Credit Quality and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2011

Credit Quality and Allowance for Credit Losses

Credit Quality and Allowance for Credit Losses

NOTE 5 – CREDIT QUALITY AND ALLOWANCE FOR CREDIT LOSSES

The following table summarizes nonperforming assets as of June 30, 2011 and December 31, 2010.

(in millions)	June 30, 2011		December 31, 2010
Nonaccrual loans	$	941	$	1,080
Reduced-rate loans (a)		33		43
Total nonperforming loans		974		1,123
Foreclosed property		70		112
Total nonperforming assets	$	1,044	$	1,235

(a) Reduced-rate business loans totaled $13 million and $26 million, respectively, and reduced-rate retail loans totaled $20 million and $17 million, respectively, at June 30, 2011 and December 31, 2010.

The following presents an aging analysis of loans as of June 30, 2011 and December 31, 2010.

	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 (c)
June 30, 2011
Business loans:
Commercial		$	131	$	20	$	11	$	162	$	261	$	21,629	$	22,052
Real estate construction:
Commercial Real Estate business line (a)			15		1		2		18		137		1,188		1,343
Other business lines (b)			10		—		—		10		2		373		385
Total real estate construction			25		1		2		28		139		1,561		1,728
Commercial mortgage:
Commercial Real Estate business line (a)			31		13		7		51		186		1,693		1,930
Other business lines (b)			71		10		18		99		269		7,281		7,649
Total commercial mortgage			102		23		25		150		455		8,974		9,579
Lease financing			—		—		—		—		6		943		949
International			—		—		—		—		7		1,155		1,162
Total business loans			258		44		38		340		868		34,262		35,470
Retail loans:
Residential mortgage			16		4		15		35		60		1,396		1,491
Consumer:
Home equity			10		5		6		21		4		1,597		1,622
Other consumer			5		1		5		11		9		590		610
Total consumer			15		6		11		32		13		2,187		2,232
Total retail loans			31		10		26		67		73		3,583		3,723
Total loans		$	289	$	54	$	64	$	407	$	941	$	37,845	$	39,193
December 31, 2010
Business loans:
Commercial		$	84	$	28	$	3	$	115	$	252	$	21,778	$	22,145
Real estate construction:
Commercial Real Estate business line (a)			27		—		17		44		259		1,523		1,826
Other business lines (b)			2		—		5		7		4		416		427
Total real estate construction			29		—		22		51		263		1,939		2,253
Commercial mortgage:
Commercial Real Estate business line (a)			8		1		—		9		181		1,747		1,937
Other business lines (b)			28		25		16		69		302		7,459		7,830
Total commercial mortgage			36		26		16		78		483		9,206		9,767
Lease financing			—		—		—		—		7		1,002		1,009
International			1		—		—		1		2		1,129		1,132
Total business loans			150		54		41		245		1,007		35,054		36,306
Retail loans:
Residential mortgage			33		23		7		63		55		1,501		1,619
Consumer:
Home equity			11		4		10		25		5		1,674		1,704
Other consumer			4		2		4		10		13		584		607
Total consumer			15		6		14		35		18		2,258		2,311
Total retail loans			48		29		21		98		73		3,759		3,930
Total loans		$	198	$	83	$	62	$	343	$	1,080	$	38,813	$	40,236

(a) Primarily loans to real estate investors and developers.

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

The following table details the changes in the allowance for loan losses for the three- and six-month periods ended June 30, 2011 and 2010 and related loan amounts as of June 30, 2011 and 2010.

	June 30, 2011
(in millions)	Business Loans			Retail Loans			Total			June 30, 2010
Three Months Ended
Allowance for loan losses:
Balance at beginning of period	$	786		$	63		$	849		$	987
Loan charge-offs		(109	)		(16	)		(125	)		(158	)
Recoveries on loans previously charged-off		33			2			35			12
Net loan charge-offs		(76	)		(14	)		(90	)		(146	)
Provision for loan losses		28			19			47			126
Balance at end of period	$	738		$	68		$	806		$	967
Six Months Ended
Allowance for loan losses:
Balance at beginning of period	$	839		$	62		$	901		$	985
Loan charge-offs		(222	)		(26	)		(248	)		(342	)
Recoveries on loans previously charged-off		54			3			57			23
Net loan charge-offs		(168	)		(23	)		(191	)		(319	)
Provision for loan losses		67			29			96			301
Balance at end of period	$	738		$	68		$	806		$	967
Allowance for loan losses:
Individually evaluated for impairment	$	172		$	4		$	176		$	205
Collectively evaluated for impairment		566			64			630			762
Total allowance for loan losses	$	738		$	68		$	806		$	967
Loans:
Individually evaluated for impairment	$	808		$	49		$	857		$	956
Collectively evaluated for impairment		34,662			3,674			38,336			39,646
Total loans evaluated for impairment	$	35,470		$	3,723		$	39,193		$	40,602

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)	2011			2010		2011			2010
Balance at beginning of period	$	32		$	44	$	35		$	37
Provision for credit losses on lending-related commitments		(2	)		—		(5	)		7
Balance at end of period	$	30		$	44	$	30		$	44
Unfunded lending-related commitments sold	$	3		$	2	$	5		$	2

