| LOANS RECEIVABLE, NET | 120% 15 19 32 36 Total mortgage loans receivable $ 755 $ 803 $ 594 $ 635 Average estimated current LTV/CLTV (2) 61 % 61 % 77 % 76 % Average LTV/CLTV at loan origination (3) 70 % 70 % 82 % 82 % (1) Current CLTV calculations for home equity loans are based on the maximum available line for HELOCs and outstanding principal balance for HEILs. For home equity loans in the second lien position, the original balance of the first lien loan at origination date and updated valuations on the property underlying the loan are used to calculate CLTV. Current property value estimates are updated on a quarterly basis. (2) The average estimated current LTV/CLTV ratio reflects the outstanding balance at the balance sheet date and the maximum available line for HELOCs, divided by the estimated current value of the underlying property. (3) Average LTV/CLTV at loan origination calculations are based on LTV/CLTV at time of purchase for one- to four-family purchased loans, HEILs and the maximum available line for HELOCs. One- to Four-Family Home Equity March 31, December 31, March 31, December 31, Current FICO 2020 2019 2020 2019 >=720 $ 423 $ 462 $ 309 $ 333 719 - 700 65 77 56 61 699 - 680 52 55 49 54 679 - 660 44 40 42 43 659 - 620 66 63 54 59 <620 105 106 84 85 Total mortgage loans receivable $ 755 $ 803 $ 594 $ 635 One- to four-family loans include loans with an interest-only period, followed by an amortizing period. At March 31, 2020, 100% of these loans were amortizing. The home equity loan portfolio consists of HEILs and HELOCs. HEILs are primarily fully amortizing loans that do not offer the option of an interest-only payment. The majority of HELOCs had an interest only draw period at origination and converted to amortizing loans at the end of the draw period. At March 31, 2020, substantially all of the HELOC portfolio had converted from the interest-only draw period. The weighted average age of our mortgage loans receivable was 14.0 years and 13.7 years at March 31, 2020 and December 31, 2019, respectively. Approximately 32% of the Company’s mortgage loans receivable were concentrated in California at both March 31, 2020 and December 31, 2019, respectively. Approximately 11% and 10% of the Company's mortgage loans receivable were concentrated in New York at March 31, 2020 and December 31, 2019. No other state had concentrations of mortgage loans that represented 10% or more of the Company’s mortgage loans receivable at March 31, 2020 or December 31, 2019. At March 31, 2020, 24% and 21% of the Company’s past-due mortgage loans were concentrated in California and New York, respectively. No other state had concentrations of past-due mortgage loans that represented 10% or more of the Company's past-due mortgage loans. At March 31, 2020, 41% and 10% of the Company’s impaired mortgage loans were concentrated in California and New York, respectively. No other state had concentrations of impaired mortgage loans that represented 10% or more of the Company's impaired mortgage loans. Nonperforming Loans The Company classifies loans as nonperforming when they are no longer accruing interest. The following table presents nonperforming loans by loan portfolio (dollars in millions): March 31, 2020 December 31, 2019 One- to four-family $ 104 $ 114 Home equity 51 54 Total nonperforming loans receivable $ 155 $ 168 Interest income recognized on nonaccrual loans was not material for the three months ended March 31, 2020. There were no nonaccrual loans for which the Company had not recognized an allowance for credit losses at March 31, 2020. There were no loans that were 90 days or more past due, but were not on nonaccrual status at March 31, 2020. At both March 31, 2020 and December 31, 2019, the Company held $13 million of real estate owned that was acquired through foreclosure or through a deed in lieu of foreclosure or similar legal agreement. The Company held $31 million and $32 million of loans for which formal foreclosure proceedings were in process at March 31, 2020 and December 31, 2019, respectively. Collateral-Dependent Loans The Company's collateral-dependent loans were a significant driver of the net benefit recognized upon CECL adoption. The benefit primarily related to the appreciation in fair value of the underlying collateral as compared to prior period charge-offs associated with these loans. The fair value of the underlying collateral, less estimated selling costs, are based on the most recent "as is" property valuation data available, which may include appraisals, broker price opinions, automated valuation models or updated values using home price indices, all of which are categorized within Level 3 of the fair value hierarchy. See Note 4—Fair Value Disclosures for further details. The following table presents credit quality characteristics of the collateral-dependent loan population (dollars in millions): March 31, 2020 One- to Four-Family Home Equity Unpaid principal balance $ 184 $ 154 Recorded investment $ 136 $ 57 Negative allowance for credit losses $ 37 $ 65 Average estimated current LTV/CLTV 71 % 76 % Average loan amount (dollars in thousands) $ 361 $ 63 Approximately 36% and 15% of the