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Loans and Allowance for Credit Losses
6 Months Ended
Jun. 30, 2016
Receivables [Abstract]  
Loans and Allowance for Credit Losses
 Note 4  Loans and Allowance for Credit Losses

The composition of the loan portfolio, disaggregated by class and underlying specific portfolio type, was as follows:

 

    June 30, 2016             December 31, 2015  
(Dollars in Millions)   Amount      Percent
of Total
            Amount      Percent
of Total
 

Commercial

              

Commercial

  $ 87,179         32.4        $ 83,116         31.9

Lease financing

    5,335         2.0                 5,286         2.0   

Total commercial

    92,514         34.4             88,402         33.9   

Commercial Real Estate

              

Commercial mortgages

    32,129         12.0             31,773         12.2   

Construction and development

    11,161         4.1                 10,364         3.9   

Total commercial real estate

    43,290         16.1             42,137         16.1   

Residential Mortgages

              

Residential mortgages

    42,534         15.8             40,425         15.5   

Home equity loans, first liens

    13,370         5.0                 13,071         5.0   

Total residential mortgages

    55,904         20.8             53,496         20.5   

Credit Card

    20,571         7.7             21,012         8.1   

Other Retail

              

Retail leasing

    5,512         2.1             5,232         2.0   

Home equity and second mortgages

    16,481         6.1             16,384         6.3   

Revolving credit

    3,225         1.2             3,354         1.3   

Installment

    7,567         2.8             7,030         2.7   

Automobile

    16,799         6.3             16,587         6.3   

Student

    2,424         .9                 2,619         1.0   

Total other retail

    52,008         19.4                 51,206         19.6   

Total loans, excluding covered loans

    264,287         98.4             256,253         98.2   

Covered Loans

    4,234         1.6                 4,596         1.8   

Total loans

  $ 268,521         100.0            $ 260,849         100.0

The Company had loans of $81.9 billion at June 30, 2016, and $78.1 billion at December 31, 2015, pledged at the Federal Home Loan Bank, and loans of $64.5 billion at June 30, 2016, and $63.4 billion at December 31, 2015, pledged at the Federal Reserve Bank.

Originated loans are reported at the principal amount outstanding, net of unearned interest and deferred fees and costs. Net unearned interest and deferred fees and costs amounted to $576 million at June 30, 2016, and $550 million at December 31, 2015. All purchased loans and related indemnification assets are recorded at fair value at the date of purchase. The Company evaluates purchased loans for impairment at the date of purchase in accordance with applicable authoritative accounting guidance. Purchased loans with evidence of credit deterioration since origination for which it is probable that all contractually required payments will not be collected are considered “purchased impaired loans.” All other purchased loans are considered “purchased nonimpaired loans.”

Changes in the accretable balance for purchased impaired loans were as follows:

 

    Three Months Ended
June 30,
            Six Months Ended
June 30,
 
(Dollars in Millions)   2016     2015             2016     2015  

Balance at beginning of period

  $ 1,013      $ 1,187           $ 957      $ 1,309   

Accretion

    (103     (100          (195     (198

Disposals

    (33     (43          (54     (70

Reclassifications from nonaccretable difference (a)

    14        32             183        37   

Other

                                  (2

Balance at end of period

  $ 891      $ 1,076               $ 891      $ 1,076   

 

(a) Primarily relates to changes in expected credit performance.

Allowance for Credit Losses The allowance for credit losses is established for probable and estimable losses incurred in the Company’s loan and lease portfolio, including unfunded credit commitments, and includes certain amounts that do not represent loss exposure to the Company because those losses are recoverable under loss sharing agreements with the Federal Deposit Insurance Corporation (“FDIC”). The allowance for credit losses is increased through provisions charged to operating earnings and reduced by net charge-offs. Management evaluates the allowance each quarter to ensure it appropriately reserves for incurred losses.

The allowance recorded for loans in the commercial lending segment is based on reviews of individual credit relationships and considers the migration analysis of commercial lending segment loans and actual loss experience. In the migration analysis applied to risk rated loan portfolios, the Company currently examines up to a 15-year period of loss experience. For each loan type, this historical loss experience is adjusted as necessary to consider any relevant changes in portfolio composition, lending policies, underwriting standards, risk management practices or economic conditions. The results of the analysis are evaluated quarterly to confirm an appropriate historical time frame is selected for each commercial loan type. The allowance recorded for impaired loans greater than $5 million in the commercial lending segment is based on an individual loan analysis utilizing expected cash flows discounted using the original effective interest rate, the observable market price of the loan, or the fair value of the collateral, less selling costs, for collateral-dependent loans, rather than the migration analysis. The allowance recorded for all other commercial lending segment loans is determined on a homogenous pool basis and includes consideration of product mix, risk characteristics of the portfolio, bankruptcy experience, portfolio growth and historical losses, adjusted for current trends. The Company also considers the impacts of any loan modifications made to commercial lending segment loans and any subsequent payment defaults to its expectations of cash flows, principal balance, and current expectations about the borrower’s ability to pay in determining the allowance for credit losses.

