CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES

The following table presents an aging analysis of the recorded balance of loans.



	Loans Past Due and Still Accruing
(in millions)	30-59 Days		60-89 Days		90 Days or More		Total		Nonaccrual Loans		Current Loans			Total Loans
December 31, 2014
Business loans:
Commercial	$	58	$	13	$	1	$	72	$	109	$	31,339		$	31,520
Real estate construction:
Commercial Real Estate business line (a)	3		—		—		3		1		1,602			1,606
Other business lines (b)	12		—		—		12		1		336			349
Total real estate construction	15		—		—		15		2		1,938			1,955
Commercial mortgage:
Commercial Real Estate business line (a)	8		1		1		10		22		1,758			1,790
Other business lines (b)	16		12		2		30		73		6,711			6,814
Total commercial mortgage	24		13		3		40		95		8,469			8,604
Lease financing	—		—		—		—		—		805			805
International	9		—		—		9		—		1,487			1,496
Total business loans	106		26		4		136		206		44,038			44,380
Retail loans:
Residential mortgage	9		2		—		11		36		1,784		(c)	1,831
Consumer:
Home equity	5		3		—		8		30		1,620			1,658
Other consumer	12		—		1		13		1		710			724
Total consumer	17		3		1		21		31		2,330			2,382
Total retail loans	26		5		1		32		67		4,114			4,213
Total loans	$	132	$	31	$	5	$	168	$	273	$	48,152	(c)	$	48,593
December 31, 2013
Business loans:
Commercial	$	36	$	17	$	4	$	57	$	81	$	28,677		$	28,815
Real estate construction:
Commercial Real Estate business line (a)	—		—		—		—		20		1,427			1,447
Other business lines (b)	—		—		—		—		1		314			315
Total real estate construction	—		—		—		—		21		1,741			1,762
Commercial mortgage:
Commercial Real Estate business line (a)	9		1		—		10		51		1,617			1,678
Other business lines (b)	27		6		4		37		105		6,967			7,109
Total commercial mortgage	36		7		4		47		156		8,584			8,787
Lease financing	—		—		—		—		—		845			845
International	—		—		3		3		4		1,320			1,327
Total business loans	72		24		11		107		262		41,167			41,536
Retail loans:
Residential mortgage	15		3		—		18		53		1,626		(c)	1,697
Consumer:
Home equity	6		2		—		8		33		1,476			1,517
Other consumer	4		1		5		10		2		708			720
Total consumer	10		3		5		18		35		2,184			2,237
Total retail loans	25		6		5		36		88		3,810			3,934
Total loans	$	97	$	30	$	16	$	143	$	350	$	44,977	(c)	$	45,470


(a)	Primarily loans to real estate developers.


(b)	Primarily loans secured by owner-occupied real estate.


(c)	Included purchased credit-impaired (PCI) loans with a total carrying value of $2 million and $5 million at December 31, 2014 and 2013, respectively.

The following table presents loans by credit quality indicator, based on internal risk ratings assigned to each business loan at the time of approval and subjected to subsequent reviews, generally at least annually, and to pools of retail loans with similar risk characteristics.



	Internally Assigned Rating
(in millions)	Pass (a)		Special Mention (b)		Substandard (c)		Nonaccrual (d)		Total
December 31, 2014
Business loans:
Commercial	$	30,310	$	560	$	541	$	109	$	31,520
Real estate construction:
Commercial Real Estate business line (e)	1,594		11		—		1		1,606
Other business lines (f)	336		7		5		1		349
Total real estate construction	1,930		18		5		2		1,955
Commercial mortgage:
Commercial Real Estate business line (e)	1,652		69		47		22		1,790
Other business lines (f)	6,434		138		169		73		6,814
Total commercial mortgage	8,086		207		216		95		8,604
Lease financing	778		26		1		—		805
International	1,468		15		13		—		1,496
Total business loans	42,572		826		776		206		44,380
Retail loans:
Residential mortgage	1,790		2		3		36		1,831
Consumer:
Home equity	1,620		—		8		30		1,658
Other consumer	718		3		2		1		724
Total consumer	2,338		3		10		31		2,382
Total retail loans	4,128		5		13		67		4,213
Total loans	$	46,700	$	831	$	789	$	273	$	48,593
December 31, 2013
Business loans:
Commercial	$	27,470	$	590	$	674	$	81	$	28,815
Real estate construction:
Commercial Real Estate business line (e)	1,399		13		15		20		1,447
Other business lines (f)	314		—		—		1		315
Total real estate construction	1,713		13		15		21		1,762
Commercial mortgage:
Commercial Real Estate business line (e)	1,474		92		61		51		1,678
Other business lines (f)	6,596		145		263		105		7,109
Total commercial mortgage	8,070		237		324		156		8,787
Lease financing	841		3		1		—		845
International	1,298		7		18		4		1,327
Total business loans	39,392		850		1,032		262		41,536
Retail loans:
Residential mortgage	1,635		3		6		53		1,697
Consumer:
Home equity	1,475		4		5		33		1,517
Other consumer	708		3		7		2		720
Total consumer	2,183		7		12		35		2,237
Total retail loans	3,818		10		18		88		3,934
Total loans	$	43,210	$	860	$	1,050	$	350	$	45,470


(a)	Includes all loans not included in the categories of special mention, substandard or nonaccrual.

