Credit Quality And Allowance For Credit Losses

9 Months Ended

Sep. 30, 2020

Credit Quality And Allowance For Credit Losses [Abstract]

Credit Quality And Allowance For Credit Losses

CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES

The following table presents an aging analysis of the amortized cost basis 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 (a)		Total  Loans
September 30, 2020
Business loans:
Commercial	$	174	$	42	$	15	$	231	$	241	$	32,132	$	32,604
Real estate construction:
Commercial Real Estate business line (b)	36		—		—		36		—		3,666		3,702
Other business lines (c)	10		2		—		12		—		432		444
Total real estate construction	46		2		—		48		—		4,098		4,146
Commercial mortgage:
Commercial Real Estate business line (b)	7		1		—		8		3		2,325		2,336
Other business lines (c)	69		10		8		87		17		7,562		7,666
Total commercial mortgage	76		11		8		95		20		9,887		10,002
Lease financing	10		1		—		11		1		589		601
International	—		—		—		—		—		923		923
Total business loans	306		56		23		385		262		47,629		48,276
Retail loans:
Residential mortgage	13		3		—		16		40		1,871		1,927
Consumer:
Home equity	2		1		—		3		20		1,617		1,640
Other consumer	1		—		6		7		—		519		526
Total consumer	3		1		6		10		20		2,136		2,166
Total retail loans	16		4		6		26		60		4,007		4,093
Total loans	$	322	$	60	$	29	$	411	$	322	$	51,636	$	52,369
December 31, 2019
Business loans:
Commercial	$	27	$	7	$	17	$	51	$	148	$	31,274	$	31,473
Real estate construction:
Commercial Real Estate business line (b)	6		—		—		6		—		3,038		3,044
Other business lines (c)	—		7		—		7		—		404		411
Total real estate construction	6		7		—		13		—		3,442		3,455
Commercial mortgage:
Commercial Real Estate business line (b)	9		—		—		9		2		2,165		2,176
Other business lines (c)	16		18		9		43		12		7,328		7,383
Total commercial mortgage	25		18		9		52		14		9,493		9,559
Lease financing	1		—		—		1		—		587		588
International	—		5		—		5		—		1,004		1,009
Total business loans	59		37		26		122		162		45,800		46,084
Retail loans:
Residential mortgage	15		2		—		17		20		1,808		1,845
Consumer:
Home equity	4		5		—		9		17		1,685		1,711
Other consumer	2		3		—		5		—		724		729
Total consumer	6		8		—		14		17		2,409		2,440
Total retail loans	21		10		—		31		37		4,217		4,285
Total loans	$	80	$	47	$	26	$	153	$	199	$	50,017	$	50,369

(a)Includes $385 million of loans with deferred payments not considered past due in accordance with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) at September 30, 2020.

(b)Primarily loans to real estate developers.

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

The following table presents loans by credit quality indicator (CQI) and vintage year. CQI is 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. Vintage year is the year of origination or major modification.

	September 30, 2020																			December 31, 2019
	Vintage Year
(in millions)	2020			2019		2018		2017		2016		Prior		Revolvers		Revolvers Converted to Term		Total		Total
Business loans:
Commercial:
Pass (a)	$	5,220	(b)	$	2,522	$	1,712	$	1,176	$	496	$	887	$	17,916	$	18	$	29,947	$	29,785
Criticized (c)	32			316		236		117		95		198		1,661		2		2,657		1,688
Total commercial	5,252			2,838		1,948		1,293		591		1,085		19,577		20		32,604		31,473
Real estate construction
Pass (a)	186			983		1,323		773		426		191		193		—		4,075		3,424
Criticized (c)	3			27		5		25		9		1		1		—		71		31
Total real estate construction	189			1,010		1,328		798		435		192		194		—		4,146		3,455
Commercial mortgage
Pass (a)	1,662			1,649		1,185		1,161		880		2,509		427		—		9,473		9,262
Criticized (c)	39			118		41		58		49		213		11		—		529		297
Total commercial mortgage	1,701			1,767		1,226		1,219		929		2,722		438		—		10,002		9,559
Lease financing
Pass (a)	94			126		78		53		15		208		—		—		574		579
Criticized (c)	2			18		4		2		1		—		—		—		27		9
Total lease financing	96			144		82		55		16		208		—		—		601		588
International
Pass (a)	283			175		126		11		2		64		218		—		879		972
Criticized (c)	13			—		—		4		8		2		17		—		44		37
Total international	296			175		126		15		10		66		235		—		923		1,009
Total business loans	7,534			5,934		4,710		3,380		1,981		4,273		20,444		20		48,276		46,084
Retail loans:
Residential mortgage
Pass (a)	587			248		137		237		226		447		—		—		1,882		1,823
Criticized (c)	3			1		2		10		2		27		—		—		45		22
Total residential mortgage	590			249		139		247		228		474		—		—		1,927		1,845
Consumer:
Home equity
Pass (a)	—			—		—		—		—		17		1,531		69		1,617		1,682
Criticized (c)	—			—		—		—		—		1		16		6		23		29
Total home equity	—			—		—		—		—		18		1,547		75		1,640		1,711
Other consumer
Pass (a)	47			52		17		2		7		52		339		—		516		722
Criticized (c)	—			1		3		—		—		—		6		—		10		7
Total other consumer	47			53		20		2		7		52		345		—		526		729
Total consumer	47			53		20		2		7		70		1,892		75		2,166		2,440
Total retail loans	637			302		159		249		235		544		1,892		75		4,093		4,285
Total loans	$	8,171		$	6,236	$	4,869	$	3,629	$	2,216	$	4,817	$	22,336	$	95	$	52,369	$	50,369