The allowance recorded for Troubled Debt Restructuring (“TDR”) loans and purchased impaired loans in the consumer lending segment is determined on a homogenous pool basis utilizing expected cash flows discounted using the original effective interest rate of the pool, or the prior quarter effective rate, respectively. The allowance for collateral-dependent loans in the consumer lending segment is determined based on the fair value of the collateral less costs to sell. The allowance recorded for all other consumer lending segment loans is determined on a homogenous pool basis and includes consideration of product mix, risk characteristics of the portfolio, bankruptcy experience, delinquency status, refreshed loan-to-value ratios when possible, portfolio growth and historical losses, adjusted for current trends. The Company also considers any modifications made to consumer lending segment loans including the impacts of any subsequent payment defaults since modification in determining the allowance for credit losses, such as the borrower’s ability to pay under the restructured terms, and the timing and amount of payments.

The allowance for the covered loan segment is evaluated each quarter in a manner similar to that described for non-covered loans and reflects decreases in expected cash flows of those loans after the acquisition date. The provision for credit losses for covered loans considers the indemnification provided by the FDIC.

In addition, subsequent payment defaults on loan modifications considered TDRs are considered in the underlying factors used in the determination of the appropriateness of the allowance for credit losses. For each loan segment, the Company estimates future loan charge-offs through a variety of analysis, trends and underlying assumptions. With respect to the commercial lending segment, TDRs may be collectively evaluated for impairment where observed performance history, including defaults, is a primary driver of the loss allocation. For commercial TDRs individually evaluated for impairment, attributes of the borrower are the primary factors in determining the allowance for credit losses. However, historical loss experience is also incorporated into the allowance methodology applied to this category of loans. With respect to the consumer lending segment, performance of the portfolio, including defaults on TDRs, is considered when estimating future cash flows.

The Company’s methodology for determining the appropriate allowance for credit losses for each loan segment also considers the imprecision inherent in the methodologies used. As a result, in addition to the amounts determined under the methodologies described above, management also considers the potential impact of other qualitative factors which include, but are not limited to, economic factors; geographic and other concentration risks; delinquency and nonaccrual trends; current business conditions; changes in lending policy, underwriting standards, internal review and other relevant business practices; and the regulatory environment. The consideration of these items results in adjustments to allowance amounts included in the Company’s allowance for credit losses for each of the above loan segments.

The Company also assesses the credit risk associated with off-balance sheet loan commitments, letters of credit, and derivatives. Credit risk associated with derivatives is reflected in the fair values recorded for those positions. The liability for off-balance sheet credit exposure related to loan commitments and other credit guarantees is included in other liabilities. Because business processes and credit risks associated with unfunded credit commitments are essentially the same as for loans, the Company utilizes similar processes to estimate its liability for unfunded credit commitments.

 

Activity in the allowance for credit losses by portfolio class was as follows:

 

Three Months Ended June 30,

(Dollars in Millions)

  Commercial     Commercial
Real Estate
    Residential
Mortgages
    Credit
Card
   

Other

Retail

    Total Loans,
Excluding
Covered Loans
    Covered
Loans
    Total
Loans
 

2016

               

Balance at beginning of period

  $ 1,441      $ 734      $ 556      $ 875      $ 678      $ 4,284      $ 36      $ 4,320   

Add

               

Provision for credit losses

    111        14        5        179        16        325        2        327   

Deduct

               

Loans charged off

    107        7        25        189        79        407               407   

Less recoveries of loans charged off

    (28     (7     (8     (19     (28     (90            (90

Net loans charged off

    79               17        170        51        317               317   

Other changes (a)

                                              (1     (1

Balance at end of period

  $ 1,473      $ 748      $ 544      $ 884      $ 643      $ 4,292      $ 37      $ 4,329   

2015

               

Balance at beginning of period

  $ 1,200      $ 721      $ 764      $ 871      $ 738      $ 4,294      $ 57      $ 4,351   

Add

               

Provision for credit losses

    22        15        6        171        65        279        2        281   

Deduct

               

Loans charged off

    65        9        41        190        75        380               380   

Less recoveries of loans charged off

    (23     (8     (8     (21     (24     (84            (84

Net loans charged off

    42        1        33        169        51        296               296   

Other changes (a)

                                              (10     (10

Balance at end of period

  $ 1,180      $ 735      $ 737      $ 873      $ 752      $ 4,277      $ 49      $ 4,326   

 

(a) Includes net changes in credit losses to be reimbursed by the FDIC and reductions in the allowance for covered loans where the reversal of a previously recorded allowance was offset by an associated decrease in the indemnification asset, and the impact of any loan sales.