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, 2011
Business loans:
Commercial		$	10	$	258	$	268	$	416	$	69
Real estate construction:
Commercial Real Estate business line (a)			—		128		128		217		19
Other business lines (b)			—		3		3		10		2
Total real estate construction			—		131		131		227		21
Commercial mortgage:
Commercial Real Estate business line (a)			—		183		183		225		37
Other business lines (b)			—		213		213		282		42
Total commercial mortgage			—		396		396		507		79
Lease financing			—		6		6		14		1
International			—		7		7		13		2
Total business loans			10		798		808		1,177		172
Retail loans:
Residential mortgage			3		38		41		47		3
Consumer loans:
Other consumer			—		8		8		13		1
Total retail loans			3		46		49		60		4
Total individually evaluated impaired loans		$	13	$	844	$	857	$	1,237	$	176
December 31, 2010
Business loans:
Commercial		$	9	$	237	$	246	$	398	$	55
Real estate construction:
Commercial Real Estate business line (a)			—		249		249		400		51
Other business lines (b)			—		—		—		—		—
Total real estate construction			—		249		249		400		51
Commercial mortgage:
Commercial Real Estate business line (a)			—		178		178		282		35
Other business lines (b)			—		245		245		325		49
Total commercial mortgage			—		423		423		607		84
Lease financing			—		7		7		15		1
International			—		2		2		2		1
Total business loans			9		918		927		1,422		192
Retail loans:
Residential mortgage			8		29		37		41		3
Consumer loans:
Other consumer			—		10		10		14		2
Total retail loans			8		39		47		55		5
Total individually evaluated impaired loans		$	17	$	957	$	974	$	1,477	$	197

(a) Primarily loans to real estate investors and developers.

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

The following table presents information regarding average individually evaluated impaired loans and the related interest recognized for the three- and six-month periods ended June 30, 2011 and 2010.

	2011				2010
(in millions)	Average Impaired Loans for the Period		Interest Income Recognized for the Period		Average Impaired Loans for the Period		Interest Income Recognized for the Period
Three Months Ended June 30
Business loans:
Commercial	$	242	$	4	$	213	$	3
Real estate construction:
Commercial Real Estate business line (a)		159		—		339		1
Other business lines (b)		1		—		3		—
Total real estate construction		160		—		342		1
Commercial mortgage:
Commercial Real Estate business line (a)		192		1		151		1
Other business lines (b)		224		1		212		1
Total commercial mortgage		416		2		363		2
Lease financing		7		—		11		—
International		6		—		5		—
Total business loans		831		6		934		6
Retail loans:
Residential mortgage		41		—		31		—
Consumer loans:
Other consumer		7		—		2		—
Total retail loans		48		—		33		—
Total individually evaluated impaired loans	$	879	$	6	$	967	$	6
Six Months Ended June 30
Business loans:
Commercial	$	244	$	5	$	206	$	3
Real estate construction:
Commercial Real Estate business line (a)		189		—		390		1
Other business lines (b)		1		—		2		—
Total real estate construction		190		—		392		1
Commercial mortgage:
Commercial Real Estate business line (a)		187		1		144		1
Other business lines (b)		231		2		175		1
Total commercial mortgage		418		3		319		2
Lease financing		7		—		12		—
International		4		—		14		1
Total business loans		863		8		943		7
Retail loans:
Residential mortgage		39		—		28		—
Consumer loans:
Other consumer		8		—		2		—
Total retail loans		47		—		30		—
Total individually evaluated impaired loans	$	910	$	8	$	973	$	7

(a) Primarily loans to real estate investors and 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, 2011
Business loans:
Commercial	$	20,099	$	900	$	792	$	261	$	22,052
Real estate construction:
Commercial Real Estate business line (e)		820		202		184		137		1,343
Other business lines (f)		341		24		18		2		385
Total real estate construction		1,161		226		202		139		1,728
Commercial mortgage:
Commercial Real Estate business line (e)		1,179		328		237		186		1,930
Other business lines (f)		6,400		504		476		269		7,649
Total commercial mortgage		7,579		832		713		455		9,579
Lease financing		912		11		20		6		949
International		1,061		60		34		7		1,162
Total business loans		30,812		2,029		1,761		868		35,470
Retail loans:
Residential mortgage		1,400		5		26		60		1,491
Consumer:
Home equity		1,573		16		29		4		1,622
Other consumer		581		10		10		9		610
Total consumer		2,154		26		39		13		2,232
Total retail loans		3,554		31		65		73		3,723
Total loans	$	34,366	$	2,060	$	1,826	$	941	$	39,193
December 31, 2010
Business loans:
Commercial	$	19,884	$	1,015	$	994	$	252	$	22,145
Real estate construction:
Commercial Real Estate business line (e)		1,025		333		209		259		1,826
Other business lines (f)		383		20		20		4		427
Total real estate construction		1,408		353		229		263		2,253
Commercial mortgage:
Commercial Real Estate business line (e)		1,104		372		280		181		1,937
Other business lines (f)		6,595		508		425		302		7,830
Total commercial mortgage		7,699		880		705		483		9,767
Lease financing		962		13		27		7		1,009
International		963		112		55		2		1,132
Total business loans		30,916		2,373		2,010		1,007		36,306
Retail loans:
Residential mortgage		1,541		6		17		55		1,619
Consumer:
Home equity		1,662		26		11		5		1,704
Other consumer		575		8		11		13		607
Total consumer		2,237		34		22		18		2,311
Total retail loans		3,778		40		39		73		3,930
Total loans	$	34,694	$	2,413	$	2,049	$	1,080	$	40,236

(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. Included in the special mention category were $509 million and $546 million at June 30, 2011 and December 31, 2010, respectively, of loans proactively monitored by management that were considered "pass" 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, refer to the Nonperforming Assets subheading in Note 1 - Summary of Significant Accounting Policies - on page 76 of the Corporation's Annual Report for the year ended December 31, 2010. This category is generally consistent with the "doubtful" category as defined by regulatory authorities.

(e) Primarily loans to real estate investors and developers.

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