(b)

Special mention loans are accruing loans that have potential credit weaknesses that deserve management’s close attention, such as loans to borrowers who may be experiencing financial difficulties that may result in deterioration of repayment prospects from the borrower at some future date. This category is generally consistent with the "special mention" category as defined by regulatory authorities.

(c)

Substandard loans are accruing loans that have a well-defined weakness, or weaknesses, such as loans to borrowers who may be experiencing losses from operations or inadequate liquidity of a degree and duration that jeopardizes the orderly repayment of the loan. Substandard loans also are distinguished by the distinct possibility of loss in the future if these weaknesses are not corrected. PCI loans are included in the substandard category. This category is generally consistent with the "substandard" category as defined by regulatory authorities.

(d)

Nonaccrual loans are loans for which the accrual of interest has been discontinued. For further information regarding nonaccrual loans, refer to the Nonperforming Assets subheading in Note 1 - Basis of Presentation and Accounting Policies. A significant majority of nonaccrual loans are generally consistent with the "substandard" category and the remainder are generally consistent with the "doubtful" category as defined by regulatory authorities.


(e)	Primarily loans to real estate developers.


(f)	Primarily loans secured by owner-occupied real estate.

The following table summarizes nonperforming assets.



(in millions)	December 31, 2014		December 31, 2013
Nonaccrual loans	$	273	$	350
Reduced-rate loans (a)	17		24
Total nonperforming loans	290		374
Foreclosed property	10		9
Total nonperforming assets	$	300	$	383


(a)	There were no reduced-rate business loans at December 31, 2014 and $4 million at December 31, 2013. Reduced-rate retail loans totaled $17 million and $20 million at December 31, 2014 and 2013, respectively.

Allowance for Credit Losses

The following table details the changes in the allowance for loan losses and related loan amounts.



	2014									2013									2012
(in millions)	Business Loans			Retail Loans			Total			Business Loans			Retail Loans			Total			Business Loans			Retail Loans			Total
Years Ended December 31
Allowance for loan losses:
Balance at beginning of period	$	531		$	67		$	598		$	552		$	77		$	629		$	648		$	78		$	726
Loan charge-offs	(87		)	(15		)	(102		)	(130		)	(23		)	(153		)	(212		)	(33		)	(245		)
Recoveries on loans previously charged-off	68			9			77			70			10			80			65			10			75
Net loan charge-offs	(19		)	(6		)	(25		)	(60		)	(13		)	(73		)	(147		)	(23		)	(170		)
Provision for loan losses	23			(1		)	22			39			3			42			51			22			73
Foreign currency translation adjustment	(1		)	—			(1		)	—			—			—			—			—			—
Balance at end of period	$	534		$	60		$	594		$	531		$	67		$	598		$	552		$	77		$	629

As a percentage of total loans	1.20		%	1.43		%	1.22		%	1.28		%	1.70		%	1.32		%	1.30		%	2.10		%	1.37		%

December 31
Allowance for loan losses:
Individually evaluated for impairment	$	39		$	—		$	39		$	57		$	—		$	57		$	76		$	—		$	76
Collectively evaluated for impairment	495			60			555			474			67			541			476			77			553
Total allowance for loan losses	$	534		$	60		$	594		$	531		$	67		$	598		$	552		$	77		$	629
Loans:
Individually evaluated for impairment	$	177		$	42		$	219		$	223		$	51		$	274		$	368		$	51		$	419
Collectively evaluated for impairment	44,203			4,169			48,372			41,311			3,880			45,191			41,979			3,623			45,602
PCI loans (a)	—			2			2			2			3			5			30			6			36
Total loans evaluated for impairment	$	44,380		$	4,213		$	48,593		$	41,536		$	3,934		$	45,470		$	42,377		$	3,680		$	46,057

(a) No allowance for loan losses was required for PCI loans at December 31, 2014, 2013 and 2012.

Changes in the allowance for credit losses on lending-related commitments, included in "accrued expenses and other liabilities" on the consolidated balance sheets, are summarized in the following table.