 

Six Months Ended June 30,

(Dollars in Millions)

  Commercial     Commercial
Real Estate
    Residential
Mortgages
    Credit
Card
    Other
Retail
    Total Loans,
Excluding
Covered Loans
    Covered
Loans
    Total
Loans
 

2016

               

Balance at beginning of period

  $ 1,287      $ 724      $ 631      $ 883      $ 743      $ 4,268      $ 38      $ 4,306   

Add

               

Provision for credit losses

    348        19        (51     336        5        657               657   

Deduct

               

Loans charged off

    218        10        48        377        159        812               812   

Less recoveries of loans charged off

    (56     (15     (12     (43     (54     (180            (180

Net loans charged off

    162        (5     36        334        105        632               632   

Other changes (a)

                         (1            (1     (1     (2

Balance at end of period

  $ 1,473      $ 748      $ 544      $ 884      $ 643      $ 4,292      $ 37      $ 4,329   

2015

               

Balance at beginning of period

  $ 1,146      $ 726      $ 787      $ 880      $ 771      $ 4,310      $ 65      $ 4,375   

Add

               

Provision for credit losses

    120        (8     18        325        88        543        2        545   

Deduct

               

Loans charged off

    139        14        82        372        156        763               763   

Less recoveries of loans charged off

    (54     (31     (14     (40     (49     (188            (188

Net loans charged off

    85        (17     68        332        107        575               575   

Other changes (a)

    (1                                 (1     (18     (19

Balance at end of period

  $ 1,180      $ 735      $ 737      $ 873      $ 752      $ 4,277      $ 49      $ 4,326   

 

(a) Includes net changes in credit losses to be reimbursed by the FDIC and reductions in the allowance for covered loans where the reversal of a previously recorded allowance was offset by an associated decrease in the indemnification asset, and the impact of any loan sales.

Additional detail of the allowance for credit losses by portfolio class was as follows:

 

(Dollars in Millions)   Commercial      Commercial
Real Estate
     Residential
Mortgages
     Credit
Card
     Other
Retail
     Total Loans,
Excluding
Covered Loans
     Covered
Loans
     Total
Loans
 

Allowance Balance at June 30, 2016 Related to

                      

Loans individually evaluated for impairment (a)

  $ 56       $ 2       $       $       $       $ 58       $       $ 58   

TDRs collectively evaluated for impairment

    5         2         206         58         28         299         1         300   

Other loans collectively evaluated for impairment

    1,412         733         338         826         615         3,924                 3,924   

Loans acquired with deteriorated credit quality

            11                                 11         36         47   

Total allowance for credit losses

  $ 1,473       $ 748       $ 544       $ 884       $ 643       $ 4,292       $ 37       $ 4,329   

Allowance Balance at December 31, 2015 Related to

                      

Loans individually evaluated for impairment (a)

  $ 11       $ 2       $       $       $       $ 13       $       $ 13   

TDRs collectively evaluated for impairment

    10         7         236         57         33         343         2         345   

Other loans collectively evaluated for impairment

    1,266         703         395         826         710         3,900                 3,900   

Loans acquired with deteriorated credit quality

            12                                 12         36         48   

Total allowance for credit losses

  $ 1,287       $ 724       $ 631       $ 883       $ 743       $ 4,268       $ 38       $ 4,306   

 

(a) Represents the allowance for credit losses related to loans greater than $5 million classified as nonperforming or TDRs.

