Acquisitions and Discontinued Operations (Tables)

9 Months Ended

Sep. 30, 2015

Components of Income (Loss) from Discontinued Operations, Net of Taxes for Education Lending Business

The components of “income (loss) from discontinued operations, net of taxes” for the education lending business are as follows:


	Three months ended September 30,						Nine months ended September 30,
in millions	2015			2014			2015		2014
Net interest income	$	9		$	21		$	29	$	67
Provision for credit losses		7			5			9		15

Net interest income after provision for credit losses		2			16			20		52
Noninterest income		(2	)		(41	)		1		(111	)
Noninterest expense		5			7			13		19

Income (loss) before income taxes		(5	)		(32	)		8		(78	)
Income taxes		(2	)		(12	)		3		(29	)

Income (loss) from discontinued operations, net of taxes ^(a)	$	(3	)	$	(20	)	$	5	$	(49	)

(a)

Includes after-tax charges of $7 million and $9 million for the three-month periods ended September 30, 2015, and September 30, 2014, respectively, and $18 million and $26 million for the nine-month periods ended September 30, 2015, and September 30, 2014, respectively, determined by applying a matched funds transfer pricing methodology to the liabilities assumed necessary to support the discontinued operations.

Components of Assets of Education Lending Business

The discontinued assets of our education lending business included on the balance sheet are as follows. There were no discontinued liabilities for the periods presented below.


	September 30,		December 31,		September 30,
in millions	2015		2014		2014
Held-to-maturity securities	$	1	$	1	$	1
Portfolio loans at fair value		—		191		201
Loans, net of unearned income ^(a)		1,891		2,104		2,174
Less: Allowance for loan and lease losses		23		29		31

Net loans		1,868		2,266		2,344
Portfolio loans held for sale at fair value		169		—		—
Accrued income and other assets		33		38		40

Total assets	$	2,071	$	2,305	$	2,385

(a)	At September 30, 2015, December 31, 2014, and September 30, 2014, unearned income was less than $1 million.

Quantitative Information about Level 3 Fair Value Measurements

The following table shows the significant unobservable inputs used to measure the fair value of the portfolio loans held for sale and portfolio loans accounted for at fair value at September 30, 2015, December 31, 2014, and September 30, 2014:

September 30, 2015

dollars in millions

Fair Value of Level 3
Assets and Liabilities

Valuation Technique

Significant
Unobservable Input

Range

Portfolio loans held for sale accounted for at fair value

169

Market approach

Indicative bids

84.50 - 104.00%

December 31, 2014

dollars in millions

Fair Value of Level 3
Assets and Liabilities

Valuation Technique

Significant
Unobservable Input

Range
(Weighted-Average)

Portfolio loans accounted for at fair value

191

Discounted cash flow

Prepayment speed

5.40 - 5.60% (5.50%)

Loss severity

2.00 - 77.00% (25.66%)

Discount rate

3.90 - 4.00% (3.92%)

Default rate

.86 - 1.70% (1.12%)

September 30, 2014

dollars in millions

Fair Value of Level 3
Assets and Liabilities

Valuation Technique

Significant
Unobservable Input

Range
(Weighted-Average)

Portfolio loans accounted for at fair value

201

Discounted cash flow

Prepayment speed

5.00 - 5.80% (5.25%)

Loss severity

2.00 - 77.00% (25.71%)

Discount rate

3.60 - 3.90% (3.69%)

Default rate

.93 - 1.91% (1.24%)

Principal and Fair Value Amounts for Portfolio Loans Held for Sale at Fair Value, Portfolio Loans at Carrying Value, and Portfolio Loans at Fair Value

The following table shows the principal and fair value amounts for our portfolio loans held for sale at fair value, portfolio loans at carrying value, and portfolio loans at fair value at September 30, 2015, December 31, 2014, and September 30, 2014. Our policies for determining past due loans, placing loans on nonaccrual, applying payments on nonaccrual loans, and resuming accrual of interest are disclosed in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Nonperforming Loans” beginning on page 116 of our 2014 Form 10-K.


