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, 2017
Business loans:
Commercial	$	79	$	134	$	12	$	225	$	309	$	30,526	$	31,060
Real estate construction:
Commercial Real Estate business line (a)	3		—		—		3		—		2,627		2,630
Other business lines (b)	4		—		—		4		—		327		331
Total real estate construction	7		—		—		7		—		2,954		2,961
Commercial mortgage:
Commercial Real Estate business line (a)	14		—		—		14		9		1,808		1,831
Other business lines (b)	27		6		22		55		22		7,251		7,328
Total commercial mortgage	41		6		22		69		31		9,059		9,159
Lease financing	—		—		—		—		4		464		468
International	13		—		—		13		6		964		983
Total business loans	140		140		34		314		350		43,967		44,631
Retail loans:
Residential mortgage	10		2		—		12		31		1,945		1,988
Consumer:
Home equity	5		1		—		6		21		1,789		1,816
Other consumer	4		—		1		5		—		733		738
Total consumer	9		1		1		11		21		2,522		2,554
Total retail loans	19		3		1		23		52		4,467		4,542
Total loans	$	159	$	143	$	35	$	337	$	402	$	48,434	$	49,173
December 31, 2016
Business loans:
Commercial	$	30	$	12	$	14	$	56	$	445	$	30,493	$	30,994
Real estate construction:
Commercial Real Estate business line (a)	—		—		—		—		—		2,485		2,485
Other business lines (b)	—		—		—		—		—		384		384
Total real estate construction	—		—		—		—		—		2,869		2,869
Commercial mortgage:
Commercial Real Estate business line (a)	5		—		—		5		9		2,004		2,018
Other business lines (b)	58		5		5		68		37		6,808		6,913
Total commercial mortgage	63		5		5		73		46		8,812		8,931
Lease financing	—		—		—		—		6		566		572
International	1		—		—		1		14		1,243		1,258
Total business loans	94		17		19		130		511		43,983		44,624
Retail loans:
Residential mortgage	7		3		—		10		39		1,893		1,942
Consumer:
Home equity	4		3		—		7		28		1,765		1,800
Other consumer	1		—		—		1		4		717		722
Total consumer	5		3		—		8		32		2,482		2,522
Total retail loans	12		6		—		18		71		4,375		4,464
Total loans	$	106	$	23	$	19	$	148	$	582	$	48,358	$	49,088


(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
December 31, 2017
Business loans:
Commercial	$	29,263	$	591	$	897	$	309	$	31,060
Real estate construction:
Commercial Real Estate business line (e)	2,630		—		—		—		2,630
Other business lines (f)	327		4		—		—		331
Total real estate construction	2,957		4		—		—		2,961
Commercial mortgage:
Commercial Real Estate business line (e)	1,759		20		43		9		1,831
Other business lines (f)	7,099		115		92		22		7,328
Total commercial mortgage	8,858		135		135		31		9,159
Lease financing	440		23		1		4		468
International	946		11		20		6		983
Total business loans	42,464		764		1,053		350		44,631
Retail loans:
Residential mortgage	1,955		2		—		31		1,988
Consumer:
Home equity	1,786		1		8		21		1,816
Other consumer	737		1		—		—		738
Total consumer	2,523		2		8		21		2,554
Total retail loans	4,478		4		8		52		4,542
Total loans	$	46,942	$	768	$	1,061	$	402	$	49,173
December 31, 2016
Business loans:
Commercial	$	28,616	$	944	$	989	$	445	$	30,994
Real estate construction:
Commercial Real Estate business line (e)	2,485		—		—		—		2,485
Other business lines (f)	381		—		3		—		384
Total real estate construction	2,866		—		3		—		2,869
Commercial mortgage:
Commercial Real Estate business line (e)	1,970		19		20		9		2,018
Other business lines (f)	6,645		109		122		37		6,913
Total commercial mortgage	8,615		128		142		46		8,931
Lease financing	550		11		5		6		572
International	1,200		22		22		14		1,258
Total business loans	41,847		1,105		1,161		511		44,624
Retail loans:
Residential mortgage	1,900		3		—		39		1,942
Consumer:
Home equity	1,767		1		4		28		1,800
Other consumer	718		—		—		4		722
Total consumer	2,485		1		4		32		2,522
Total retail loans	4,385		4		4		71		4,464
Total loans	$	46,232	$	1,109	$	1,165	$	582	$	49,088


