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
June 30, 2016
Business loans:
Commercial	$	51	$	4	$	8	$	63	$	482	$	31,815	$	32,360
Real estate construction:
Commercial Real Estate business line (a)	—		—		—		—		—		2,197		2,197
Other business lines (b)	—		—		—		—		—		356		356
Total real estate construction	—		—		—		—		—		2,553		2,553
Commercial mortgage:
Commercial Real Estate business line (a)	4		—		1		5		8		2,223		2,236
Other business lines (b)	12		3		3		18		36		6,748		6,802
Total commercial mortgage	16		3		4		23		44		8,971		9,038
Lease financing	—		—		—		—		6		678		684
International	16		—		1		17		18		1,330		1,365
Total business loans	83		7		13		103		550		45,347		46,000
Retail loans:
Residential mortgage	9		1		9		19		26		1,811		1,856
Consumer:
Home equity	4		2		1		7		28		1,744		1,779
Other consumer	1		3		12		16		1		728		745
Total consumer	5		5		13		23		29		2,472		2,524
Total retail loans	14		6		22		42		55		4,283		4,380
Total loans	$	97	$	13	$	35	$	145	$	605	$	49,630	$	50,380
December 31, 2015
Business loans:
Commercial	$	46	$	12	$	13	$	71	$	238	$	31,350	$	31,659
Real estate construction:
Commercial Real Estate business line (a)	5		—		—		5		—		1,676		1,681
Other business lines (b)	3		—		—		3		1		316		320
Total real estate construction	8		—		—		8		1		1,992		2,001
Commercial mortgage:
Commercial Real Estate business line (a)	7		—		1		8		16		2,080		2,104
Other business lines (b)	7		5		3		15		44		6,814		6,873
Total commercial mortgage	14		5		4		23		60		8,894		8,977
Lease financing	—		—		—		—		6		718		724
International	2		—		—		2		8		1,358		1,368
Total business loans	70		17		17		104		313		44,312		44,729
Retail loans:
Residential mortgage	26		1		—		27		27		1,816		1,870
Consumer:
Home equity	5		3		—		8		27		1,685		1,720
Other consumer	7		—		—		7		—		758		765
Total consumer	12		3		—		15		27		2,443		2,485
Total retail loans	38		4		—		42		54		4,259		4,355
Total loans	$	108	$	21	$	17	$	146	$	367	$	48,571	$	49,084


(a)	Primarily loans to real estate developers.


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

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
June 30, 2016
Business loans:
Commercial	$	29,404	$	1,067	$	1,407	$	482	$	32,360
Real estate construction:
Commercial Real Estate business line (e)	2,197		—		—		—		2,197
Other business lines (f)	354		2		—		—		356
Total real estate construction	2,551		2		—		—		2,553
Commercial mortgage:
Commercial Real Estate business line (e)	2,186		19		23		8		2,236
Other business lines (f)	6,461		182		123		36		6,802
Total commercial mortgage	8,647		201		146		44		9,038
Lease financing	660		11		7		6		684
International	1,263		37		47		18		1,365
Total business loans	42,525		1,318		1,607		550		46,000
Retail loans:
Residential mortgage	1,818		2		10		26		1,856
Consumer:
Home equity	1,745		2		4		28		1,779
Other consumer	741		—		3		1		745
Total consumer	2,486		2		7		29		2,524
Total retail loans	4,304		4		17		55		4,380
Total loans	$	46,829	$	1,322	$	1,624	$	605	$	50,380
December 31, 2015
Business loans:
Commercial	$	29,117	$	1,293	$	1,011	$	238	$	31,659
Real estate construction:
Commercial Real Estate business line (e)	1,681		—		—		—		1,681
Other business lines (f)	318		1		—		1		320
Total real estate construction	1,999		1		—		1		2,001
Commercial mortgage:
Commercial Real Estate business line (e)	2,031		31		26		16		2,104
Other business lines (f)	6,536		172		121		44		6,873
Total commercial mortgage	8,567		203		147		60		8,977
Lease financing	693		17		8		6		724
International	1,245		59		56		8		1,368
Total business loans	41,621		1,573		1,222		313		44,729
Retail loans:
Residential mortgage	1,828		2		13		27		1,870
Consumer:
Home equity	1,687		1		5		27		1,720
Other consumer	755		3		7		—		765
Total consumer	2,442		4		12		27		2,485
Total retail loans	4,270		6		25		54		4,355
Total loans	$	45,891	$	1,579	$	1,247	$	367	$	49,084


(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.

(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. 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 - on page F-58 in the Corporation's 2015 Annual Report. 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)	June 30, 2016		December 31, 2015
Nonaccrual loans	$	605	$	367
Reduced-rate loans (a)	8		12
Total nonperforming loans	613		379
Foreclosed property (b)	22		12
Total nonperforming assets	$	635	$	391


(a)	There were no reduced-rate business loans at both June 30, 2016 and December 31, 2015. Reduced-rate retail loans were $8 million and $12 million at June 30, 2016 and December 31, 2015, respectively.


