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Credit Quality and the Allowance for Loan and Lease Losses

9 Months Ended

Sep. 30, 2020

Credit Quality and the Allowance for Loan and Lease Losses

The Bancorp disaggregates ALLL balances and transactions in the ALLL by portfolio segment. Credit quality related disclosures for loans and leases are further disaggregated by class.

Allowance for Loan and Lease Losses

The following tables summarize transactions in the ALLL by portfolio segment:


For the three months ended September 30, 2020 ($ in millions)	Commercial		Residential Mortgage	Consumer	Unallocated	Total
Balance, beginning of period	$	1,502	327	867	—	2,696
Losses charged off(a)	(66)		(1)	(68)	—	(135)
Recoveries of losses previously charged off(a)	5		2	27	—	34
(Benefit from) provision for loan and lease losses	92		(31)	(82)	—	(21)
Balance, end of period	$	1,533	297	744	—	2,574

(a)The Bancorp recorded $9 in both losses charged off and recoveries of losses previously charged off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.


For the three months ended September 30, 2019 ($ in millions)	Commercial		Residential Mortgage	Consumer	Unallocated	Total
Balance, beginning of period	$	651	76	276	112	1,115
Losses charged off(a)	(34)		(2)	(94)	—	(130)
Recoveries of losses previously charged off(a)	1		1	29	—	31
Provision for loan and lease losses	53		—	72	2	127
Balance, end of period	$	671	75	283	114	1,143

(a)The Bancorp recorded $12 in both losses charged off and recoveries of losses previously charged off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.


For the nine months ended September 30, 2020 ($ in millions)	Commercial		Residential Mortgage	Consumer	Unallocated	Total
Balance, beginning of period	$	710	73	298	121	1,202
Impact of adoption of ASU 2016-13(a)	160		196	408	(121)	643
Losses charged off(b)	(209)		(6)	(242)	—	(457)
Recoveries of losses previously charged off(b)	14		5	85	—	104
Provision for loan and lease losses	858		29	195	—	1,082
Balance, end of period	$	1,533	297	744	—	2,574

(a)Includes $31, $2 and $1 in Commercial, Residential Mortgage and Consumer, respectively, related to the initial recognition of an ALLL on PCD loans.

(b)The Bancorp recorded $31 in both losses charged off and recoveries of losses previously charged off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.


For the nine months ended September 30, 2019 ($ in millions)	Commercial		Residential Mortgage	Consumer	Unallocated	Total
Balance, beginning of period	$	645	81	267	110	1,103
Losses charged off(a)	(87)		(5)	(266)	—	(358)
Recoveries of losses previously charged off(a)	14		4	84	—	102
Provision for (benefit from) loan and lease losses	99		(5)	198	4	296
Balance, end of period	$	671	75	283	114	1,143

(a)The Bancorp recorded $35 in both losses charged off and recoveries of losses previously charged off related to customer defaults on point-of-sale consumer loans for which the Bancorp obtained recoveries under third-party credit enhancements.

The following tables provide a summary of the ALLL and related loans and leases classified by portfolio segment:


As of September 30, 2020 ($ in millions)	Commercial		Residential Mortgage	Consumer	Total
ALLL:(a)
Individually evaluated	$	178	78	46	302
Collectively evaluated	1,355		219	698	2,272
Total ALLL	$	1,533	297	744	2,574
Portfolio loans and leases:(b)
Individually evaluated	$	1,111	650	280	2,041
Collectively evaluated	69,743		15,255	23,025	108,023
Purchased credit deteriorated(c)	396		79	18	493
Total portfolio loans and leases	$	71,250	15,984	23,323	110,557

(a)Includes $3 related to commercial leveraged leases at September 30, 2020.

(b)Excludes $174 of residential mortgage loans measured at fair value and includes $366 of commercial leveraged leases, net of unearned income at September 30, 2020.

(c)Includes $51, as of September 30, 2020, of residential mortgage loans previously sold to GNMA for which the Bancorp is deemed to have regained effective control over under ASC Topic 860, but did not exercise its option to repurchase. Refer to Note 16 for further information.