(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. 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, 2017		December 31, 2016
Nonaccrual loans	$	402	$	582
Reduced-rate loans (a)	8		8
Total nonperforming loans	410		590
Foreclosed property (b)	5		17
Total nonperforming assets	$	415	$	607


(a)	There were no reduced-rate business loans at both December 31, 2017 and 2016. Reduced-rate retail loans totaled $8 million at both December 31, 2017 and 2016.


(b)	Included foreclosed residential real estate properties of $4 million and $3 million at December 31, 2017 and 2016, respectively.

There were no retail loans secured by residential real estate properties in process of foreclosure included in nonaccrual loans at both December 31, 2017 and 2016.

Allowance for Credit Losses

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



	2017									2016									2015
(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	$	682		$	48		$	730		$	579		$	55		$	634		$	534		$	60		$	594
Loan charge-offs	(143		)	(6		)	(149		)	(207		)	(7		)	(214		)	(157		)	(11		)	(168		)
Recoveries on loans previously charged-off	50			7			57			63			5			68			55			13			68
Net loan (charge-offs) recoveries	(93		)	1			(92		)	(144		)	(2		)	(146		)	(102		)	2			(100		)
Provision for loan losses	71			2			73			246			(5		)	241			149			(7		)	142
Foreign currency translation adjustment	1			—			1			1			—			1			(2		)	—			(2		)
Balance at end of period	$	661		$	51		$	712		$	682		$	48		$	730		$	579		$	55		$	634

As a percentage of total loans	1.48		%	1.12		%	1.45		%	1.53		%	1.08		%	1.49		%	1.30		%	1.26		%	1.29		%

December 31
Allowance for loan losses:
Individually evaluated for impairment	$	67		$	—		$	67		$	86		$	3		$	89		$	53		$	—		$	53
Collectively evaluated for impairment	594			51			645			596			45			641			526			55			581
Total allowance for loan losses	$	661		$	51		$	712		$	682		$	48		$	730		$	579		$	55		$	634
Loans:
Individually evaluated for impairment	$	443		$	34		$	477		$	566		$	48		$	614		$	393		$	31		$	424
Collectively evaluated for impairment	44,188			4,508			48,696			44,058			4,416			48,474			44,336			4,324			48,660
Total loans evaluated for impairment	$	44,631		$	4,542		$	49,173		$	44,624		$	4,464		$	49,088		$	44,729		$	4,355		$	49,084

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	2017		2016			2015
Balance at beginning of period	$	41	$	45		$	41
Charge-offs on lending-related commitments (a)	—		(11		)	(1		)
Provision for credit losses on lending-related commitments	1		7			5
Balance at end of period	$	42	$	41		$	45

(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
December 31, 2017
Business loans:
Commercial	$	105	$	267	$	372	$	460	$	63
Commercial mortgage:
Commercial Real Estate business line (a)	39		1		40		49		—
Other business lines (b)	3		22		25		29		3
Total commercial mortgage	42		23		65		78		3
International	—		6		6		17		1
Total business loans	147		296		443		555		67
Retail loans:
Residential mortgage	14		8		22		22		—
Consumer:
Home equity	11		—		11		14		—
Other consumer	1		—		1		2		—
Total consumer	12		—		12		16		—
Total retail loans (c)	26		8		34		38		—
Total individually evaluated impaired loans	$	173	$	304	$	477	$	593	$	67
December 31, 2016
Business loans:
Commercial	$	90	$	423	$	513	$	608	$	80
Commercial mortgage:
Commercial Real Estate business line (a)	—		7		7		15		1
Other business lines (b)	2		30		32		40		3
Total commercial mortgage	2		37		39		55		4
International	3		11		14		20		2
Total business loans	95		471		566		683		86
Retail loans:
Residential mortgage	19		9		28		30		2
Consumer:
Home equity	15		—		15		19		—
Other consumer	2		3		5		6		1
Total consumer	17		3		20		25		1
Total retail loans (c)	36		12		48		55		3
Total individually evaluated impaired loans	$	131	$	483	$	614	$	738	$	89