	September 30, 2015				December 31, 2014				September 30, 2014
in millions	Principal		Fair Value		Principal		Fair Value		Principal		Fair Value
Portfolio loans held for sale at fair value
Accruing loans past due 90 days or more	$	5	$	4		—		—		—		—
Portfolio loans at carrying value
Accruing loans past due 90 days or more	$	26		N/A	$	29		N/A	$	31		N/A
Loans placed on nonaccrual status		8		N/A		11		N/A		9		N/A
Portfolio loans at fair value
Accruing loans past due 90 days or more		—		—	$	5	$	5	$	5	$	5

Portfolio Loans Held for Sale at Fair Value and Portfolio Loans at Fair Value and Related Contractual Amounts

The following table shows the portfolio loans held for sale at fair value and portfolio loans at fair value and their related contractual amounts at September 30, 2015, December 31, 2014, and September 30, 2014.


	September 30, 2015				December 31, 2014				September 30, 2014
in millions	Contractual Amount		Fair Value		Contractual Amount		Fair Value		Contractual Amount		Fair Value
ASSETS
Portfolio loans held for sale	$	173	$	169		—		—		—		—
Portfolio loans		—		—	$	192	$	191	$	199	$	201

Consolidated Assets at Fair Value on Recurring Basis

The following tables present the assets of the portfolio loans held for sale and portfolio loans measured at fair value on a recurring basis at September 30, 2015, December 31, 2014, and September 30, 2014.

September 30, 2015

in millions

Level 1

Level 2

Level 3

Total

ASSETS MEASURED ON A RECURRING BASIS

Portfolio loans held for sale

—

169

Total assets on a recurring basis at fair value

—

169


December 31, 2014 in millions	Level 1		Level 2		Level 3		Total
ASSETS MEASURED ON A RECURRING BASIS
Portfolio loans		—		—	$	191	$	191

Total assets on a recurring basis at fair value		—		—	$	191	$	191


September 30, 2014 in millions	Level 1		Level 2		Level 3		Total
ASSETS MEASURED ON A RECURRING BASIS
Portfolio loans		—		—	$	201	$	201

Total assets on a recurring basis at fair value		—		—	$	201	$	201

Change in Fair Values of Level 3 Portfolio Loans Held for Sale, Portfolio Loans, and Consolidated Education Loan Securitization Trusts

The following table shows the change in the fair values of the Level 3 portfolio loans held for sale, portfolio loans, and consolidated education loan securitization trusts for the three- and nine-month periods ended September 30, 2015, and September 30, 2014.


	Portfolio
	Student			Portfolio			Trust			Trust						Trust
	Loans Held			Student			Student			Other			Trust			Other
in millions	For Sale			Loans			Loans			Assets			Securities			Liabilities
Balance at December 31, 2014		—		$	191			—			—			—			—
Gains (losses) recognized in earnings ^(a)	$	(4	)		1			—			—			—			—
Settlements		(6	)		(13	)		—			—			—			—
Loans transferred to held for sale		179			(179	)		—			—			—			—

Balance at September 30, 2015 ^(b)	$	169			—			—			—			—			—

Balance at June 30, 2015	$	179			—			—			—			—			—
Gains (losses) recognized in earnings ^(a)		(4	)		—			—			—			—			—
Settlements		(6	)		—			—			—			—			—

Balance at September 30, 2015 ^(b)	$	169			—			—			—			—			—

Balance at December 31, 2013		—		$	147		$	1,960		$	20		$	1,834		$	20
Gains (losses) recognized in earnings ^(a)		—			(4	)		(34	)		—			33			—
Purchases		—			74			—			—			—			—
Sales		—			—			(74	)		—			—			—
Settlements		—			(16	)		(202	)		(1	)		(278	)		(3	)
Transfers out due to deconsolidation		—			—			(1,650	)		(19	)		(1,589	)		(17	)

Balance at September 30, 2014 ^(b)		—		$	201			—			—			—			—

Balance at June 30, 2014		—		$	209		$	1,711		$	19		$	1,660		$	17
Gains (losses) recognized in earnings ^(a)		—			—			—			—			—			—
Purchases		—			—			—			—			—			—
Sales		—			—			—			—			—			—
Settlements		—			(8	)		(61	)		—			(71	)		—
Transfers out due to deconsolidation		—			—			(1,650	)		(19	)		(1,589	)		(17	)

Balance at September 30, 2014 ^(b)		—		$	201			—			—			—			—

(a)	Gains (losses) were driven primarily by fair value adjustments.