Additional detail of loan balances by portfolio class was as follows:

 

(Dollars in Millions)   Commercial      Commercial
Real Estate
     Residential
Mortgages
     Credit
Card
     Other
Retail
     Total Loans,
Excluding
Covered Loans
     Covered
Loans (b)
     Total
Loans
 

June 30, 2016

                      

Loans individually evaluated for impairment (a)

  $ 639       $ 29       $       $       $       $ 668       $       $ 668   

TDRs collectively evaluated for impairment

    153         189         3,766         211         193         4,512         35         4,547   

Other loans collectively evaluated for impairment

    91,715         42,803         52,137         20,360         51,815         258,830         1,811         260,641   

Loans acquired with deteriorated credit quality

    7         269         1                         277         2,388         2,665   

Total loans

  $ 92,514       $ 43,290       $ 55,904       $ 20,571       $ 52,008       $ 264,287       $ 4,234       $ 268,521   

December 31, 2015

                      

Loans individually evaluated for impairment (a)

  $ 336       $ 41       $ 13       $       $       $ 390       $       $ 390   

TDRs collectively evaluated for impairment

    138         235         4,241         210         211         5,035         35         5,070   

Other loans collectively evaluated for impairment

    87,927         41,566         49,241         20,802         50,995         250,531         2,059         252,590   

Loans acquired with deteriorated credit quality

    1         295         1                         297         2,502         2,799   

Total loans

  $ 88,402       $ 42,137       $ 53,496       $ 21,012       $ 51,206       $ 256,253       $ 4,596       $ 260,849   

 

(a) Represents loans greater than $5 million classified as nonperforming or TDRs.
(b) Includes expected reimbursements from the FDIC under loss sharing agreements.

Credit Quality The credit quality of the Company’s loan portfolios is assessed as a function of net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by the Company.

For all loan classes, loans are considered past due based on the number of days delinquent except for monthly amortizing loans which are classified delinquent based upon the number of contractually required payments not made (for example, two missed payments is considered 30 days delinquent). When a loan is placed on nonaccrual status, unpaid accrued interest is reversed, reducing interest income in the current period.

Commercial lending segment loans are generally placed on nonaccrual status when the collection of principal and interest has become 90 days past due or is otherwise considered doubtful. Commercial lending segment loans are generally fully or partially charged down to the fair value of the collateral securing the loan, less costs to sell, when the loan is placed on nonaccrual.

Consumer lending segment loans are generally charged-off at a specific number of days or payments past due. Residential mortgages and other retail loans secured by 1-4 family properties are generally charged down to the fair value of the collateral securing the loan, less costs to sell, at 180 days past due, and placed on nonaccrual status in instances where a partial charge-off occurs unless the loan is well secured and in the process of collection. Loans and lines in a junior lien position secured by 1-4 family properties are placed on nonaccrual status at 120 days past due or when behind a first lien that has become 180 days or greater past due or placed on nonaccrual status. Any secured consumer lending segment loan whose borrower has had debt discharged through bankruptcy, for which the loan amount exceeds the fair value of the collateral, is charged down to the fair value of the related collateral and the remaining balance is placed on nonaccrual status. Credit card loans continue to accrue interest until the account is charged off. Credit cards are charged off at 180 days past due. Other retail loans not secured by 1-4 family properties are charged-off at 120 days past due; and revolving consumer lines are charged off at 180 days past due. Similar to credit cards, other retail loans are generally not placed on nonaccrual status because of the relative short period of time to charge-off. Certain retail customers having financial difficulties may have the terms of their credit card and other loan agreements modified to require only principal payments and, as such, are reported as nonaccrual.

For all loan classes, interest payments received on nonaccrual loans are generally recorded as a reduction to a loan’s carrying amount while a loan is on nonaccrual and are recognized as interest income upon payoff of the loan. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible. In certain circumstances, loans in any class may be restored to accrual status, such as when a loan has demonstrated sustained repayment performance or no amounts are past due and prospects for future payment are no longer in doubt; or when the loan becomes well secured and is in the process of collection. Loans where there has been a partial charge-off may be returned to accrual status if all principal and interest (including amounts previously charged-off) is expected to be collected and the loan is current.

Covered loans not considered to be purchased impaired are evaluated for delinquency, nonaccrual status and charge-off consistent with the class of loan they would be included in had the loss share coverage not been in place. Generally, purchased impaired loans are considered accruing loans. However, the timing and amount of future cash flows for some loans is not reasonably estimable, and those loans are classified as nonaccrual loans with interest income not recognized until the timing and amount of the future cash flows can be reasonably estimated.