Company's collateral-dependent loans were concentrated in California and New York, respectively at March 31, 2020. No other state had concentrations of mortgage loans that represented 10% or more of the Company's collateral-dependent loans. All of these loans were amortizing at March 31, 2020. Allowance for Credit Losses The allowance for credit losses is management’s estimate of expected credit losses over the life of the loan portfolio at the balance sheet date, as well as the forecasted losses, including economic concessions to borrowers, over the estimated remaining life of loans modified as TDRs. The allowance for credit losses on mortgage loans evaluated collectively includes a qualitative component to account for a variety of factors that present additional uncertainty that may not be fully considered in the quantitative loss model but are factors we believe may impact the level of credit losses. Expected recoveries of amounts previously charged-off and expected to be charged-off are included in the allowance and do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The Company recognizes a credit loss expense in the amount necessary to adjust the allowance for credit losses for management’s current estimate of expected credit losses on mortgage loans receivable. The following table presents a roll forward by loan portfolio of the allowance for credit losses (dollars in millions): Three Months Ended March 31, 2020 One- to Four-Family Home Equity Total (2) Allowance for loan losses, beginning of period (1) $ (6) $ (11) $ (17) Impact of CECL adoption (1)(3) 43 71 114 (Provision) benefit for credit losses (1) (5) (6) Charge-offs (4) — — — Recoveries (4) (1) (4) (5) Net charge-offs (recoveries) (1) (4) (5) Allowance for credit losses, end of period (1) $ 35 $ 51 $ 86 Three Months Ended March 31, 2019 One- to Four-Family Home Equity Consumer Total (2) Allowance for loan losses, beginning of period (1) $ (9) $ (26) $ (2) $ (37) (Provision) benefit for loan losses 2 10 — 12 Charge-offs (4) — — 1 1 Recoveries (4) (2) (5) (1) (8) Net charge-offs (recoveries) (2) (5) — (7) Allowance for loan losses, end of period (1) $ (9) $ (21) $ (2) $ (32) (1) The Company adopted amended accounting guidance related to accounting for credit losses on January 1, 2020. Prior year amounts related to the allowance for loan losses were not restated as the amended accounting guidance was adopted on a modified retrospective basis. At January 1, 2020, the Company had a net "negative allowance" for credit losses of $37 million for its one-to-four-family portfolio and a net "negative allowance" of $60 million for its home equity portfolio. See Note 1—Organization, Basis of Presentation and Summary of Significant Accounting Policies for further details. (2) Securities-based lending loans were fully collateralized by cash and securities with fair values in excess of borrowings for the three months ended March 31, 2020 and 2019, respectively, and were unconditionally cancellable by the Company. (3) The benefit recognized as a "negative allowance" at adoption is primarily related to the increases in fair value of the underlying collateral for mortgage loans determined to be collateral-dependent compared to prior period charge-offs associated with these loans. This fair value appreciation resulted in a benefit of $39 million for the one- to four-family portfolio and a benefit of $70 million for the home equity portfolio at adoption. (4) Includes benefits resulting from recoveries of partial charge-offs due to principal paydowns or payoffs for the periods presented. The benefits included in the charge-offs line item exceeded other charge-offs for both one-to-four family and home equity loans in both periods presented. Troubled Debt Restructurings The Company considers a loan to be impaired when it meets the definition of a TDR. Delinquency status is the primary measure the Company uses to evaluate the performance of loans modified as TDRs. The Company classifies loans as nonperforming when they are no longer accruing interest. The recorded investment in loans modified as TDRs includes the charge-offs related to certain loans that were written down to the estimated current value of the underlying property less estimated selling costs. The Company had $270 million of recorded investment in loans that had been modified as TDRs at March 31, 2020, including $163 million of one-to-four family loans and $107 million of home equity loans, respectively. This compared to $280 million of recorded investment in TDRs at December 31, 2019, including $168 million of one-to-four family loans and $112 million of home equity loans, respectively. The following table presents the number of loans and post-modification balances immediately after being modified by major class (dollars in millions): Three Months Ended Interest Rate Reduction Number of Re-age/ Other (1) Total March 31, 2020: One- to four-family 4 $ 2 $ — $ 2 Home equity 8 1 — 1 Total 12 $ 3 $ — $ 3 March 31, 2019: One- to four-family 9 $ 1 $ 1 $ 2 Home equity 11 1 — 1 Total 20 $ 2 $ 1 $ 3 (1) Amounts represent loans whose terms were modified in a manner that did not result in an interest rate reduction, including