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Loans and Allowance for Credit Losses
6 Months Ended
Jun. 30, 2017
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, 2017             December 31, 2016  
(Dollars in Millions)   Amount      Percent
of Total
            Amount      Percent
of Total
 

Commercial

              

Commercial

  $ 91,212        32.9        $ 87,928        32.2

Lease financing

    5,624        2.0                5,458        2.0  

Total commercial

    96,836        34.9            93,386        34.2  

Commercial Real Estate

              

Commercial mortgages

    30,198        10.9            31,592        11.6  

Construction and development

    11,710        4.2                11,506        4.2  

Total commercial real estate

    41,908        15.1            43,098        15.8  

Residential Mortgages

              

Residential mortgages

    45,412        16.4            43,632        16.0  

Home equity loans, first liens

    13,384        4.8                13,642        5.0  

Total residential mortgages

    58,796        21.2            57,274        21.0  

Credit Card

    20,861        7.6            21,749        7.9  

Other Retail

              

Retail leasing

    7,569        2.7            6,316        2.3  

Home equity and second mortgages

    16,310        5.9            16,369        6.0  

Revolving credit

    3,209        1.2            3,282        1.2  

Installment

    8,602        3.1            8,087        3.0  

Automobile

    17,695        6.4            17,571        6.4  

Student

    2,060        .7                2,239        .8  

Total other retail

    55,445        20.0                53,864        19.7  

Total loans, excluding covered loans

    273,846        98.8            269,371        98.6  

Covered Loans

    3,437        1.2                3,836        1.4  

Total loans

  $ 277,283        100.0            $ 273,207        100.0

The Company had loans of $85.1 billion at June 30, 2017, and $84.5 billion at December 31, 2016, pledged at the Federal Home Loan Bank, and loans of $65.9 billion at June 30, 2017, and $66.5 billion at December 31, 2016, 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 $813 million at June 30, 2017, and $672 million at December 31, 2016. 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)   2017     2016             2017     2016  

Balance at beginning of period

  $ 637     $ 1,013          $ 698     $ 957  

Accretion

    (89     (103          (179     (195

Disposals

    (28     (33          (51     (54

Reclassifications from nonaccretable difference (a)

    30       14            83       183  

Other

    (4                    (5      

Balance at end of period

  $ 546     $ 891              $ 546     $ 891  

 

(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 earnings and reduced by net charge-offs. Management evaluates the adequacy of the allowance for incurred losses on a quarterly basis.

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. 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 and other relevant business practices; results of internal review; 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
 

2017

               

Balance at beginning of period

  $ 1,429     $ 842     $ 485     $ 955     $ 622     $ 4,333     $ 33     $ 4,366  

Add

               

Provision for credit losses

    44       5       (22     239       85       351       (1     350  

Deduct

               

Loans charged-off

    104       2       16       227       88       437             437  

Less recoveries of loans charged-off

    (26     (11     (8     (23     (29     (97           (97

Net loans charged-off

    78       (9     8       204       59       340             340  

Other changes (a)

                                        1       1  

Balance at end of period

  $ 1,395     $ 856     $ 455     $ 990     $ 648     $ 4,344     $ 33     $ 4,377  

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  

 

(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
 

2017

               

Balance at beginning of period

  $ 1,450     $ 812     $ 510     $ 934     $ 617     $ 4,323     $ 34     $ 4,357  

Add

               

Provision for credit losses

    98       33       (35     450       150       696       (1     695  

Deduct

               

Loans charged-off

    200       5       33       439       177       854             854  

Less recoveries of loans charged-off

    (47     (16     (13     (45     (58     (179           (179

Net loans charged-off

    153       (11     20       394       119       675             675  

Other changes (a)

                                               

Balance at end of period

  $ 1,395     $ 856     $ 455     $ 990     $ 648     $ 4,344     $ 33     $ 4,377  

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  

 

(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, 2017 Related to

                      

Loans individually evaluated for impairment (a)

  $ 33      $ 3      $      $      $      $ 36      $      $ 36  

TDRs collectively evaluated for impairment

    14        4        151        64        20        253        1        254  

Other loans collectively evaluated for impairment

    1,348        844        304        926        628        4,050               4,050  

Loans acquired with deteriorated credit quality

           5                             5        32        37  

Total allowance for credit losses

  $ 1,395      $ 856      $ 455      $ 990      $ 648      $ 4,344      $ 33      $ 4,377  