As of December 31, 2019 ($ in millions)	Commercial		Residential Mortgage	Consumer	Unallocated	Total
ALLL:(a)
Individually evaluated for impairment	$	82	55	33	—	170
Collectively evaluated for impairment	628		18	265	—	911
Unallocated	—		—	—	121	121
Total ALLL	$	710	73	298	121	1,202
Portfolio loans and leases:(b)
Individually evaluated for impairment	$	413	814	302	—	1,529
Collectively evaluated for impairment	69,047		15,690	22,558	—	107,295
Purchased credit impaired	498		37	16	—	551
Total portfolio loans and leases	$	69,958	16,541	22,876	—	109,375

(a)Includes $1 related to commercial leveraged leases at December 31, 2019.

(b)Excludes $183 of residential mortgage loans measured at fair value and includes $429 of commercial leveraged leases, net of unearned income at December 31, 2019.

CREDIT RISK PROFILE

Commercial Portfolio Segment

For purposes of monitoring the credit quality and risk characteristics of its commercial portfolio segment, the Bancorp disaggregates the segment into the following classes: commercial and industrial, commercial mortgage owner-occupied, commercial mortgage nonowner-occupied, commercial construction and commercial leases.

To facilitate the monitoring of credit quality within the commercial portfolio segment, the Bancorp utilizes the following categories of credit grades: pass, special mention, substandard, doubtful and loss. The five categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter.

Pass ratings, which are assigned to those borrowers that do not have identified potential or well-defined weaknesses and for which there is a high likelihood of orderly repayment, are updated at least annually based on the size and credit characteristics of the borrower. All other categories are updated on a quarterly basis during the month preceding the end of the calendar quarter.

The Bancorp assigns a special mention rating to loans and leases that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the loan or lease or the Bancorp’s credit position.

The Bancorp assigns a substandard rating to loans and leases that are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. Substandard loans and leases have well-defined weaknesses or weaknesses that could jeopardize the orderly repayment of the debt. Loans and leases in this grade also are characterized by the distinct possibility that the Bancorp will sustain some loss if the deficiencies noted are not addressed and corrected.

The Bancorp assigns a doubtful rating to loans and leases that have all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work

to the advantage of and strengthen the credit quality of the loan or lease, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceeding, capital injection, perfecting liens on additional collateral or refinancing plans.

Loans and leases classified as loss are considered uncollectible and are charged off in the period in which they are determined to be uncollectible. Because loans and leases in this category are fully charged off, they are not included in the following tables.

For loans and leases that are collectively evaluated, the Bancorp utilizes models to forecast expected credit losses over a reasonable and supportable forecast period based on the probability of a loan or lease defaulting, the expected balance at the estimated date of default and the expected loss percentage given a default. For the commercial portfolio segment, the estimates for probability of default are primarily based on internal ratings assigned to each commercial borrower on a 13-point scale and historical observations of how those ratings migrate to a default over time in the context of macroeconomic conditions. For loans with available credit, the estimate of the expected balance at the time of default considers expected utilization rates, which are primarily based on macroeconomic conditions and the utilization history of similar borrowers under those economic conditions. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of those characteristics to changes in macroeconomic conditions. Refer to Note 4 for additional information about the Bancorp’s processes for developing these models, estimating credit losses for periods beyond the reasonable and supportable forecast period and for estimating credit losses for individually evaluated loans.

The following table summarizes the credit risk profile of the Bancorp’s commercial portfolio segment, by class and vintage:


As of September 30, 2020 ($ in millions)	Term Loans and Leases Amortized Cost Basis by Origination Year							Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term Loans Amortized Cost Basis
	2020		2019	2018	2017	2016	Prior			Total
Commercial and industrial loans:
Pass	$	6,755	2,329	1,288	849	561	856	31,689	—	44,327
Special mention	96		67	86	40	10	21	3,661	—	3,981
Substandard	167		77	269	87	44	121	2,610	—	3,375
Doubtful	—		—	—	—	—	—	12	—	12
Total commercial and industrial loans	$	7,018	2,473	1,643	976	615	998	37,972	—	51,695
Commercial mortgage owner-occupied loans:
Pass	$	905	693	466	308	258	489	1,033	—	4,152
Special mention	57		8	28	13	12	16	83	—	217
Substandard	219		36	40	10	14	36	80	—	435
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial mortgage owner-occupied loans	$	1,181	737	534	331	284	541	1,196	—	4,804
Commercial mortgage nonowner-occupied loans:
Pass	$	738	865	564	298	248	391	1,818	—	4,922
Special mention	254		1	16	3	28	20	402	—	724
Substandard	129		7	61	12	2	43	174	—	428
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial mortgage nonowner-occupied loans	$	1,121	873	641	313	278	454	2,394	—	6,074
Commercial construction loans:
Pass	$	26	58	28	—	9	12	4,949	—	5,082
Special mention	40		—	—	—	—	—	477	—	517
Substandard	5		—	—	—	—	—	52	—	57
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial construction loans	$	71	58	28	—	9	12	5,478	—	5,656
Commercial leases:
Pass	$	447	392	328	399	334	943	—	—	2,843
Special mention	3		40	16	6	6	8	—	—	79
Substandard	4		4	19	33	7	32	—	—	99
Doubtful	—		—	—	—	—	—	—	—	—
Total commercial leases	$	454	436	363	438	347	983	—	—	3,021
Total commercial loans and leases:
Pass	$	8,871	4,337	2,674	1,854	1,410	2,691	39,489	—	61,326
Special mention	450		116	146	62	56	65	4,623	—	5,518
Substandard	524		124	389	142	67	232	2,916	—	4,394
Doubtful	—		—	—	—	—	—	12	—	12
Total commercial loans and leases	$	9,845	4,577	3,209	2,058	1,533	2,988	47,040	—	71,250

