Bank of America 2008 Annual Report Download - page 141

In addition to the commercial impaired loans included in the preceding
table, the Corporation recorded $903 million of consumer impaired loans
at December 31, 2008 that are individually impaired and restructured in a
troubled debt restructuring. Included in this amount were $529 million of
residential mortgage, $303 million of home equity and $71 million of
discontinued real estate. These impaired loans exclude loans that were
written down to fair value at acquisition within the scope of SOP 03-3,
which is discussed in more detail below. Included in consumer impaired
loans are performing troubled debt restructurings of $320 million for resi-
dential mortgage, $1 million for home equity and $66 million for dis-
continued real estate at December 31, 2008. There were no material
consumer impaired loans at December 31, 2007. At December 31, 2008
the Corporation had commitments of $123 million to lend additional
funds to debtors whose terms have been modified in a commercial or
consumer troubled debt restructuring.
The average recorded investment in the commercial and consumer
impaired loans for 2008, 2007 and 2006 was approximately $5.0 billion,
$1.2 billion and $722 million, respectively. At December 31, 2008 and
2007, the recorded investment in impaired loans requiring an allowance
for loan and lease losses per SFAS 114 guidelines was $5.4 billion and
$1.2 billion, and the related allowance for loan and lease losses was
$720 million and $123 million. For 2008, 2007 and 2006, interest
income recognized on impaired loans totaled $105 million, $130 million
and $36 million, respectively.
At December 31, 2008 and 2007, nonperforming loans and leases,
which exclude performing troubled debt restructurings and acquired loans
that were accounted for under SOP 03-3, totaled $16.4 billion and $5.6
billion. In addition, there were consumer and commercial nonperforming
LHFS of $1.3 billion and $188 million at December 31, 2008 and 2007.
In addition, the Corporation works with customers that are experienc-
ing financial difficulty through renegotiating credit card and direct/indirect
consumer loans, while ensuring compliance with Federal Financial
Institutions Examination Council guidelines. At December 31, 2008 and
2007, the Corporation had renegotiated credit card – domestic held loans
of $2.3 billion and $1.6 billion, credit card – foreign held loans of $527
million and $483 million, and direct/indirect loans of $1.4 billion and
$810 million. These renegotiated loans are not considered non-
performing.
Countrywide SOP 03-3
Loans acquired with evidence of credit quality deterioration since origi-
nation and for which it is probable at purchase that the Corporation will
be unable to collect all contractually required payments are accounted for
under SOP 03-3. For additional information on the accounting under SOP
03-3 see the Loans and Leases section of Note 1 – Summary of Sig-
nificant Accounting Principles to the Consolidated Financial Statements.
The SOP 03-3 portfolio associated with the acquisition of LaSalle did not
materially impact results during 2008 and is excluded from the following
discussion.
As of July 1, 2008 and December 31, 2008 Countrywide acquired
loans within the scope of SOP 03-3 had an unpaid principal balance of
$58.2 billion and $55.4 billion and a carrying value of $44.2 billion and
$42.2 billion. The following table provides details on loans obtained in
connection with the Countrywide acquisition within the scope of SOP
03-3.
Acquired Loan Information as of July 1, 2008
(Dollars in millions) Countrywide
(1)
Contractually required payments including interest $ 83,864
Less: Nonaccretable difference (20,157)
Cash flows expected to be collected
(2)
63,707
Less: Accretable yield (19,549)
Fair value of loans acquired $ 44,158
(1) Loan information as of Countrywide acquisition date, July 1, 2008.
(2) Represents undiscounted expected principal and interest cash flows at acquisition.
Under SOP 03-3, the excess of cash flows expected at acquisition
over the estimated fair value is referred to as the accretable yield and is
recognized in interest income over the remaining life of the loans. The
difference between contractually required payments at acquisition and the
cash flows expected to be collected at acquisition is referred to as the
nonaccretable difference. Changes in the expected cash flows from the
date of acquisition will either impact the accretable yield or result in a
charge to the provision for credit losses. Subsequent decreases to
expected principal cash flows will result in a charge to provision for credit
losses and a corresponding increase to allowance for loan and lease
losses. Subsequent increases in expected principal cash flows will result
in recovery of any previously recorded allowance for loan losses, to the
extent applicable, and a reclassification from nonaccretable difference to
accretable yield for any remaining increase. All changes in expected inter-
est cash flows will result in reclassifications to/from nonaccretable differ-
ences.
The following table provides activity for the accretable yield of loans
acquired from Countrywide within the scope of SOP 03-3 for the six
months ended December 31, 2008. During 2008, the Corporation
recorded a $750 million provision for credit losses establishing a corre-
sponding allowance for loan and lease losses at December 31, 2008.
This provision for credit losses represents deterioration in the Country-
wide SOP 03-3 portfolio subsequent to the July 1, 2008 acquisition date.
The reclassification to nonaccretable difference of $4.4 billion includes
the impact of increased prepayment speeds, lower interest rates on
variable rate loans, and principal reductions due to credit deterioration.
Accretable Yield Activity
(Dollars in millions)
Six Months Ended
December 31, 2008
Accretable yield, beginning balance
(1)
$19,549
Accretions (1,667)
Disposals (589)
Reclassifications to nonaccretable difference
(2)
(4,433)
Accretable yield, December 31, 2008 $12,860
(1) The beginning balance represents the accretable yield of loans acquired from Countrywide at July 1,
2008.
(2) Nonaccretable difference represents gross contractually required payments including interest less
expected cash flows.
Bank of America 2008 139