re-aged loans, extensions, and loans with capitalized interest." id="sjs-B4">NOTE 7—LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES The Company adopted amended accounting guidance related to accounting for credit losses on January 1, 2020 and recognized an after-tax benefit related to mortgage loans of $84 million as an adjustment to opening retained earnings. The benefit primarily related to the increases in fair value of the underlying collateral for mortgage loans determined to be collateral-dependent compared to prior period charge-offs associated with these loans. This appreciation resulted in a net “negative allowance” associated with the mortgage loans. Loans receivable decreased 4% to $1.5 billion during the three months ended March 31, 2020 as a result of runoff in our mortgage loan portfolio offset by increased securities-based lending. Loans receivable, net increased 2% to $1.6 billion during the three months ended March 31, 2020. This increase related primarily to the $114 million pre-tax benefit associated with the adoption of the amended guidance. This pre-tax benefit, offset by the provision expense and net recoveries, was the primary driver of the $86 million net "negative allowance" for credit losses at March 31, 2020. The "negative allowance" for credit losses represented 5.6% of total loans receivable as of March 31, 2020. The allowance for credit losses was ($17) million, or (1.1)% of total loans receivable, as of December 31, 2019. The provision for credit losses was $6 million for the three months ended March 31, 2020. The timing and magnitude of the provision (benefit) for credit losses is affected by many factors that could result in variability. Changes in management's reasonable and supportable forecasts of estimated credit losses and collateral valuations, offset by actual charge-offs net of recoveries, will drive variability in provision (benefit) for credit losses in future periods. In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The pandemic, and actions taken by governmental authorities to contain its financial and economic impact, resulted in significant market volatility during March 2020. The Company's allowance for credit losses as of March 31, 2020 includes the estimated financial impacts of the pandemic on its expected credit losses resulting in an increase to the allowance for credit losses of $5 million as of March 31, 2020 compared to January 1, 2020. The following table presents loans receivable disaggregated by delinquency status (dollars in millions): Days Past Due Current 30-89 90-179 180+ Total Unamortized Premiums, Net Allowance for Credit Losses (1) Loans Receivable, Net March 31, 2020: One- to four-family $ 673 $ 40 $ 9 $ 33 $ 755 $ 4 $ 35 $ 794 Home equity 550 22 8 14 594 — 51 645 Securities-based lending (2) 195 — — — 195 — — 195 Total loans receivable $ 1,418 $ 62 $ 17 $ 47 $ 1,544 $ 4 $ 86 $ 1,634 Days Past Due Current 30-89 90-179 180+ Total Unamortized Premiums, Net Allowance for Loan Losses (1) Loans Receivable, Net December 31, 2019: One- to four-family $ 718 $ 39 $ 11 $ 35 $ 803 $ 5 $ (6) $ 802 Home equity 590 21 7 17 635 — (11) 624 Securities-based lending (2) 169 — — — 169 — — 169 Total loans receivable $ 1,477 $ 60 $ 18 $ 52 $ 1,607 $ 5 $ (17) $ 1,595 (1) The Company adopted amended accounting guidance related to accounting for credit losses on January 1, 2020. Prior year amounts related to the allowance for loan losses were not restated as the amended accounting guidance was adopted on a modified retrospective basis. See Note 1—Organization, Basis of Presentation and Summary of Significant Accounting Policies for further details. (2) E*TRADE Line of Credit is a securities-based lending product where customers can borrow against the market value of their securities pledged as collateral. The Company has no expectation of credit losses for these loans as they are fully collateralized by cash and securities with fair values in excess of borrowings at both March 31, 2020 and December 31, 2019, respectively. The unused credit line amount totaled $569 million and $431 million as of March 31, 2020 and December 31, 2019, respectively, and were unconditionally cancellable by the Company. The Company pledged $1.2 billion of loans as collateral to the FHLB at both March 31, 2020 and December 31, 2019. Credit Quality and Concentrations of Credit Risk The Company tracks and reviews factors to predict and monitor credit risk in its mortgage loan portfolio on an ongoing basis. Property values, FICO scores, and loan balances are updated quarterly. The Company has not originated a mortgage loan since 2008 when it exited direct retail lending, which was the last remaining origination channel after the Company’s exit from the wholesale mortgage lending channel in 2007. The following tables present the distribution of the Company’s mortgage loan portfolios by credit quality indicator (dollars in millions): One- to Four-Family Home Equity March 31, December 31, March 31, December 31, Current LTV/CLTV (1) 2020 2019 2020 2019 <=80% $ 624 $ 661 $ 350 $ 377 80%-100% 88 97 143 154 100%-120% 28 26 69 68 >120% 15 19 32 36 Total mortgage loans receivable $ 755 $ 803 $ 594 $ 635 Average estimated current LTV/CLTV (2) 61 % 61 % 77 % 76 % Average LTV/CLTV at loan origination (3) 70 % 70 % 82 % 82 % (1) Current CLTV calculations for home equity loans are based on the maximum available line for HELOCs and outstanding principal balance for HEILs. For home equity loans in the second lien position, the original balance of the first lien loan at origination date and updated valuations on the property underlying the loan are used to calculate CLTV. Current property value estimates are updated on a quarterly basis. (2) The average estimated current LTV/CLTV ratio reflects the outstanding balance at the balance sheet date and the maximum available line for HELOCs, divided by the estimated current value of the underlying property. (3) Average LTV/CLTV at loan origination calculations are based on LTV/CLTV at time of purchase for one- to four-family purchased loans, HEILs and the maximum available line for HELOCs. One- to Four-Family Home Equity March 31, December 31, March 31, December 31, Current FICO 2020 2019 2020 2019 >=720 $ 423 $ 462 $ 309 $ 333 719 - 700 65 77 56 61 699 - 680 52 55 49 54 679 - 660 44 40 42 43 659 - 620 66 63 54 59 <620 105 106 84 85 Total mortgage loans receivable $ 755 $ 803 $ 594 $ 635 One- to four-family loans include loans with an interest-only period, followed by an amortizing period. At March 31, 2020, 100% of these loans were amortizing. The home equity loan portfolio consists of HEILs and HELOCs. HEILs are primarily fully amortizing loans that do not offer the option of an interest-only payment. The majority of HELOCs had an interest only draw period at origination and converted to amortizing loans at the end of the draw period. At March 31, 2020, substantially all of the HELOC portfolio had converted from the interest-only draw period. The weighted average age of our mortgage loans receivable was 14.0 years and 13.7 years at March 31, 2020 and December 31, 2019, respectively. Approximately 32% of the Company’s mortgage loans receivable were concentrated in California at both March 31, 2020 and December 31, 2019, respectively. Approximately 11% and 10% of the Company's mortgage loans receivable were concentrated in New York at March 31, 2020 and December 31, 2019. No other state had concentrations of mortgage loans that represented 10% or more of the Company’s mortgage loans receivable at March 31, 2020 or December 31, 2019. At March 31, 2020, 24% and 21% of the Company’s past-due mortgage loans were concentrated in California and New York, respectively. No other state had concentrations of past-due mortgage loans that represented 10% or more of the Company's past-due mortgage loans. At March 31, 2020, 41% and 10% of the Company’s impaired mortgage loans were concentrated in California and New York, respectively. No other state had concentrations of impaired mortgage loans that represented 10% or more of the Company's impaired mortgage loans. Nonperforming Loans The Company classifies loans as nonperforming when they are no longer accruing interest. The following table presents nonperforming loans by loan portfolio (dollars in millions): March 31, 2020 December 31, 2019 One- to four-family $ 104 $ 114 Home equity 51 54 Total nonperforming loans receivable $ 155 $ 168 Interest income recognized on nonaccrual loans was not material for the three months ended March 31, 2020. There were no nonaccrual loans for which the Company had not recognized an allowance for credit losses at March 31, 2020. There were no loans that were 90 days or more past due, but were not on nonaccrual status at March 31, 2020. At both March 31, 2020 and December 31, 2019, the Company held $13 million of real estate owned that was acquired through foreclosure or through a deed in lieu of foreclosure or similar legal agreement. The Company held $31 million and $32 million of loans for which formal foreclosure proceedings were in process at March 31, 2020 and December 31, 2019, respectively. Collateral-Dependent Loans The Company's collateral-dependent loans were a significant driver of the net benefit recognized upon CECL adoption. The benefit primarily related to the appreciation in fair value of the underlying collateral as compared to prior period charge-offs associated with these loans. The fair value of the underlying collateral, less estimated selling costs, are based on the most recent "as is" property valuation data available, which may include appraisals, broker price opinions, automated valuation models or updated values using home price indices, all of which are categorized within Level 3 of the fair value hierarchy. See Note 4—Fair Value Disclosures for further details. The following table presents credit quality characteristics of the collateral-dependent loan population (dollars in millions): March 31, 2020 One- to Four-Family Home Equity Unpaid principal balance $ 184 $ 154 Recorded investment $ 136 $ 57 Negative allowance for credit losses $ 37 $ 65 Average estimated current LTV/CLTV 71 % 76 % Average loan amount (dollars in thousands) $ 361 $ 63 Approximately 36% and 15% of the Company's collateral-dependent loans were concentrated in California and New