The following table summarizes the credit risk profile of the Bancorp’s commercial portfolio segment, by class:


As of December 31, 2019 ($ in millions)	Pass		Special Mention	Substandard	Doubtful	Total
Commercial and industrial loans	$	47,671	1,423	1,406	42	50,542
Commercial mortgage owner-occupied loans	4,421		162	293	4	4,880
Commercial mortgage nonowner-occupied loans	5,866		135	82	—	6,083
Commercial construction loans	4,963		52	75	—	5,090
Commercial leases	3,222		53	88	—	3,363
Total commercial loans and leases	$	66,143	1,825	1,944	46	69,958

Age Analysis of Past Due Commercial Loans and Leases

The following tables summarize the Bancorp’s amortized cost basis in portfolio commercial loans and leases, by age and class:


	Current Loans and Leases(a)		Past Due			Total Loans and Leases	90 Days Past Due and Still Accruing
As of September 30, 2020 ($ in millions)			30-89 Days(a)	90 Days or More(a)	Total Past Due
Commercial loans and leases:
Commercial and industrial loans	$	51,413	140	142	282	51,695	4
Commercial mortgage owner-occupied loans	4,753		14	37	51	4,804	22
Commercial mortgage nonowner-occupied loans	5,979		58	37	95	6,074	4
Commercial construction loans	5,654		2	—	2	5,656	—
Commercial leases	3,007		4	10	14	3,021	2
Total portfolio commercial loans and leases	$	70,806	218	226	444	71,250	32

(a)Includes accrual and nonaccrual loans and leases.


	Current Loans and Leases(a)		Past Due			Total Loans and Leases	90 Days Past Due and Still Accruing
As of December 31, 2019 ($ in millions)			30-89 Days(a)	90 Days or More(a)	Total Past Due
Commercial loans and leases:
Commercial and industrial loans	$	50,305	133	104	237	50,542	11
Commercial mortgage owner-occupied loans	4,853		4	23	27	4,880	9
Commercial mortgage nonowner-occupied loans	6,072		5	6	11	6,083	6
Commercial construction loans	5,089		1	—	1	5,090	—
Commercial leases	3,338		11	14	25	3,363	—
Total portfolio commercial loans and leases	$	69,657	154	147	301	69,958	26

(a)Includes accrual and nonaccrual loans and leases.

Residential Mortgage and Consumer Portfolio Segments

For purposes of monitoring the credit quality and risk characteristics of its consumer portfolio segment, the Bancorp disaggregates the segment into the following classes: home equity, indirect secured consumer loans, credit card and other consumer loans. The Bancorp’s residential mortgage portfolio segment is also a separate class.

The Bancorp considers repayment performance as the best indicator of credit quality for residential mortgage and consumer loans, which includes both the delinquency status and performing versus nonperforming status of the loans. The delinquency status of all residential mortgage and consumer loans and the performing versus nonperforming status is presented in the following table. Refer to the nonaccrual loans and leases section of Note 1 of the Notes to Consolidated Financial Statements included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2019 for additional delinquency and nonperforming information.