(b)	Included $6 million and $9 million of foreclosed residential real estate properties at June 30, 2016 and December 31, 2015, respectively.

There were no retail loans secured by residential real estate properties in process of foreclosure included in nonaccrual loans at June 30, 2016 compared to $1 million at December 31, 2015.

Allowance for Credit Losses

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



	2016									2015
(in millions)	Business Loans			Retail Loans			Total			Business Loans			Retail Loans			Total

Three Months Ended June 30
Allowance for loan losses:
Balance at beginning of period	$	674		$	50		$	724		$	541		$	60		$	601
Loan charge-offs	(52		)	(2		)	(54		)	(31		)	(4		)	(35		)
Recoveries on loans previously charged-off	11			1			12			16			1			17
Net loan charge-offs	(41		)	(1		)	(42		)	(15		)	(3		)	(18		)
Provision for loan losses	49			(2		)	47			37			(2		)	35
Balance at end of period	$	682		$	47		$	729		$	563		$	55		$	618

Six Months Ended June 30
Allowance for loan losses:
Balance at beginning of period	$	579		$	55		$	634		$	534		$	60		$	594
Loan charge-offs	(127		)	(4		)	(131		)	(52		)	(6		)	(58		)
Recoveries on loans previously charged-off	35			2			37			28			4			32
Net loan charge-offs	(92		)	(2		)	(94		)	(24		)	(2		)	(26		)
Provision for loan losses	194			(6		)	188			54			(3		)	51
Foreign currency translation adjustment	1			—			1			(1		)	—			(1		)
Balance at end of period	$	682		$	47		$	729		$	563		$	55		$	618

As a percentage of total loans	1.48		%	1.07		%	1.45		%	1.24		%	1.27		%	1.24		%

June 30
Allowance for loan losses:
Individually evaluated for impairment	$	112		$	—		$	112		$	39		$	—		$	39
Collectively evaluated for impairment	570			47			617			524			55			579
Total allowance for loan losses	$	682		$	47		$	729		$	563		$	55		$	618
Loans:
Individually evaluated for impairment	$	646		$	26		$	672		$	258		$	34		$	292
Collectively evaluated for impairment	45,354			4,354			49,708			45,140			4,307			49,447
Purchased credit impaired (PCI) loans (a)	—			—			—			—			2			2
Total loans evaluated for impairment	$	46,000		$	4,380		$	50,380		$	45,398		$	4,343		$	49,741

(a) No allowance for loan losses was required for PCI loans at June 30, 2015.

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.



	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2016			2015			2016			2015
Balance at beginning of period	$	46		$	39		$	45		$	41
Charge-offs on lending related commitments (a)	(5		)	(1		)	(11		)	(1		)
Provision for credit losses on lending-related commitments	2			12			9			10
Balance at end of period	$	43		$	50		$	43		$	50

(a) Charge-offs result from the sale of unfunded lending-related commitments.

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
June 30, 2016
Business loans:
Commercial	$	46	$	544	$	590	$	675	$	104
Commercial mortgage:
Commercial Real Estate business line (a)	—		8		8		15		1
Other business lines (b)	4		26		30		44		4
Total commercial mortgage	4		34		38		59		5
International	—		18		18		24		3
Total business loans	50		596		646		758		112
Retail loans:
Residential mortgage	11		—		11		12		—
Consumer:
Home equity	12		—		12		16		—
Other consumer	3		—		3		3		—
Total consumer	15		—		15		19		—
Total retail loans (c)	26		—		26		31		—
Total individually evaluated impaired loans	$	76	$	596	$	672	$	789	$	112
December 31, 2015
Business loans:
Commercial	$	82	$	252	$	334	$	398	$	45
Commercial mortgage:
Commercial Real Estate business line (a)	7		8		15		38		1
Other business lines (b)	2		32		34		55		5
Total commercial mortgage	9		40		49		93		6
International	—		10		10		17		2
Total business loans	91		302		393		508		53
Retail loans:
Residential mortgage	13		—		13		13		—
Consumer:
Home equity	12		—		12		16		—
Other consumer	6		—		6		10		—
Total consumer	18		—		18		26		—
Total retail loans (c)	31		—		31		39		—
Total individually evaluated impaired loans	$	122	$	302	$	424	$	547	$	53


(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 performing restructured loans.