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

(b)Includes $3.8 billion of Small Business Administration Paycheck Protection Program (PPP) loans at September 30, 2020.

(c)Includes loans with an internal rating of special mention, substandard loans for which the accrual of interest has not been discontinued and nonaccrual loans. Special mention loans 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. Accruing substandard loans 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 are also distinguished by the distinct possibility of loss in the future if these weaknesses are not corrected. 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-51 in the Corporation's 2019 Annual Report. These categories are generally consistent with the "special mention" and "substandard" categories as defined by regulatory authorities. A minority of nonaccrual loans are consistent with the "doubtful" category.

Loan interest receivable totaled $132 million and $172 million at September 30, 2020 and December 31, 2019, respectively, and was included in accrued income and other assets on the Consolidated Balance Sheets.

Allowance for Credit Losses

The following table details the changes in the allowance for credit losses.

	2020									2019
(in millions)	Business Loans			Retail Loans			Total			Business Loans			Retail Loans			Total
Three Months Ended September 30
Balance at beginning of period:
Allowance for loan losses	$	943		$	64		$	1,007		$	618		$	39		$	657
Allowance for credit losses on lending-related commitments	50			9			59			28			3			31
Allowance for credit losses	993			73			1,066			646			42			688
Loan charge-offs	(53)			—			(53)			(59)			(2)			(61)
Recoveries on loans previously charged-off	18			2			20			17			2			19
Net loan charge-offs	(35)			2			(33)			(42)			—			(42)
Provision for credit losses:
Provision for loan losses	15			(11)			4			39			(2)			37
Provision for credit losses on lending-related commitments	1			—			1			(2)			—			(2)
Provision for credit losses	16			(11)			5			37			(2)			35
Balance at end of period:
Allowance for loan losses	923			55			978			615			37			652
Allowance for credit losses on lending-related commitments	51			9			60			26			3			29
Allowance for credit losses	$	974		$	64		$	1,038		$	641		$	40		$	681
Nine Months Ended September 30
Balance at beginning of period
Allowance for loan losses	$	601		$	36		$	637		$	627		$	44		$	671
Allowance for credit losses on lending-related commitments	28			3			31			26			4			30
Allowance for credit losses	629			39			668			653			48			701
Cumulative effect of change in accounting principle	(42)			25			(17)			—			—			—
Loan charge-offs	(196)			(3)			(199)			(121)			(4)			(125)
Recoveries on loans previously charged-off	29			3			32			35			4			39
Net loan charge-offs	(167)			—			(167)			(86)			—			(86)
Provision for credit losses:
Provision for loan losses	531			(6)			525			74			(7)			67
Provision for credit losses on lending-related commitments	23			6			29			—			(1)			(1)
Provision for credit losses	554			—			554			74			(8)			66
Balance at end of period:
Allowance for loan losses	923			55			978			615			37			652
Allowance for credit losses on lending-related commitments	51			9			60			26			3			29
Allowance for credit losses	$	974		$	64		$	1,038		$	641		$	40		$	681
Allowance for loan losses as a percentage of total loans	1.91		%	1.35		%	1.87		%	1.30		%	0.86		%	1.27		%
Allowance for loan losses as a percentage of total loans excluding PPP loans	2.07			n/a			2.01			n/a			n/a			n/a
Allowance for credit losses as a percentage of total loans	2.02			1.57			1.98			1.36			0.92			1.32
Allowance for credit losses as a percentage of total loans excluding PPP loans	2.19			n/a			2.14			n/a			n/a			n/a