(in millions)
Years Ended December 31	2014		2013		2012
Balance at beginning of period	$	36	$	32	$	26
Provision for credit losses on lending-related commitments	5		4		6
Balance at end of period	$	41	$	36	$	32

Individually Evaluated Impaired Loans

The following table presents additional information regarding individually evaluated impaired loans.



	Recorded Investment In:
(in millions)	Impaired Loans with No Related Allowance		Impaired Loans with Related Allowance		Total Impaired Loans		Unpaid Principal Balance		Related Allowance for Loan Losses
December 31, 2014
Business loans:
Commercial	$	7	$	103	$	110	$	148	$	29
Real estate construction:
Other business lines (b)	—		1		1		1		—
Commercial mortgage:
Commercial Real Estate business line (a)	—		19		19		41		8
Other business lines (b)	4		43		47		63		2
Total commercial mortgage	4		62		66		104		10
Total business loans	11		166		177		253		39
Retail loans:
Residential mortgage	25		—		25		28		—
Consumer:
Home equity	12		—		12		16		—
Other consumer	5		—		5		7		—
Total consumer	17		—		17		23		—
Total retail loans (c)	42		—		42		51		—
Total individually evaluated impaired loans	$	53	$	166	$	219	$	304	$	39
December 31, 2013
Business loans:
Commercial	$	10	$	64	$	74	$	121	$	26
Real estate construction:
Commercial Real Estate business line (a)	—		20		20		24		3
Other business lines (b)	—		1		1		1		—
Total real estate construction	—		21		21		25		3
Commercial mortgage:
Commercial Real Estate business line (a)	—		60		60		104		12
Other business lines (b)	1		63		64		90		15
Total commercial mortgage	1		123		124		194		27
International	—		4		4		4		1
Total business loans	11		212		223		344		57
Retail loans:
Residential mortgage	35		—		35		42		—
Consumer:
Home equity	12		—		12		17		—
Other consumer	4		—		4		12		—
Total consumer	16		—		16		29		—
Total retail loans (c)	51		—		51		71		—
Total individually evaluated impaired loans	$	62	$	212	$	274	$	415	$	57


(a)	Primarily loans to real estate developers.


(b)	Primarily loans secured by owner-occupied real estate.


(c)	Individually evaluated retail loans had no related allowance for loan losses, primarily due to policy which results in direct write-downs of restructured retail loans.

The following table presents information regarding average individually evaluated impaired loans and the related interest recognized. Interest income recognized for the period primarily related to reduced-rate loans.



	Individually Evaluated Impaired Loans
	2014				2013				2012
(in millions)	Average Balance for the Period		Interest Income Recognized for the Period		Average Balance for the Period		Interest Income Recognized for the Period		Average Balance for the Period		Interest Income Recognized for the Period
Years Ended December 31
Business loans:
Commercial	$	77	$	2	$	99	$	2	$	195	$	4
Real estate construction:
Commercial Real Estate business line (a)	14		—		25		—		58		—
Other business lines (b)	—		—		—		—		4		—
Total real estate construction	14		—		25		—		62		—
Commercial mortgage:
Commercial Real Estate business line (a)	48		—		81		—		139		—
Other business lines (b)	64		2		105		3		177		4
Total commercial mortgage	112		2		186		3		316		4
Lease financing	—		—		—		—		3		—
International	2		—		1		—		2		—
Total business loans	205		4		311		5		578		8
Retail loans:
Residential mortgage	30		—		35		—		41		—
Consumer:
Home equity	12		—		8		—		5		—
Other consumer	4		—		4		—		4		—
Total consumer	16		—		12		—		9		—
Total retail loans	46		—		47		—		50		—
Total individually evaluated impaired loans	$	251	$	4	$	358	$	5	$	628	$	8


(a)	Primarily loans to real estate developers.


(b)	Primarily loans secured by owner-occupied real estate.

Troubled Debt Restructurings

The following tables detail the recorded balance at December 31, 2014 and 2013 of loans considered to be TDRs that were restructured during the years ended December 31, 2014 and 2013, by type of modification. In cases of loans with more than one type of modification, the loans were categorized based on the most significant modification.