The following table provides a summary of loans by portfolio class, including the delinquency status of those that continue to accrue interest, and those that are nonperforming:

 

    Accruing                
(Dollars in Millions)   Current      30-89 Days
Past Due
     90 Days or
More Past Due
     Nonperforming      Total  

June 30, 2016

             

Commercial

  $ 91,775       $ 203       $ 47       $ 489       $ 92,514   

Commercial real estate

    43,125         49         13         103         43,290   

Residential mortgages (a)

    54,968         159         149         628         55,904   

Credit card

    20,129         236         201         5         20,571   

Other retail

    51,570         213         68         157         52,008   

Total loans, excluding covered loans

    261,567         860         478         1,382         264,287   

Covered loans

    3,927         54         246         7         4,234   

Total loans

  $ 265,494       $ 914       $ 724       $ 1,389       $ 268,521   

December 31, 2015

             

Commercial

  $ 87,863       $ 317       $ 48       $ 174       $ 88,402   

Commercial real estate

    41,907         89         14         127         42,137   

Residential mortgages (a)

    52,438         170         176         712         53,496   

Credit card

    20,532         243         228         9         21,012   

Other retail

    50,745         224         75         162         51,206   

Total loans, excluding covered loans

    253,485         1,043         541         1,184         256,253   

Covered loans

    4,236         62         290         8         4,596   

Total loans

  $ 257,721       $ 1,105       $ 831       $ 1,192       $ 260,849   

 

(a) At June 30, 2016, $295 million of loans 30–89 days past due and $2.5 billion of loans 90 days or more past due purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs, were classified as current, compared with $320 million and $2.9 billion at December 31, 2015, respectively.

At June 30, 2016, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $250 million ($216 million excluding covered assets), compared with $282 million ($250 million excluding covered assets) at December 31, 2015. This excludes $447 million and $535 million at June 30, 2016 and December 31, 2015, respectively, of foreclosed residential real estate related to mortgage loans whose payments are primarily insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. In addition, the amount of residential mortgage loans secured by residential real estate in the process of foreclosure at June 30, 2016 and December 31, 2015, was $2.2 billion and $2.6 billion, respectively, of which $1.7 billion and $1.9 billion, respectively, related to loans purchased from Government National Mortgage Association (“GNMA”) mortgage pools whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs.

The Company classifies its loan portfolios using internal credit quality ratings on a quarterly basis. These ratings include: pass, special mention and classified, and are an important part of the Company’s overall credit risk management process and evaluation of the allowance for credit losses. Loans with a pass rating represent those not classified on the Company’s rating scale for problem credits, as minimal credit risk has been identified. Special mention loans are those that have a potential weakness deserving management’s close attention. Classified loans are those where a well-defined weakness has been identified that may put full collection of contractual cash flows at risk. It is possible that others, given the same information, may reach different reasonable conclusions regarding the credit quality rating classification of specific loans.

 

The following table provides a summary of loans by portfolio class and the Company’s internal credit quality rating:

 

           Criticized         
(Dollars in Millions)   Pass      Special
Mention
     Classified (a)      Total
Criticized
     Total  

June 30, 2016

             

Commercial (b)

  $ 88,383       $ 1,766       $ 2,365       $ 4,131       $ 92,514   

Commercial real estate

    42,121         452         717         1,169         43,290   

Residential mortgages (c)

    55,063         4         837         841         55,904   

Credit card

    20,365                 206         206         20,571   

Other retail

    51,741         4         263         267         52,008   

Total loans, excluding covered loans

    257,673         2,226         4,388         6,614         264,287   

Covered loans

    4,155                 79         79         4,234   

Total loans

  $ 261,828       $ 2,226       $ 4,467       $ 6,693       $ 268,521   

Total outstanding commitments

  $ 552,444       $ 5,227       $ 5,970       $ 11,197       $ 563,641   

December 31, 2015

             

Commercial (b)

  $ 85,206       $ 1,629       $ 1,567       $ 3,196       $ 88,402   

Commercial real estate

    41,079         365         693         1,058         42,137   

Residential mortgages (c)

    52,548         2         946         948         53,496   

Credit card

    20,775                 237         237         21,012   

Other retail

    50,899         6         301         307         51,206   

Total loans, excluding covered loans

    250,507         2,002         3,744         5,746         256,253   

Covered loans

    4,507                 89         89         4,596   

Total loans

  $ 255,014       $ 2,002       $ 3,833       $ 5,835       $ 260,849   

Total outstanding commitments

  $ 539,614       $ 3,945       $ 4,845       $ 8,790       $ 548,404   

 

(a) Classified rating on consumer loans primarily based on delinquency status.
(b) At June 30, 2016, $1.5 billion of energy loans ($3.7 billion of total outstanding commitments) had a special mention or classified rating, compared with $1.1 billion of energy loans ($1.9 billion of total outstanding commitments) at December 31, 2015.
(c) At June 30, 2016, $2.5 billion of GNMA loans 90 days or more past due and $1.6 billion of restructured GNMA loans whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs were classified with a pass rating, compared with $2.9 billion and $1.9 billion at December 31, 2015, respectively.