For collectively evaluated loans in the consumer and residential mortgage portfolio segments, the Bancorp’s expected credit loss models primarily utilize the borrower’s FICO score and delinquency history in combination with macroeconomic conditions when estimating the probability of default. The estimates for loss severity are primarily based on collateral type and coverage levels and the susceptibility of those characteristics to changes in macroeconomic conditions. The expected balance at the estimated date of default is also particularly significant for portfolio classes which generally have longer terms (such as residential mortgage loans and home equity) and portfolio classes containing a high concentration of loans with revolving privileges (such as credit card and home equity). The estimate of the expected balance at the time of default considers expected prepayment and utilization rates where applicable, which are primarily based on macroeconomic conditions and the utilization history of similar borrowers under those economic conditions. Refer to Note 4 for additional information about the Bancorp’s process for developing these models and its process for estimating credit losses for periods beyond the reasonable and supportable forecast period.

The following table presents a summary of the Bancorp’s residential mortgage and consumer portfolio segments, by class and vintage, disaggregated by both age and performing versus nonperforming status:


As of September 30, 2020 ($ in millions)	Term Loans Amortized Cost Basis by Origination Year							Revolving Loans Amortized Cost Basis	Revolving Loans Converted to Term Loans Amortized Cost Basis
	2020		2019	2018	2017	2016	Prior			Total
Residential mortgage loans:
Performing:
Current(a)	$	2,843	2,348	976	1,877	2,589	5,191	—	—	15,824
30-89 days past due	2		1	3	4	3	11	—	—	24
90 days or more past due	—		5	2	7	5	48	—	—	67
Total performing	2,845		2,354	981	1,888	2,597	5,250	—	—	15,915
Nonperforming	—		—	—	2	3	64	—	—	69
Total residential mortgage loans(b)	$	2,845	2,354	981	1,890	2,600	5,314	—	—	15,984
Home equity:
Performing:
Current	$	11	27	35	5	3	164	5,086	8	5,339
30-89 days past due	—		—	—	—	—	3	22	—	25
90 days or more past due	—		—	—	—	—	2	—	—	2
Total performing	11		27	35	5	3	169	5,108	8	5,366
Nonperforming	—		—	1	—	—	12	75	1	89
Total home equity	$	11	27	36	5	3	181	5,183	9	5,455
Indirect secured consumer loans:
Performing:
Current	$	4,928	4,186	1,909	1,008	462	290	—	—	12,783
30-89 days past due	13		38	32	19	9	5	—	—	116
90 days or more past due	1		2	3	2	1	1	—	—	10
Total performing	4,942		4,226	1,944	1,029	472	296	—	—	12,909
Nonperforming	—		4	4	3	2	3	—	—	16
Total indirect secured consumer loans	$	4,942	4,230	1,948	1,032	474	299	—	—	12,925
Credit card:
Performing:
Current	$	—	—	—	—	—	—	2,005	—	2,005
30-89 days past due	—		—	—	—	—	—	29	—	29
90 days or more past due	—		—	—	—	—	—	27	—	27
Total performing	—		—	—	—	—	—	2,061	—	2,061
Nonperforming	—		—	—	—	—	—	26	—	26
Total credit card	$	—	—	—	—	—	—	2,087	—	2,087
Other consumer loans
Performing:
Current	$	605	645	502	205	37	36	803	1	2,834
30-89 days past due	2		6	4	3	—	—	3	—	18
90 days or more past due	—		1	—	—	—	—	—	—	1
Total performing	607		652	506	208	37	36	806	1	2,853
Nonperforming	—		—	—	—	—	1	2	—	3
Total other consumer loans	$	607	652	506	208	37	37	808	1	2,856
Total consumer loans(b)	$	8,405	7,263	3,471	3,135	3,114	5,831	8,078	10	39,307

(a)Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. As of September 30, 2020, $91 of these loans were 30-89 days past due and $249 were 90 days or more past due. The Bancorp recognized an immaterial amount and $2 of losses during the three and nine months ended September 30, 2020, respectively, due to claim denials and curtailments associated with these insured or guaranteed loans.

(b)Excludes $174 of residential mortgage loans measured at fair value at September 30, 2020.

The following table presents a summary of the Bancorp’s residential mortgage and consumer portfolio segments, by class, disaggregated into performing versus nonperforming status as of:


December 31, 2019 ($ in millions)	Performing		Nonperforming
Residential mortgage loans(a)	$	16,450	91
Home equity	5,989		94
Indirect secured consumer loans	11,531		7
Credit card	2,505		27
Other consumer loans	2,721		2
Total residential mortgage and consumer loans(a)	$	39,196	221

(a)Excludes $183 of residential mortgage loans measured at fair value at December 31, 2019.