Allowance Balance at December 31, 2016 Related to

                      

Loans individually evaluated for impairment (a)

  $ 50      $ 4      $      $      $      $ 54      $      $ 54  

TDRs collectively evaluated for impairment

    12        4        180        65        20        281        1        282  

Other loans collectively evaluated for impairment

    1,388        798        330        869        597        3,982               3,982  

Loans acquired with deteriorated credit quality

           6                             6        33        39  

Total allowance for credit losses

  $ 1,450      $ 812      $ 510      $ 934      $ 617      $ 4,323      $ 34      $ 4,357  

 

(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, 2017

                      

Loans individually evaluated for impairment (a)

  $ 421      $ 62      $      $      $      $ 483      $      $ 483  

TDRs collectively evaluated for impairment

    166        146        3,780        230        168        4,490        33        4,523  

Other loans collectively evaluated for impairment

    96,249        41,622        55,016        20,631        55,276        268,794        1,290        270,084  

Loans acquired with deteriorated credit quality

           78                      1        79        2,114        2,193  

Total loans

  $ 96,836      $ 41,908      $ 58,796      $ 20,861      $ 55,445      $ 273,846      $ 3,437      $ 277,283  

December 31, 2016

                      

Loans individually evaluated for impairment (a)

  $ 623      $ 70      $      $      $      $ 693      $      $ 693  

TDRs collectively evaluated for impairment

    145        146        3,678        222        173        4,364        35        4,399  

Other loans collectively evaluated for impairment

    92,611        42,751        53,595        21,527        53,691        264,175        1,553        265,728  

Loans acquired with deteriorated credit quality

    7        131        1                      139        2,248        2,387  

Total loans

  $ 93,386      $ 43,098      $ 57,274      $ 21,749      $ 53,864      $ 269,371      $ 3,836      $ 273,207  

 

(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. Residential mortgage loans and lines in a first lien position are placed on nonaccrual status in instances where a partial charge-off occurs unless the loan is well secured and in the process of collection. Residential mortgage 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 they are 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, 2017

             

Commercial

  $ 96,205      $ 258      $ 51      $ 322      $ 96,836  

Commercial real estate

    41,753        34        2        119        41,908  

Residential mortgages (a)

    58,022        126        118        530        58,796  

Credit card

    20,377        254        229        1        20,861  

Other retail

    54,935        275        77        158        55,445  

Total loans, excluding covered loans

    271,292        947        477        1,130        273,846  

Covered loans

    3,214        49        162        12        3,437  

Total loans

  $ 274,506      $ 996      $ 639      $ 1,142      $ 277,283  

December 31, 2016

             

Commercial

  $ 92,588      $ 263      $ 52      $ 483      $ 93,386  

Commercial real estate

    42,922        44        8        124        43,098  

Residential mortgages (a)

    56,372        151        156        595        57,274  

Credit card

    21,209        284        253        3        21,749  

Other retail

    53,340        284        83        157        53,864  

Total loans, excluding covered loans

    266,431        1,026        552        1,362        269,371  

Covered loans

    3,563        55        212        6        3,836  

Total loans

  $ 269,994      $ 1,081      $ 764      $ 1,368      $ 273,207  

 

(a) At June 30, 2017, $240 million of loans 30–89 days past due and $2.1 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 United States Department of Veterans Affairs, were classified as current, compared with $273 million and $2.5 billion at December 31, 2016, respectively.

At June 30, 2017, the amount of foreclosed residential real estate held by the Company, and included in other real estate owned (“OREO”), was $174 million ($149 million excluding covered assets), compared with $201 million ($175 million excluding covered assets) at December 31, 2016. These amounts exclude $338 million and $373 million at June 30, 2017 and December 31, 2016, respectively, of foreclosed residential real estate related to mortgage loans whose payments are primarily insured by the Federal Housing Administration or guaranteed by the United States 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, 2017 and December 31, 2016, was $1.9 billion and $2.1 billion, respectively, of which $1.5 billion and $1.6 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 United States 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 loans 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, 2017

             

Commercial (b)

  $ 93,770      $ 1,455      $ 1,611      $ 3,066      $ 96,836  

Commercial real estate

    40,404        650        854        1,504        41,908  

Residential mortgages (c)