For all loan classes, a loan is considered to be impaired when, based on current events or information, it is probable the Company will be unable to collect all amounts due per the contractual terms of the loan agreement. Impaired loans include all nonaccrual and TDR loans. For all loan classes, interest income on TDR loans is recognized under the modified terms and conditions if the borrower has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles. Interest income is generally not recognized on other impaired loans until the loan is paid off. However, interest income may be recognized for interest payments if the remaining carrying amount of the loan is believed to be collectible.

Factors used by the Company in determining whether all principal and interest payments due on commercial and commercial real estate loans will be collected and, therefore, whether those loans are impaired include, but are not limited to, the financial condition of the borrower, collateral and/or guarantees on the loan, and the borrower’s estimated future ability to pay based on industry, geographic location and certain financial ratios. The evaluation of impairment on residential mortgages, credit card loans and other retail loans is primarily driven by delinquency status of individual loans or whether a loan has been modified, and considers any government guarantee where applicable. Individual covered loans, whose future losses are covered by loss sharing agreements with the FDIC that substantially reduce the risk of credit losses to the Company, are evaluated for impairment and accounted for in a manner consistent with the class of loan they would have been included in had the loss sharing coverage not been in place.

 

A summary of impaired loans, which include all nonaccrual and TDR loans, by portfolio class was as follows:

 

(Dollars in Millions)   Period-end
Recorded
Investment (a)
     Unpaid
Principal
Balance
     Valuation
Allowance
     Commitments
to Lend
Additional
Funds
 

June 30, 2016

          

Commercial

  $ 865       $ 1,416       $ 63       $ 604   

Commercial real estate

    288         745         4         1   

Residential mortgages

    2,400         3,005         173           

Credit card

    211         211         58           

Other retail

    294         472         30         4   

Total loans, excluding GNMA and covered loans

    4,058         5,849         328         609   

Loans purchased from GNMA mortgage pools

    1,572         1,572         34           

Covered loans

    37         41         1         1   

Total

  $ 5,667       $ 7,462       $ 363       $ 610   

December 31, 2015

          

Commercial

  $ 520       $ 1,110       $ 25       $ 154   

Commercial real estate

    336         847         11         1   

Residential mortgages

    2,575         3,248         199           

Credit card

    210         210         57           

Other retail

    309         503         35         4   

Total loans, excluding GNMA and covered loans

    3,950         5,918         327         159   

Loans purchased from GNMA mortgage pools

    1,913         1,913         40           

Covered loans

    39         48         2         1   

Total

  $ 5,902       $ 7,879       $ 369       $ 160   

 

(a) Substantially all loans classified as impaired at June 30, 2016 and December 31, 2015, had an associated allowance for credit losses.

Additional information on impaired loans follows:

 

    2016            2015  
(Dollars in Millions)   Average
Recorded
Investment
     Interest
Income
Recognized
           Average
Recorded
Investment
     Interest
Income
Recognized
 

Three Months Ended June 30

             

Commercial

  $ 842       $ 3            $ 335       $ 4   

Commercial real estate

    302         3              445         7   

Residential mortgages

    2,452         31              2,688         33   

Credit card

    212         1              222         1   

Other retail

    297         3              342         3   

Total loans, excluding GNMA and covered loans

    4,105         41              4,032         48   

Loans purchased from GNMA mortgage pools

    1,696         23              2,119         25   

Covered loans

    38         1              42           

Total

  $ 5,839       $ 65            $ 6,193       $ 73   

Six Months Ended June 30

             

Commercial

  $ 756       $ 4            $ 323       $ 6   

Commercial real estate

    314         6              497         10   

Residential mortgages

    2,496         63              2,696         66   

Credit card

    211         2              228         3   

Other retail

    301         6              348         7   

Total loans, excluding GNMA and covered loans

    4,078         81              4,092         92   

Loans purchased from GNMA mortgage pools

    1,782         48              2,160         50   

Covered loans

    38         1              42           

Total

  $ 5,898       $ 130            $ 6,294       $ 142   

Troubled Debt Restructurings In certain circumstances, the Company may modify the terms of a loan to maximize the collection of amounts due when a borrower is experiencing financial difficulties or is expected to experience difficulties in the near-term. Concessionary modifications are classified as TDRs unless the modification results in only an insignificant delay in payments to be received. The Company recognizes interest on TDRs if the borrower complies with the revised terms and conditions as agreed upon with the Company and has demonstrated repayment performance at a level commensurate with the modified terms over several payment cycles, which is generally six months or greater. To the extent a previous restructuring was insignificant, the Company considers the cumulative effect of past restructurings related to the receivable when determining whether a current restructuring is a TDR. Loans classified as TDRs are considered impaired loans for reporting and measurement purposes.