Age Analysis of Past Due Consumer Loans

The following tables summarize the Bancorp’s amortized cost basis in portfolio consumer loans, by age and class:


	Current Loans and Leases(b)(c)		Past Due			Total Loans and Leases	90 Days Past Due and Still Accruing
December 31, 2019 ($ in millions)			30-89 Days(c)	90 Days or More(c)	Total Past Due
Residential mortgage loans(a)	$	16,372	27	142	169	16,541	50
Consumer loans:
Home equity	5,965		61	57	118	6,083	1
Indirect secured consumer loans	11,389		132	17	149	11,538	10
Credit card	2,434		50	48	98	2,532	42
Other consumer loans	2,702		18	3	21	2,723	1
Total portfolio consumer loans(a)	$	38,862	288	267	555	39,417	104

(a)Excludes $183 of residential mortgage loans measured at fair value at December 31, 2019.

(b)Information includes advances made pursuant to servicing agreements for GNMA mortgage pools whose repayments are insured by the FHA or guaranteed by the VA. As of December 31, 2019, $94 of these loans were 30-89 days past due and $261 were 90 days or more past due. The Bancorp recognized $1 of losses during both the three and nine months ended September 30, 2019 due to claim denials and curtailments associated with these insured or guaranteed loans.

(c)Includes accrual and nonaccrual loans and leases.

Collateral-Dependent Loans and Leases

The Bancorp considers a loan or lease to be collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. When a loan or lease is collateral-dependent, its fair value is generally based on the fair value less cost to sell of the underlying collateral.

The following table presents the amortized cost basis of the Bancorp’s collateral-dependent loans and leases, by portfolio class:


As of September 30, 2020 ($ in millions)	Amortized Cost Basis
Commercial loans and leases:
Commercial and industrial loans	$	877
Commercial mortgage owner-occupied loans	67
Commercial mortgage nonowner-occupied loans	120
Commercial construction loans	20
Commercial leases	15
Total commercial loans and leases	1,099
Residential mortgage loans	114
Consumer loans:
Home equity	75
Indirect secured consumer loans	9
Other consumer loans	—
Total consumer loans	84
Total portfolio loans and leases	$	1,297

Nonperforming Assets

Nonperforming assets include nonaccrual loans and leases for which ultimate collectability of the full amount of the principal and/or interest is uncertain; restructured loans which have not yet met the requirements to be returned to accrual status; certain restructured consumer and

residential mortgage loans which are 90 days past due based on the restructured terms unless the loan is both well-secured and in the process of collection; and certain other assets, including OREO and other repossessed property.

The following table presents the amortized cost basis of the Bancorp’s nonaccrual loans and leases, by class, and OREO and other repossessed property:


As of September 30, 2020 ($ in millions)					For the three months ended September 30, 2020	For the nine months ended September 30, 2020
	With an ALLL		No Related ALLL	Total	Interest Income Recognized	Interest Income Recognized
Commercial loans and leases:
Commercial and industrial loans	$	354	164	518	2	6
Commercial mortgage owner-occupied loans	17		35	52	—	—
Commercial mortgage nonowner-occupied loans	86		16	102	—	—
Commercial leases	11		5	16	—	1
Total nonaccrual portfolio commercial loans and leases	468		220	688	2	7
Residential mortgage loans	10		59	69	7	22
Consumer loans:
Home equity	58		31	89	2	7
Indirect secured consumer loans	9		7	16	—	—
Credit card	26		—	26	1	3
Other consumer loans	3		—	3	—	—
Total nonaccrual portfolio consumer loans	96		38	134	3	10
Total nonaccrual portfolio loans and leases(a)(b)	$	574	317	891	12	39
OREO and other repossessed property	—		40	40	—	—
Total nonperforming portfolio assets(a)(b)	$	574	357	931	12	39

(a)Excludes $10 of nonaccrual loans held for sale and $1 of nonaccrual restructured loans held for sale.

(b)Includes $25 of nonaccrual government insured commercial loans whose repayments are insured by the SBA, of which $13 are restructured nonaccrual government insured commercial loans.