    58,101        3        692        695        58,796  

Credit card

    20,630               231        231        20,861  

Other retail

    55,160        10        275        285        55,445  

Total loans, excluding covered loans

    268,065        2,118        3,663        5,781        273,846  

Covered loans

    3,376               61        61        3,437  

Total loans

  $ 271,441      $ 2,118      $ 3,724      $ 5,842      $ 277,283  

Total outstanding commitments

  $ 569,478      $ 3,588      $ 5,044      $ 8,632      $ 578,110  

December 31, 2016

             

Commercial (b)

  $ 89,739      $ 1,721      $ 1,926      $ 3,647      $ 93,386  

Commercial real estate

    41,634        663        801        1,464        43,098  

Residential mortgages (c)

    56,457        10        807        817        57,274  

Credit card

    21,493               256        256        21,749  

Other retail

    53,576        6        282        288        53,864  

Total loans, excluding covered loans

    262,899        2,400        4,072        6,472        269,371  

Covered loans

    3,766               70        70        3,836  

Total loans

  $ 266,665      $ 2,400      $ 4,142      $ 6,542      $ 273,207  

Total outstanding commitments

  $ 562,704      $ 4,920      $ 5,629      $ 10,549      $ 573,253  

 

(a) Classified rating on consumer loans primarily based on delinquency status.
(b) At June 30, 2017, $784 million of energy loans ($1.7 billion of total outstanding commitments) had a special mention or classified rating, compared with $1.2 billion of energy loans ($2.8 billion of total outstanding commitments) at December 31, 2016.
(c) At June 30, 2017, $2.1 billion of GNMA loans 90 days or more past due and $1.8 billion of restructured GNMA loans whose repayments are insured by the Federal Housing Administration or guaranteed by the United States Department of Veterans Affairs were classified with a pass rating, compared with $2.5 billion and $1.6 billion at December 31, 2016, 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, 2017

          

Commercial

  $ 656      $ 1,133      $ 50      $ 250  

Commercial real estate

    281        581        11        1  

Residential mortgages

    2,158        2,587        127        1  

Credit card

    230        230        64         

Other retail

    278        474        21        3  

Total loans, excluding GNMA and covered loans

    3,603        5,005        273        255  

Loans purchased from GNMA mortgage pools

    1,774        1,774        25         

Covered loans

    41        46        1         

Total

  $ 5,418      $ 6,825      $ 299      $ 255  

December 31, 2016

          

Commercial

  $ 849      $ 1,364      $ 68      $ 284  

Commercial real estate

    293        697        10         

Residential mortgages

    2,274        2,847        153         

Credit card

    222        222        64         

Other retail

    281        456        22        4  

Total loans, excluding GNMA and covered loans

    3,919        5,586        317        288  

Loans purchased from GNMA mortgage pools

    1,574        1,574        28         

Covered loans

    36        42        1        1  

Total

  $ 5,529      $ 7,202      $ 346      $ 289  

 

(a) Substantially all loans classified as impaired at June 30, 2017 and December 31, 2016, had an associated allowance for credit losses.

Additional information on impaired loans follows:

 

    2017              2016  
(Dollars in Millions)   Average
Recorded
Investment
     Interest
Income
Recognized
             Average
Recorded
Investment
     Interest
Income
Recognized
 

Three Months Ended June 30

               

Commercial

  $ 720      $ 1           $ 842      $ 3  

Commercial real estate

    272        3             302        3  

Residential mortgages

    2,182        28             2,452        31  

Credit card

    229        1             212        1  

Other retail

    279        3                 297        3  

Total loans, excluding GNMA and covered loans

    3,682        36             4,105        41  

Loans purchased from GNMA mortgage pools

    1,746        19             1,696        23  

Covered loans

    38                        38        1  

Total

  $ 5,466      $ 55               $ 5,839      $ 65  
 

Six Months Ended June 30

               

Commercial

  $ 769      $ 2           $ 756      $ 4  

Commercial real estate

    275        5             314        6  

Residential mortgages

    2,211        57             2,496        63  

Credit card

    227        2             211        2  

Other retail

    279        7                 301        6  

Total loans, excluding GNMA and covered loans

    3,761        73             4,078        81  

Loans purchased from GNMA mortgage pools

    1,696        37             1,782        48  

Covered loans

    37                        38        1  

Total

  $ 5,494      $ 110               $ 5,898      $ 130  

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:

