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, 2018
Business loans:
Commercial	$	66	$	8	$	13	$	87	$	171	$	31,272	$	31,530
Real estate construction:
Commercial Real Estate business line (a)	6		—		—		6		—		2,882		2,888
Other business lines (b)	6		—		—		6		—		363		369
Total real estate construction	12		—		—		12		—		3,245		3,257
Commercial mortgage:
Commercial Real Estate business line (a)	4		10		—		14		9		1,724		1,747
Other business lines (b)	21		5		7		33		20		7,324		7,377
Total commercial mortgage	25		15		7		47		29		9,048		9,124
Lease financing	—		—		—		—		2		456		458
International	2		—		—		2		4		987		993
Total business loans	105		23		20		148		206		45,008		45,362
Retail loans:
Residential mortgage	16		1		—		17		29		1,908		1,954
Consumer:
Home equity	4		1		—		5		19		1,707		1,731
Other consumer	2		—		—		2		—		743		745
Total consumer	6		1		—		7		19		2,450		2,476
Total retail loans	22		2		—		24		48		4,358		4,430
Total loans	$	127	$	25	$	20	$	172	$	254	$	49,366	$	49,792
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


(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, 2018
Business loans:
Commercial	$	30,185	$	580	$	594	$	171	$	31,530
Real estate construction:
Commercial Real Estate business line (e)	2,868		20		—		—		2,888
Other business lines (f)	362		7		—		—		369
Total real estate construction	3,230		27		—		—		3,257
Commercial mortgage:
Commercial Real Estate business line (e)	1,678		15		45		9		1,747
Other business lines (f)	7,144		133		80		20		7,377
Total commercial mortgage	8,822		148		125		29		9,124
Lease financing	449		4		3		2		458
International	969		2		18		4		993
Total business loans	43,655		761		740		206		45,362
Retail loans:
Residential mortgage	1,925		—		—		29		1,954
Consumer:
Home equity	1,704		—		8		19		1,731
Other consumer	743		1		1		—		745
Total consumer	2,447		1		9		19		2,476
Total retail loans	4,372		1		9		48		4,430
Total loans	$	48,027	$	762	$	749	$	254	$	49,792
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


(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 - on pages F-51 and F-52 in the Corporation's 2017 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, 2018		December 31, 2017
Nonaccrual loans	$	254	$	402
Reduced-rate loans (a)	8		8
Total nonperforming loans	262		410
Foreclosed property (b)	2		5
Total nonperforming assets	$	264	$	415


(a)	There were no reduced-rate business loans at both June 30, 2018 and December 31, 2017. Reduced-rate retail loans were $8 million at both June 30, 2018 and December 31, 2017.


(b)	Included $1 million and $4 million of foreclosed residential real estate properties at June 30, 2018 and December 31, 2017, respectively.

There were no retail loans secured by residential real estate properties in process of foreclosure included in nonaccrual loans at both June 30, 2018 and December 31, 2017.

Allowance for Credit Losses

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



	2018									2017
(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	$	653		$	45		$	698		$	661		$	47		$	708
Loan charge-offs	(18		)	(2		)	(20		)	(37		)	(2		)	(39		)
Recoveries on loans previously charged-off	22			1			23			20			1			21
Net loan recoveries (charge-offs)	4			(1		)	3			(17		)	(1		)	(18		)
Provision for loan losses	(21		)	(2		)	(23		)	17			(2		)	15
Foreign currency translation adjustment	(1		)	—			(1		)	—			—			—
Balance at end of period	$	635		$	42		$	677		$	661		$	44		$	705

Six Months Ended June 30
Allowance for loan losses:
Balance at beginning of period	$	661		$	51		$	712		$	682		$	48		$	730
Loan charge-offs	(54		)	(3		)	(57		)	(79		)	(4		)	(83		)
Recoveries on loans previously charged-off	30			2			32			29			3			32
Net loan charge-offs	(24		)	(1		)	(25		)	(50		)	(1		)	(51		)
Provision for loan losses	(1		)	(8		)	(9		)	29			(3		)	26
Foreign currency translation adjustment	(1		)	—			(1		)	—			—			—
Balance at end of period	$	635		$	42		$	677		$	661		$	44		$	705

As a percentage of total loans	1.40		%	0.96		%	1.36		%	1.47		%	0.98		%	1.43		%

June 30
Allowance for loan losses:
Individually evaluated for impairment	$	39		$	—		$	39		$	93		$	1		$	94
Collectively evaluated for impairment	596			42			638			568			43			611
Total allowance for loan losses	$	635		$	42		$	677		$	661		$	44		$	705
Loans:
Individually evaluated for impairment	$	310		$	30		$	340		$	509		$	41		$	550
Collectively evaluated for impairment	45,052			4,400			49,452			44,388			4,470			48,858
Total loans evaluated for impairment	$	45,362		$	4,430		$	49,792		$	44,897		$	4,511		$	49,408