The following table presents the Bancorp’s nonaccrual loans and leases, by class, and OREO and other repossessed property as of:


($ in millions)	December 31, 2019
Commercial loans and leases:
Commercial and industrial loans	$	338
Commercial mortgage owner-occupied loans	29
Commercial mortgage nonowner-occupied loans	1
Commercial construction loans	1
Commercial leases	28
Total nonaccrual portfolio commercial loans and leases	397
Residential mortgage loans	91
Consumer loans:
Home equity	94
Indirect secured consumer loans	7
Credit card	27
Other consumer loans	2
Total nonaccrual portfolio consumer loans	130
Total nonaccrual portfolio loans and leases(a)(b)	$	618
OREO and other repossessed property	62
Total nonperforming portfolio assets(a)(b)	$	680

(a)Excludes $7 of nonaccrual loans and leases held for sale.

(b)Includes $16 of nonaccrual government insured commercial loans whose repayments are insured by the SBA, of which $11 are restructured nonaccrual government insured commercial loans.

The Bancorp’s amortized cost basis of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction was $140 million and $212 million as of September 30, 2020 and December 31, 2019, respectively.

Troubled Debt Restructurings

A loan is accounted for as a TDR if the Bancorp, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. TDRs include concessions granted under reorganization, arrangement or other provisions of the Federal Bankruptcy Act. Within each of the Bancorp’s loan classes, TDRs typically involve either a reduction of the stated interest rate of the loan, an extension of the loan’s maturity date with a stated rate lower than the current market rate for a new loan with similar risk, or in limited circumstances, a reduction of the principal balance of the loan or the loan’s accrued interest. Modifying the terms of a loan may result in an increase or decrease to the ALLL depending upon the terms modified, the method used to measure the ALLL for a loan prior to modification, the extent of collateral, and whether any charge-offs were recorded on the loan before or at the time of modification. Refer to the ALLL section of Note 4 for information on the Bancorp’s ALLL methodology. Upon modification of a loan, the Bancorp measures the expected credit loss as either the difference between the amortized cost of the loan and the fair value of collateral less cost to sell or the difference between the estimated future cash flows expected to be collected on the modified loan, discounted at the original effective yield of the loan, and the carrying value of the loan. The resulting measurement may result in the need for minimal or no allowance regardless of which is used because it is probable that all cash flows will be collected under the modified terms of the loan. In addition, if the stated interest rate was increased in a TDR that is not collateral-dependent, the cash flows on the modified loan, using the pre-modification interest rate as the discount rate, often exceed the amortized cost basis of the loan. Conversely, upon a modification that reduces the stated interest rate on a loan that is not collateral-dependent, the Bancorp recognizes an increase to the ALLL. If a TDR involves a reduction of the principal balance of the loan or the loan’s accrued interest, that amount is charged off to the ALLL. Loans discharged in a Chapter 7 bankruptcy and not reaffirmed by the borrower are treated as nonaccrual collateral-dependent loans with a charge-off recognized to reduce the carrying values of such loans to the fair value of the related collateral less costs to sell.

The Bancorp had commitments to lend additional funds to borrowers whose terms have been modified in a TDR, consisting of line of credit and letter of credit commitments of $111 million and $70 million, respectively, as of September 30, 2020 compared with $41 million and $58 million, respectively, as of December 31, 2019.

The following tables provide a summary of loans and leases, by class, modified in a TDR by the Bancorp during the three months ended:


September 30, 2020 ($ in millions)(a)	Number of Loans Modified in a TDR During the Period(b)	Amortized Cost Basis of Loans Modified in a TDR During the Period		(Decrease) Increase to ALLL Upon Modification	Charge-offs Recognized Upon Modification
Commercial loans:
Commercial and industrial loans	33	$	75	1	7
Commercial mortgage owner-occupied loans	10	19		(3)	—
Commercial mortgage nonowner-occupied loans	3	16		(2)	—
Residential mortgage loans	66	11		—	—
Consumer loans:
Home equity	88	2		(3)	—
Indirect secured consumer loans	14	—		—	—
Credit card	1,023	6		2	1
Total portfolio loans	1,237	$	129	(5)	8

(a)Excludes all loans and leases held for sale.

(b)Represents number of loans post-modification and excludes loans previously modified in a TDR.