 

The following table provides a summary of loans modified as TDRs during the periods presented by portfolio class:

 

    2016             2015  
(Dollars in Millions)   Number
of Loans
    Pre-Modification
Outstanding
Loan Balance
    Post-Modification
Outstanding
Loan Balance
            Number
of Loans
    Pre-Modification
Outstanding
Loan Balance
    Post-Modification
Outstanding
Loan Balance
 

Three Months Ended June 30

                

Commercial

    495      $ 332      $ 237             430      $ 93      $ 98   

Commercial real estate

    20        10        10             29        27        26   

Residential mortgages

    214        16        17             1,065        135        134   

Credit card

    6,654        33        32             6,352        32        32   

Other retail

    467        7        8                 662        12        12   

Total loans, excluding GNMA and covered loans

    7,850        398        304             8,538        299        302   

Loans purchased from GNMA mortgage pools

    1,501        140        142             1,950        242        241   

Covered loans

    17        3        3                 8        3        3   

Total loans

    9,368      $ 541      $ 449                 10,496      $ 544      $ 546   

Six Months Ended June 30

                

Commercial

    1,096      $ 492      $ 398             789      $ 116      $ 121   

Commercial real estate

    44        17        17             54        40        39   

Residential mortgages

    492        48        49             1,439        186        185   

Credit card

    14,642        71        71             12,689        65        65   

Other retail

    1,076        18        19                 1,284        23        23   

Total loans, excluding GNMA and covered loans

    17,350        646        554             16,255        430        433   

Loans purchased from GNMA mortgage pools

    4,369        453        453             3,974        488        486   

Covered loans

    20        3        3                 9        3        3   

Total loans

    21,739      $ 1,102      $ 1,010                 20,238      $ 921      $ 922   

Residential mortgages, home equity and second mortgages, and loans purchased from GNMA mortgage pools in the table above include trial period arrangements offered to customers during the periods presented. The post-modification balances for these loans reflect the current outstanding balance until a permanent modification is made. In addition, the post-modification balances typically include capitalization of unpaid accrued interest and/or fees under the various modification programs. For those loans modified as TDRs during the second quarter of 2016, at June 30, 2016, 197 residential mortgages, 13 home equity and second mortgage loans and 381 loans purchased from GNMA mortgage pools with outstanding balances of $21 million, $1 million and $54 million, respectively, were in a trial period and have estimated post-modification balances of $29 million, $1 million and $56 million, respectively, assuming permanent modification occurs at the end of the trial period.

The Company has implemented certain restructuring programs that may result in TDRs. However, many of the Company’s TDRs are also determined on a case-by-case basis in connection with ongoing loan collection processes.

For the commercial lending segment, modifications generally result in the Company working with borrowers on a case-by-case basis. Commercial and commercial real estate modifications generally include extensions of the maturity date and may be accompanied by an increase or decrease to the interest rate, which may not be deemed a market rate of interest. In addition, the Company may work with the borrower in identifying other changes that mitigate loss to the Company, which may include additional collateral or guarantees to support the loan. To a lesser extent, the Company may waive contractual principal. The Company classifies all of the above concessions as TDRs to the extent the Company determines that the borrower is experiencing financial difficulty.

Modifications for the consumer lending segment are generally part of programs the Company has initiated. The Company participates in the U.S. Department of Treasury Home Affordable Modification Program (“HAMP”). HAMP gives qualifying homeowners an opportunity to permanently modify residential mortgage loans and achieve more affordable monthly payments, with the U.S. Department of Treasury compensating the Company for a portion of the reduction in monthly amounts due from borrowers participating in this program. The Company also modifies residential mortgage loans under Federal Housing Administration, Department of Veterans Affairs, or its own internal programs. Under these programs, the Company provides concessions to qualifying borrowers experiencing financial difficulties. The concessions may include adjustments to interest rates, conversion of adjustable rates to fixed rates, extension of maturity dates or deferrals of payments, capitalization of accrued interest and/or outstanding advances, or in limited situations, partial forgiveness of loan principal. In most instances, participation in residential mortgage loan restructuring programs requires the customer to complete a short-term trial period. A permanent loan modification is contingent on the customer successfully completing the trial period arrangement and the loan documents are not modified until that time. The Company reports loans in a trial period arrangement as TDRs and continues to report them as TDRs after the trial period.