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)	2018			2017		2018			2017
Balance at beginning of period	$	40		$	46	$	42		$	41
Provision for credit losses on lending-related commitments	(6		)	2		(8		)	7
Balance at end of period	$	34		$	48	$	34		$	48

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, 2018
Business loans:
Commercial	$	85	$	154	$	239	$	313	$	35
Commercial mortgage:
Commercial Real Estate business line (a)	37		3		40		49		—
Other business lines (b)	—		26		26		29		3
Total commercial mortgage	37		29		66		78		3
International	3		2		5		9		1
Total business loans	125		185		310		400		39
Retail loans:
Residential mortgage	11		8		19		20		—
Consumer:
Home equity	10		—		10		13		—
Other consumer	1		—		1		1		—
Total consumer	11		—		11		14		—
Total retail loans (c)	22		8		30		34		—
Total individually evaluated impaired loans	$	147	$	193	$	340	$	434	$	39
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


(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 as of June 30, 2018 and 2017. Interest income recognized for the period primarily related to performing restructured loans.



	Individually Evaluated Impaired Loans
	2018				2017
(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	$	277	$	1	$	473	$	2
Commercial mortgage:
Commercial Real Estate business line (a)	40		1		7		—
Other business lines (b)	25		—		35		—
Total commercial mortgage	65		1		42		—
International	4		—		7		—
Total business loans	346		2		522		2
Retail loans:
Residential mortgage	19		—		27		—
Consumer loans:
Home equity	11		—		12		—
Other consumer	1		—		2		—
Total consumer	12		—		14		—
Total retail loans	31		—		41		—
Total individually evaluated impaired loans	$	377	$	2	$	563	$	2
Six Months Ended June 30
Business loans:
Commercial	$	309	$	2	$	487	$	4
Commercial mortgage:
Commercial Real Estate business line (a)	40		2		7		—
Other business lines (b)	25		—		34		—
Total commercial mortgage	65		2		41		—
International	5		—		9		—
Total business loans	379		4		537		4
Retail loans:
Residential mortgage	20		—		27		—
Consumer:
Home equity	11		—		13		—
Other consumer	1		—		3		—
Total consumer	12		—		16		—
Total retail loans	32		—		43		—
Total individually evaluated impaired loans	$	411	$	4	$	580	$	4


(a)	Primarily loans to real estate developers.


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

Troubled Debt Restructurings

The following table details the recorded balance at June 30, 2018 and 2017 of loans considered to be troubled debt restructurings (TDRs) that were restructured during the three- and six-month periods ended June 30, 2018 and 2017, 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.



	2018						2017
	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
Three Months Ended June 30
Business loans:
Commercial	$	25	$	—	$	25	$	47	$	—	$	36	$	83
Commercial mortgage:
Other business lines (c)	—		—		—		1		—		—		1
Total business loans	25		—		25		48		—		36		84
Retail loans:
Consumer:
Home equity (d)	—		1		1		—		1		—		1
Total loans	$	25	$	1	$	26	$	48	$	1	$	36	$	85
Six Months Ended June 30
Business loans:
Commercial	$	45	$	—	$	45	$	96	$	—	$	36	$	132
Commercial mortgage:
Other business lines (c)	1		—		1		4		—		—		4
Total business loans	46		—		46		100		—		36		136
Retail loans:
Consumer:
Home equity (d)	1		1		2		1		2		—		3
Total loans	$	47	$	1	$	48	$	101	$	2	$	36	$	139


(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 secured by owner-occupied real estate.


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

At June 30, 2018 and December 31, 2017, commitments to lend additional funds to borrowers whose terms have been modified in TDRs totaled $44 million and $31 million, respectively.

The majority of the modifications considered to be TDRs that occurred during the six months ended June 30, 2018 and 2017 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, 2018 and 2017 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 June 30, 2018 and 2017 of loans modified by principal deferral and interest rate reduction during the twelve-month periods ended June 30, 2018 and 2017.



	Principal Deferrals				Interest Rate Reductions
(in millions)	2018		2017		2018		2017
Balance at June 30,
Business loans:
Commercial	$	97	$	141	$	—	$	—
Commercial mortgage:
Commercial Real Estate business line (a)	37		1		—		—
Other business lines (b)	2		7		—		—
Total commercial mortgage	39		8		—		—
Total business loans	136		149		—		—
Retail loans:
Consumer:
Home equity (c)	1		2		2		3
Total principal deferrals	$	137	$	151	$	2	$	3


(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.

There were no loans restructured into two notes (AB note restructures) during the twelve-month periods ended June 30, 2018, compared to loans with a carrying value of $68 million during the twelve-month period ended June 30, 2017.

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. For interest rate reductions 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 defaults of principal deferrals, interest rate reductions or AB note restructures during the three- and six-month periods ended June 30, 2018 and 2017.