(a)	Primarily loans to real estate developers.


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


(c)	Individually evaluated retail loans generally have no related allowance for loan losses, primarily due to policy which results in direct write-downs of most 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
	2017				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		Average Balance for the Period		Interest Income Recognized for the Period
Years Ended December 31
Business loans:
Commercial	$	451	$	8	$	550	$	10	$	206	$	5
Commercial mortgage:
Commercial Real Estate business line (a)	21		2		9		—		16		—
Other business lines (b)	31		—		31		1		39		1
Total commercial mortgage	52		2		40		1		55		1
International	8		—		18		—		6		—
Total business loans	511		10		608		11		267		6
Retail loans:
Residential mortgage	24		—		15		—		21		—
Consumer:
Home equity	13		—		13		—		12		—
Other consumer	3		—		4		—		6		—
Total consumer	16		—		17		—		18		—
Total retail loans	40		—		32		—		39		—
Total individually evaluated impaired loans	$	551	$	10	$	640	$	11	$	306	$	6


(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, 2017 and 2016 of loans considered to be TDRs that were restructured during the years ended December 31, 2017 and 2016, 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.



	2017								2016
	Type of Modification								Type of Modification
(in millions)	Principal Deferrals (a)		Interest Rate (b)		AB Note Restructures (c)		Total Modifications		Principal Deferrals (a)		Interest Rate (b)		AB Note Restructures (c)		Total Modifications
Years Ended December 31
Business loans:
Commercial	$	77	$	18	$	21	$	116	$	140	$	—	$	48	$	188
Commercial mortgage:
Commercial Real Estate business line (d)	37		—		—		37		—		—		—		—
Other business lines (e)	3		—		—		3		5		—		—		5
Total commercial mortgage	40		—		—		40		5		—		—		5
International	—		—		—		—		—		—		3		3
Total business loans	117		18		21		156		145		—		51		196
Retail loans:
Residential mortgage	—		—		—		—		—		2		—		2
Consumer:
Home equity (f)	1		2		—		3		2		1		—		3
Total retail loans	1		2		—		3		2		3		—		5
Total loans	$	118	$	20	$	21	$	159	$	147	$	3	$	51	$	201


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


(b)	Loan restructurings whereby interest rates were either reduced or were not at market rates.


(c)	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.


(d)	Primarily loans to real estate developers.


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


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

At December 31, 2017 and 2016, commitments to lend additional funds to borrowers whose terms have been modified in TDRs totaled $31 million and $24 million, respectively.

The majority of the modifications considered to be TDRs that occurred during the years ended December 31, 2017 and 2016 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, 2017 and 2016 were insignificant.

On an ongoing basis, the Corporation monitors the performance of modified loans to their restructured terms. 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, 2017 and 2016 of loans modified by principal deferral during the years ended December 31, 2017 and 2016, 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.



	2017				2016
(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	$	77	$	3	$	140	$	13
Commercial mortgage:
Commercial Real Estate business line (a)	37		—		—		—
Other business lines (b)	3		—		5		1
Total commercial mortgage	40		—		5		1
International	—		—		—		—
Total business loans	117		3		145		14
Retail loans:
Consumer:
Home equity (c)	1		—		2		—
Total principal deferrals	$	118	$	3	$	147	$	14


(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.

For interest rate and loans restructured into two notes (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 interest rate loans or AB note restructures during the year ended December 31, 2017 and 2016.