Credit card and other retail loan TDRs are generally part of distinct restructuring programs providing customers experiencing financial difficulty with modifications whereby balances may be amortized up to 60 months, and generally include waiver of fees and reduced interest rates.

In addition, the Company considers secured loans to consumer borrowers that have debt discharged through bankruptcy where the borrower has not reaffirmed the debt to be TDRs.

Modifications to loans in the covered segment are similar in nature to that described above for non-covered loans, and the evaluation and determination of TDR status is similar, except that acquired loans restructured after acquisition are not considered TDRs for accounting and disclosure purposes if the loans evidenced credit deterioration as of the acquisition date and are accounted for in pools. Losses associated with the modification on covered loans, including the economic impact of interest rate reductions, are generally eligible for reimbursement under loss sharing agreements with the FDIC.

The following table provides a summary of TDR loans that defaulted (fully or partially charged-off or became 90 days or more past due) during the periods presented that were modified as TDRs within 12 months previous to default:

 

    2016              2015  
(Dollars in Millions)   Number
of Loans
     Amount
Defaulted
             Number
of Loans
     Amount
Defaulted
 

Three Months Ended June 30

               

Commercial

    141       $ 9              149       $ 17   

Commercial real estate

    5         1              3         1   

Residential mortgages

    27         4              80         12   

Credit card

    1,632         7              1,443         7   

Other retail

    88         3                  237         4   

Total loans, excluding GNMA and covered loans

    1,893         24              1,912         41   

Loans purchased from GNMA mortgage pools

    28         4              170         22   

Covered loans

    1                                    

Total loans

    1,922       $ 28                  2,082       $ 63   

Six Months Ended June 30

               

Commercial

    253       $ 11              313       $ 19   

Commercial real estate

    15         6              8         3   

Residential mortgages

    58         9              186         25   

Credit card

    3,205         14              3,021         15   

Other retail

    166         4                  368         7   

Total loans, excluding GNMA and covered loans

    3,697         44              3,896         69   

Loans purchased from GNMA mortgage pools

    54         7              368         48   

Covered loans

    1                                    

Total loans

    3,752       $ 51                  4,264       $ 117   

In addition to the defaults in the table above, the Company had a total of 295 and 906 residential mortgage loans, home equity and second mortgage loans and loans purchased from GNMA mortgage pools for the three months and six months ended June 30, 2016, respectively, where borrowers did not successfully complete the trial period arrangement and, therefore, are no longer eligible for a permanent modification under the applicable modification program. These loans had aggregate outstanding balances of $42 million and $130 million for the three months and six months ended June 30, 2016, respectively.

Covered Assets Covered assets represent loans and other assets acquired from the FDIC, subject to loss sharing agreements, and include expected reimbursements from the FDIC. The carrying amount of the covered assets consisted of purchased impaired loans, purchased nonimpaired loans and other assets as shown in the following table:

 

    June 30, 2016              December 31, 2015  
(Dollars in Millions)   Purchased
Impaired
Loans
     Purchased
Nonimpaired
Loans
     Other      Total              Purchased
Impaired
Loans
     Purchased
Nonimpaired
Loans
     Other      Total  

Residential mortgage loans

  $ 2,388       $ 560       $       $ 2,948            $ 2,502       $ 615       $       $ 3,117   

Other retail loans

            366                 366                      447                 447   

Losses reimbursable by the FDIC (a)

                    388         388                              517         517   

Unamortized changes in FDIC asset (b)

                    532         532                                  515         515   

Covered loans

    2,388         926         920         4,234              2,502         1,062         1,032         4,596   

Foreclosed real estate

                    34         34                                  32         32   

Total covered assets

  $ 2,388       $ 926       $ 954       $ 4,268                $ 2,502       $ 1,062       $ 1,064       $ 4,628   

 

(a) Relates to loss sharing agreements with remaining terms up to three years.
(b) Represents decreases in expected reimbursements by the FDIC as a result of decreases in expected losses on the covered loans. These amounts are amortized as a reduction in interest income on covered loans over the shorter of the expected life of the respective covered loans or the remaining contractual term of the indemnification agreements.

 

Interest income is recognized on purchased impaired loans through accretion of the difference between the carrying amount of those loans and their expected cash flows. The initial determination of the fair value of the purchased loans includes the impact of expected credit losses and, therefore, no allowance for credit losses is recorded at the purchase date. To the extent credit deterioration occurs after the date of acquisition, the Company records an allowance for credit losses.