 

    2017              2016  
(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

    671      $ 62      $ 40             495      $ 332      $ 237  

Commercial real estate

    41        29        31             20        10        10  

Residential mortgages

    144        17        16             214        16        17  

Credit card

    8,146        40        40             6,654        33        32  

Other retail

    639        15        14                 467        7        8  

Total loans, excluding GNMA and covered loans

    9,641        163        141             7,850        398        304  

Loans purchased from GNMA mortgage pools

    1,043        141        137             1,501        140        142  

Covered loans

    3        1        1                 17        3        3  

Total loans

    10,687      $ 305      $ 279                 9,368      $ 541      $ 449  

Six Months Ended June 30

                     

Commercial

    1,501      $ 199      $ 168             1,096      $ 492      $ 398  

Commercial real estate

    64        38        39             44        17        17  

Residential mortgages

    500        57        57             492        48        49  

Credit card

    17,551        85        86             14,642        71        71  

Other retail

    1,261        26        23                 1,076        18        19  

Total loans, excluding GNMA and covered loans

    20,877        405        373             17,350        646        554  

Loans purchased from GNMA mortgage pools

    3,972        528        515             4,369        453        453  

Covered loans

    7        2        2                 20        3        3  

Total loans

    24,856      $ 935      $ 890                 21,739      $ 1,102      $ 1,010  

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 2017, at June 30, 2017, 79 residential mortgages, 37 home equity and second mortgage loans and 1,000 loans purchased from GNMA mortgage pools with outstanding balances of $12 million, $4 million and $136 million, respectively, were in a trial period and have estimated post-modification balances of $12 million, $4 million and $132 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 modifies residential mortgage loans under Federal Housing Administration, United States Department of Veterans Affairs, or its own internal programs. Under these programs, the Company offers qualifying homeowners the opportunity to permanently modify their loan and achieve more affordable monthly payments by providing loan concessions. These 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:

 

    2017              2016  
(Dollars in Millions)   Number
of Loans
     Amount
Defaulted
             Number
of Loans
     Amount
Defaulted
 

Three Months Ended June 30

               

Commercial

    182      $ 16             141      $ 9  

Commercial real estate

    10        1             5        1  

Residential mortgages

    95        10             27        4  

Credit card

    1,984        8             1,632        7  

Other retail

    102        1                 88        3  

Total loans, excluding GNMA and covered loans

    2,373        36             1,893        24  

Loans purchased from GNMA mortgage pools

    139        19             28        4  

Covered loans

    1                        1         

Total loans

    2,513      $ 55                 1,922      $ 28  
 

Six Months Ended June 30

               

Commercial

    355      $ 24             253      $ 11  

Commercial real estate

    18        3             15        6  

Residential mortgages

    167        19             58        9  

Credit card

    4,031        17             3,205        14  

Other retail

    231        3                 166        4  

Total loans, excluding GNMA and covered loans

    4,802        66             3,697        44  

Loans purchased from GNMA mortgage pools

    357        49             54        7  

Covered loans

    1                        1         

Total loans

    5,160      $ 115                 3,752      $ 51  

In addition to the defaults in the table above, the Company had a total of 450 and 876 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, 2017, 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 $55 million and $106 million for three months and six months ended June 30, 2017, 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, 2017              December 31, 2016  
(Dollars in Millions)   Purchased
Impaired
Loans
     Purchased
Nonimpaired
Loans
     Other      Total              Purchased
Impaired
Loans
     Purchased
Nonimpaired
Loans
     Other      Total  

Residential mortgage loans

  $ 2,114      $ 446      $      $ 2,560           $ 2,248      $ 506      $      $ 2,754  

Other retail loans

           203               203                    278               278  

Losses reimbursable by the FDIC (a)

                  326        326                           381        381  

Unamortized changes in FDIC asset (b)

                  348        348                               423        423  

Covered loans

    2,114        649        674        3,437             2,248        784        804        3,836  

Foreclosed real estate

                  25        25                               26        26  

Total covered assets

  $ 2,114      $ 649      $ 699      $ 3,462               $ 2,248      $ 784      $ 830      $ 3,862  

 

(a) Relates to loss sharing agreements with remaining terms up to two 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.