(b)	There were no issuances, transfers into Level 3, or transfers out of Level 3 for the three- and nine-month periods ended September 30, 2015. There were no issuances or transfers into Level 3 for the three- and nine-month periods ended September 30, 2014.

Components of Income (Loss) from Discontinued Operations, Net of Taxes

The results of this discontinued business are included in “income (loss) from discontinued operations, net of taxes” on the income statement. The components of “income (loss) from discontinued operations, net of taxes” for Victory, which includes the additional gain recorded as of March 31, 2014, on the sale of this business, are as follows:


	Three months ended September 30,				Nine months ended September 30,
in millions	2015		2014		2015		2014
Net interest income		—	$	5		—	$	7
Noninterest income		—		—		—		10
Noninterest expense		—		—		—		—

Income (loss) before income taxes		—		5		—		17
Income taxes		—		2		—		7

Income (loss) from discontinued operations, net of taxes		—	$	3		—	$	10


	Three months ended September 30,				Nine months ended September 30,
in millions	2015		2014		2015		2014
Noninterest expense		—		—		—	$	4

Income (loss) before income taxes		—		—		—		(4	)
Income taxes		—		—		—		(2	)

Income (loss) from discontinued operations, net of taxes		—		—		—	$	(2	)

Components of Assets and Liabilities from Discontinued Operations

The discontinued assets of Victory included on the balance sheet are as follows. There were no discontinued liabilities for the periods presented below.


	September 30,		December 31,		September 30,
in millions	2015		2014		2014
Seller note ^(a)		—		—	$	17

Total assets		—		—	$	17

(a)	At September 30, 2014, the only remaining asset of Victory was the Seller note. The Seller note was paid off during the fourth quarter of 2014.

The discontinued assets and liabilities of Austin included on the balance sheet are as follows:


	September 30,		December 31,		September 30,
in millions	2015		2014		2014
Cash and due from banks	$	15	$	19	$	19

Total assets	$	15	$	19	$	19

Accrued expense and other liabilities		—	$	3	$	3

Total liabilities		—	$	3	$	3

Combined Results of Discontinued Operations

Combined discontinued operations. The combined results of the discontinued operations are as follows:


	Three months ended September 30,						Nine months ended September 30,
in millions	2015			2014			2015		2014
Net interest income	$	9		$	26		$	29	$	74
Provision for credit losses		7			5			9		15

Net interest income after provision for credit losses		2			21			20		59
Noninterest income		(2	)		(41	)		1		(101	)
Noninterest expense		5			7			13		23

Income (loss) before income taxes		(5	)		(27	)		8		(65	)
Income taxes		(2	)		(10	)		3		(24	)

Income (loss) from discontinued operations, net of taxes ^(a)	$	(3	)	$	(17	)	$	5	$	(41	)

(a)

Combined Assets and Liabilities of Discontinued Operations

The combined assets and liabilities of the discontinued operations are as follows:


	September 30,		December 31,		September 30,
in millions	2015		2014		2014
Cash and due from banks	$	15	$	19	$	19
Held-to-maturity securities		1		1		1
Seller note		—		—		17
Portfolio loans at fair value		—		191		201
Loans, net of unearned income ^(a)		1,891		2,104		2,174
Less: Allowance for loan and lease losses		23		29		31

Net loans		1,868		2,266		2,344
Portfolio loans held for sale at fair value		169		—		—
Accrued income and other assets		33		38		40

Total assets	$	2,086	$	2,324	$	2,421

Accrued expense and other liabilities		—	$	3	$	3

Total liabilities		—	$	3	$	3

(a)	At September 30, 2015, December 31, 2014, and September 30, 2014, unearned income was less than $1 million.