n/a - not applicable

Nonaccrual Loans

The following table presents additional information regarding nonaccrual loans. No interest income was recognized on nonaccrual loans for the three- and nine-month periods ended September 30, 2020 and 2019, respectively.

(in millions)	Nonaccrual Loans with No Related Allowance		Nonaccrual Loans with Related Allowance		Total Nonaccrual Loans
September 30, 2020
Business loans:
Commercial	$	39	$	202	$	241
Commercial mortgage:
Commercial Real Estate business line (a)	2		1		3
Other business lines (b)	6		11		17
Total commercial mortgage	8		12		20
Lease financing	—		1		1
Total business loans	47		215		262
Retail loans:
Residential mortgage	40		—		40
Consumer:
Home equity	20		—		20
Total retail loans	60		—		60
Total nonaccrual loans	$	107	$	215	$	322
December 31, 2019
Business loans:
Commercial	$	29	$	119	$	148
Commercial mortgage:
Commercial Real Estate business line (a)	2		—		2
Other business lines (b)	1		11		12
Total commercial mortgage	3		11		14
Total business loans	32		130		162
Retail loans:
Residential mortgage	20		—		20
Consumer:
Home equity	17		—		17
Total retail loans	37		—		37
Total nonaccrual loans	$	69	$	130	$	199

(a)Primarily loans to real estate developers.

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

Foreclosed Properties

Foreclosed properties totaled $10 million and $11 million at September 30, 2020 and December 31, 2019, respectively. There were no retail loans secured by residential real estate properties in process of foreclosure included in nonaccrual loans at September 30, 2020 and December 31, 2019.

Troubled Debt Restructurings

The following table details the amortized cost basis at September 30, 2020 and 2019 of loans considered to be TDRs that were restructured during the three- and nine-month periods ended September 30, 2020 and 2019, 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.

	2020						2019
	Type of Modification						Type of Modification
(in millions)	Principal Deferrals (a)		Interest Rate Reductions		Total Modifications		Principal Deferrals (a)		Interest Rate Reductions		Total Modifications
Three Months Ended September 30,
Commercial	$	11	$	—	$	11	$	11	$	—	$	11
Commercial mortgage:
Other business lines (b)	1		—		1		—		—		—
Total business loans	12		—		12		11		—		11
Retail loans:
Consumer:
Home equity (c)	—		1		1		—		—		—
Total loans	$	12	$	1	$	13	$	11	$	—	$	11
Nine Months Ended September 30,
Business loans:
Commercial	$	26	$	—	$	26	$	19	$	—	$	19
Commercial mortgage:
Other business lines (b)	2		—		2		—		—		—
Total business loans	28		—		28		19		—		19
Retail loans:
Consumer:
Home equity (c)	—		1		1		—		1		1
Total loans	$	28	$	1	$	29	$	19	$	1	$	20

(a)Primarily represents loan balances where terms were extended by more than an insignificant time period, typically more than 180 days, at or above contractual interest rates. Also includes commercial loans restructured in bankruptcy.

(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.

The Corporation charges interest on principal balances outstanding during deferral periods. Additionally, none of the modifications involved forgiveness of principal. At September 30, 2020 and December 31, 2019, commitments to lend additional funds to borrowers whose terms have been modified in TDRs totaled $1 million and $3 million, respectively. 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.

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, a subsequent payment default is defined in terms of delinquency, when a principal or interest payment is 90 days past due. Of the TDRs modified during the twelve-month periods ended September 30, 2020 and 2019, subsequent defaults of principal deferrals totaled $6 million and $11 million in the three- and nine-month periods ended September 30, 2020, respectively, compared to $17 million in both of the comparable periods in 2019. There were no subsequent defaults of interest rate reductions during either of the three- and nine-month periods ended September 30, 2020 and 2019.