York, respectively at March 31, 2020. No other state had concentrations of mortgage loans that represented 10% or more of the Company's collateral-dependent loans. All of these loans were amortizing at March 31, 2020. Allowance for Credit Losses The allowance for credit losses is management’s estimate of expected credit losses over the life of the loan portfolio at the balance sheet date, as well as the forecasted losses, including economic concessions to borrowers, over the estimated remaining life of loans modified as TDRs. The allowance for credit losses on mortgage loans evaluated collectively includes a qualitative component to account for a variety of factors that present additional uncertainty that may not be fully considered in the quantitative loss model but are factors we believe may impact the level of credit losses. Expected recoveries of amounts previously charged-off and expected to be charged-off are included in the allowance and do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The Company recognizes a credit loss expense in the amount necessary to adjust the allowance for credit losses for management’s current estimate of expected credit losses on mortgage loans receivable. The following table presents a roll forward by loan portfolio of the allowance for credit losses (dollars in millions): Three Months Ended March 31, 2020 One- to Four-Family Home Equity Total (2) Allowance for loan losses, beginning of period (1) $ (6) $ (11) $ (17) Impact of CECL adoption (1)(3) 43 71 114 (Provision) benefit for credit losses (1) (5) (6) Charge-offs (4) — — — Recoveries (4) (1) (4) (5) Net charge-offs (recoveries) (1) (4) (5) Allowance for credit losses, end of period (1) $ 35 $ 51 $ 86 Three Months Ended March 31, 2019 One- to Four-Family Home Equity Consumer Total (2) Allowance for loan losses, beginning of period (1) $ (9) $ (26) $ (2) $ (37) (Provision) benefit for loan losses 2 10 — 12 Charge-offs (4) — — 1 1 Recoveries (4) (2) (5) (1) (8) Net charge-offs (recoveries) (2) (5) — (7) Allowance for loan losses, end of period (1) $ (9) $ (21) $ (2) $ (32) (1) The Company adopted amended accounting guidance related to accounting for credit losses on January 1, 2020. Prior year amounts related to the allowance for loan losses were not restated as the amended accounting guidance was adopted on a modified retrospective basis. At January 1, 2020, the Company had a net "negative allowance" for credit losses of $37 million for its one-to-four-family portfolio and a net "negative allowance" of $60 million for its home equity portfolio. See Note 1—Organization, Basis of Presentation and Summary of Significant Accounting Policies for further details. (2) Securities-based lending loans were fully collateralized by cash and securities with fair values in excess of borrowings for the three months ended March 31, 2020 and 2019, respectively, and were unconditionally cancellable by the Company. (3) The benefit recognized as a "negative allowance" at adoption is primarily related to the increases in fair value of the underlying collateral for mortgage loans determined to be collateral-dependent compared to prior period charge-offs associated with these loans. This fair value appreciation resulted in a benefit of $39 million for the one- to four-family portfolio and a benefit of $70 million for the home equity portfolio at adoption. (4) Includes benefits resulting from recoveries of partial charge-offs due to principal paydowns or payoffs for the periods presented. The benefits included in the charge-offs line item exceeded other charge-offs for both one-to-four family and home equity loans in both periods presented. Troubled Debt Restructurings The Company considers a loan to be impaired when it meets the definition of a TDR. Delinquency status is the primary measure the Company uses to evaluate the performance of loans modified as TDRs. The Company classifies loans as nonperforming when they are no longer accruing interest. The recorded investment in loans modified as TDRs includes the charge-offs related to certain loans that were written down to the estimated current value of the underlying property less estimated selling costs. The Company had $270 million of recorded investment in loans that had been modified as TDRs at March 31, 2020, including $163 million of one-to-four family loans and $107 million of home equity loans, respectively. This compared to $280 million of recorded investment in TDRs at December 31, 2019, including $168 million of one-to-four family loans and $112 million of home equity loans, respectively. The following table presents the number of loans and post-modification balances immediately after being modified by major class (dollars in millions): Three Months Ended Interest Rate Reduction Number of Re-age/ Other (1) Total March 31, 2020: One- to four-family 4 $ 2 $ — $ 2 Home equity 8 1 — 1 Total 12 $ 3 $ — $ 3 March 31, 2019: One- to four-family 9 $ 1 $ 1 $ 2 Home equity 11 1 — 1 Total 20 $ 2 $ 1 $ 3 (1) Amounts represent loans whose terms were modified in a manner that did not result in an interest rate reduction, including re-aged loans, extensions, and loans with capitalized interest. |