	2014							2013
	Type of Modification							Type of Modification
(in millions)	Principal Deferrals (a)			Interest Rate Reductions		Total Modifications		Principal Deferrals (a)			Interest Rate Reductions		AB Note Restructures (b)		Total Modifications
Years Ended December 31
Business loans:
Commercial	$	22		$	—	$	22	$	21		$	—	$	8	$	29
Commercial mortgage:
Commercial Real Estate business line (c)	—			—		—		32			—		—		32
Other business lines (d)	6			—		6		8			—		11		19
Total commercial mortgage	6			—		6		40			—		11		51
Total business loans	28			—		28		61			—		19		80
Retail loans:
Residential mortgage	1		(e)	—		1		3		(e)	2		—		5
Consumer:
Home equity	1		(e)	3		4		7		(e)	2		—		9
Other consumer	1		(e)	—		1		2		(e)	—		—		2
Total consumer	2			3		5		9			2		—		11
Total retail loans	3			3		6		12			4		—		16
Total loans	$	31		$	3	$	34	$	73		$	4	$	19	$	96


(a)	Primarily represents loan balances where terms were extended 90 days or more at or above contractual interest rates.


(b)	Loan restructurings whereby the original loan is restructured into two notes: an "A" note, which generally reflects the portion of the modified loan which is expected to be collected; and a "B" note, which is either fully charged off or exchanged for an equity interest.


(c)	Primarily loans to real estate developers.


(d)	Primarily loans secured by owner-occupied real estate.


(e)	Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.

At December 31, 2014 and 2013, commitments to lend additional funds to borrowers whose terms have been modified in TDRs totaled $3 million and $4 million, respectively.

The majority of the modifications considered to be TDRs that occurred during the years ended December 31, 2014 and 2013 were principal deferrals. The Corporation charges interest on principal balances outstanding during deferral periods. Additionally, none of the modifications involved forgiveness of principal. As a result, the current and future financial effects of the recorded balance of loans considered to be TDRs that were restructured during the years ended December 31, 2014 and 2013 were insignificant.

On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. In the event of a subsequent default, the allowance for loan losses continues to be reassessed on the basis of an individual evaluation of the loan.

The following table presents information regarding the recorded balance at December 31, 2014 and 2013 of loans modified by principal deferral during the years ended December 31, 2014 and 2013, and those principal deferrals which experienced a subsequent default during the same periods. For principal deferrals, incremental deterioration in the credit quality of the loan, represented by a downgrade in the risk rating of the loan, for example, due to missed interest payments or a reduction of collateral value, is considered a subsequent default.



	2014					2013
(in millions)	Balance at December 31			Subsequent Default in the Year Ended December 31		Balance at December 31			Subsequent Default in the Year Ended December 31
Principal deferrals:
Business loans:
Commercial	$	22		$	1	$	21		$	11
Commercial mortgage:
Commercial Real Estate business line (a)	—			—		32			19
Other business lines (b)	6			2		8			5
Total commercial mortgage	6			2		40			24
Total business loans	28			3		61			35
Retail loans:
Residential mortgage	1		(c)	—		3		(c)	—
Consumer:
Home equity	1		(c)	—		7		(c)	—
Other consumer	1		(c)	—		2		(c)	—
Total consumer	2			—		9			—
Total retail loans	3			—		12			—
Total principal deferrals	$	31		$	3	$	73		$	35


(a)	Primarily loans to real estate developers.


(b)	Primarily loans secured by owner-occupied real estate.


(c)	Includes bankruptcy loans for which the court has discharged the borrower's obligation and the borrower has not reaffirmed the debt.

During the years ended December 31, 2014 and 2013, loans with a carrying value of $3 million and $4 million at December 31, 2014 and 2013, respectively, were modified by interest rate reduction and loans with a carrying value of $19 million at December 31, 2013, were restructured into two notes (AB note restructures). For reduced-rate loans and AB note restructures, a subsequent payment default is defined in terms of delinquency, when a principal or interest payment is 90 days past due. There were no subsequent payment defaults of reduced rate loans or AB note restructures during the years ended December 31, 2014 and 2013.

Purchased Credit-Impaired Loans

Acquired loans are initially recorded at fair value with no carryover of any allowance for loan losses. Loans acquired with evidence of credit quality deterioration at acquisition for which it was probable that the Corporation would not be able to collect all contractual amounts due were accounted for as PCI loans. The Corporation aggregated the acquired PCI loans into pools of loans based on common risk characteristics.

No allowance for loan losses was required on the acquired PCI loan pools at both December 31, 2014 and 2013. The carrying amount of acquired PCI loans included in the consolidated balance sheet and the related outstanding balance at December 31, 2014 and 2013 were as follows.



(in millions)
December 31	2014		2013
Acquired PCI loans:
Carrying amount	$	2	$	5
Outstanding balance (principal and unpaid interest)	8		46

Changes in the accretable yield for acquired PCI loans for the years ended December 31, 2014 and 2013 were as follows.



(in millions)
Years Ended December 31	2014			2013
Balance at beginning of period	$	15		$	16
Reclassifications from nonaccretable	12			28
Accretion	(26		)	(29		)
Balance at end of period	$	1		$	15