	Individually Evaluated Impaired Loans
	2016				2015
(in millions)	Average Balance for the Period		Interest Income Recognized for the Period		Average Balance for the Period		Interest Income Recognized for the Period
Three Months Ended June 30
Business loans:
Commercial	$	639	$	2	$	152	$	1
Commercial mortgage:
Commercial Real Estate business line (a)	8		—		16		—
Other business lines (b)	31		—		40		—
Total commercial mortgage	39		—		56		—
International	23		—		5		—
Total business loans	701		2		213		1
Retail loans:
Residential mortgage	11		—		19		—
Consumer loans:
Home equity	11		—		12		—
Other consumer	3		—		5		—
Total consumer	14		—		17		—
Total retail loans	25		—		36		—
Total individually evaluated impaired loans	$	726	$	2	$	249	$	1
Six Months Ended June 30
Business loans:
Commercial	$	537	$	6	$	138	$	2
Commercial mortgage:
Commercial Real Estate business line (a)	10		—		17		—
Other business lines (b)	32		—		42		—
Total commercial mortgage	42		—		59		—
International	19		—		3		—
Total business loans	598		6		200		2
Retail loans:
Residential mortgage	12		—		21		—
Consumer:
Home equity	12		—		12		—
Other consumer	4		—		5		—
Total consumer	16		—		17		—
Total retail loans	28		—		38		—
Total individually evaluated impaired loans	$	626	$	6	$	238	$	2


(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 June 30, 2016 and 2015 of loans considered to be TDRs that were restructured during the three- and six-month periods ended June 30, 2016 and 2015, 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.



	2016								2015
	Type of Modification								Type of Modification
(in millions)	Principal Deferrals (a)		Interest Rate Reductions		AB Note Restructures (b)		Total Modifications		Principal Deferrals (a)		Interest Rate Reductions		Total Modifications
Three Months Ended June 30
Business loans:
Commercial	$	18	$	—	$	20	$	38	$	2	$	—	$	2
Commercial mortgage:
Commercial Real Estate business line (c)	—		—		—		—		1		—		1
Other business lines (d)	1		—		—		1		1		—		1
Total commercial mortgage	1		—		—		1		2		—		2
Total business loans	19		—		20		39		4		—		4
Retail loans:
Consumer:
Home equity	1		—		—		1		—		1		1
Total loans	$	20	$	—	$	20	$	40	$	4	$	1	$	5
Six Months Ended June 30
Business loans:
Commercial	$	107	$	—	$	26	$	133	$	2	$	—	$	2
Commercial mortgage:
Commercial Real Estate business line (c)	—		—		—		—		1		—		1
Other business lines (d)	2		—		—		2		4		—		4
Total commercial mortgage	2		—		—		2		5		—		5
International	—		—		10		10		—		—		—
Total business loans	109		—		36		145		7		—		7
Retail loans:
Residential mortgage	—		2		—		2		—		—		—
Consumer:
Home equity	1		—		—		1		—		1		1
Total retail loans	1		2		—		3		—		1		1
Total loans	$	110	$	2	$	36	$	148	$	7	$	1	$	8


(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 generally fully charged off.


(c)	Primarily loans to real estate developers.


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

Commitments to lend additional funds to borrowers whose terms have been modified in TDRs were $31 million at June 30, 2016 and $6 million at December 31, 2015.

The majority of the modifications considered to be TDRs that occurred during the six months ended June 30, 2016 and 2015 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 six months ended June 30, 2016 and 2015 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 June 30, 2016 and 2015 of loans modified by principal deferral during the twelve-month periods ended June 30, 2016 and 2015, and those principal deferrals which experienced a subsequent default during the three- and six-month periods ended June 30, 2016 and 2015. 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.



	2016							2015
(in millions)	Balance at June 30			Subsequent Default in the Three Months Ended June 30		Subsequent Default in the Six Months Ended June 30		Balance at June 30			Subsequent Default in the Three Months Ended June 30		Subsequent Default in the Six Months Ended June 30
Principal deferrals:
Business loans:
Commercial	$	233		$	21	$	21	$	10		$	—	$	6
Commercial mortgage:
Commercial Real Estate business line (a)	4			1		1		1			—		—
Other business lines (b)	7			—		6		10			1		2
Total commercial mortgage	11			1		7		11			1		2
International	1			—		1		—			—		—
Total business loans	245			22		29		21			1		8
Retail loans:
Consumer:
Home equity	2		(c)	—		—		2		(c)	—		—
Total principal deferrals	$	247		$	22	$	29	$	23		$	1	$	8


(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 twelve-month periods ended June 30, 2016 and 2015, loans with a carrying value of $4 million and $2 million, respectively, were modified by interest rate reduction. During the twelve-month period ended June 30, 2016, loans with a carrying value of $36 million 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 and $1 million of subsequent payment defaults of AB note restructures during the three- and six-month periods ended June 30, 2016, and there were no subsequent payment defaults of reduced-rate loans or AB note restructures during the three- and six-month periods ended June 30, 2015.