September 30, 2019 ($ in millions)(a)	Number of Loans Modified in a TDR During the Period(b)	Recorded Investment in Loans Modified in a TDR During the Period		Increase (Decrease) to ALLL Upon Modification	Charge-offs Recognized Upon Modification
Commercial loans:
Commercial and industrial loans	27	$	72	(1)	—
Commercial mortgage owner-occupied loans	4	1		—	—
Residential mortgage loans	256	39		1	—
Consumer loans:
Home equity	21	1		—	—
Indirect secured consumer loans	27	—		—	—
Credit card	1,467	8		2	1
Total portfolio loans	1,802	$	121	2	1

(a)Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.

(b)Represents number of loans post-modification and excludes loans previously modified in a TDR.

The following tables provide a summary of loans and leases, by class, modified in a TDR by the Bancorp during the nine months ended:


September 30, 2020 ($ in millions)(a)	Number of Loans Modified in a TDR During the Period(b)	Amortized Cost Basis of Loans Modified in a TDR During the Period		Increase (Decrease) to ALLL Upon Modification	Charge-offs Recognized Upon Modification
Commercial loans:
Commercial and industrial loans	96	$	250	25	7
Commercial mortgage owner-occupied loans	38	38		(3)	—
Commercial mortgage nonowner-occupied loans	15	38		(2)	—
Commercial construction	3	21		1	—
Residential mortgage loans	359	48		1	—
Consumer loans:
Home equity	130	6		(4)	—
Indirect secured consumer loans	56	—		—	—
Credit card	3,880	21		8	1
Total portfolio loans	4,577	$	422	26	8

(a)Excludes all loans and leases held for sale.

(b)Represents number of loans post-modification and excludes loans previously modified in a TDR.


September 30, 2019 ($ in millions)(a)	Number of Loans Modified in a TDR During the Period(b)	Recorded Investment in Loans Modified in a TDR During the Period		(Decrease) Increase to ALLL Upon Modification	Charge-offs Recognized Upon Modification
Commercial loans:
Commercial and industrial loans	65	$	168	(15)	5
Commercial mortgage owner-occupied loans	13	10		—	—
Residential mortgage loans	531	74		1	—
Consumer loans:
Home equity	58	3		—	—
Indirect secured consumer loans	65	—		—	—
Credit card	4,250	24		6	3
Total portfolio loans	4,982	$	279	(8)	8

(a)Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.

(b)Represents number of loans post-modification and excludes loans previously modified in a TDR.

The Bancorp considers TDRs that become 90 days or more past due under the modified terms as subsequently defaulted. For commercial loans not subject to individual evaluation for an ALLL, the applicable commercial models are applied for purposes of determining the ALLL as well as qualitatively assessing whether those loans are reasonably expected to be further restructured prior to their maturity date and, if so, the impact such a restructuring would have on the remaining contractual life of the loans. When a residential mortgage, home equity, indirect secured consumer or other consumer loan that has been modified in a TDR subsequently defaults, the present value of expected cash flows used in the measurement of the expected credit loss is generally limited to the expected net proceeds from the sale of the loan’s underlying

collateral and any resulting collateral shortfall is reflected as a charge-off or an increase in ALLL. The Bancorp recognizes an ALLL for the entire balance of the credit card loans modified in a TDR that subsequently default.

The following tables provide a summary of TDRs that subsequently defaulted during the three months ended September 30, 2020 and 2019 and were within 12 months of the restructuring date:


September 30, 2020 ($ in millions)(a)	Number of Contracts	Amortized Cost
Commercial loans:
Commercial and industrial loans	6	$	1
Commercial mortgage owner-occupied loans	1	1
Residential mortgage loans	45	8
Consumer loans:
Home equity	2	—
Indirect secured consumer loans	6	—
Credit card	20	—
Total portfolio loans	80	$	10

(a)Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.


September 30, 2019 ($ in millions)(a)	Number of Contracts	Recorded Investment
Commercial loans:
Commercial and industrial loans	1	$	3
Commercial mortgage owner-occupied loans	2	—
Residential mortgage loans	67	10
Consumer loans:
Home equity	7	—
Credit card	69	—
Total portfolio loans	146	$	13

(a)Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.

The following tables provide a summary of TDRs that subsequently defaulted during the nine months ended September 30, 2020 and 2019 and were within 12 months of the restructuring date:


September 30, 2020 ($ in millions)(a)	Number of Contracts	Amortized Cost
Commercial loans:
Commercial and industrial loans	12	$	5
Commercial mortgage owner-occupied loans	8	3
Commercial mortgage nonowner-occupied loans	2	9
Residential mortgage loans	117	18
Consumer loans:
Home equity	5	—
Indirect secured consumer loans	12	—
Credit card	237	1
Total portfolio loans	393	$	36

(a)Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.


