower of amortized cost or fair value less cost to sell.

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.

The following table presents information about receivables which as a result of an account management action taken during the three months ended March 31 2012 became classified as TDR Loans. During the three months ended March 31, 2012, substantially all of the actions reflect re-aging of past due accounts or loan modifications involving interest rate reductions.

Three Months Ended March 31,	2012
	(in millions)
Real estate secured:
First lien	$	1,268
Second lien		187
Total real estate secured		1,455
Personal non-credit card		172
Total	$	1,627

The following table presents information about our TDR Loans:

	March 31, 2012		December 31, 2011
	(in millions)
TDR Loans (1)(2):
Real estate secured:
First lien	$	14,031	$	13,186
Second lien		1,149		1,057
Total real estate secured (3)		15,180		14,243
Personal non-credit card		1,339		1,341
Total TDR Loans	$	16,519	$	15,584

	March 31, 2012		December 31, 2011
	(in millions)
Credit loss reserves for TDR Loans:
Real estate secured:
First lien	$	3,278	$	3,169
Second lien		549		534
Total real estate secured		3,827		3,703
Personal non-credit card		656		706
Total credit loss reserves for TDR Loans (4 )	$	4,483	$	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. The following table reflects the unpaid principal balance of TDR Loans:

	March 31, 2012		December 31, 2011
	(in millions)
Real estate secured:
First lien	$	15,977	$	14,813
Second lien		1,268		1,125
Total real estate secured		17,245		15,938
Personal non-credit card		1,340		1,341
Total TDR Loans	$	18,585	$	17,279

⁽³⁾  At March 31, 2012 and December 31, 2011, TDR Loans totaling $3.1 billion and $2.5 billion, respectively, are recorded at the lower of amortized cost or fair value less cost to sell.

⁽⁴⁾  Included in credit loss reserves.

The following table discloses receivables which were classified as TDR Loans during the previous 12 months which became sixty days or greater contractually delinquent during the three months ended March 31, 2012:

Three Months Ended March 31,	2012
	(in millions)
Real estate secured:
First lien	$	821
Second lien		85
Total real estate secured		906
Personal non-credit card		128
Total	$	1,034

Additional information relating to TDR Loans is presented in the table below:

Three Months Ended March 31,	2012		2011(1)
	(in millions)
Average balance of TDR Loans:
Real estate secured:
First lien	$	13,722	$	8,602
Second lien		1,131		628
Total real estate secured		14,853		9,230
Personal non-credit card		1,357		674
Total average balance of TDR Loans	$	16,210	$	9,904
Interest income recognized on TDR Loans:
Real estate secured:
First lien	$	176	$	97
Second lien		22		8
Total real estate secured		198		105
Personal non-credit card		41		13
Total interest income recognized on TDR Loans	$	239	$	118

⁽¹⁾  As discussed in our 2011 Form 10-K, 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 at TDR Loan. This new Accounting Standards Update was applied retrospectively to restructurings occurring on or after January 1, 2011 and reported in our TDR disclosures prospectively beginning in the third quarter of 2011. Therefore, the TDR activity reported for the three months ended March 31, 2011 are based on our previous definition of TDR Loans and as such are not directly comparable to the current period amounts.

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 (“delinquency ratio”) for our loan portfolio:

	March 31, 2012					December 31, 2011
	Dollars of Delinquency		Delinquency Ratio			Dollars of Delinquency		Delinquency Ratio
	(dollars are in millions)
Real estate secured:
First lien	$	7,342		19.83	%	$	7,605		19.89	%
Second lien		391		9.26			500		11.16
Total real estate secured (1)		7,733		18.75			8,105		18.98
Personal non-credit card		360		7.50			486		9.35
Total	$	8,093		17.58	%	$	8,591		17.93	%

⁽¹⁾ At March 31, 2012 and December 31, 2011, dollars of real estate secured receivable delinquency include $5.1 billion and $4.8 billion, respectively, of receivables that are carried at the lower of amortized cost or fair value less cost to sell.

Nonperforming The status of our consumer receivable portfolio is summarized in the following table:

	Performing Loans		Nonperforming Loans		Total
	(in millions)
At March 31, 2012:
Real estate secured (1)	$	34,714	$	6,529	$	41,243
Personal non-credit card		4,547		247		4,794
Total(2)	$	39,261	$	6,776	$	46,037
At December 31, 2011:
Real estate secured (1)	$	36,169	$	6,544	$	42,713
Personal non-credit card		4,866		330		5,196
Total(2)	$	41,035	$	6,874	$	47,909

⁽¹⁾  At March 31, 2012 and December 31, 2011, nonperforming real estate secured receivables include $5.0 billion and $4.7 billion, respectively, of receivables that are carried at the lower of amortized cost or fair value less cost to sell.

⁽²⁾  At March 31, 2012 and December 31, 2011, nonperforming receivables include $3.4 billion and $2.9 billion, respectively, which are TDR Loans, some of which may also be carried at the lower of amortized cost or fair value less cost to sell.

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

Concentrations of Credit Risk We have historically served non-conforming and non-prime consumers. Such customers are individuals who have limited credit histories, modest incomes, high debt-to-income ratios or have experienced credit problems caused by occasional delinquencies, prior charge-offs, bankruptcy or other credit related actions. The majority of our secured receivables have high loan-to-value ratios. Our receivable portfolios include the following types of loans:

• Interest-only loans – A loan which allows a customer to pay the interest-only portion of the monthly payment for a period of time which results in lower payments during the initial loan period. However, subsequent events affecting a customer’s financial position could affect their ability to repay the loan in the future when the principal payments are required.

• Stated income loans – Loans underwritten based upon the loan applicant’s representation of annual income, which is not verified by receipt of supporting documentation.

The following table summarizes the outstanding balances of interest-only loans and stated income loans in our receivable portfolios at March 31, 2012 and December 31, 2011:

	March 31, 2012		December 31, 2011
	(in billions)
Interest-only loans (1)	$	.9	$	1.0
Stated income loans		2.0		2.2

⁽¹⁾  Receivable classification as an interest-only loan is based on the classification at the time of receivable origination and does not reflect any changes in the classification that may have occurred as a result of any loan modification or because the interest-only period has expired.

At both March 31, 2012 and December 31, 2011, interest-only and stated income loans comprised 7 percent of real estate secured receivables.

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 March 31, 2012 and December 31, 2011. The following table reflects the percentage of receivables by state which individually account for 5 percent or greater of our portfolio as of March 31, 2012 and December 31, 2011.

	Percentage of Receivables  At March 31, 2012									Percentage of Receivables At December 31, 2011
	Real Estate Secured			Other			Total			Real Estate Secured			Other			Total
California		9.5	%		4.9	%		9.0	%		9.5	%		5.1	%		9.1	%
New York		7.3			6.8			7.2			7.2			6.8			7.2
Pennsylvania		6.2			6.8			6.2			6.1			6.7			6.2
Florida		5.9			5.7			5.9			5.9			5.8			5.9
Ohio		5.5			6.3			5.6			5.5			6.3			5.6