Bank of America 2015 Annual Report Download - page 77

Bank of America 2015 75
Table 36 presents TDRs for the consumer real estate portfolio. Performing TDR balances are excluded from nonperforming loans
and leases in Table 35.
Table 36 Consumer Real Estate Troubled Debt Restructurings
December 31
2015 2014
(Dollars in millions) Total Nonperforming Performing Total Nonperforming Performing
Residential mortgage (1, 2) $ 18,372 $ 3,284 $ 15,088 $ 23,270 $ 4,529 $ 18,741
Home equity (3) 2,686 1,649 1,037 2,358 1,595 763
Total consumer real estate troubled debt restructurings $ 21,058 $ 4,933 $ 16,125 $ 25,628 $ 6,124 $ 19,504
(1) Residential mortgage TDRs deemed collateral dependent totaled $4.9 billion and $5.8 billion, and included $2.7 billion and $3.6 billion of loans classified as nonperforming and $2.2 billion and
$2.2 billion of loans classified as performing at December 31, 2015 and 2014.
(2) Residential mortgage performing TDRs included $8.7 billion and $11.9 billion of loans that were fully-insured at December 31, 2015 and 2014.
(3) Home equity TDRs deemed collateral dependent totaled $1.6 billion and $1.6 billion, and included $1.3 billion and $1.4 billion of loans classified as nonperforming and $290 million and $178
million of loans classified as performing at December 31, 2015 and 2014.
In addition to modifying consumer real estate loans, we work
with customers who are experiencing financial difficulty by
modifying credit card and other consumer loans. Credit card and
other consumer loan modifications generally involve a reduction
in the customer’s interest rate on the account and placing the
customer on a fixed payment plan not exceeding 60 months, all
of which are considered TDRs (the renegotiated TDR portfolio). In
addition, the accounts of non-U.S. credit card customers who do
not qualify for a fixed payment plan may have their interest rates
reduced, as required by certain local jurisdictions. These
modifications, which are also TDRs, tend to experience higher
payment default rates given that the borrowers may lack the ability
to repay even with the interest rate reduction. In all cases, the
customer’s available line of credit is canceled.
Modifications of credit card and other consumer loans are
primarily made through internal renegotiation programs utilizing
direct customer contact, but may also utilize external renegotiation
programs. The renegotiated TDR portfolio is excluded in large part
from Table 35 as substantially all of the loans remain on accrual
status until either charged off or paid in full. At December 31,
2015 and 2014, our renegotiated TDR portfolio was $779 million
and $1.1 billion, of which $635 million and $907 million were
current or less than 30 days past due under the modified terms.
The decline in the renegotiated TDR portfolio was primarily driven
by paydowns and charge-offs as well as lower program enrollments.
For more information on the renegotiated TDR portfolio, see Note
4 – Outstanding Loans and Leases to the Consolidated Financial
Statements.
Commercial Portfolio Credit Risk Management
Credit risk management for the commercial portfolio begins with
an assessment of the credit risk profile of the borrower or
counterparty based on an analysis of its financial position. As part
of the overall credit risk assessment, our commercial credit
exposures are assigned a risk rating and are subject to approval
based on defined credit approval standards. Subsequent to loan
origination, risk ratings are monitored on an ongoing basis, and if
necessary, adjusted to reflect changes in the financial condition,
cash flow, risk profile or outlook of a borrower or counterparty. In
making credit decisions, we consider risk rating, collateral, country,
industry and single name concentration limits while also balancing
this with the total borrower or counterparty relationship. Our
business and risk management personnel use a variety of tools
to continuously monitor the ability of a borrower or counterparty
to perform under its obligations. We use risk rating aggregations
to measure and evaluate concentrations within portfolios. In
addition, risk ratings are a factor in determining the level of
allocated capital and the allowance for credit losses.
As part of our ongoing risk mitigation initiatives, we attempt to
work with clients experiencing financial difficulty to modify their
loans to terms that better align with their current ability to pay. In
situations where an economic concession has been granted to a
borrower experiencing financial difficulty, we identify these loans
as TDRs. For more information on our accounting policies regarding
delinquencies, nonperforming status and net charge-offs for the
commercial portfolio, see Note 1 – Summary of Significant
Accounting Principles to the Consolidated Financial Statements.
Management of Commercial Credit Risk
Concentrations
Commercial credit risk is evaluated and managed with the goal
that concentrations of credit exposure do not result in undesirable
levels of risk. We review, measure and manage concentrations of
credit exposure by industry, product, geography, customer
relationship and loan size. We also review, measure and manage
commercial real estate loans by geographic location and property
type. In addition, within our non-U.S. portfolio, we evaluate
exposures by region and by country. Tables 41, 46, 52 and 53
summarize our concentrations. We also utilize syndications of
exposure to third parties, loan sales, hedging and other risk
mitigation techniques to manage the size and risk profile of the
commercial credit portfolio. For more information on our industry
concentrations, including our utilized exposure to the energy sector
which was two percent of total loans and leases at December 31,
2015, see Commercial Portfolio Credit Risk Management –
Industry Concentrations on page 81 and Table 46.
We account for certain large corporate loans and loan
commitments, including issued but unfunded letters of credit
which are considered utilized for credit risk management purposes,
that exceed our single name credit risk concentration guidelines
under the fair value option. Lending commitments, both funded
and unfunded, are actively managed and monitored, and as
appropriate, credit risk for these lending relationships may be
mitigated through the use of credit derivatives, with the
Corporation’s credit view and market perspectives determining the
size and timing of the hedging activity. In addition, we purchase
credit protection to cover the funded portion as well as the
unfunded portion of certain other credit exposures. To lessen the
cost of obtaining our desired credit protection levels, credit
exposure may be added within an industry, borrower or
counterparty group by selling protection. These credit derivatives
do not meet the requirements for treatment as accounting hedges.