September 30, 2019 ($ in millions)(a)	Number of Contracts	Recorded Investment
Commercial loans:
Commercial and industrial loans	8	$	20
Commercial mortgage owner-occupied loans	4	1
Residential mortgage loans	196	30
Consumer loans:
Home equity	12	—
Credit card	605	3
Total portfolio loans	825	$	54

(a)Excludes all loans and leases held for sale and loans acquired with deteriorated credit quality which were accounted for within a pool.

COVID-19 Hardship Relief Programs

In response to the COVID-19 pandemic, beginning in March 2020, the Bancorp began providing financial hardship relief in the form of payment deferrals and forbearances to consumer and business customers across a wide array of lending products, as well as the suspension of vehicle repossessions and home foreclosures. The payment deferrals and forbearances generally covered periods of three to six months, depending on the program. In most cases, these offers are not classified as troubled debt restructurings (TDRs) and do not result in loans being placed on nonaccrual status. These programs were discontinued during the third quarter of 2020, except for the forbearance program for residential mortgage loans which is expected to continue accepting new enrollments through December 31, 2020. The Bancorp has also developed additional relief programs for borrowers who continue to be affected by the pandemic after conclusion of the initial relief period. Most of these new programs offer a temporary reduction in payments for a period of up to six months.

For loans that receive a payment deferral or forbearance under these hardship relief programs, the Bancorp continues to accrue interest and recognize interest income during the period of the deferral. Depending on the terms of each program, all or a portion of this accrued interest may be paid directly by the borrower (either during the relief period, at the end of the relief period or at maturity of the loan) or added to the customer’s outstanding balance. For certain programs, the maturity date of the loan may also be extended by the number of payments deferred. Interest income will continue to be recognized at the original contractual interest rate unless that rate is concurrently modified upon entering the relief program (in which case, the modified rate would be used to recognize interest).

For commercial leases that receive payment deferrals under the Bancorp’s COVID-19 pandemic hardship relief programs, the Bancorp will continue to recognize interest income during the deferral period, but the yield will be recalculated based on the timing and amount of remaining payments over the remaining lease term. The revised yield will be used for prospectively recognizing interest income and adjusting the net investment in the lease. The Bancorp’s hardship relief programs for commercial leases affect the timing of payments but do not generally result in an increase in the rights of the lessor or the obligations of the lessee. Therefore, the Bancorp has elected to forego certain requirements that would typically apply for lease modifications when accounting for the effects of the hardship relief programs. Refer to the Regulatory Developments Related to the COVID-19 Pandemic section of Note 4 for further information.

The following table provides a summary of portfolio loans and leases as of September 30, 2020, by class, that have received payment deferrals or forbearances as part of the Bancorp’s COVID-19 pandemic hardship relief programs:


	Amortized Cost Basis of Loans and Leases					Past Due(c)
	Completed Relief Period		In Active Relief Period(a)	Total that Have Received Payment Relief(b)
September 30, 2020 ($ in millions)					Current(c)	30-89 Days	90 Days or More	Total Past Due
Commercial loans:
Commercial and industrial loans	$	1,412	39	1,451	1,413	29	9	38
Commercial mortgage owner-occupied loans	580		38	618	594	9	15	24
Commercial mortgage nonowner-occupied loans	920		258	1,178	1,101	56	21	77
Commercial construction loans	306		150	456	456	—	—	—
Commercial leases	99		—	99	99	—	—	—
Residential mortgage loans(b)	426		1,095	1,521	1,324	51	146	197
Consumer loans:
Home equity	41		177	218	205	7	6	13
Indirect secured consumer loans	924		172	1,096	1,025	63	8	71
Credit card	133		18	151	131	12	8	20
Other consumer loans	97		16	113	106	6	1	7
Total portfolio loans and leases	$	4,938	1,963	6,901	6,454	233	214	447

(a)Includes loans and leases that are still in the initial payment relief period (primarily residential mortgage and home equity loans) and loans that have requested additional relief.

(b)Excludes $843 of loans previously sold to GNMA that the Bancorp had the option to repurchase as a result of forbearance, $792 of which were repurchased and are classified as held for sale.

(c)For loans which are still in an active relief period, past due status is based on the borrower's status as of March 1, 2020, as adjusted based on the borrower's compliance with modified loan terms.